“What am I supposed to do with my money right now?”
I had dinner with a wealthy South American business magnate a few weeks ago. This gentleman owns a bank – and a large one at that – among plenty of other business interests. He lives a life that most people would envy.
But what struck me was that this man has the exact same problems the rest of us do.
In an era of zero interest rates and expensive stock markets, he has no idea what to do with his idle savings.
He looked at me, shrugged his shoulders and made a gesture with his hands that looked of despair.
I get it.
There just aren’t that many great investments to stick your money in and leave it there.
Even if the Fed raises rates in June… and at every meeting for the rest of 2016… we’re still not going to see savings accounts or CDs offer reasonable returns any time soon.
Two years ago, former Fed Chairman Ben Bernanke commented that he didn’t expect to see the federal funds rate above 4% again in his lifetime.
So for lack of a better alternative, cash has made its way into the stock market.
But stocks come with their own set of risks.
Stocks face headwinds from a strong dollar, weak demand from abroad, and stagnant wages.
To add to the list of worries, stocks are sitting at very pricey levels.
They trade at a cyclically adjusted price/earnings ratio of 25.6. That might not sound like much in a vacuum, but it’s 53% higher than the long-term average of 16.7. And worse, it implies annual returns of about zero over the next eight years.
Stocks have no reason to be this expensive. The S&P 500 has seen its earnings decline for four consecutive quarters.
We’ve all known for a while that the Fed’s zero-interest-rate policy – excuse me, 0.25%-interest-rate policy – was juicing the market, inflating it to these heights.
But earlier this year, ValueBridge Advisors actually put a pencil to it – and found that the Fed’s monetary stimulus was fully responsible for 93% of the market’s gains since 2008.
Considering stocks have been trapped in a trading range for about two years now, it’s hard to see what could possibly push them much higher as the Fed slowly takes the punchbowl away.
So, we return to my South American friend’s question.
What are we supposed to do with our money right now?
Traditional buy-and-hold investments like stocks and bonds look like a lousy bet. But there are some decent buys out there if you know where to look.
I’ll share with you some of what we’re doing here at Dent Research…
As the Portfolio Manager for Boom & Bust, and like Adam before me, I turn Harry and Rodney’s demographic research into action, recommending trades that avoid the market’s various landmines and are likely to do well in our current market environment.
Rodney and I write Peak Income, a newsletter dedicated to finding income and value opportunities in closed-end funds. Our readers are collecting dividend checks every month while the market goes nowhere.
Rodney also writes Triple Play Strategy, a newsletter that runs a momentum-based model. Even in a sideways market, for every stock that’s down, there’s another one that’s up. Rodney’s model identifies them and rides them higher.
Lance has his own service called Treasury Profits Accelerator, where he capitalizes on relatively small moves in the interest rates of U.S. Treasury bonds. And he does it all using just two ETFs.
Adam runs two trading services. In Cycle 9 Alert, he uses proprietary statistical analyses that he’s developed to rank the market’s various sectors, guiding his readers into the hottest corners of the market. And in Max Profit Alert, he identifies stocks that have moved “too far, too fast,” then rides them back to their longer-term trend in a short, pullback trade.
Then there’s John Del Vecchio, our resident forensic accountant. I call John the “Horatio Caine of finance,” after the star of CSI Miami.
John knows where the bodies are buried in the financial statements, so to speak.
His newsletter, Forensic Investor, runs the sort of portfolio you might see in a hedge fund. John essentially runs a long/short strategy that recommends buying cheap stocks with good accounting and shorting expensive companies with dodgy accounting. With the market where it is today, he’s understandably been recommending more shorts than longs.
The fact is, there’s still plenty of money to be made in this market. Sometimes you have to get a little creative, and that’s what we do here at Dent Research. Any one of our approaches will do the trick. And if it means putting in a little bit of extra work to get there, it’s worth the effort.
Editor, Dent 401K Advisor
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