1. Thoughts on Trump Proofing Your Portfolio

    To paraphrase Forrest Gump, the Donald Trump presidency is like a box of chocolates, you never know what you are going to get! But with the stock market recording ever-new highs, it’s time to get going.  Protecting yourself means, you have to accept there will be surprises and surprises sometimes can be humbling.

    Having made that disclaimer, lets start with a few obvious things.  Investor confidence is brimming that the Presidents pro business policies will be successful.  Of course, why else would the market be at these levels?  But, there is absolutely no guarantee this will happen either in whole or in part.

    We began by realizing investors are abnormally calm.  Look at the markets volatility index or VIX and you will find a near 45% drop in the index since just before last November’s election. In fact, the index is near a 10 year low.  This doesn’t make sense.

    If there was serious doubt about President Trumps policies or if his image of crazed despot portrayed in the media, the VIX would be fluttering well above 20 rather than closer to 10-12 where it has been hovering lately. During the 2008 financial crisis, the VIX hit 60.

    This lack of volatility has direct implications for one of the ways professionals often choose to protect their portfolios: with options.  In this case we are talking about owning Put Options on the S&P 500 or the Nasdaq.

    Options are not for everyone, but they are an efficient mechanism.  In one single transaction you protect your entire portfolio.

    Right now is a good time because when volatility is low, often option premiums are at a low.  In addition, option prices are fundamentally tied to interest rates.  If interest rates increase this year the price of Puts will rise also.  So now may be a good time to get started.

    For those uncomfortable or simply prefer a sector strategy consider several options.

    The President has made it clear, he wants to boost military spending $54 billion by cutting regulations and other items.  So the defense industry is a natural beneficiary with traditional names like Boeing and Lockheed.  There are many more names to consider.  The caveat here of course relates to Trump getting his military budget through Congress. That‘s a pretty big if.

    Before considering purchase or sale of securities related to any of these companies, check with your advisor.  He/she is whom you are paying for advice.

    Another area could be robotics companies.  Finding a pure play in a public vehicle is challenging but #5 Bosh and #6 Google top the public list.

    The President has had multiple meetings at the White House with the CEO’s of Americas manufacturing biggies.  There seems to be lots of smiling faces around the table at that means good things for bring work back to this country.  But work does not automatically spell jobs. The hourly rate differential in many cases is still to great for this to happen.  In addition there is the question of job training and retraining.  That means demand for robots while the demand for labor most likely will be for building, programming and maintaining the machines.

    Finally, we are willing to bet that healthcare turns out to be way too big a problem to solve even for The Donald.  As he recently was quoted, “Nobody new that healthcare could be so complicated”.  He is now learning that this is one campaign promise he won’t be able to keep.  The natural tendency would be to lean toward the healthcare insurers like United Healthcare, WellPoint and Aetna.  But there is uncertainty over what form the new version of the Affordable Care Act will look like.  The safer bet might just be those damn prescription drug companies where demand growth and pricing power combine to produce above average growth.

    These are only two strategies and clearly not the only options. Of the two, we favor the overall approach offered by options in partial because it takes a global approach to uncertainty.  President Trump starts his term in office with the lowest approval rating ever recorded.  If the suspicions of almost two-thirds of American voters prove accurate, the price of lots of stocks will suffer.

    Up to now those who support Trump accept his brash off the wall style in return for the promise of strong leadership and fundamental improvement in government. His approval ratings may be low but distrust in government is America’s most important domestic issue.  As time goes if the President is unable to deliver, the crowd noise could get very loud and that would not be good for the market.

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  2. Top tech IPOs to watch for in 2017

    Last year was a dog for initial public offerings on U.S. soil. It was so bad it achieved the double whammy of having the fewest IPOs (105) since 2009 and for the lowest dollar volume ($18.8 billion) since 2003.

    But don’t lose hope investors; President Trump is here to Make IPOs Great Again. If all bodes well this year could easily surpass 2015’s total of $30 billion with some big tech companies preparing to go public.

    With that in mind, here’s a look at some of the most anticipated IPOs for 2017.


    The wildly popular messaging app’s parent – Snap Inc – is poised to be the first big fish to hit the market, reportedly offering 200 million shares at between $14 and $16 per share. That would give it a valuation between $19.5 billion and $22.3 billion, easily making it the largest IPO since Alibaba in 2014 ($25 billion).

    While Wall Street is generally high on Snapchat and its 160 million daily users, doubters flag the social network’s unprofitability and decelerating user growth. The company reportedly earned more than $400 million in 2016, but costs were upwards of $500 million. It’s attempting to find new revenue streams by rebranding itself as a “camera company” and making virtual reality glasses a la Google, but faces some stiff competition.

    Some analysts, such as Eric Schiffer of private equity firm Patriarch Organization, are decidedly down, telling Vanity Fair: “Snapchat will be the greatest investment loser of the 21st century.”

    When Facebook (FB) went public in May 2012 it had annual revenues of $1 billion and listed at $42. Still the social media giant’s stock price tumbled over the ensuing months to $18, before rebounding and incrementally rising to more than $130 today.

    Ultimately, says The Economist, how well Snapchat fares as a public company will “serve as a litmus test of whether it is possible to prosper in the shadow of digital behemoths like Facebook and Google.”


    The ride-hailing darling whose name is now used as a verb among its key millennial base, as in to “Uber over,” will likely wait until after the Snapchat IPO to gauge investor appetite for its own public offering. Despite raising more than $11 billion as a private company, giving it a monstrous valuation close to $70 billion, Uber hemorrhages money. It was on track to lose more than $3 billion in 2016, forcing it to ditch its China operation. The market is also wary of looming legal battles over whether Uber’s drivers are employees or independent contractors and its plans to eventually convert to self-driving cars.

    Uber has historically revealed little in regards to its financials, which it would be forced to do with a public offering. It could likely keep raising money privately for the foreseeable future, but may bow to early-stage investors who will be agitating to see a return.


    The data-mining company was founded way back in 2004 and, like Uber, will have some very anxious investors looking to cash out. Palantir, valued at $20 billion, boasts a number of high-profile security clients, including the U.S. military. Chief executive Alex Karp has already met with President Trump and has indicated the company will turn a profit this year, putting it in a position to go public.


    As a condition of its $1-billion funding round last year, the music-streaming site agreed to go public this year or pay greater interest on its debt. With about 100 million subscribers – 40 percent of which are paying – Spotify has been valued at more than $8 billion. However, recent reports indicate the company may hold off its IPO until 2018 in order to improve its margins.

    That may be wise, as competitor Pandora (P) went public in 2011 at $16 a share, but the music service now trades around $13.


    The cloud storage startup is reportedly mulling an IPO this year. Last year saw several competitors go public, most notably Coupa Software (COUP). Dropbox, which has more than 400 million users and boasts Spotify and News Corp as clients, has far better brand recognition and lower customer acquisition costs. Founded a decade ago, Dropbox was valued at $10 billion after its last funding round in 2014. That’s far greater than competitor Carbonite Inc (CARB), which went public in 2011 at $10 a share and is now trading at double that price.


    The craft-oriented social network has a similar valuation to Dropbox and looks primed for an IPO after poaching former Twitter finance exec Todd Morgenfeld to be its chief financial officer. Another thing it has going for it is a fast-growing user base, jumping from 100 million to 150 million users from 2015 to 2016. Revenues also tripled during that same span, rising to $300 million from $100 million in 2015. CEO Ben Silbermann, however, says there are no imminent IPO plans.


    The messaging app is growing even faster than Pinterest, quadrupling its daily active users from 1 million to 4 million in an 18-month period between mid-2015 and the end of 2016. But erstwhile investors will need to be patient after chief executive Stewart Butterfield threw some shade on an IPO, suggesting it will be “a while” until it happens.

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  3. Global ETF Market Will More Than Double by 2021

    The global market for exchange-traded funds (ETFs) will more than double over the next four years, as investors look to capitalize on broad diversification and deep liquidity in an increasingly uncertain financial environment. The bulk of that activity will be concentrated in North America, creating fierce competition among ETF firms looking to differentiate themselves from an increasingly crowded market.

    By the end of 2015, global ETF assets under management (AUM) reached $2.959 trillion, according to PricewaterhouseCoopers. That represents a gain of 102% over the last five years. The market is expected to top US$7 trillion by 2021, with North America accounting for roughly 84% of total AUM. The European market is also expected to expand rapidly over the next four years to reach $US1.6 trillion by 2021.[1]

    Investors are flooding the ETF market for its apparent advantages over traditional open-ended funds. ETFs provide greater transparency, better tax efficiency and more flexible trading conditions than mutual funds and other investment classes.[2] ETFs also offer broad coverage, which allows investors to buy large sections of the market or diversify across many different sectors in a highly efficient manner. This combination has made ETFs a key driver of retirement planning and wealth generation for investors throughout the world.

    Despite these advantages, the rapid of uptake of ETFs isn’t without its drawbacks. By the end of 2015, there were well over 4,000 ETFs available on the market,[3] placing a bigger premium on due diligence and investor education. With many more ETFs in development, navigating this complex environment can be a daunting task for passive investors or new entrants into the market.

    The industry is also undergoing rapid change as successful ETF issuers embrace emerging technologies in the form of big data, artificial intelligence and social media. This has led to the growth of robo-advisors, which provide portfolio management solutions through custom software and complex algorithms. Like the name implies, robo-advisors operate with minimal or no human supervision.

    Although ETFs are generally considered to be safer alternatives to other asset classes, a certain segment of the market carries greater risk. In 2015, the U.S. Securities and Exchange Commission (SEC) sought to address those risks by introducing reforms related to derivative and leverage products. Certain ETFs are double or triple leveraged, while others offer double or triple inverse exposure. Although these assets can lead to returns that are double or triple the tracked index, they can also trigger losses of the same magnitude.

    ETFs, like other asset classes, offer a blend of opportunity and risk that investors must carefully weigh before entering the market. The growth and widespread adoption of ETFs since their inception in 1993 suggests the market will remain in expansion mode for the foreseeable future. This trend is expected to intensify thanks to globalization, technological innovation and increased volatility in the financial markets.

    [1] PricewaterhouseCoopers (2016). ETFs: A roadmap to growth.

    [2] Fidelity Investments. Benefits of ETFs.

    [3] Statista. Number of Exchange-Traded Funds (ETFs) worldwide from 2003 to 2015.

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    In a digital world such as ours, currency is almost becoming obsolete. With so many smartphones and debit- and credit-card readers being used for point-of-sale transactions these days, the paper and metal currency and coins that we have used for more than two centuries have now become quaint.

    In a digital world, money has moved from cotton paper to a series of zeroes and ones. It would make sense that in this new world, a new currency for online and digital transactions would be formed for these specific purposes. But there are a lot of questions about this new currency, called Bitcoin – namely, what is it really, and how prevalent can it be in an economic universe in the tens of trillions of dollars when there is less than $20 billion worth currently in circulation? (Two billion is 0.2 percent of 1 trillion. Just so you get a picture of the small universe we’re talking about here.)

    What is Bitcoin, Anyway?

    How to define Bitcoin is pretty dependent on who you ask. According to the “official” Bitcoin website, Bitcoin is actually a “consensus,” decentralized, peer-to-peer payment system that uses digital money. Bitcoins are used in this system for transactions much like cash would be used in brick-and-mortar stores. There is one government agency that considers Bitcoin a commodity (we’ll look at that in a minute), and there are others in the financial world that see it as a currency. Commodities and currencies have different regulations for their use, so the distinction is important.

    The Bitcoin Market

    As Bitcoin soars to a new high in value (nearing $1,200 per coin), the market for bitcoins is pretty expansive for it being a small universe. At last count, there were more than 100,000 merchants that accept Bitcoin as a valid form of payment for online and web-based transactions. The currency and the payment system have been growing slowly since its inception in 2008 and it currently has a universe worth about $18 billion. At the current valuation, that means there are about 15 million bitcoins currently in “circulation” – a sort of misnomer, as bitcoins are not circulated in the public monetary system but just within the Bitcoin system.

    Bitcoins in some ways are a lot like foreign currencies compared to the U.S. dollar. The U.S. dollar is generally stable in value inside its national borders, and it compares to other currencies in exchange according to the market supply and demand of the various currencies in each country. With that, bitcoins will fluctuate in value, which means if you were to buy something with a bitcoin, it doesn’t have a stable rate of exchange like a $100 bill does. It is almost like selling the bitcoin for cash according to the value of the bitcoin at the time of the transaction.

    Currency or Commodity?

    That is a very good question, because it’s not as obvious one way or the other. On the one hand, bitcoins are used to pay for goods and services online and in an exclusively digital environment. In that sense it is a currency. On the other hand, Bitcoin is a decentralized payment network that does not have a central bank or central processing, so it’s like using a commodity like gold bars in a sort of barter system, where one trades bitcoins for a good or service that another possesses.

    And because bitcoins do not have a face value on them like regular currency, it can be thought of as a commodity because the value of a bitcoin fluctuates wildly according to market forces within the Bitcoin network. While a bitcoin may be worth nearly $1,200 today and was worth about $1,100 in 2013, in between the value plummeted as low as $200.

    An Investor’s Take

    While an institutional investor like Goldman Sachs is on the record as investing in Bitcoin, it doesn’t mean that you, as an individual investor, should do it. The bitcoin market is very small in relation to the overall economic universe, and because it is small, the value of bitcoins will be perhaps the most volatile of any currency or commodity on the markets. And if you want to think of it as a commodity, that means you will want to invest and hold the bitcoins, which means you would be reluctant to engage in the Bitcoin system and network.

    And with only 15 million bitcoins in “existence,” holding a few of them can cause the value of the bitcoins to ebb and flow according to how many others hold it like you would, or how many will use and spend them freely in the network.

    Bitcoins are treated like a currency, but are looked upon as a commodity in need of regulation according to the Commodity Futures Trading Commission (CFTC), which wants to provide regulatory oversight of the Bitcoin network. Bitcoin is an interesting concept, but getting involved in such a small universe as an investor would involve an awful lot of risk – perhaps too much for all but the most daring individuals who may have some money to gamble, when the casino or the horse track aren’t interesting.

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    Many of us are or were taught in economics about the counterrelationship between stocks and bonds in investments. Usually when an investor is seeking diversity, a portfolio will include a mix of stocks and bonds for this traditional adversarial relationship.

    Traditional Market Roles

    The story usually goes that when the stock market is in a bull run, the bonds go bearish, meaning that the demands for bonds goes down as stocks rise, making prices for the bonds g down and yields go up in an attempt to attract business.

    The opposite is (usually) true in a bearish stock market. When there is uncertainty or it looks like the market is taking a negative turn due to poor economic news, investors tend to invest more in bonds, which drive the prices up and sends yields down.

    However, for at least the last two to three years of the Obama administration, there have been some mixed messages to the point that tradition was broken and the stock and bond markets both trended the same – bear to bull and back again. The question is often whether to buy stock in private (but publicly traded) companies, or to buy bonds created from federal or state governments?

    About Stocks

    It makes sense that stocks and bonds would be adversarial in a yin-and-yang sort of way. Stocks are shares of a company – a person who invest in Apple, for instance, essentially owns a piece of the company. If you own Apple stock, you are a co-owner of that company. And if you own the company or want to buy some ownership, that usually means you are bullish about that company. You are betting that your optimism in that company will be well-founded and that you will make money on that bet.

    When the company is doing well, more and more people will want that stock, and as there is no unlimited supply of stakes, the shares that are on the market become fewer and the price goes up. And if you hold your stake long enough and then sell at or near the peak, you can make yourself some money.

    About Bonds

    While companies also sell bonds, stories about stocks vs. bonds usually deal with U.S. government bonds – that which the government puts out to bring in money to pay its bills every year – as the country is averaging an annual deficit of nearly $1 trillion. Bonds are essentially IOUs from the government to those who buy them – it is a promise that if you give the government money on this bond, the government will pay you interest on a regular schedule based on the coupon (interest rate) posted on the bond, until the date that the bond matures. And you get your initial investment returned to you at that time, provided you hold the bond at the date of maturity.

    While taxpayers may not like the federal government offering so much debt every year, investors in a way love it. Federal debt is backed by the federal government, so it is a very reliable investment. It doesn’t make a lot of money (current yields are in the 2-2.5 percent range) for an investor, but as most bonds are 10- or 20-year notes, it can be a reliable source of income over time, whereas even dividend-bearing stocks don’t offer dividends every quarter nor always at the same or higher amounts each time.

    The Trump Economy – When, and How High?

    With Donald Trump now President of the United States for the last month, there has been much talk about what might happen to the economy, based on Trump’s rhetoric and the reality of the molasses-in-winter movement of Congress. The current argument is not really about whether the economy will grow under Trump – the overwhelming consensus is that it will, based on his call for fewer regulations and lower taxes, never mind the sticky tax-reform talk – it is about how fast that growth will come.

    Those on the bond side say the growth will be a little farther down the road, and in fact thre may be more bond-buying opportunities in the next 12 to 18 months, because reduced regulations will take a little while to appear in the economy, and taxes at this point do not seem to be changing much and the effect may not be felt until later this year at the earliest. Even newly minted Treasury Secretary Steve Mnuchin is quoted to essentially say that it’s best to lower expectations at this point.

    On the stock side, the stock market has previously “baked in” Hillary Clinton’s “impending” electoral victory last November, and since Elction Day, the markets have shot out of a cannon upward, trusting that the Trump economy just has to be better than the Clinton econoy would have been. Any glimmer of optimism is enough to push stocks higher – the market is more of an optimism gauge for the future than a current state of the economy. Some say that stocks should be bought now in preparation because there is a sense that this could be another Regan economic boom – and that one didn’t take hold until a couple years into his first term. They think it will be the same with Trump, and jump on board now!

    Who Will Win?

    That is a difficult question to answer. There is no crystal ball, and with the way the economy has transformed and evolved over the last 20 years, what has traditionally been true in the markets and the economy could be completely obsolete and off-base this time. There seems to be optimism on the whole that the economy will improve (could it get worse, honestly?), and both the bond and stock markets are preparing for it. But how fast will the turnaround happen remains to be seen, and how large will the growth be is also hard to predict.

    From an investing perspective, you should have both stocks and bonds in your portfolio if you want to be truly diversified, but if you agree that growth will happen soon, then stocks are a good way to go. If you are more pessimistic, then stick with bonds – they take away much of the risk of stocks and at least give you some modest returns even in down times, which is something you won’t get from stocks in a bear market.

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    Oil is everywhere. Besides food items, it is a commodity that is used every day throughout the world, and is invested in by the billions every year as an opportunity to make and grow wealth.

    Unlike food, however, it is perhaps the most maligned commodity in the world as well, not just for what is supposedly does to the environment but also the ways in which companies extract the commodity to put it into the market.

    Most food comes out of the ground too, but we digress.

    The Prevalence of Oil

    Oil is not just about jet fuel and car fuel. Oil is even more prevalent than that, as much of it not only powers engines, but it is also used in cosmetics, some hair products, lubricants and building materials, just to name a few. In just one day, the world consumes about 87 million barrels of oil, which translates into 3.65 million gallons. Per day.

    That is just the demand side. There is the supply side too, which is not entirely a zero-sum game. At least, it’s not in the current market, as prices are looking to find an equilibrium point since OPEC (the Organization of Petroleum Exporting Countries) cut back its daily production recently in order to send market prices higher.

    The Supply vs. Demand Dance

    Because so much oil is consumed each day, oil is arguably the most volatile commodity in the market. Oil essentially works on margin, meaning that prices will quickly spike or depress on any rumors of increased or decreased supply or demand, disruptions in transit or trade, and even economic factors having to do with various oil companies and their oil-exploration successes or failures.

    With that as a backdrop, it makes perfect sense why the Keystone XL and Dakota Access pipelines have gotten so much attention int eh news and in the markets. With technologies allowing oil companies in the U.S. and Canada to extract more oil from the ground than was thought possible 20 years ago, there is a surplus of oil in the markets, and that drove prices down to levels that were not sustainable for many oil-exporting countries (we’re talking $30-$35 for a 42-gallon barrel at one point).

    When that happens, some countries are forced to draw back the amount of oil they produce and export to other countries in the hopes of depressing the supply so prices will go up. They would much rather see more demand, but in the current environment they are seeing less demand partly because of increased domestic production of oil in the U.S. and Canada, which is collectively the largest region of the world in oil consumption.

    In the Pipeline

    One of the challenges of oil is getting the oil from the ground to refineries where it is turned into various oil products, such as several grades of jet and automobile fuel and lubricating or base oil for cosmetics, lubricants and even some cooking oils. Transporting oil can be a pricey endeavor, whether the oil is shipped by boat, train or truck.

    Pipelines have become all the rage lately as a way to have oil extracted in North America and sent along a pipeline to refineries in the southern part of the U.S., where the finished products are then shipped to ports domestic and international. Pipelines take a large initial investment in permitting, environmental anf financial feasibility studies as well as construction, but over time they are expected to greatly reduce transportation costs and essentially provide more oil to the refineries and increase the supply in the market, which keeps the price affordable for consumers.

    Oil as a commodity is volatile anyway, but it has especially ridden a roller-coaster with all of the stops and starts to Keystone and Dakota Access pipelines in recent years. As they say, time is money, and the longer these pipelines take to be completed, the more expensive oil becomes for everyone.

    Investing in Oil

    If you are looking for a commodity in which to invest a portion of your portfolio for the sake of diversification, oil may be a good choice if you don’t mind the volatility. As long as oil has been around in the market, it has never been worthless, but its price fluctuates on the tiniest of rumors of anything involving supply or demand.

    If you want to invest in oil, never take a short-term approach. And pay close attention to companies involved in the oil industry, from production companies like Exxon Mobil to oil exploration equipment companies. As the market ticks upward, these companies will all benefit because increases in price means an increase in profit, as many operational costs stay relatively steady regardless of the supply or demand.

    However, if demand continues to increase and a company decides to open more exploration, that company may see its stock drop because the profits that may be gained by higher oil prices will be spent on the expense of a new exploration that may or may not prove fruitful.

    The Bottom Line

    Oil is a commodity that is interwoven in all parts of the economy, as there are very few industry verticals that don’t consume some oil to operate. Paying attention to oil supply and demand notes that come out weekly can be a hint as to where to look to invest. But don’t look for a quick buck in oil; it’s far too volatile to really time the market and be able to jump in and out as you see fit. Ride out its volatility and see it smooth out over a long period of time. There is a supply in the ground that may last the world a couple of centuries, and while alternative energy sources are trying to gain traction in the market, oil will still be needed in many economies for the foreseeable future, so there will always be a reason to be bullish on oil.

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    In the world economy, there will always be times of uncertainty. If uncertainty was a commodity, you would be buying and selling it often, because at least one part of the world will have some uncertainty attached to it at some point.

    The United States is more than $20 trillion in debt.

    England will be leaving the European Union.

    Greece is months away from bankruptcy and getting itself kicked out of the EU by force.

    Three European countries (Netherlands, Germany and France) are having national elections soon, with each country putting forth candidates that are campaigning to get their countries out of the European alliance.

    China continues to manipulate its currency. North Korea keeps testing missiles. Japan is on its second Lost Decade.

    Investment is About Directions

    Notice the word “directions,” plural. No matter where you have uncertainty, you can and should never invest in only one direction – one country, one industry, one investment vehicle. Even when the weather-vane of the markets is pointing in one direction, one should always have a multi-directional weather vane so you are prepared for the winds to change.

    Because they will change. What you were certain about this month, you will be uncertain about next month. And it is always said to never invest when you are uncertain.

    But it is also always said, once you are in a market, it is never a good idea to get out of the market entirely when uncertainty hits. So what to do when your multi-directional weather vane is reading the winds in no direction whatsoever?

    A Golden Opportunity

    If you are thinking of investing in uncertainty, because there will always be a supply of it and enough willing people to buy it, then you won’t have to get out of commodities altogether if and when uncertainty hits, as it tends to do when the Middle East explodes.

    To follow the advice of not pulling entirely out of a market in times of uncertainty – every market whether it’s a region of the world, an industry or an investment vehicle, has a “safe haven” for just these times.

    For the commodities markets, that safe haven is gold.

    Gold gets into the headlines every time there is uncertainty, especially in the U.S. markets. When the stock market corrects or crashes, gold-buying commercials are rampant.

    But that goes against the “buy low, sell high” investment mantra. If you were to invest in gold, you would do it when you were ready to sell at your peak and use gold as a protection from the correction or crash.

    Gold can be a valuable asset when you are not just confused, but also when you’re scared. Why? While gold can be volatile, it is not nearly as volatile as other commodities such as oil or natural gas, or even some food items. Gold is generally stable, though it does have bull and bear runs – but it’s rarely in a very short amount of time like days or weeks. If you are a little late getting in on a bull run, you can usually hop on the train and still ride it because fear takes time to work its way through a market and sometimes even longer to be relieved.

    Trump and the Gold Bulls

    As with many markets leading up to the U.S. presidential election in 2016, commodities like gold had a Hillary Clinton win “baked” into its pricing. With many thinking that Clinton would win and press forward with many of the policies of the last administration, there was a bit less uncertainty in the markets among investors. For the most part, they pretty much had an idea what they were going to get in a Clinton administration, so markets were somewhat stable.

    Then November 8th happened.

    While the stock market has rallied feverishly in the last three months (up more than 15 percent since Election Day after being flat in the four months prior), gold has also rallied.

    That doesn’t make much sense, usually. Buying into a stock market is usually a sign of certainty, while buying into gold is a sign of uncertainty or fear. So what gives?

    It’s a two-edged sword. The stock market is optimistic about the future growth of the American economy, while gold is uncertain with the world economy. All the “fires” that are burning right now, mentioned earlier in this piece, are the factors that are driving more investment in gold, and have driven a bull market that perhaps not even a Fed interest rate hike (or two) will change.

    Trump is being blamed or credited for the bull market because while Clinton was “baked” into gold prices, Trump’s apparent like for more government spending (at least based on some of his stated policy positions) has surprised some into thinking that at least some of Clinton’s policies may be implemented after all. And with the debt number already unsustainable, Trump’s rhetoric before he submits his first budget has created an extra level of uncertainty, if not outright fear, about how sound American fiscal and monetary policy are in the coming years.

    When it comes to gold, make sure to stick to the same philosophy as with stocks or most other investment vehicles: Buy low, sell high. Buy the uncertainty, sell the fear.

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  8. U.S. Dollar Hovers Near One-Month High Despite Political Risks

    The U.S. dollar rose against a basket of other major currencies on Friday, as optimism about a stronger domestic economy outweighed political risks concerning the Trump White House.

    The dollar index, a weighted average of the greenback against a basket of six other major currencies, rose 0.5% to 100.95 on February 17. The index reached more than one-month highs earlier in the week after Federal Reserve Chairwoman Janet Yellen signaled that U.S. interest rates would continue to rise gradually throughout the year.

    Higher interest rates make the dollar a more attractive bet for yield-seeking investors. Following its December policy meeting, the Federal Reserve said it expects interest rates to rise three times in 2017[1] – a vote of confidence to an economy that has faced significant obstacles since the financial crisis. However, investors shouldn’t expect the dollar to react much at all to subsequent policy moves by the Fed, since the currency has already gained over 20% since mid-2014. Those gains were largely tied to expectations the Fed would slowly normalize monetary policy.

    The dollar has strung together an impressive rebound since the end of January, including a ten-day winning streak through February 14. Prior to that, the greenback was trading at three-month lows amid tough trade rhetoric from U.S. President Donald Trump. Prior to his inauguration on January 20, Trump told The Wall Street Journal he thought the dollar was “too strong,” especially in relation to the Chinese yuan.[2]

    Trump would further erode confidence in the dollar by signing executive orders to curb immigration and reshape U.S. trade policy. With the stroke of a pen, the President formally withdrew the U.S. from the Trans-Pacific Partnership (TPP), a bilateral trade agreement involving 12 countries. Trump also signed an order calling for the immediate review of the North American Free Trade Agreement (NAFTA), which has governed bilateral trade between the U.S., Canada and Mexico since 1994.

    Although not explicitly stated, the Trump administration clearly favors a weaker dollar. Within the context of global trade, a weaker currency makes a country’s exports cheaper to foreign buyers. This was most recently displayed in Japan, where a weaker yen helped the economy avoid contraction in the fourth quarter. Japanese exports rose 2.6% in October-December, the fastest in two years.[3] The economy expanded 0.2% as a result.

    The dollar strengthened nearly 15% against the Japanese currency in the fourth quarter, reaching a high of 118 yen.

    Despite Trump’s clear opposition to a strong dollar, the U.S. currency is expected to remain strong as the Fed continues to diverge from other central banks on monetary policy. Central banks in Europe, Japan, Canada and Australia are in the process of easing monetary policy or keeping interest rates at record lows in support of economic growth. These efforts are unlikely to let up anytime soon.

    [1] Patti Domm (December 14, 2016). “Fed surprises with three rate hikes next year – and it could need to do more.” CNBC.

    [2] Adam Chandler (January 18, 2017). “Why Would Donald Trump Want a Weaker Dollar?” The Atlantic.

    [3] Tetsushi Kajimoto and Stanley White (February 12, 2016). “Exports prop up Japan fourth quarter GDP growth, U.S. protectionist risks loom.” Reuters.

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