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Fallout from Brexit Highlights Importance of Proposed DOL Fiduciary Rule

Britain’s vote to leave the European Union has caused unprecedented uncertainty and volatility in stock markets around the world. One result is the influx of calls that financial advisors are receiving from panicked investors who are seeing the value of their 401(k)s and other retirement accounts tumble as a result of Brexit.

As they provide assistance, it will be interesting to see how they advise clients as a new law governing them putting their clients’ best interests above their ability to rake in more commissions and fees takes shape. Referred to as the fiduciary rule, it is a proposal from the U.S. Department of Labor that is attended to protect investors from unscrupulous advisors more concerned about commissions than their clients’ financial well-being.

 · Fiduciary rule defined

In 2010, the DOL spelled out in a press release the generalities of the proposed fiduciary rule. In the release, it was explained that the proposed rule was meant to update the definition of “fiduciary” to more broadly define the term as a person who provides investment advice to plans for a fee or other compensation.

The proposed rule defines when a person providing investment advice becomes a fiduciary under the Employee Retirement Income Security Act. The proposed amendment would update that definition to take into account changes in the expectations of plan officials and participants who receive advice, as well as the practices of investment advice providers, according to a release from the DOL.

 · Best interests

The proposed fiduciary rule has caused much angst among financial advisors who say that the DOL is overstepping its bounds in calling for them to abide by specific standards in providing financial advice to clients.

Proponents of the proposed rule believe some advisors push products on clients who may not need them, all because the advisors wanted to collect more in commissions and fees. To stymie this practice, which has been estimated to have cost investors more than $17 billion annually in wasted costs, calls were made for government intervention.

The DOL boasts being mindful of these criticisms and attempting to revamp the rule. The latest version is intended to adequately protect consumers and level the playing field for advisers who do right by their clients.

Furthermore, the DOL says its new proposed rule minimizes compliance burdens. Industry players beg to differ.

As an investor, there are some things that you can do to protect yourself from unscrupulous advisors.

 · Disdain

Many in the financial advisory space have been insulted by proponents of the rule. They have said that it is not a matter of them wishing to make money on the unsophisticated investors by taking advantage of their ignorance of the best financial products for them. Instead, financial advisors have remained steadfast in their support of guidelines to make sure those in their industry put the best interests of clients ahead of their own financial gains. No matter, observers say many financial advisors seem hell bent on throwing as many monkey wrenches as they can in the process of making sure that happens.

 · What should an investor do?

Their homework.
Before you approach a financial advisor about how you should play the market in light of Brexit, take the time to do some research on your own. This is especially the case for investors who work with broker dealers because this group of advisors is thought to have their operations impacted the most by the proposed rule.

We could see mutual fund companies change their product offerings to investments that advisers and broker-dealers will use for retirement accounts such as IRAs.
One example is their possible use of passive investments, which tend to keep investment fees as low as possible.

So, investors should consider mutual funds that are not heavily weighted with sales loads and high fund expenses.

Advisers are reportedly reaching out to clients in the wake of Brexit, according to Investment News. Investors should as ask if their portfolios are globally diversified, which should buffer them against downturns in the markets like this.

Beware of advisers who advise you to trade during these volatile times. Many advisers are telling clients that this volatility is short-term, so don’t have a knee-jerk reaction. This is wise for the long-term investor.

Lastly, take a look at the proposed DOL rule. There you’ll find what proponents are trying to protect you from, which should give you an idea of what you should ask your advisor.

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Crowdfunding Helps Startup Compete in Movie House Space

It’s summer time, which is usually a busy time for the movie entertainment industry as people seek out the latest releases at the movies. However, the motion picture industry has suffered, as high ticket prices coupled with movies that moviegoers find unappealing, are increasingly keeping people out of the theaters.

The large, publicly-traded movie houses have learned to go with the ebb and flow of the fickle ways of movie goers. The companies’ resilience has allowed them to continue to provide sufficient shareholder value. Competition among movie production companies remains stiff, and the houses continue to seek to roll out movies that will appeal to movie goers.

There are several much smaller companies that are not deterred by the competition and still wish to enter the space. One of those is Legion M. The startup has an atypical business structure that is based on new rules stemming from the Jumpstart Our Business Startups Act of 2012. Its success could pave the way for other smaller companies to enter the space, and they could give the larger, established movie houses a run for their money.

 · The Big Houses

Legion M will be entering a space dominated by several publicly traded companies, including Universal Pictures, which is owned by Comcast Corp. <span style="color: #6600Stock symbol00; font-weight: bold;”>(NASDAQ: CMCSA); DreamWorks Animation (NASDAQ: DSW); and Lions Gate Entertainment (NYSE: LGF).

Since March 22, DreamWorks’ stock price is up roughly 55%. That soar can largely be attributed to NBC Universal, which is owned by Comcast, acquiring it in the spring. Under the terms of the agreement, DreamWorks has an equity value of approximately $3.8 billion. DreamWorks’ stockholders will receive $41 in cash for each share of DreamWorks common stock.

The deal is expected to close by the end of the year.

By acquiring DreamWorks, NBCUniversal will have a broader reach to a host of new audiences in the highly competitive kids and family entertainment space, in both television and film It includes popular DreamWorks film franchise properties, such as Shrek, Madagascar, Kung Fu Panda and How to Train Your Dragon.

DreamWorks’s sharp stock increase was also due to the strong earnings report it delivered in May. Specifically, DreamWorks reported that first quarter 2016 revenues increased 14% to $190 million.

Lions Gate didn’t fare so well over that same period since March. Its share price fell about 5%. It had set its sights on buying Paramount Pictures from Viacom. However, the drama playing out with Viacom founder Sumner Redstone who is replacing members of the board over the company, it is unclear if Paramount will be sold.

And the much touted Lions Gate movie Batman V Superman: Dawn of Justice failed horribly this spring. From its opening date to the following Friday, box office sales fell 81%.

While Batman V Superman was not as successful as had been hoped for, Lions Gate still has the wildly successful The Hunter Games, and Twilight in its treasurer trough. Also, it has Orange is the New Black, which is streamed by Netflix.

 · And here comes Legion M

So as you can see, entering the movie production space means facing some pretty stiff competition.

However, that has not deterred Legion M. It is partnering with an alliance of Hollywood creatives to develop movies, television shows and digital content. It plans on announcing its first project later this year.

Thanks to the JOBS act, investors that had traditionally been able to fund projects and receive equity in that startup had to be accredited. There are a host of requirements to be an accredited investor, which limited the amount of funds available for many projects. Thanks to the JOBS act, many of those requirements have been loosened, and Legion M is one of the many startups to take advantage of it.

One of the benefits of the act is that it provides for equity crowdfunding. Through crowdfunding, Legion M is able to raise capital without being limited to accredited investors. The JOBS act also provides a path for startups to go public without having to jump through many hurdles. Legion M’s co-founder and CEO said that his company could “potentially” go public. However, it would assess what is best for the shareholders and how it could preserve the intimate community of investors before making a determination.

In developing its projects, the company is relying on movie fans to invest in the venture, and even go behind the scenes of the production. In return, they will own a piece of the project.

While the big motion picture houses do test their movies before focus groups, it is interesting Legion M’s approach of having those invested in the project also having a say in how they like the movie. This could allow them to receive possible valuable information about the movie before it hits the screen. This could help it avoid movies, or other projects, that flop.

 · In conclusion

Players like Legion M present a fresh entry into the space because it is composed of shareholders who have a say in the how movies, or other projects, are made. Also, the grassroots effort could help it keep its costs down.
The motion picture industry is sensitive to the whims of customers, which as we see with Lions Gate, can hurt their bottom lines if the film flops. On that same note, these houses can do astronomically well when their films are hits. I expect to see more mergers and acquisitions in the space as companies, like Viacom, seek to concentrate on their stronger brands.

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Posted by TwillyD June 25, 2016
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How To Become A Better Day Trader

One of the questions that you often see when you “Google” anything about day trading is “how do I become a day trader?”

However, a better question is “how do I become a better day trader?”

I asked experts and novices, as well as researched the plethora of websites on the subject, to narrow down some of the best advice on becoming a better day trader. The goal is not to dump a lot of useless information on you about how rich you can become by simply sitting in front of your computer and buying and selling stocks all day.

Quite contrary, as that is the very misunderstood part of day trading. True, there are plenty of instances where people have eked out fortunes from day trading. Was it luck? Was it persistence? Was it their gift of fortune telling?!

I think none of the above. Instead, I think a large part of their success stemmed from their daily approaches to their trading and their keen awareness that taking profits through day trading begins long before you turn on your computer and monitors.

It’s not just about sitting at a computer all day and making trades; that’s the habit of those who are just trading, and sadly, sometimes trading ignorantly. Becoming a better day trader means employing not just strategy, but discipline. Here are some of the most pressing things that I found that may help you strike it rich as a day trader, or at least stay afloat!

 · What the better day trader’s plan entails

By far, one of the things that separates the day trader from the better day trader hinges on the daily plan. It’s important to understand the importance of having a daily plan at hand to use as a guide in making your trades.

The first piece of your plan identifies the kinds of stocks you want to trade. The plan then lists the best entry points. You’ll include your target price based on the strategy of your choice. Are you comfortable selling the stock as soon as it starts making you money? Then scalping may be the way to go for you.

Does the news that Apple sold fewer iPhones than analysts expected, make you want to run for the hills and sell or avoid buying its stock? Then you may be a momentum trader who prefers trading on news. Whatever your strategy, being a better trader means having it in your daily plan.

 · Don’t just develop a plan each day; Stick to it

The only thing that trumps having a daily plan is sticking to it. That may sound so simple, but when the day gets going, and your trades aren’t going your way and you’re eyeing another stock that’s riding higher…you may want to veer off course. Don’t. The better day trader knows better.

There comes a time (or several times) in every day trader’s life when they consider throwing caution to the wind due to their “guts” telling them to abandon their plan and chase a stock. This seems to be especially the case if that stock is moving higher at a quick pace. Becoming a better trader means recognizing that while it seems everyone is jumping on this stock’s bandwagon, it’s likely not the ride for you.

As noted at Bankrate.com, “experienced traders are going out the back door while new traders are coming in. If you miss a stock on the way up or down, let it go. There will be other trading opportunities.”

 · Know when to cut your losses

Another issue that conflicts day traders, especially novices, relates to trying to figure out when to cut their losses.

“Statistics tell us that most new day traders lose more than $21,000 dollars in their first three months of trading. If they use leverage, the average loss rises to more than $45,000,” according to CRB Trader.

Nothing supports the reasoning for not overtrading and cutting a loss more than an understanding of the mathematics of what it takes to recover from a previous losing trade.

When it comes to knowing when to cut your losses goes back to your daily plan.

 · Know the regulatory rules

Part of being a better day trader is being fully up to speed on the regulations surrounding the industry. While it may be easy to fall into the train of thought that you’re operating within the confines of federal regulatory bodies when you make your trades, there are some key things that can spell disaster.

One area that seems to slip traders up a lot relates to margins. Clearly you know that’s borrowed money and they can spell disaster for you if that trade goes the wrong way. The better trader understands this, as well as the rules surrounding how much the can “borrow.”

A rule in particular relates to pattern day traders. The Financial Industry Regulatory Authority, or FINRA, issued investor guidance to provide some basic information about day trading margin requirements and to respond to frequently asked questions. The better trader familiarizes themselves with such regulations.

 · Network

Meeting others who day trade to share their thoughts and ideas could also be helpful. Not only may others be able to give you some strategies that you may not have considered, but getting away from those monitors and breaking up the monotony of your day will be stress relieving.

 · In conclusion

You can have the best of all the technology in the world; you could have talked to dozens of top notch traders; you could have read up on the subject until you are blue in the face. All of this will be fruitless, if you sit in front of your computer, and let your emotions lead you away from your plan.

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Bank Stress Test: $385 Billion in Losses Wouldn’t Cause Financial Collapse

Let’s say there was a severe global recession in which the unemployment rate soared five percentage points, and there was a heightened period of financial stress, and negative yields for short-term U.S. Treasury securities. Could the big banks survive?


So says the Federal Reserve, which drew the conclusion for this most severe hypothetical scenario based on the 2016 bank stress test. It noted that this “severely adverse” scenario projected that loan losses at the 33 participating bank holding companies would total $385 billion during the nine quarters tested.

The biggest banks by market cap include Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC), Goldman Sachs (NYSE: GS), JPMorgan Chase (NYSE: JPM) and Morgan Stanley (NYSE: MS).

All of these banks, and 28 others, received word from the Federal Reserve on Thursday that they had passed the so-called bank stress test. This is the sixth round of stress tests led by the Federal Reserve since 2009 and the fourth round required by the Dodd-Frank Act. The firms tested represent more than 80 percent of domestic banking assets. The Federal Reserve uses its own independent projections of losses and incomes for each firm.

Since 2013, banks have begrudgingly complied with a wide array of regulations stemming from the Dodd-Frank Act calling for banks to take and pass these tests. As part of the stress tests, banks have been required to submit paper work to the Federal Reserve to prove they are financially healthy enough, especially when it comes to capital, to weather a fiasco similar to the one that caused the financial collapse in 2008.

The stress test results are meant to provide the Federal Reserve with forward-looking information to help them supervise banks and assess their risk profiles. They want to make sure that institutions have robust, forward-looking capital planning processes that account for their unique risks. We learned the hard way after 2008 that many banks did not have sufficient capital to continue operations throughout times of economic and financial stress.

The stress tests put under the microscope banks’ economic variables, including macroeconomic activity, unemployment, exchange rates, prices, incomes and interest rates.

Passing the stress test is crucial in helping banks to be able to increase their dividends and buyback shares. You may recall last year when Goldman Sachs, JPMorgan Chase and Morgan Stanley came pretty close to failing the test. The Fed ordered them to resubmit their capital plans by either decreasing the amount of their dividends or by decreasing the size of their buyback programs. They did so and passed. Interesting, it was the second year in a row that Goldman was asked to resubmit its plan.

Because the banks passed the test under the worst scenarios, pundits are raising questions about whether the stringent compliance requirements are still needed. Most agree, however, that they are still needed considering they provide not only federal oversight, but they also force banks to be critical in making sure their internal financial controls will pass muster.

As noted above, passing the stress tests is crucial to banks being able to increase the size of the share buyback programs, and increase their dividends.

However, I think it would be better for them to increase their. I heard one observer say it best by asking, “when was the last time you heard of a company doubling its share price through buyback programs?” Companies are far more valuable when they increase their dividends instead.

If you are considering the banking sector as an investment, there are some things to keep in mind. Most importantly, remember that banks’ credit quality is getting weaker. However, it’s not weak enough yet to be a deal breaker.

Banks are seen as relatively cheap too, with some of them selling at a 40% discount to book value.

Also expect to see more consolidation and acquisition to be the wave of the future among the smaller banks.

In the meantime, the market is readying for the rest of the Federal Reserve’s Comprehensive Capital Analysis and Review (CCAR). Those results will be released on Wednesday, June 29.

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Posted by TwillyD June 24, 2016
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Through 600-point Sell Off, Verizon Falls Just .44%

We saw most of the stock market sell off on Friday following the U.K.’s historic exit from the European Union. However, there were some stocks that managed to hold their own with one of those being Verizon (NYSE: VZ).

One of the reasons the company was able to stay in the green could be attributed to a key acquisition it made last week.

I consider Verizon to be a mixed bag of tricks. It’s fresh off of a strike that lasted almost two months, which is expected to have negatively affected its second quarter earnings. It reports those earnings next month.

Last week, it announced the acquisition of a company that develops location-based software to manage mobile resources.

While Verizon weathered the Friday’s deep declines, at this point, I would steer clear in buying Verizon as a long-term play. However, there is a good amount of interests in the options market for calls and puts that expire just before it reports earnings next month, and they may be the way to go as investment plays.

While most stocks opened down, Verizon opened at $54.31 and moved up to $55.22 before pulling back. It closed Friday down .40%. The stock is up just over 18% year-to-date.

 · IoT investment

Verizon acquired a company that develops location-based software to manage mobile resources. Called Telogis, the company sells software-as-a-service (SaaS), which incorporate location information into applications for vehicles, as well as geospatial software development toolkits.

Verizon is specifically seeking to position itself in the connected vehicle and mobile enterprise management sectors. In addition to Telogis’ enterprise product portfolio, Verizon was attracted to the software company because of its partnerships with some of the world’s leading vehicle and equipment manufacturers.

Telogis brings its software platform and new distribution relationships to Verizon
Telematics’ suite of connected vehicle solutions for consumers and enterprise customers.

 · Strike of the year

Verizon’s wireline employees went on strike beginning on April 13. It lasted through June 1, and during that time the company experienced all kinds of problems.

The sheer magnitude, in terms of the numbers of workers who walked off the job and left the company’s Fios unit unmanned, will have a long-term effect of the company. While the company was able to maintain the Fios unit while it negotiated new contracts with the workers, there is still concern over when the company will fully rebound from the strike.

Referred to as the wireline workers, roughly 40,000 of them went on strike, including network technicians and customer service representatives. Fios consists of Internet, telephone and television services.

As a result of the strike, Verizon had to incur several additional costs. For example, it had to shift costs that had been associated with acquiring new customers and new installations to keep existing customers who needed regular maintenance and repairs. It also saw its costs increase related to hiring contractors to replace the striking workers; and it had to pay overtime to management employees.

Verizon’s CFO Fran Shammo has said that earnings per share during the second quarter were expected to be lessened by between $.05 and $.07. As of June 16, its EPS was $.96. Shammo added that the company’s earnings “will flow to the end of the year.”

Shammo recently spoke at a conference hosted by Bank of America Merrill Lynch. He opened up to the group and also spoke about how the strike, which was the first time he had done so since the end of the strike. He admitted that he was unable to pinpoint the numbers, such as how many installations it has in the works.

 · Call and put activity

Verizon is due to release its second quarter earnings report on July 26. There was a considerable amount of interest on Friday for the call and put contracts that expire on July 15.

The contracts with the most open interest were as follows:
The 52.50 call had an open interest of roughly 44,000
The 55 call had an open interest of roughly 29,000
The 45 put had an open interest of roughly 66,000
The 50 put had an open interest of roughly 55,000

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Positive Housing Data; Guidance Make Sector a Long-term Play

Recent housing-related figures from a wide range of players in the space indicate the economy is continuing to recover. The positive data can be used as a basis for those who may have avoided the space as a long-term investment play.

Housing-related data came from many sources this week. On Thursday, the Commerce Department released new home sales. On Wednesday, the National Association of Realtors released numbers for existing home sales for May. Home Depot (NYSE: HD) received an upgrade by an analyst who noted that a slowdown in the growth of home prices doesn’t present as much risk anymore. Lastly, KB Home (NYSE: KBH) and Lennar (NYSE: LEN) reported strong earnings this week.

 · Commerce Department numbers

In May, new home, single family home sales dropped 6% to a seasonally adjusted annual rate of 551,000 units, according to the Commerce Department. Also, April’s sales pace was revised down to 586,000 units, still the highest since February 2008, from the previously reported 619,000 units.

Although they make up just a tenth of all home purchases, they are important nonetheless. Just consider all of the other areas that are affected. Home building generates substantial economic local activity, including new income and jobs for residents, and additional revenue for local governments, notes the National Association of Home Builders.

 · National Association of Realtors

Realtors especially benefit from upticks in the housing industry. The group that represents them, the National Association of Realtors, reported that existing-home sales sprang ahead in May to their highest pace in almost a decade, while the uptick in demand this spring amidst lagging supply levels pushed the median sales price to an all-time high. Also, all major regions except for the Midwest, saw strong sales increases last month.

The group reported that total existing home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, grew 1.8% to a seasonally adjusted annual rate of 5.53 million in May from a downwardly revised 5.43 million in April. With last month’s gain, sales are now up 4.5% from May 2015, when they were 5.29 million. Sales are at their highest annual pace since February 2007, when sales totaled 5.79 million. As you recall, that was right before the 2008 housing industry collapse.

 · Home Depot strengths

Home Depot got a boost this week, partly due the strengthening of the housing market. Nomura Securities upgraded the company to “buy” from “neutral.” Analyst Jessica Schoen Mace said:

“The biggest change in our position from our former thesis is the previous notion that slowing home price growth posed a great risk to Home Depot’s comp. After the [year over year] increase in home price growth slowed to 4.4% and 5.6% in 2014 and 2015 from 13.5% in 2013, Home Depot’s comps were still solidly positive, including a high-single-digit increase in the U.S. in 2015.”

Nomura still expects home prices to decelerate, which is an assumption also held by Home Depot. However, any positive growth would be a tailwind. It is one of several factors that affect the contribution from housing to HD’s sales opportunity, including housing formation, turnover, and aging housing stock, Schoen Mace said.

 · Housing builders enjoyed strong first quarter

KB Homes’ shares climbed this week, partly due to it reporting second quarter earnings that beat estimates. It reported earnings per share of $.17 versus analysts’ estimates of $.14. Revenue was up 30% to $811 million for the quarter.

In reporting earnings, the company’s CEO Jeffrey Mezger said its officials were encouraged by the continued improvement in housing market conditions across the country. Also encouraging is the recent increase in participation from first-time homebuyers, which have historically been KB Homes’ primary customer segment.

The company believes it is well-positioned to leverage its strength in serving the demand from first-time homebuyers with dynamic product offerings. With favorable market trends and progressive financials and operations in the first half of the year, the company believes it has positive momentum for the rest of the year.
Lenner homes, the second-largest homebuilder behind D.H. Horton, also beat analysts’ estimates when it reported second quarter earnings this week. Its EPS came in at $.95 versus analysts’ estimates of $.86. Revenue was up 15% to $2.7 billion.

The company noted a somewhat interesting happening that stifled growth in one city in particular. It said that its decision called “Homebuilding Houston and Homebuilding Other” experienced a decrease in home deliveries in Houston, which was primarily due to less demand driven by volatility in the energy sector.

Federal Reserve Chair Janet Yellen delivered her semi-annual notes to Congress this week, and said housing has continued to recover gradually, aided by income gains and the very low level of mortgage rates.

All of these factors contribute to the rational that there are several long-term investment opportunities for the housing sector right now.

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Posted by TwillyD June 22, 2016
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Finding Bargain Bonds in a Low-yield Environment

The low interest rate environment may be around for some time to come as the Federal Reserve earlier this year announced that it would likely not raise interest rates again this year and maybe even wait until 2018. I think that’s a stretch; this year or next seems more like it. But with the slowing job market ad the pending possible exit of Britain from the EU, it may be some time. Considering how low yields are right now, the thought of finding deeply discounted municipal bonds may seem unreasonable. For the determined investor, however, there are some buying opportunities that could be worth their wild.

 · Price Yield Relationshipe

When interest rates rise, bond prices fall and when interest rates fall, bond prices rise. The prices change in order for bond yields to stay in line with the yields of bonds newly sold in the primary and those being traded in the secondary market.

To determine if a bond is a bargain or discount, look at their par value. Bonds that trade, or are sold, at prices below their par values are considered discount bonds. Bonds trading above their par values are trading at a premium.

 · Where to Shop

One of the best places to shop for discount bonds is the secondary market. This is because bond prices are typically much lower here than they are in the primary market. This is especially true when rates are on the rise.

A caveat to buying discount bonds in the secondary market is the tax implications. When they are redeemed, they may be taxed at the capital gains rate.

 · When to Shop

The best time to shop for bargain bonds is when there is a lot of supply in the market. Issuers have to settle for paying higher interest rates because they know investors have a lot to choose from. The opposite is the case when there is not a lot of supply in the market.

 · Zero-coupon Bonds

Investors who can stand to wait 20 or 30 years to reap returns from their investment may consider zero-coupon bonds, which are typically available in the secondary market. This type of bond trades and is sold at deep discounts because it only pays interest at maturity instead of over time.

 · Bargains Not Just Junk Bonds

When interest rates are as low as they are now, investors may have to do more work, and make more sacrifices to find bargain bonds. One way to find these bonds is to be willing to take on more risk. This doesn’t have to mean jumping right into junk bonds or bonds that have below investment grade ratings. You may find investment-grade issuers that are facing financial problems that are willing to sell their bonds at lower prices and offer higher yields.

 · Fiscal Pressuress

To get some insight into an issuer’s credit quality, begin with their bond rating reports. Rating agencies put out warnings on issuers prior to downgrading them by either placing them on their watchlists for a downgrade or changing their ratings outlook to negative. If the rating is placed on watchlist, the issuer is under review for a potential downgrade within the three to six months. If the outlook is changed, the rating agency will likely take no action for at least six months.

Having this knowledge can help you gauge whether or not the issuer is in truly dire straits with great fear of default, or if its situation simply stems from needing to raise more revenues to cover their debts. If this issue is planning a new money deal or a refunding, they also may be more likely to offer bonds at lower prices.

Keep in the mind the that ratings information can also have positive effect on an issuer. Issuers that are improving their financial bottom lines can have an upgrade or stable or positive outlook change in store. This would cause their bonds to trade at a premium.

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Slowing Job Growth, Low Inflation Make Likelihood for Rate Hike Doubtful

Fed Chair Janet Yellen may not think the time is right to raise interest rates, but many retirees and other savers, would beg to differ. They say the time is right, and that it has been right for years.

The low interest rate environment has impacted these groups perhaps more than any other. Those who’ve saved using traditional types of vehicles, such as a CDs or savings accounts, can be the equivalent of putting their money under the mattress because the amount of return on saving through such vehicles is so low.

While Yellen frets over the overall health of the economy in determining when it will be healthy enough to sustain a rate hike, savers have some savings instruments they can use to increase their returns.

Before we get into those vehicles, let’s review some of the factors that have led to this low interest rate environment.

 · Semi-annual testimonial

This week, Yellen was on Capitol Hill to update lawmakers on a wide array of financial issues. She explained that while the economy showed signs of improvement, such as an improved unemployment rate. Still she remained cautious because hiring was slowing.

She told members of the Senate Banking Committee that there were a number of different metrics over the last several months that suggest a loss of momentum in terms of the pace of improvement.

“We believe that will turn around, we expect it to turn around, but we are taking a cautious approach and watching very carefully to make sure that that expectation is borne out before we proceed to raise interest rates further,” Yellen said.

One good thing for savers that came from Yellen’s talk was that the Fed would not implement a negative interest rate policy. However, she acknowledged that the Fed does have the authority to do so.

 · Chance of hike this year

There could be two hikes this year, according to Yellen. However, it looks like one would be most likely and would likely not occur until after the November elections.

An immediate headwind is Brexit, which is the possibility of Britain leaving the European Union. The vote is set for Thursday. If voters decide to leave the EU, it could cause turmoil in the markets. This is the last thing the economy needs, and it could lessen the chance of a rate increase.

Some speculate that the Fed could announce a rate hike in July when it meets. However, the market, and investors, has learned to not put much stake into the rumor mill when it comes to the Fed and interest rates. It was thought that the monetary policy was set to raise rates this month. All eyes were on the May jobs report as being the nudge the Fed needed to raise rates. However, it sorely disappointed. Only 33,000 jobs were created; at least 240,000 had been expected

 · So what a saver to do?

Instead of watching all of these metrics to determine when, and if, the dovish Fed will raise interest, savers should consider some of the following as ways to maximize their returns during this low interest rate environment.
– Dump the Government Bonds
Although government bonds have traditionally been great investments, that’s not the case in low interest rate environments. Instead, consider something like bond ladders. We told you most recently about this method in April. Bond ladder portfolios contain bonds with different maturities bonds and coupon payments. They can be reinvested according to the “rungs” that make up the ladder. For example, bonds that are reinvested in the longest rung of the ladder offer higher yields than those bonds that are reinvested in the shorter rungs.
– Stocks
Reallocate a portion of your income-oriented portfolio away from bonds and into stocks, according to Barrons. It states that a comparison of earnings and bond yields suggests that, at least on a relative basis, equities are still the better bargain. Seek out stocks from companies that offer dividends.
– Leveraged funds
Consider real estate investment trusts, or REITS, that invest in mortgage-backed securities. These REITs are popular because they are known for their high dividend yields.

Also consider leveraged closed-end funds. They can thrive in low interest rate environments. However, investors must be aware of the risks, so it is best to discuss this option with your financial advisor.

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Posted by TwillyD June 21, 2016
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Like It or Not; Brexit Referendum is Coming

Like It or Not; Brexit Referendum is Coming

You’ve likely heard about Brexit by now, and the rhetoric over it is ramping up considerably. In this piece, I’ll give you some tips about how you can play the market in the wake of the historic vote.


 · First, let’s go over what exactly is Brexit

Brexit is an abbreviation of British exit. To decide whether Britain should leave or remain in the European Union, a referendum is being held on Thursday, June 23.
Observers seem equally divided about whether voters will approve the exit, but they are fairly equal over who will be hurt by it.

 · Sectors that could be affected

Jamie Dimon, the CEO and Chairman JPMorgan (NYSE: JPM), said his bank has more than 16,000 employees in Britain. That means that 4,000 workers may have to move from the U.K. That could hurt the British economy, and be a headache for the bank. Other U.S. banks may have to deal with this, and they include Citigroup (NYSE: C) and Morgan Stanley (NYSE: MS)

Banks have already faced global uncertainty, and there are concerns that will increase this week and lead to volatility. Then there is the release of the results of annual stress tests by the Federal Reserves, also on June 23.

Retailers, insurers, other financial sectors and property-related stocks may not be affected as much.

A vote to leave the EU could cost banks billions of dollars, if they lose a key right known as “pass porting,” according to Market Watch.

 · Risk companies

Traders note that companies with high sales exposure to the U.K, like eBay (NYSE: EBAY), Xerox (NYSE:XRX) and Ford (NYSE: F), which gets 18% of its revenues from the U.K.

Bloomberg and J.P. Morgan found that Penske Automotive Group (NYSE: PAG) gets the largest chunk of its revenue from Britain — 33.4%.

Coca-Cola Bottling, which manufactures in the U.K., Abercrombie & Fitch, Gap, Delfy, Invesco, and Walmart are also heavily exposed to Britain and likely to suffer in the event of a Brexit.

 · What if they remain


If Brits vote to leave the EU, government officials will have two years to change their minds. Leaving the EU would shift the U.K.’s trading position to other foreign governments.

This time of uncertainty over whether the Brits will decide to go back (if they exit) is the issue. One of the worst things for the markets is uncertainty. So during this two years in which market players won’t know what Britain will do could be a period of marked volatility.

If the people of Britain vote to remain in the EU, investors should make sure their portfolios are balanced by reestablishing their assets so they are back up to normal levels.

Also, avoid making short-term investing decisions if Brexit becomes reality, and Britain exits the EU. Hold your positions, if you can, for the long-term.

Morgan Stanley pointed out some good issues that investors need to watch out for:

• The bank calculates a 30% probability that Britain will leave the EU. Based on these numbers, the bank sees that numerous assets, seen in the table above, "reflect less risk premium than we think is warranted." In other words, many places are not calculating enough risk into these assets.
• The pound and the euro will be hit on a Leave vote, but even if Britain decides to stay in the EU, there will be only "modest gains." Morgan Stanley expects the pound "to weaken immediately on a vote to Leave, but by year-end we think Euro could weaken even more."
• US equities are a better buy for investors right now.
• The European Central Bank's corporate bond purchase programme has "reduced sensitivity" to a Brexit, and therefore European corporate credit "has the most balanced risk/reward." But the programme hasn't mitigated Brexit risks completely.
• A Leave vote won't make it easy for the Bank of England's Monetary Policy Committee to ease credit conditions for the market.

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Posted by TwillyD June 20, 2016
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Redstone Keeps His Word To Replace Viacom Board

UPDATE: On Thursday, June 23, the judge overseeing the case about the Viacom directors being replaced by Sumner Redstone has ruled they can remain for now, according to CNBC.

It seems that Sumner Redstone is making good on his threat to rid the current members of Viacom’s (NYSE: VIAB) board of directors.

Now let’s see who he will choose to be on the board. I think that he will do well to get rid of the failing Paramount Pictures. And going further to recombine with CBS (NYSE: CBS) would be the icing on the cake.

Earlier this month, we wrote about the turmoil going on between Redstone, who is the controlling shareholder, and members of the board. Specifically, Redstone, and his daughter Shari, took issue with Viacom Chief Executive Philippe Dauman and board member George Abrams.

Shari. She’s thought to be pulling the strings, as opponents of the changes charge that the 93-year-old Sumner Redstone may be making such dramatic decisions because of a diminished mental capacity.
The lawsuit
Dauman and Abrams had vowed to sue Redstone if they were removed. Redstone owns roughly 80% of the company National Amazements, which gives him controlling voting stake in Viacom and CBS.

In addition to Paramount, Viacom operates BET, MTV, Comedy Central, Nickelodeon and VH1.

 · Change needed

Look no further than the company’s latest earnings report, which was released on Friday. They were for the second quarter of 2016. Quarterly revenues declined 3% to $3 billion. Media Networks revenues were $2.38 billion, a decline of 3%.

Domestic advertising revenues decreased 5%, as pricing increases were more than offset by softer ratings at some of its networks. International advertising revenues declined 1%.

Viacom’s stock traded on news that the board replacements. Also, RBC upgraded Viacom to sector perform from underperform. It also raised the price target on the share price to $45 from $34.

Guidance issued by the company for the third quarter indicates it will decline.
According to CNBC, Viacom’s Class B shares have performed well this year, trading nearly 8% higher. Still they are more than 33% lower over the past 12 months.
The future

Viacom is looking to Paramount’s release of Teenage Mutant Turtles: Out of the shadows and Star Trek to help it line its coffers. However, Teenage Mutant Turtles is having a tough time of it. The release of the Star Trek Beyond movie because of its strong following of “Trekkies.” It’s difficult to count on that to help Paramount financially.

Crying foul over their removal, and the negative consequences they perceive the changes will have on the company, Dauman and Abrams are vowing to fight to get their positions back. A hearing over the matter has been set for June 7 over the matter.

As I said in May, given that so much is up in the air for Viacom, I would not invest it in in the short-term. While I said a long-term play would be more appropriate to allow time, I don’t think so now. The stock is cheap, but it could be a value trap. Also, it could be a takeover target, but who would touch it now.

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