The misery index goes up when there is an outside supply-side shock to the economy such as the oil supply shortages of the mid 70s and early 80s. It goes down when things are good. Supply-side effects, either from policy or from happenstance, now dominate the business cycle. For example, during the Clinton administration there was first a large tax increase and military expenditure cuts and Republicans swept into Congress, there were also large cuts to social programs. The resulting budget surplus was contractionary on the expenditure side (tax increases and expenditure decrease) but the increased utilization of computers in offices and low oil prices created dominate supply-side effects that produced a business cycle upturn. Unemployment and inflation, that is the misery index, went down and things were good.

These days we have to worry about the mix of government policies leading to an increase in the misery index and causing a recession. Protectionist trade policies slow production in the 30 to 40 percent of our economy engaged in international trade. All tariff costs have been forward shifted into US consumer prices which is inflationary. Less investment decreases growth in labor productivity which is also inflationary. It also limits future capital expansion and associated job growth which will eventually contribute to increases in unemployment. The Feds dovish accommodation of protectionist trade policies are inflationary, and because they push interest rates down stocks look overly attractive causing the stock market to overheat. The slowdown in trade related economic activity such as in transportation, sea port activity, and trucking and transportation will also lead to increased unemployment. The misery index, which will be creeping slowly upwards, will shoot up rapidly and a recession will ensue when the stock market crashes.

In the meantime, the market is still relatively safe and one can consider (that is, research) the following stocks for growth: MX, PERI, EVRI, FRTA, KBH, OESX, ARAY, TNDM, VCEL, TRUP, and ICHR. For dividend growth, take a look at: BMA, APAM, CMRE, BHP, CVX, GLP, MBT, SNR, PDCO, RCII, SPH, and WES. AS for the best ETFs, consider IVG, XLK, VGT, FTEC, and IYW. Of course if you want CEFs for income, then look at those in my previous spread sheets and pick only those selling at a market price that is less than their net asset value. You can find current NAV and price information on the Fidelity web site. Good investing!

The post February Stock and Fund Picks first appeared on MarchéEconomics.

There are changes to my personal portfolio from July. Specifically, I’m dropping EPR and CCMNX and adding PHD and BSL. These changes are now reflected in the updated portfolio.

Most stock analysts are weak at Open Economy Macroeconomics and tend to look only at the initial static effect on GDP from increased tariffs on China announced for Sept. 1st. This abstract view underestimates the vastness of the negative macroeconomic consequences of Trump’s tariffs. First, there is the uncertainty effect of erratic tariff policy that decrease investment and economic growth, second, there are specific industry effects on agriculture and technology (for which technology is another future growth driver), thirdly, there is increasing inflationary pressure in general that also puts upward pressure on longer-term interest rates which further hampers growth, fourthly, there is the effect of drawing in the Fed to support the tariffs which reduce our ability to fight the next recession, and finally, there are the initial static effects on GDP the brokers are pointing out. Be prepared, not surprised when the markets suddenly tank. Personally, I think a direct restriction on capital expenditure in China would be a better and stronger approach than tariffs and failed negotiations.

For those thinking that Fed rate cuts will temporarily lead to a boost in economic growth and the markets, which is certainly possible, I have some short-term recommendations from Zack’s rank 1 stocks. These stocks are expected to have about 30 to 90 days of increased relative performance and include: MTRN, ARNC, ENVA, OMP, DVA, and MTZ. Zack’s 1 ranked dividend growth stocks include NGLOY, BBL, BHP, FSUGY, PAGP, ARCC, and BCE. Currently, the top ranked ETFs are PSJ, VIG, JKH, FNY, and VOOG.

Alternatively, you could just hold my dividend re-investment funds and disregard the entire upcoming recession, which is essentially the Warren Buffet approach. In any case, Good Investing!

August 14 portfolio update:

Given recent market weakness I am dropping some funds from my personal portfolio that have smaller amounts of assets under management (AUM). These funds are MGF, FMY, PCM, and FFT. I am adding ETY because it is based on both domestic and foreign stocks. I have updated the portfolio from the July Stock and Fund picks with these changes.

August 15 portfolio update:

I am giving up on any positive long-term gains from MIE, a midstream MLP fund and deleting it from my portfolio of income earning CEFs.

Weeks 3 -4 (Aug. 19 – 30):

Trump is on the skids, meeting his Waterloo by trying the negotiate with the Communist Chinese. The Chinese win by never agreeing to any kind of a deal because that will end Trump’s re-election chances. This opens the door for the next socialist who, like Obama, will be good for gold prices. I’d look at stocking up on GGN because it pays a high monthly yield thanks to its low price and may offer capital gains while the Trump administrations circles the drain and the new socialist regime try’s to make everybody better off by increasing demand for everything through income redistribution while at the same time failing to pay for anything (making their proposals look good only on paper) and thereby destroying real production and supply. In other words, get ready for really long lines, wait times, and inefficiency.

Here is my updated monthly paying income and DRIP portfolio that is pretty much good for any scenario and includes GGN. I also added a risk-managed Eaton Vance fund (ETJ) to the mix.

The table is meant to substitute for an immediate annuity in terms of guaranteed income, with the benefit that you get to keep you capital instead of paying it to the insurance company offering the stream of payments. The first thing after a symbol’s stars, more of which indicates greater safety, is the historic risk/ return so L/H means low risk high returns, for example. My July post explains more about the table. Feel free to use the table however you wish. For example, any of the income funds can be held as DRIP stocks if you just want all growth. You never have to sell the DRIP stocks either because they will just buy themselves up faster during a stock market sell-off. As always, good investing!

The post August Stock and Fund Picks first appeared on MarchéEconomics.

As opposed to just kicking the can down the road and giving the Chinese spy company Huawei a life-line, the bullish bias in the market has interpreted the trade truce with China as an actual trade deal . As you know, I’m not in favor of doing any business with the Communist Chinese government or it’s enterprise front Huawei. The Fed rate cut is still on the table and this feeds into the bullishness of the current market. Also, there are many investors that are positioned defensively which means there is lots of money that can be more aggressively allocated if conditions appear favorable.

But just now the foolish Trump administration advanced the idea of new tariffs on the EU. The reason is that Airbus is subsidized and that hurts Boeing. The WTO has authorized countervailing tariffs, but they apply only to Airbus and are intended to offset the advantage of subsidies. Unfortunately, the badly misguided Trump administration sees the WTO ruling as an excuse to put tariffs on a whole array of EU products. This caused the market rally to pause this morning. As Arthur Laffer (a well known supply-side economist) points out, tariffs are a bad thing in the long-run. As an anti-supply-side policy they slow economic activity in the US and around the globe. Already, they have more than offset the positive supply-side effects of US tax cuts and regulatory relief. This will only get worse. The US domestic economy is slowing down and the tariffs, which constrain the Feds ability to reduce its balance sheet in preparation for the next recession, will eventually put us into that recession . . . and with a Fed that has been badly compromised in its ability to offset the recession’s negative effects.

In the meantime, we are still in the short-run. Moreover, the short-run and long-run or only subjectively interpretable periods for which there is no way to predict when one period becomes the other. Thus, one can only keep an eye on relevant data such as declining forward looking market indicators . . . which are starting to diminish consistently. For a short while after an economic downturn occurs, the market will continue to climb before it turns negative as well. This gives us some time, possibly a year or two, before things might turn ugly . . . unless, of course, these tariffs come to an end and we return to the path of globalization, increased domestic and international competition, and long-run economic growth.

Given that long-run (i.e., risk-on) investment is still warranted by the underlying bullish character of this market, consider growth stocks such as TGH, RIO, BBL, CMTL, DIOO, and HIBB. Dividend growth stocks such as OAK, CNSL, PAGP, GEO, SUN, VZ, and NGL are also good bets. A good ETF to bet on is JKH. Good investing!

Week 2 – 3 (July 8 – 19):

The Fed Chief’s testimony made it clear that the Fed must offset the negative effects of Trump’s tariff policies. Since Trump is erratically and unpredictably applying tariffs towards non-trade related issues, investment is declining rapidly. Business investment is the leading aspect of economic growth that increases physical capital, increases the need for labor and jobs, and increases productivity. Productivity, in turn, decreases prices and increases real wages. Uncertainty over when and where tariffs will be applied means that businesses are uncertain about where to move their supply chains or what to invest in. Uncertainty means businesses don’t invest . . . much like when Obama was throwing regulations around erratically and unpredictably. Remember that the Fed had to maintain a zero Federal fund rate then as well. Thus, domestic economic growth is being hampered and upward pricing pressure is growing. That said, no recession is yet in sight and the stock market still appears in good shape. In fact, a lot of money is in risk-off assets and the “all-in” characteristic of a market top does not yet exist.

Growth stocks to look at include RIO, OMP, BBL, BHP, and HIBB. Dividend growth stocks are BBL, CNSL, OMP, and OAK. The best ETFs are PSJ, JKH, and VIG. Good investing!

Week 4 (July 24 – 31):

I decided to include my personal portfolio for generating monthly income and portfolio growth. All stocks and funds are monthly payers and growth comes from those stocks and funds I hold for dividend reinvestment. Growth then occurs from stock/fund appreciation, dividend growth, and dividend compounding. Since growth must occur over the long-run it doesn’t matter what the state of the economy actually is in the short-run.

Notes:  Basically 4 categories follow any stock or fund’s symbol:  Risk/Return, Characteristics, and part of the month it goes ex-dividend.

(1) Number of stars designates my feeling for safety of investment principle, the more stars the better.

(2)  Risk/Returns are L = low, BA = below average, A = average, AA = above average, H = high.  For example, any fund with a low risk/high return would be designated L/H.

(3), Fund or stocks long-run characteristics such as “increasing nav (net asset value)/div (dividend),” IG or NIG stand for “investment grade,” or “not investment grade.”

(4) Beginning 1/3 of the month is BOM, middle 1/3 is MOM, and end of month is EOM.

Also, OV means that it is currently overvalued.  In fact, all funds are CEFs that sell either at premiums or discounts so finding an entry point to buy is a critical step.  Those that had steep selloffs at the end of last December (2018) or from 2007 – 2009 are also better buys during a sell-off.  Still, that may not happen when you want and if you are intending to hold and re-invest, then when you buy matters less because they will simply buy themselves up faster during a selloff and should also quickly regain their pre-selloff prices.  Thus, there is no need to sell them.

The top set of funds are the ones I use to generate monthly income.  The DRIP section are stocks/funds that I intend to hold for growth through appreciation, dividend re-investment, and dividend growth.  If no income is needed, any of the income generating funds can be held for compounding through dividend re-investment.  That said, a fund with a low (L) or below average (BA) return is less likely to grow like one with an above average (AA) or high (H) return.

The post July Stock and Fund Picks first appeared on MarchéEconomics.

Trump trade woe’s continue. When companies buy high bang-per-buck (Productivity divided by cost) resources in foreign countries like Mexico, such as with our automobile industry, it maximizes output per cost or, equivalently, minimizes cost per unit of output. In other words, our automobile industry becomes more competitive by using Mexico’s production resources. China has a communist government and cannot be traded with or used for production because the cost of stealing our technology outweighs the benefit of high bang-per-buck production resources. Trump, the isolationist, wants production in China to continue under his negotiated conditions or to be reallocated to the US where low-bang-per buck resources would destroy our comparative advantage in trade. Instead, why not incentivize resource reallocation from China to Mexico. By doing that, we stay competitive and technology theft by government direction will no longer occur. Mexico’s economy will be greatly improved and the incentive to migrate to the US greatly reduced. Mexico may be so grateful it may offer to build Trump’s wall. Unfortunately, Trump’s thinking that Mexico is somehow stealing our automobile and other industry trade prevents him from choosing this strategy. Because Trump fails to understand optimal resource allocation and the sources of comparative advantage in trade that lead to increased US exports, he will make the US and the rest of the world worse off. He may even cause a global recession so get ready.

In the meantime, the best Zack’s number 1 stocks are AU and TALO. The best dividend growth stocks are APAM, AVAL, and NBLX. Pure growth stocks are GLDD and HTZ and the best ETFs are PXMG and FXL. As for myself, I’ll be heavily weighted toward cash. Eventually, like at the end of 2018, that strategy will lead to a buying opportunity while at the same time preserving capital. Good investing!

Week 2 – 3:

Why can’t we just stop dealing with a communist government’s inability to conduct free market trade? They really don’t want to engage in free market trade, which should be clear enough already. Instead, simply incentivize all US companies to cease doing business in China and be done with it. As it is, Trump is trying to cut a hole in the Chinese end of the trade canoe. In other words, the main effect of tariffs or taxes is to distort prices and trade flows which harms both parties about equally, so get ready for some higher prices. To me, it’s like watching a dual where both parties take ten steps, turn, and then shoot themselves in the head. On top of this idiocy, Trump wants to put more tariffs on autos and Mexican production . . . again trying to cut a whole in the other end of the canoe. Ultimately, this must end badly, but just not right away.

In the meantime, some long positions in growth stocks might include: ERIC, NOA, RYI, TGH, MBUU, QD, and SSL. Top ETFs are PSJ, FCOM, and PXMG. Dividend growth stocks to consider include: BMA, APAM, PUK, ad NCMI. Good investing!

Week 4 (May 25 – 31):

People generally underestimate the negative supply-side tax increase policy of increased tariffs and isolationism. It is estimated to cost the average household about $800 per year which offsets the corporate and income tax decreases about equally. Reduced producer regulations remain the only net positive so the pricing in of negative trade effects aren’t trivial and may occur in subsequent rounds of adjustment. Assuming the tariff policy doesn’t lead to a global recession in the short-term, this represents a possible overcorrection and buying opportunity within the domestic economy. Thus you should consider some dividend growth stocks to research and watch such as USAC, GLT, EPM, AEG, VSAT, GTLS, FSI, CNMD, and ABR. Strong growth stocks include NOA, RYI, TGH, VRNT, QD, OSIS, GPI, CUB and JCOM. Some good ETFs are XLP and XLV. A long-term growth mutual fund to consider is CPOBX. Good investing!

The post May Stock and Fund Picks first appeared on MarchéEconomics.