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After The World Cup, Nothing Can Save Brazil

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By: Joseph Hogue of Street Authority

Shares of Brazilian companies listed on U.S. exchanges have made a remarkable comeback since March. The reasons given in the financial press would be comical if they were not so ridiculous.

For instance, one pundit says the World Cup, though well over budget and a spectacular failure for the home team, will mean faster economic growth in the second half of the year.

That's just a sample from a list that goes on and on... but nobody's acknowledging the economic reality that is poised to bring stocks down again.

Stocks Bounce -- But Not For Long
In November, I examined the country's deep fiscal problems and predicted lower economic growth on higher rates. Since then, analysts have downgraded estimated 2014 economic growth to just 1.2%, down from expectations well above 2% last year. In March, the country's debt was downgraded to BBB- (one level above junk) by Standard Poor's, and the government will likely miss budget targets this year.

Shortly after my article came out, Brazilian stocks plummeted, with the iShares MSCI Brazil Fund (NYSE: EWZ) falling 18% in just three months. Shares of Petrobras (NYSE: PBR), forecast to be the hardest-hit for its role as state-controlled piggy bank, fell almost 38% over the period.

While Rousseff's approval ratings have been dropping, investors are underestimating the power of her political base and the government's ability to manipulate the electorate with social programs. The government has boosted cash transfers to the poor and increased tax exemptions. Price controls have lowered electricity by 30% and bus fares by 20% over the past year. Continue reading "After The World Cup, Nothing Can Save Brazil" →

The Absolute Best Way To Choose The Right ETFs

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By: David Sterman of Street Authority

The rapid proliferation of the exchange-traded fund (ETF) industry has been a boon for investors.

Many folks now simply focus on a key sector or trend, and buy the most suitable ETF to hit their target. For these folks, the time and energy of individual stock research just isn't worth it. Yet the process of picking the right ETF can be downright confusing.

Let's say you want to own an ETF that focuses on industrial companies. Do you choose the SPDR Industrial Select Sector ETF (NYSE: XLI), the Vanguard Industrials Index ETF (NYSE: VIS) or the iShares Dow Jones U.S. Industrial Sector Index ETF (NYSE: IYJ)? Before you answer that question, know that there are also more than a dozen other industrial ETFs, with a niche focus on China, multinationals, small caps... the list goes on.

Frankly, we may have reached a point of too many ETFs, and some funds will simply wither away from a lack of interest. According to XTF.com, investors can now choose from more than 1,600 ETFs that collectively control more than $150 billion in assets. In just the month of June, 24 new ETFs were launched. It's getting hard to keep score.

Many new ETFs are falling under the category of "smart beta," which I discussed a few months ago. These funds tend to be pricier than traditional passive ETFs, which have less portfolio turnover and, typically, much lower expense ratios. Continue reading "The Absolute Best Way To Choose The Right ETFs" →

Here's Your Market Roadmap For The Rest Of 2014

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By: David Sterman of Street Authority

When the Federal Reserve first suggested a gradual tightening of its monetary policy in May 2013, investors began to wonder if the long-running bull market would come to an abrupt end.

A quick spike in interest rates at the time gave a sense that times were indeed changing. Yet investors end up shrugging off that noise: The SP 500 rose an impressive 22% between July 1 of last year and June 30 of this year. Toss in dividends and investors garnered a 25% total return -- roughly the amount investors should expect to garner over a three year period in normal times.

But these are not normal times. The stunning 191% gain for the SP 500 since bottoming out in March 2009 is remarkable in light of the fact that the subsequent economic rebound after the Great Recession has been quite tepid. Low interest rates, a huge amount of global liquidity and very high corporate profit margins all get credit for the bull market that has exceeded the wildest expectations of even the most aggressive market strategists.

At this point, it might seem the wisest path to sit back and enjoy the ride, waiting for another 20% gain over the next 12 months.

Yet before you grow too complacent, you need to take a closer look at factors driving the market higher and assess what kind of backdrop we should expect in the six months ahead. Here are key events and factors you should be tracking.

The Economy

At this point, there are really only two points of economic interest: unemployment and inflation.

The former is falling and the latter may be rising. We now know that the U.S. economy created at least 200,000 jobs for the fifth straight month. That's the first time that has happened in more than a decade. The next payroll report comes on Aug. 8, and if that report also highlights a gain of at least 200,000 jobs, then it's hard to see how the Fed will stick by its "no rate hikes in the near future" policy. Continue reading "Here's Your Market Roadmap For The Rest Of 2014" →

Why The Bull Market May Not Be Finished Yet

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By: John Kosar of Street Authority

The major U.S. indices were mixed last week, closing on Friday just slightly on either side of unchanged. The tech-heavy Nasdaq 100 and small-cap Russell 2000 were the strongest performers. As long as the May trend of relative outperformance by these two market-leading indices continues, so should the current broad market advance.

The two strongest market sectors last week were consumer discretionary and utilities. My own asset-flow based metric shows that the biggest increase in sector bet-related assets over the past one-week and one-month periods was in utilities, which supports more upcoming strength in this sector.

A strengthening utilities sector is often driven by declining long-term U.S. interest rates, which we saw last week as the yield on the 10-year Treasury note declined by 9 basis points to 2.53%. This encourages yield-seeking investors to accept more credit risk (via utility stocks) in exchange for potentially higher returns. Therefore, as long as long-term interest rates continue to decline, it should drive more investor assets into utilities and buoy Treasury prices, which move inversely to yields.

Small Caps, Tech Should Continue Leading the Way Continue reading "Why The Bull Market May Not Be Finished Yet" →

Tesla Gigafactory Could Be Boon for Graphite, Lithium, Cobalt: Simon Moores

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The Gold Report: Tesla Motors Inc. (TSLA:NASDAQ) is planning to build a $5-billion "Gigafactory" in the southwestern U.S. that would produce batteries for its high-end electric cars. You seem excited about it. Tell investors why they should be.

Simon Moores: This one plant would essentially double the world's output of electric vehicle (EV) batteries. That's 500,000 batteries a year at capacity. The idea is to drive down the cost of EV batteries by 30% or more. Tesla is focusing on the supply chain to build the lowest-cost batteries possible. If it can make the cost of its cars much cheaper, it should spark mass uptake of electric vehicles. It's a plan to turn the world electric, in a sense, and Tesla begins in 2017 with the Gigafactory and the launch of its third generation and first mass-market model.

"Syrah Resources Ltd. has been active in 2014, announcing two MOUs for offtakes with China and Europe."

TGR: Would Tesla be building batteries solely for Tesla or would it be leasing its technology to other vehicle manufacturers? Continue reading "Tesla Gigafactory Could Be Boon for Graphite, Lithium, Cobalt: Simon Moores" →