Forget Dow 20,000… This Indicator Tells the Real Story

By Justin Spittler

It finally happened. For the last six weeks, the Dow Jones Industrial Average has been bumping against a ceiling. Yesterday, it broke through. The Dow topped 20,000 for the first time ever. Most investors are excited about this. After all, 20,000 is a big, round number. It feels like a psychological win for the bulls.

But it’s not an invitation to dive into stocks…not yet, at least. We need to see if the Dow can hold this level.
If it closes the week above 20,000, stocks could keep rallying. If it doesn’t, nothing has really changed. It could even be a warning sign. Until then, sit tight. Don’t chase stocks higher…stick to your stop losses…and hold on to your gold.

Don’t lose sight of the big picture, either.…

Remember, U.S. stocks are still very risky:

➢ They’re expensive. The S&P 500 is trading at a cyclically adjusted price-to-earnings ratio (CAPE) of 28.4. That means large U.S. stocks are 70% more expensive than their historical average.

➢ We’re still in a profits recession. Profits for companies in the S&P 500 stopped growing in 2014.

➢ And Donald Trump is president of the United States. Trump could do wonders for the economy and stock market. But he could also unleash a major financial crisis. It's still too early to tell.

As you can see, "Dow 2,000" isn't necessarily a reason to celebrate. In fact, as we told you two weeks ago, there's something much more important you should be watching right now.

The bond market is flashing danger.…
The bond market is where companies borrow money. It’s the cornerstone of the global financial system.
It’s also bigger and more liquid than the stock market. This is why the bond market often signals danger long before it shows up in stocks.

The bond market started to unravel last summer.…
Just look at U.S. Treasury bonds. In July, the 10-year U.S. Treasury hit a record low of 1.37%. Since then, it’s nearly doubled to 2.55%. This is a serious red flag. You see, a bond’s yield rises when its price falls. In this case, yields skyrocketed because bond prices tanked. The same thing has happened in long term Treasury, municipal, and corporate bonds.

Bill Gross thinks bonds are entering a long-term bear market.…
Gross is one of the world’s top bond experts. He founded PIMCO, one of the world’s largest asset managers. He now runs a giant bond fund at Janus Capital. Two weeks ago, Gross said the bull market in bonds would come to an end when the 10-year yield tops 2.6%. Keep in mind, bonds have technically been in a bull market since the 1980s.

According to Gross, this number is far more important than Dow 20,000. And we’re only 50 basis points (0.5%) from hitting it. In other words, the nearly four-decade bull market in bonds could end any day now.
When it does, Gross says bonds will enter a secular bear market... meaning bonds could fall for years, even decades. This is why Casey Research founder Doug Casey has urged you to “sell all your bonds.”

If you haven’t already taken Doug’s advice, we encourage you to do so now.…
You should also take a good look at your other holdings. After all, problems in the bond market could soon spill over into the stock market. If this happens, utility stocks could be in big trouble. Utility companies provide electricity, gas, and water to our homes and businesses. They sell things we can’t live without. Because of this, most utility companies generate steady revenues. This helps them pay dependable dividends.

Many investors own utility stocks just for their dividends.…
That’s why a lot of people call them “bond proxies.” Utility stocks don’t just pay generous income like bonds, either. They also trade with bonds. You can see this in the chart below. It compares the performance of the Utilities Select Sector SPDR ETF (XLU) with the iShares 20+ Year Treasury Bond ETF (TLT). XLU holds 28 utility stocks. TLT holds long-term Treasury bonds. XLU has traded with TLT for the better part of the last year. Both funds crashed after the election, too. But XLU has since rebounded.

You might find this odd. After all, the two funds basically moved in lockstep until a couple months ago.
But there’s a perfectly good explanation for this.…

Utility stocks pay more than Treasury bonds.…
Right now, XLU yields 3.4%. TLT yields 2.6%. That might not sound like big deal. But those extra 80 basis points (0.8%) provide a margin of safety. You see, the annual inflation rate is currently running at about 2.1%. That means the U.S. dollar is losing 2.1% of its value every year.

That’s bad news for everyday Americans. It’s also bad for bondholders. It means investors who own TLT are earning a “real” return (its dividend yield minus inflation) of 0.5%. Meanwhile, you’d be earning a real return of 1.3% if you owned XLU. Of course, utility stocks should pay more than government bonds. They’re riskier, after all. Unlike the government, utility companies can’t print money whenever they want. If they run into financial problems, they could go out of business.

Today, investors don’t seem to mind taking on extra risk for more income. But that could soon change…

Inflation could skyrocket under Donald Trump.…
If you’ve been reading the Dispatch, you know why. For one, Trump wants to spend $1 trillion on infrastructure projects. While this could help the economy in the short run, the U.S. government will have to borrow money to fix the country’s decrepit roads, bridges, and power lines. This would likely produce a lot more inflation. If that happens, real returns could shrink even more. And that could trigger a selloff in utility stocks and other "bond proxies," like telecom and real estate stocks. In short, if you own these types of stocks just for their dividends, you might want to consider selling them now.

We recommend sticking to dividend-paying stocks that meet the following criteria.…
The company should be growing. If it isn’t, you probably own the stock just for its dividend. That’s a bad strategy right now. It should have a low payout ratio. A payout ratio can tell us if a company’s dividend is sustainable or not. A payout ratio above 100% means a company is paying out more in dividends than it earns in income. Avoid these companies whenever possible.

It shouldn’t depend on cheap credit. After the 2008 financial crisis, a lot of companies borrowed money at rock-bottom rates to pay out dividends. If rates keep rising, these companies could have a tough time paying those dividends. If you own stocks that check these boxes, your income stream should be in good shape for now.

Chart of the Day

“Trump Years” stocks are on a tear. We all know U.S. stocks took off after the election. But some stocks did better than others. Bank stocks spiked on hopes that Trump would deregulate the financial sector. Oil and gas stocks rallied because Trump is pro-energy. Industrial stocks have also surged since Election Day.

Industrial companies manufacture and distribute goods. They include construction companies and equipment makers. E.B. Tucker, editor of The Casey Report, thinks these companies will stay very busy while Trump rebuilds America’s hollowed out economy.

He’s so sure of it that he recommended four “Trump Years” stocks last month. One of those stocks is up 11% in just six weeks. Yesterday, it spiked 8% after the company crushed its fourth quarter earnings report.
The company announced higher sales, fatter profits, and lower taxes. It raised its guidance for the year. In other words, it expects to make a lot more money this year…now that Trump’s in charge.

You can learn about this company and E.B.’s other “Trump Years” stocks by signing up for The Casey Report. Click here to begin your free trial.

The article Forget Dow 20,000… This Indicator Tells the Real Story was originally published at caseyresearch.com.

Why You Should Avoid These Four Blue Chip Stocks

By Justin Spittler

Tech stocks are shattering records. You’ve probably noticed that Donald Trump has had a huge impact on global financial markets. Since Election Day, bonds have tanked. The U.S. dollar has spiked to a 15 year high. And U.S. stocks have broken out to record highs.

Lately, however, the “Trump Rally” has lost some steam. The S&P 500, for example, is trading almost exactly where it was four weeks ago. Technology stocks are still on a roll, though. The Nasdaq Composite Index, which tracks major U.S. tech stocks, is off to its best start in over a decade. MarketWatch reported yesterday:

The Nasdaq Composite has gained 2.76% in its first five trading days of 2017, marking the gauge’s best start to a year since 2006, when it jumped 5.14%.

Yesterday, the Nasdaq jumped another 0.4% to a new record high.

The Nasdaq is now the year’s top performing major U.S. index…
FANG stocks are a big reason why. FANG is a popular investing acronym. It stands for Facebook (FB), Amazon (AMZN), Netflix (NFLX), and Google (GOOG), which now goes by Alphabet. In 2015, FANG stocks were market darlings. Netflix was that year’s top performing stock in the S&P 500. It surged 134%. Amazon, the year’s second best performing stock, gained 118%. Google and Facebook also had great years. They gained 46% and 34%, respectively.

Last year, FANG stocks did just OK…
They climbed 7.8% on average. That’s less than the 9.5% gain by the S&P 500. Trump’s upset victory was a big reason why FANG stocks underperformed the market.

Netflix dropped 5.90% in the three weeks after Election Day…
Amazon and Facebook both dropped 4.7% over the same period. Google fell 4.1%. Like many post election moves, these caught many investors by surprise. But the pullback in FANG stocks actually makes a lot of sense.

Investor’s Business Daily wrote a week after the election:

The big techs had all fallen since the surprise election of Donald Trump as the next president. Trump has championed coal, U.S. manufacturing, a get-tough policy on immigration and other issues that don't favor Silicon Valley, a region that heavily favored his opponent, Hillary Clinton. Trump also has specifically criticized Apple and FANG company Amazon.com (AMZN).

In other words, Trump’s policies should favor other sectors more than technology companies. That’s why investors moved money outside of FANG stocks when Trump won. Investor’s Business Daily added:

"Megacap tech stocks where hedge fund clients were broadly overweight appear to have been viewed as 'safe' and are being used as a source of funds for the rotation into financials, health care and industrials, where investors were not positioned," Morgan Stanley said in a research note Monday.

Of course, the election was more than two months ago. The market has had plenty of time to adjust to the strange new world we find ourselves in.

FANG stocks are rallying again…
So far, they’ve gained 6% on average this year. That’s four times better than the 1.5% gain by the S&P 500. Strong performances by these stocks have helped lift the Nasdaq, which is weighted by market capitalization. This means big companies, like the FANG stocks, impact it more than small companies.

Many mainstream investors are now itching to get back into tech stocks…
After all, most investors like to buy stocks that are rising. It’s much harder for people to buy something that’s falling or down big. Plus, all four companies are household names. They seem like “no brainer” investments.
But you have to understand something about FANG stocks. They’re all very expensive according to popular valuation metrics.

Netflix, for instance, has a price to earnings (P/E) ratio of 350. This means investors are paying $350 for every dollar of earnings Netflix generates. That’s off the charts. The S&P 500, for comparison, currently has a P/E ratio of 26. This means Netflix’s stock is almost 13 times more expensive than your average large U.S. stock.

The other FANG stocks aren’t cheap, either…
Amazon trades at 182 times earnings. Facebook has a P/E ratio of 60. And Google has a P/E ratio of 29.
Now, we understand that these are some of the most dominant companies on the planet. Their shares deserve to trade at a premium. But that doesn’t mean you should buy them. After all, the U.S. stock market has been rising for nearly eight years. This makes the current bull market the second longest in U.S. history.

If the market changes course, expensive stocks like FANG could fall hard and fast…
Even if the market keeps rising, these stocks won’t likely generate huge gains. Again, that’s because they’re incredibly expensive. If you really want to make life-changing gains in tech stocks, you have to invest in companies before they’re household names. In other words, you want to look for the next Google or Facebook.

Chris Wood, our chief technology expert, knows how to find great tech stocks…
And, just as important, he knows when to invest in them. You see, Chris has a proprietary system that tells him when to buy stocks and when to sell them. According to Chris, the key time to buy is when a tech stock is in one of two “Sweet Spots.” If you do this right, you can make huge profits without risking much money.

Over the past year, Chris used this unique method to generate gains of 89%, 51%, 34%, and 33% for his subscribers. Most investors would kill for those kinds of returns. But Chris thinks his readers will reap even bigger gains this year. That’s because several stocks in the Extraordinary Technology portfolio are in their Sweet Spots right now. In other words, they’re sitting on the launchpad.

You can learn about Chris’ top moneymaking opportunity for 2017 by watching this new presentation. As you’ll see, he’s hoping to cash in big on a promising technology that could eventually put the global oil industry out of business. Investors who ignore this technology will likely suffer huge loses. But, if you act soon, you could easily make 100% or more over the next two or three years.

To see why, watch this FREE video.

The article Why You Should Avoid These Four Blue-Chip Stocks was originally published at caseyresearch.com.

Mike Seery's Weekly Futures Recap - Crude Oil, Gold, Dollar, Coffee and Sugar

It's been a crazy end to the week of January 9th through January 13th with the recent wild ride up we had in crude oil going through a calming period you might say it is time for a heads up from our trading partner Michael Seery. We've asked him to give our readers a recap of the this weeks futures markets and give us some insight on where he sees these markets headed. Mike has been a senior analyst for close to 15 years and has extensive knowledge of all of the commodity and option markets.

Crude oil futures in the March contract settled last Friday at 54.87 a barrel while currently trading at 53.24 down about $1.50 for the trading week as I'm sitting on the sidelines looking at a possible short position as prices are right near a 4 week low. The chart structure will start to improve later next week therefore lowering monetary risk as we enter the long holiday Martin Luther King weekend as trading does not continue until Tuesday as prices are now trading below their 20 day but still above their 100 day moving average telling you that the short term trend is mixed so avoid this commodity at present. Oil prices have rallied significantly over the last several months due to the fact that OPEC has cut production and are certainly trying to prop up prices. However I'm a technical trader, and when the risk/reward becomes in your favor I will take that trade, but at this point in time, your going to have to wait until next week before pulling the trigger. Major support is around Tuesday's low of 51.59 as that would also be the 4 week low as that would be the entry point so keep a close eye on this market as the trends are starting to come back in many commodity sectors.
Trend: Mixed
Chart Structure: Improving

Gold futures in the April contract settled last Friday in New York at 1,176 an ounce while currently trading at 1,196 up $20 for the trading week continuing its bullish momentum right at a 7 week high. I have been sitting on the sidelines in this market looking at entering into a bullish position as I do think the precious metal sector has bottomed, however, the chart structure needs to improve as the 10 day low stands at 1,149 which is too far away, in my opinion, risking too much money so be patient as we could be in a bullish position in several of the precious metals later next week. Gold prices are still trading above their 20 day but below their 100 day moving average telling you that the shorter term trend is mixed as the U.S dollar is also near a 4 week low as gold prices have been hit over the last year as all the interest remains in the S&P 500 which is right near another all time high. Trading is all about risk/reward & its not in your favor at the present time, but could be later next week or on a significant price decline as I'm looking at buying this market around the 1,180 level which could happen on any given day so be nimble and quick as trading does not resume until Tuesday afternoon because of the holiday weekend in the United States.
Trend: Higher
Chart Structure: Poor - Improving

The U.S dollar in the March contract is trading lower for the 2nd consecutive session at 101.20 hitting a 4 week low as prices may have topped out on January 3rd at 103.81 as I'm looking at entering into a possible short position, however the monetary risk is too high at the present time as the 10 day high stands at 103.81 risking around $2,600 per contract plus slippage and commission which is too high for this commodity which generally is a lower volatility market. The U.S dollar is trading below its 20 day but still above its 100 day moving average which stands at 99.52 as the rally in the bond market has stalled out as the yield on the 10 year note is around 2.39% as we wait for the Trump administration to take place next week as that certainly will add some clarity to a lot of situations as volatility certainly will increase in my opinion. The chart structure will improve next week so keep a close eye on this market & look to sell on some type of relief rally. Trend: Lower - Mixed
Chart Structure: Poor

Coffee futures in the March contract settled last Friday in New York at 144.20 a pound while currently trading at 148.75 hitting a 6 week high as I'm currently sitting on the sidelines waiting for the chart structure to improve therefore lowering monetary risk as I am bullish coffee as I do think prices are headed higher. Dry weather conditions in the country of Brazil is starting to concern investors pushing up prices here over the last several weeks coupled with the fact of very strong demand despite estimates of nearly 55 billion bags being produced, however the tide has turned in the coffee market, so you want to play this to the upside in my opinion. Coffee prices are trading above their 20 & 100 day moving averages telling you that the trend is higher as the commodity markets, in general, are starting to perk up in early 2017 as I do think the giant bearish trends are over with. The chart structure is terrible at present as the 10 day low is way too far away so I will have to be patient as 3/5 days have to come off the calendar therefore improving monetary risk, but I'm certainly not recommending any type of short position.
Trend: Higher
Chart Structure: Poor

Sugar futures in the March contract settled last Friday in New York at 20.75 a pound while currently trading at 20.82 in a relatively nonvolatile trading week still digesting the sharp rally that we experienced over the last 4 weeks. Sugar prices are trading above their 20 and 100 day moving average telling you that the short term trend is higher as I'm currently sitting on the sidelines, but could be involved in a bullish position next week as the chart structure will turn outstanding therefore lowering monetary risk which then meets my criteria. The commodity markets, in general, look bullish almost across the board as dry weather conditions in Brazil are pushing prices up in coffee and sugar in recent weeks coupled with the fact that the U.S dollar has also hit a 4 week low helping support prices. I trade the sugar market quite often actually & had a short position last month before getting stopped out right around Christmas as this commodity is very trendy and now the trend, in my opinion, is to the upside.
Trend: Higher
Chart Structure: Excellent

Get additional commodity calls from Mike Seery on Cocoa, Soybean, Corn and more....Just Click Here

Why Gold Could Soar Another 353%

By Justin Spittler

Gold is on the rise again. It’s climbed for two straight weeks, and it’s now up nearly 5% since December 15. Many precious metals investors couldn’t be happier about this. You see, gold stormed out of the gate last year. It had its strongest first quarter since 1986. By the end of June, it had risen 25%. Things were looking up. Then, the market changed course. Gold plunged 18% in just four months. Last month, it hit its lowest level since last February.

• The sharp pullback spooked precious metals investors….
But regular Dispatch readers knew that gold would rebound. After such an explosive start to 2016, it was only natural for gold to “take a breather.” We urged you to not lose sight of the big picture. As we often remind you, gold’s a safe-haven asset. Investors buy it when they’re worried about the economy, financial system, or politics. And right now, investors have plenty of reasons to be worried, even if some are still enjoying the “Trump Honeymoon” phase.

• Louis James thinks gold will keep rising….
Louis is our chief resource expert. He is the editor of International Speculator and Casey Resource Investor, our advisories dedicated to resource stocks with big upside. According to Louis, gold has struggled recently because investors expect interest rates to rise. They have good reason to think this, too. After all, the Federal Reserve just raised its key interest rate… but for only the second time since 2006. It also said that it plans to lift rates three more times this year. Conventional wisdom tells us that this is bad for gold. Since gold doesn’t pay interest like a bond, most investors don’t want to own it when rates are rising or are likely to rise.

• According to Louis, the market has already “priced in” higher interest rates….
This means gold shouldn’t fall if the Fed sticks to its plan and raises rates three more times this year. Of course, that’s a big “if.” Heading into last year, the Fed said it wanted to raise rates four times. But it only raised rates once last year, and it waited until the eleventh hour to pull the trigger. We wouldn’t be surprised if the Fed sits on its hands again. If that happens, investors will know something is very wrong with the economy. Many folks will start buying gold hand over fist.

• But that’s not the only reason Louis is bullish on gold.…
Last week, he gave his subscribers several reasons why gold should keep rising:

➢ Rumors of new gold curbs in India have not panned out.
➢ Fear of the fall of New Rome [the EU] is driving Europeans into [U.S.] dollars and gold.
➢ The escalation of the “other” Cold War with China increases uncertainty in global markets.
➢ Even Trump’s best ideas (cuts in taxes and regulations) will cause disruptions that will have to work through the economy before things can improve.

• Gold is incredibly cheap, too.…
Louis explains:

Gold needs to rise another US$900 or so to hit a new inflation-adjusted high. Given the trillions and trillions of new dollars, euros, yen, yuan, and so forth printed over the last 45 years, it should do much more than that.

Right now, gold is trading for about $1,180. In other words, it would have to climb about 75% to reach its previous inflation-adjusted high.
But Louis thinks gold could race well past that in the coming years:

Many analysts see the current market as analogous to the great gold bull of the 1970s, only bigger and longer. Adjusted for inflation, gold rose about 353% from its mid-1970s trough to its 1980 peak. If that pattern repeats itself, gold would have to rise from its December 2015 low to just above US$5,200 per ounce by October 2022.

If gold does anything close to what it did during the ’70s, precious metals investors could see explosive gains in the very near future. Just take a look at the chart below.

• Louis is so convinced that gold’s headed higher, he just made a giant bet on it…

He wrote last week:

I’m so sure, I put my money where my mouth is last week. As advised last month, I entered the market during the peak of Tax Loss Season. I’m not allowed to buy the same stocks I recommend (to avoid possible conflicts of interest), so I bought ETFs instead. In fact, I put about twice as much of my own cash into these proxies for gold stocks than I ever put into gold stocks before.

Louis also plans to buy more gold at the first chance he gets:

I think that 2016 was an overture for what’s ahead. I intend to profit from it. And I’m not worried about any fluctuations in the near term. If prices drop, I’ll hope to buy more. If prices rise, it’s off to the races.

• You, too, can make huge profits from rising gold prices.…
The key is to buy gold mining stocks. Gold miners are leveraged to the price of gold. This means gold doesn’t have to rise much for them to take off. During the 2000–2003 gold bull market, the average gold stock gained 602%. The best ones soared 1,000% or more. Of course, not every gold company is a winner. In fact, many gold stocks are total duds. That’s because gold mining is an incredibly difficult business. To protect your capital and make monster gains, you have to own the right gold stocks. Unfortunately, most folks have no clue what to look for in a gold stock.

That’s where we can help.…

You see, Louis is a true industry insider. He’s visited mining projects all around the world. He’s on a first name basis with many of the world’s top mining CEOs. And he understands the geology inside and out. Louis also has a proprietary system for finding the best gold stocks. Casey Research founder Doug Casey actually taught Louis this system… after he spent decades perfecting it.

You can learn more about Louis’ system by clicking here. As you’ll see, it’s delivered giant gains over and over again. Just don’t wait too long. Gold probably won’t stay cheap for much longer… meaning you’ll want to take action soon to have a shot at truly life changing gains. Click here to learn more.

Chart of the Day

Gold stocks are dirt cheap, too.

Today’s chart compares the NYSE Arca Gold BUGS Index (HUI), which tracks large gold stocks, with the price of gold. The lower the ratio, the cheaper gold stocks are relative to gold. According to this ratio, gold stocks are cheaper today than they ever were during the dot com bubble. They’re also cheaper than they ever were during the last housing bubble.

Keep in mind, stocks were trading near record highs during these periods. Most investors were extremely bullish. They owned too many mainstream stocks and not enough gold stocks. Right now, this key ratio is lower than it was during either period. This tells us that today could be one of the best times to buy gold stocks since the turn of the century.

If you would like to add gold stocks to your portfolio, we encourage you to sign up for International Speculator. As we said earlier, this is our publication dedicated to gold stocks with the most upside. 

Click here to begin your risk-free trial.

The article Why Gold Could Soar Another 353% was originally published at caseyresearch.com.