Individual Stocks or Index Funds - 2019 may be a pivotal year!

Picking Stocks VS Index Funds in 2019

2019 does not bode well for Stock Indexes and therefore, Index funds.  Buying Index funds has been the go-to investment of individual investors (and some institutional investors) for years now.  Since 2009, many have done very well with this simple strategy which has outdone many money managers over that time.

2019 may be different for a number of reasons! This bull market we have enjoyed since 2009, is getting very long in the tooth and 2019 is beginning to look like the end is in sight.

The macro picture is a mishmash of poor decisions and poor leadership from Central Banks and world leaders alike. The news is dominated by trade war talks, Walls, Brexit, German (read Euro) downturn, and Debt, beyond anything we have witnessed in the past. Real war cannot be dismissed either as the USA and North Korea are at a stalemate, and (nuclear armed) India and Pakistan are shooting down each others fighter jets, to the cheers of their domestic audiences.

With Britain on the verge of a "no deal" Brexit, Italy may be becoming a financial basket case, German output is inching into negative territory, and in France, the Macron government has done nothing to right that ship.

Some believe that, Deutsche Bank may well be the "Lehman Brothers" of the Euro zone this year as creditors close in and a bailout partner is not in sight. The two largest economies on the planet, USA and China are at serious odds over trade AND both are in serious DEBT!

As the USA begins to withdraw from the world under this administration, it owes $22 Trillion dollars and that debt is now growing at 1.5 Trillion per year under Trump.

There are two ways to handle such a debt burden, 1: Default
2: reduce the dollar to a nickel.  There is no other way to pay down such a massive debt! (my bet is that, if it were entirely up to Mr. Trump, he would pick door number 1)

There are now more refugees on the move across the world than WW2 and most countries are putting up barriers to entry. Euro zone countries from Spain to Greece are doing whatever they can to keep out refugees, instead of welcoming them. Climate change, inept governments and wars are the reasons for such a migration.

Witness the debacle in the USA on the southern border as this president continues to threaten to shut down government if he does not get his wall. This argument is a hideous sidelight to what is truly going on in the world. This same administration seems to admire despots while scorning democracy, whether it is in it's own constitution or that of valuable allies.

The USA has now walked away from trade agreements, peace treaties and most recently, a nuclear arms agreement with Russia. None of these things bode well for markets, or indeed, humanity, going forward, but the pied Pipers of Wall Street keep on playing!

On a lesser, and personal financial note, while most index funds have very low fees, they are paid annually, and therefore, add up over time, eating into profits.  As the value of your investments go up, so do your fees. This is a built in strategy that will eventually eat away at your gains. If these investments go down, the fund still gets paid, every year!

Conversely, Buying individual stocks is now usually done online for less than $10 per trade! (One time). When an index tumbles, not all stocks are included. Some stocks actually go up at such times.

 The drawback:

Now you have to do homework!  Stocks are not index funds! They require you to do some investigating of your own, unless, of course, you want to keep all your money in cash, gold and silver, and buried in your back yard!

The pain in Grain is mainly on the Brain!

Image via WikipediaThis week, CNBC commentators were asking if "Wheat is the new oil"! Of course they were referring to the troubles in the Russian Wheat pool and a possible 20% reduction in Canada's wheat crop this year and the impact of these two, otherwise unrelated events, on the price of grain, specifically Wheat. They were also wondering is "Potash the new oil". (the hostile bid on Potash Corp by BP Billiton)
My Deja Vu senses awakened when I heard the comments.  It took me back a year when the same CNBC pundits were asking, "Is Lithium the new oil" (electric car batteries) and two years ago when they asked "Is natural gas the new oil".  (new shale gas discoveries) It even took me back to the turn of the century (this century of course) when the same pundits were asking "Is hydrogen the new oil"! (hydrogen fuel cell vehicles)

Half of a BRIC may be more valuable, Than a whole BRIC !

Image by De Balie via Flickr

The BRIC countries, (Brazil, Russia, India and China) are once again looming large on investors radar screens. For the average, retail investor, there are a number of mutual funds which highlight good companies in, what are considered, four strong, emerging markets. Some of these funds include companies from other Asian and South American countries (Indonesia and Argentina come to mind), but concentrate their portfolio on the BRIC block as they are seen as the emerging tigers of the worlds future economy for various reasons. There is, however, a serious problem with two of them.

No matter the last 15-20 years of supposed free market reforms, China is still a communist country with democracy only a distant dream! Time and again, they have proven that the rule of international law does not apply to their country. Copyright infringement is rampant and far reaching, graft is still part of local and national government business, and as for human rights, well, they don't apply. Lately, the country's leadership has been working, through the proxy of it's nationally owned companies, to soak up much of the worlds raw material, from oil and gas, to fertilizer, coal, and ingredients for making steel.

No supposed "free marketer" dares to challenge policy in China, for fear of being ostracized by the great, red, business machine. Just ask Google! Ominously, the recent run up in the Chinese markets is driven mostly be inexperienced Chinese investors, with visions of sugar plums dancing in their uneducated investment heads. That can only end badly with many of them learning the hard way that what goes straight up, always comes down. In the final analysis, will the rules of business, be guarded by the rule of law? Maybe, but, contrary to many other wide eyed investors, I'm not putting my money on it, or into China.

Russia has a shrinking population, a suspect banking system and clings to a Government structure of "strong man rule" under the guise of democracy. Russia has proven time and again, that they have more crime bosses, than CEO's. Just ask any of a dozen good companies who have arrived from the west during the past 15 years, only to be cheated out of billions in real estate, oil, gas, you name it. The names of these business are too numerous to mention, but they certainly know who they are. Or ask any of a number of honest journalists who have challenged the status quo in that country (Oh, sorry, you can't ask them, because they are dead).Until a proper democracy and the rule of law replace King Putin, I won't be risking any of my meager Retire funds there either.

That, my friends, leaves us with half a BRIC!

India is the "largest democracy in the world", and it just elected a very pro business government that cannot be voted out of office for the next five years. Companies like Tata Motors, Taj Hotels and Resorts, Bajaj Holdings & Investment, Nadir Godrej-led Godrej Industries and lender "Yes Bank" may well be the Microsoft, P&G or Google of the 21st century. Business Week certainly seems to think so! India has a disproportionate number of the worlds software engineers as is evidenced by the number of Indian nationals who emigrated to Silicon Valley during it's heyday, and who now are back in India leading cutting edge companies. Does India have it's problems? Sure it does, but during this global recession, what country doesn't? Exactly! Many believe that India is right now, where China was 20 years ago with regard to business development. Does this sound like a good prospect for your retirefund? It does to me. You can buy a pure Indian Fund on the NYSE.

Brazil is already, so far ahead of the rest of the world in green energy production that it is entirely self sufficient. Besides owning great reserves of oil, almost 50% of it's energy is derived from locally produced ethanol, and they are, far and away, the world leaders in this technology. In Aerospace, Embraer, is a world leader in the building of regional jets in competition with Canada's Bombardier. Banco do Brasil is not in nearly the jam that many American Banks find themselves in, and other companies such as Brazil Telecoms (telecommunications) and Braskem (chemicals) are now on international investors radar screens. Yes, they also have their problems, but they are a growing phenomenon, and Brazil is also a democracy.You can buy a Brazil Fund currently on the NYSE.

Now if we can just get the fund managers to come up with a basket of great companies from these two emerging powerhouses, you might be able to throw just half a BRIC into your Retirefund, and reap the rewards.

Are you listening IShares?

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Will King Dollar be dethroned? Not right now, however...

Image via Wikipedia

From Kudlow to Cramer, there is a hue and cry throughout the United States investment community (or most of it) for the propping up of King dollar. The King has reigned supreme for over 50 years as the most accepted currency worldwide, and a safe haven for value. Now, however, perception and reality maybe beginning to diverge.

Russia today went public expressing the benefits of a strong U.S. dollar, while quietly trying to divest what is left of their international reserves into other stores of value.

China, while using it's substantial foreign reserves (1.4 Trillion) to prop up it's own domestic economy, is also quietly seeking international input into developing an international currency or bank of currencies, possibly set by the world bank. Is there a Prince in waiting? The answer is no! At least not now!

The BP and the Euro have been trashed by their own economic mismanagement and the spillover from America. The Gold standard has been essentially abandoned over 40 years ago, and there is no other currency with the same acceptance level as the usd. China has it's currency directly tied to the usd (which causes all kinds of related problems), the Russian Ruble is, well, the Russian Ruble! The Japanese yen has had a severe case of the money flu for 10 years. India, Brazil, not even close! The renmimbi? Not hardly!

However, with the u.s. economy going 10.7 Trillion into debt by the end of this year, it's economy suffering from so many other ailments in housing, jobs, infrastructure and the big banks Derivatives debacle, we may be seeing the first serious cracks in the throne. Many money managers see serious inflation 2-3 years out. That can only mean more devaluation of King dollar.

Americans should be aware of a wake-up call that occurred this year. The members of the BRIC Countries (Brazil, Russia, India and China)held their first joint meeting as a group of rising economic powers. Can the King get hit by a BRIC?

How can this affect "your retirefund"?

That is between you and your financial adviser. Get good advice, make a plan, follow the plan. Putting U.S. dollars in your mattress is far and away, the worst plan you could have at this point, unless, of course, your mattress is the size of Philadelphia!

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