Two Bold Predictions for 2018

The Weekend Edition is pulled from the daily Stansberry Digest. The Digest comes free with a subscription to any of our premium products.
 
 It has never happened before…
 
The benchmark S&P 500 Index closed 2017 at 2,673.61. This was good for a gain of roughly 1% in December. But it also marked an unprecedented feat…
 
You see, 2017 was the first year in history where U.S. stocks ended every single month in the green. Only three other years – 1958, 1995, and 2006, which each had 11 positive months – have even come close.
 
All told, the S&P 500 rallied 19.4% for the full year. Including dividends, U.S. stocks returned nearly 22% in 2017, among the best annual gains in history.
 
 In short, our colleague Steve Sjuggerud was right again…
 
DailyWealth readers know Steve has been one of the most outspoken bulls over the past nine years. He was among the first analysts anywhere to turn bullish on U.S. stocks back in 2009. And he has reaffirmed his bullish stance again and again as stocks have soared to new highs.
 
Around this time last year, many folks were worried that the end of the bull market was near. But Steve disagreed… He told readers 2017 was likely to be another great year for stocks. As he explained in the January 9, 2017 DailyWealth
 
"I remember when the Dow hit 1,000, and then 2,000," a friend in his 70s told me last month at lunch. "Now the Dow's near 20,000. That's scary."
 
This friend is no dummy… He founded a major corporation that traded on the stock market. He had tens of thousands of employees. His net worth hit nine figures.
 
And he's scared. I get that… We're in uncharted territory. But I have a positive message today: Stocks can go much higher this year.

 So what is Steve thinking today? He shared his thoughts on U.S. stocks with his True Wealth Systems subscribers just before the holidays…
 
I've remained bullish on U.S. stocks for years. Folks have found plenty of reasons to sell along the way. But my advice has been to stay long. The trend has consistently been up and investors haven't been excited to own stocks during this boom.
 
That second point is changing, though. Today, we're seeing extreme optimism from the National Association of Active Investment Managers (NAAIM) Exposure Index.

If you're not familiar, this index surveys hedge-fund and mutual-fund managers to see how they feel about the market. A rating of zero means managers own no stocks. And a rating of 100 means managers are fully invested.
 
And they recently became as bullish as they've been in years. More from Steve…
 
[The December 13] reading was the highest since the survey started in 2006… a level of 109. That means investment managers have fully invested and then some – they're buying with leverage. Take a look…
 
The NAAIM Exposure Index hit a record level of 109 [on December 13]. Before that, this index had only broken above 100 five other times.
 As Steve explained, this is a clear sign that investors are getting excited about stocks again… And investment managers, in particular, are making a big bet on stocks.
 
But he also noted that this isn't a reason to sell. In fact, history says the opposite… Buying after each of these other similar extremes would have led to double-digit gains in one year or less.
 
Of course, this is a relatively small sample size… And Steve would never recommend making investment decisions based on any single indicator alone. But alongside the other indicators he's following closely, it's one more sign that the long bull market has further to run…
 
My advice to stay long into 2018 isn't solely because of this extreme. But learning that similar bullish levels haven't killed this bull market is good to know.
 
The truth is that we're in the later innings of a historic bull market. And while extreme optimism seems like a reason to be cautious, history says it's not a reason to sell.
 
The trend is still firmly in place. And until that changes, my advice won't change. Stay long U.S. stocks into 2018.

 That's not the only bold prediction Steve is making for 2018…
 
He also believes this year could bring the first significant rise in long-term interest rates in years. Steve's senior analyst Brett Eversole wrote about this idea earlier this week.
 
As Brett noted, economists have been wrong about long-term interest rates rising for decades. But he explained one major reason why it could actually happen this time.
 
You see, the latest Commitment of Traders ("COT") report shows that speculative traders are more bullish on U.S. Treasury bonds than almost any other time in history. Because bond prices and interest rates trade inversely, these record bets mean these traders are also betting heavily on lower long-term rates.
 
Unfortunately, the last time this happened, it didn't work out so well for them. In mid-2016, traders all expected lower rates. Instead, the 30-year yield rose around 1% in less than six months. That's a major move higher for rates (and lower for Treasury bond prices).
 
Brett noted that we have the same setup today.
 
 A similar move this time would push long-term rates to 4% or higher…
 
As you can see in the following chart, this would create the first uptrend of higher lows and higher highs in decades… and would likely signal an official end to the nearly 40-year bull market in bonds…
 
This obviously wouldn't be great news for owners of long-term government bonds. But it could be a boon for stocks – at least in the near term.
 
You see, while higher interest rates will eventually lead to serious problems for our debt-driven economy, rising long-term rates should initially ease the falling yield curve we've been following.
 
Barring an unexpected market shock, this could delay the next recession even longer.
 
 Our advice remains the same…
 
Stay long stocks… But be sure to protect your capital with good risk-management strategies, like conservative position sizing and trailing-stop losses. And hold some cash and gold, just in case.
 
If you're interested in going even further – in maximizing your potential profits over the final "inning" of this bull market – we urge you to check out a brand-new presentation from our friend and TradeStops founder Dr. Richard Smith.
 
In it, you'll learn how you can make much more money – while taking far less risk – in the same stocks you already own. In fact, Richard says you could have easily quadrupled the returns in Steve's True Wealth recommendations using this easy-to-follow strategy. And he has the data to prove it.
 
Until Monday, you can watch this presentation – and learn how to claim a gift worth up to $1,000 – by clicking here.
 
Regards,
 
Justin Brill
 
Editor's note: It doesn't matter how big your portfolio is… It doesn't matter if you're bullish or bearish right now… Using Dr. Richard Smith's TradeStops system is the only way to squeeze every last dollar out of the "Melt Up" AND sell at the exact right time. Through Monday, Richard is offering up to a $1,000 discount just for signing up. Learn more here.

Source: DailyWealth

Five Reasons to Add This Income Investment to Your Portfolio

 
I've been investing in real estate for a very long time… from the home I live in, to property companies, to physical real estate.
 
But some of my favorite real estate investments are real estate investment trusts (REITs).
 
REITs were created back in 1960 to allow everyday investors to earn income on large real estate portfolios.
 
Today, I'll explain why you should take advantage of them…
 
A REIT is a company that owns a portfolio of income-generating real estate. The types of properties vary hugely – they can be commercial, retail, residential, or industrial, and can even include hotels, hospitals, and forestry.
 
Today, I'm going to focus on REITs that own brick-and-mortar real estate – also known as equity REITs.
 
You should own equity REITs for lots of good reasons. But in particular, they help you do five key things…
 
      1. Earn income.
 
By law, REITs have to pay out nearly all of their taxable income to shareholders in the form of dividends. While the percentage that must be paid out varies, it's usually at least 90%.
 
These REIT dividends are all backed by rents. A REIT owns (and often manages) portfolios of underlying real estate. It collects the rent and pays out nearly all of that income to you.
 
In Asia-Pacific, some REITs pay 5%-7% or more in dividends. This is attractive in a world of persistently low interest rates.
 
      2. Make tax-efficient investments.
 
When you invest in regular stocks, by the time you get that dividend cash into your brokerage account, it has been heavily taxed.
 
Dividend income from regular listed companies is taxed twice. Firstly, it is taxed at the company-earnings (or profits) level.
 
The second level is taxing the dividend itself, which, depending on your circumstances, can be up to 20%.
 
But REITs only get taxed at one level, depending on the REIT jurisdiction. Most of the time, this means that their income is tax exempt, so long as they pay a minimum of 90% of their profits to shareholders. In other markets, the dividends that investors receive are tax exempt, if the REIT has paid tax on its income.
 
Either way, this makes REITs much more efficient for us as investors… We only get taxed once.
 
      3. Be a landlord without the stress.
 
I am a huge advocate for owning investment real estate. But between deadbeat tenants who cause damage or don't pay rent, the costs of renovations and refurbishments, and midnight phone calls about clogged sinks… being a landlord has a lot of downsides.
 
REITs allow you to own a portfolio of rent-generating real estate – without having to deal with any of the aggravations that can accompany being an individual landlord. None of the tenants from your REIT portfolio will be calling you at 4 a.m. on a Sunday morning after a kitchen pipe has burst.
 
      4. Own the best real estate.
 
As individuals, it's unlikely any of us will ever be able to buy a prime downtown office building or a high-end mall in New York or Tokyo.
 
But REITs allow us access to some incredible real estate that we'd otherwise have no chance of ever owning ourselves.
 
For example, if you do some research and come to the conclusion that you like the Singapore office market or the U.S. industrial market, you can take a position in these markets by buying a REIT. Because most REITs focus on one kind of real estate – and sometimes in one city – it gives investors the opportunity to take a position in that market for a small amount of money.
 
      5. Add some predictability to your portfolio.
 
Rental income and property-management costs are relatively predictable over the short to medium term. That means as investors, our income outlook is stable… We don't need to worry too much about earnings, unlike with our normal equities.
 
REITs also exhibit low beta. Beta measures volatility, or how much a particular security moves around in relation to the broader market.
 
For example, a stock with a beta of 1.0 indicates that the price moves in line with the market, up and down. If the beta is more than 1.0, it implies the stock moves more than that market (in both directions). And if the beta is less than 1.0, it means a stock moves with less volatility than the market.
 
REITs generally have a beta of less than 1.0.
 
This means that while REIT prices won't move up as quickly as the market does, when the market corrects, REIT prices should also fall less than the market.
 
If you think of a risk spectrum, with bonds at one end and equities at the other, REITs occupy the middle ground. While a bond gives you a certainty of getting your capital back, it lacks capital growth. REITs allow you the opportunity to enjoy capital growth and dividend growth because real estate's value and rents tend to increase over the longer term.
 
So if you're looking for relatively high, predictable, stable income, backed by real assets, then REITs should be a part of your portfolio.
 
Good investing,
 

Peter Churchouse

 
Editor's note: If you're looking to invest in real estate, REITs should definitely be on your radar. Peter believes real estate could be the No. 1 investment of the next decade… which is why he just put together a new special report that reveals some of his favorite REITs to own today. To find out how you can get access now – and get a copy of Peter's new real estate book, Real Prosperity Through Real Estateclick here.

Source: DailyWealth

How to Buy China – At a Huge Discount

 
I love it when I can find a way to buy a dollar for 80 cents as an investor…
 
When I'm certain the deal is legit, I get fired up. Making money is hard. Free money like that is nice.
 
Discounts like this are hard to find in the stock market, though…
 
That's because the market is pretty darn "efficient." Whenever a too-good-to-be-true opportunity pops up, it soon evaporates as investors take advantage of it. It often happens quicker than you can imagine.
 
But one of these opportunities has just popped up for us…
 
And it just so happens to be a fund that invests in my favorite opportunity for the next five years…
 
This fund is a unique type, called a "closed-end fund."
 
Closed-end funds are interesting to me for one unique reason – they can trade at big discounts (or premiums) to their liquidation values.
 
Typically, closed-end funds trade at a small discount to their liquidation values. Those small discounts are not enough to get me interested.
 
I do get interested when those discounts get big… and when I'm interested in the fund's objective.
 
We have that situation today – with the Morgan Stanley China A Share Fund (CAF).
 
Today, this fund trades at the largest discount to liquidation value of all closed-end funds valued at $200 million or more.
 
More than 300 closed-end funds have market values that high. And right now, this one particular fund is trading at the largest discount of all of them.
 
As I write, the Morgan Stanley China A Share Fund trades at a 16%-plus discount to its liquidation value.
 
I'm a buyer whenever the discount is greater than 15%. And I'm a seller whenever the discount narrows dramatically, like it did over the summer (when index-provider MSCI announced it will include Chinese A-shares in its major indexes).
 
The easiest free way to track (and screen) for closed-end funds trading at a discount is at www.CEFConnect.com. To track this fund, type "CAF" in the box at the top right, and you can see the discount and its history.
 
Chinese A-shares are my top investing idea for the next five years. China is the world's second-largest economy and second-largest stock market… Yet until recently, its locally traded A-shares were completely left out of MSCI's major indexes.
 
Thanks to MSCI's decision last summer and other developments in China, I believe more than $1 trillion will flow into Chinese stocks during the coming years.
 
CAF gives you a way to get in on this idea, at a 16% discount. Check it out…
 
Good investing,
 
Steve
 

Source: DailyWealth

Guilty Beyond a Reasonable Doubt?

 
You buy a stock for the long haul…
 
It's a great business. It trades at a great price. And you know its upside potential is huge.
 
For one reason or another, investors don't see the stock for what it is – a fantastic value.
 
So you take a medium- to large-sized position. And what do you know? The stock starts to rise.
 
You're right… And you're making money.
 
Then, doubt sets in…
 
You turn on the TV and Joe Analyst from Big Bank X rattles off three reasons why your stock is doomed. You turn on your computer and learn that a senior analyst from another big firm just downgraded the stock… and shares drop 5%.
 
"Maybe they're right," you think. "Maybe I should get out now, while I'm still up on the position."
 
That's dangerous thinking. You see, these types of positions are your best shots at supercharging your portfolio…
 
As our colleague Steve Sjuggerud has pointed out…
 
What distinguishes a great track record from an ordinary one? It's typically one thing: a couple of big winners…
 
If your track record includes a lot of ordinary returns and a couple of big winners, then chances are you're doing well with your investments. But if you have a lot of ordinary returns and NO big winners, then chances are you're underperforming the market.
 
You can't underestimate the power of big winners. You can't sell early.
So how do you prevent yourself from selling early – before your stop loss is triggered – when it seems like the reasons to abandon ship are building?
 
Look at the facts… And ask yourself, "Is the company guilty beyond a reasonable doubt?" Has good turned bad? Have the reasons you bought the stock in the first place reversed? Has something dramatically and permanently changed for the worse?
 
If not, you're likely letting emotions get the better of you.
 
Today, we'll look at this idea in practice. We'll review our biggest winner in DailyWealth Trader (DWT) last year…
 
We recommended buying shares of sparking-water and soft-drink producer National Beverage (FIZZ) on February 3. The company was growing rapidly. Its flagship brand LaCroix was flying off supermarket shelves, and its CEO owned a huge 74% stake in the company.
 
We said the stock had at least 50% upside potential… And we passed the 50% mark in less than two months. Not long after, the naysayers started to speak up…
 
On April 21, Credit Suisse downgraded the stock from an "outperform" rating to a "neutral" rating. The financial-services company's analyst stated that National Beverage was overvalued. Shares fell 5.3% that day.
 
On May 4, the Maxim Group issued a "sell" rating on the stock and gave it a $33 price target. It mentioned a lack of transparency and corporate governance issues. Shares fell 8.2% that day.
 
On July 21, Credit Suisse downgraded the stock again to a "sell" rating. It gave the stock an $82 price target. This time, the company's analyst said National Beverage's shares had come too far, too fast. Shares fell 4.3% that day.
 
Each time, it was tempting to think that the trouble had started for National Beverage shares. We were already up a lot in a short period of time… And smart people were saying the stock should fall.
 
But was National Beverage "guilty beyond a reasonable doubt"? Not by a long shot…
 
We checked in on the company in August to see if the naysayers were right. As it turned out, the business was doing well. Over the prior 12 months, sales and profits had jumped about 17% and 75%, respectively. Plus, it had a big 13% profit margin. So we continued holding with our 20% trailing stop.
 
As you can see in the chart below, shares blew past our initial 50% target. We finally stopped out of the position in October – for a 91% gain in eight months…
 
If we had sold National Beverage early, we could have missed the last 41% in gains.
 
The lesson from our biggest winner of 2017 is clear. You can hear the critics out. But don't sell based on opinions. Focus on how the business is performing.
 
If the stock hasn't triggered your stop loss, ask yourself, "Is the company guilty beyond a reasonable doubt?" If it's not, your best bet is to hold on.
 
Let your winners ride… And continue to protect yourself with trailing stops.
 
Good trading,
 
Ben Morris and Drew McConnell
 
Editor's note: Tomorrow night, we'll hear from expert Dr. Richard Smith on how to "unlock" your investments for the biggest potential gains. During this special event, he'll walk you through how to beat the S&P 500 by more than 300%… And he'll explain how his simple system can boost your profits during the final "Melt Up" stages of this bull market. Click here to reserve your free spot.

Source: DailyWealth

Here's Why Long-Term Interest Rates Will Rise in 2018

 
Exciting news…
 
Economists have come out with their predictions for interest rates this year.
 
They're all expecting long-term interest rates to rise. It's the same default setting they've been stuck on for decades. And guess what…
 
It has been wrong… for decades.
 
They say it every year. But since the 1980s, 30-year Treasury bond yields have been on a one-way road lower. Is this the year the economists will finally be right?
 
Actually, yes.
 
The last time we saw a setup like today, the yield on 30-year Treasury bonds rose more than 1% in less than six months.
 
History says higher rates are likely in the new year. But this signal has nothing to do with the economic reasons most people expect.
 
Let me explain…
 
Despite the usual chorus, long-term interest rates fell once again in 2017.
 
The 30-year Treasury yield fell from around 3% at the start of the year to around 2.8% at the close.
 
That's not a major decline. But it has caused a major shift in sentiment. That shift could mean the economists calling for higher rates might actually be right this time around.
 
You see, Treasury bonds – and the yields they pay – work like any other asset. When folks all expect them to move one direction, they tend to move the other way.
 
Today, traders are overly bullish on Treasury bond prices. And since bond prices and interest rates move in opposite directions, that means traders (unlike economists) are betting massively on lower rates right now.
 
We can see this by looking at the Commitment of Traders (COT) report. The COT report shows the real-money bets of futures traders.
 
Right now, traders are near all-time levels of optimism on 30-year Treasury bond prices. Take a look…
 
Again, bond prices and interest rates move in opposite directions. So this optimism about bonds means that futures traders are expecting rates to fall…
 
History says the opposite should occur.
 
You can see the last time optimism was near today's level was mid-2016. Traders all expected lower rates back then… But they didn't get them.
 
Instead, the 30-year yield rose around 1% in less than six months. It was a major move higher for rates (and lower for Treasury bond prices).
 
We have the same setup today.
 
For the first time in years, we're seeing a sign that the chorus of "higher rates this year" could be right… but not for the reasons folks expect.
 
We're seeing it because sentiment is stretched too far in the opposite direction.
 
The rubber band is due to bounce back. And that's the reason we'll likely see higher long-term Treasury yields this year.
 
Good investing,
 
Brett Eversole
 

Source: DailyWealth