March 25, 2014
- Once more, with feeling: Why U.S. gas exports won’t do a thing to harm Russia
- When cheap gets cheaper: Mayer lunches in London, talking Russian stocks
- The pill of knowledge: Stephen Petranek sees the future at the TED conference
- One niche sector you don’t want to own going into next month
- Another reason Guenthner is cautious… rhinestone toilets and one very volatile stock… readers determined to weigh in on the flat tax (ugh)… and more!
“The annual economic summit of the Group of Seven usually has little political meaning because so little takes place that might have any direct effect on anyone’s life.”
So wrote the Baltimore Sun’s Washington columnists Jack Germond and Jules Witcover in 1994. “The president, whoever it happens to be, puts on a blue suit and a red tie and goes somewhere to meet similarly attired leaders of other major industrial nations for a few days… If anything memorable has happened in the 20 years of these meetings, we don’t remember it.”
Another 20 years have passed, and nothing has changed. The “G-7” became the “G-8” in 1998 with the addition of Russia. Yesterday, it reverted to G-7 as punishment for Russia’s annexation of Crimea. Russia’s foreign minister, Sergei Lavrov, gave the proceedings their due: “We see no great tragedy.”
Nor will exports of U.S. natural gas make any difference to Russia. But hyperbolic lawmakers can dream.
From The Wall Street Journal: “The Obama administration’s approval of a seventh application to export natural gas drew cautious praise from a number of U.S. lawmakers who have been putting pressure on President Barack Obama to allow more gas exports as a way to weaken Russia’s power over Ukraine.”
Energy Secretary Ernest Moniz fueled the excitement by saying that when it comes to the 20-some remaining applications, “maybe we will give some additional weight to the geopolitical criterion going forward.”
As we pointed out three weeks ago, the first U.S. export terminal for liquefied natural gas (LNG) won’t open till next year. Is Putin really quaking in his cowboy boots?
“This isn’t a switch that can be turned on overnight,” writes Bloomberg’s Matthew Philips. “Even if the government fast-tracked the process and approved every application tomorrow, the export projects are privately funded and require billions in capital investment and several years to complete. The furthest along, Sabine Pass, probably won’t begin exporting gas until the end of 2015. The bulk of U.S. LNG exports won’t hit the global market until 2018 and 2019 at the earliest.”
[Ed. note: If U.S. gas exports won’t hurt Russia, they can nonetheless pad your portfolio very nicely. Last fall, our Byron King stood alone in identifying which companies would win federal approval for natgas exports. His premium subscribers played it three ways, for an average gain of 22% in three months.
Now Byron and his resource-minded colleague Matt Insley are taking the profit potential to a whole new level. This coming Sunday, they issue their next recommendation for hefty short-term gains from the energy patch. They’re aiming big — “Texas Rich in 60 Days,” Matt calls it. Learn how to parlay as little as $500 into a six- or even seven-figure fortune at this link.]
“The topic was the crisis in Ukraine,” writes Chris Mayer from London. “And, more to the point, what it means for the financial markets.”
Chris sat down for lunch last Friday with a money manager from a large, well-known firm, a currency trader from a famous investment bank and a connected journalist friend with the U.K. Telegraph.
“Opinion varied,” he writes. “Beyond my tablemates, it seems the main worry is that sanctions on Russia might cause it to disrupt energy supplies to Europe. I find this highly unlikely. Russia depends on energy income from Europe at least as much as Europe depends on the energy. Take a look at this series of bubbles:
“Russia,” says Chris, “could eventually move closer to China or make other deals. But these things are not done in a day, and the Russian people have to eat in the meantime.
“What’s more likely to happen is more of what we’ve already seen. Russian stocks will be under a lot of pressure until this crisis lifts. The Russian stock market was already among the very cheapest in the world before the crisis in Ukraine began. Now it is even cheaper. Take a look at the Market Vectors Russia ETF (RSX), an easy way to own Russian stocks.
“It could be easy money if this thing doesn’t escalate into something worse.” But Chris himself is sitting this one out. “The crisis has not moved me to buy or sell anything yet.”
“Greetings from the TED conference in Vancouver,” reads another globe-trotting dispatch — this one from Stephen Petranek of our tech team.
Stephen has attended these conferences for 13 years — where attendees stump $7,500 to get first crack at the ideas well before the talks are posted online. “A few of the old-guard Tedsters had some of the most interesting predictions,” he tells us. “Nicholas Negroponte, the first TED talker of the conference and the founder of the MIT Media Lab, put it right out there.”
Negroponte forecast that 30 years hence, you’ll be able to ingest information, rather than read it or hear it. “You’ll take a pill and know a language. The way to do this is through the bloodstream.”
Crazy, you say? “Negroponte made the forecast,” says Stephen, “well aware that many of his previous predictions from the TED stage had not been taken seriously at the time they were made. Just before he made that prediction, he went through a long litany of previous predictions, all of which have come true since he began presenting at TED 30 years ago. The evidence suggests only a fool would bet against him.”
Stocks are marginally in the green this morning. Today, it’s the small caps outperforming, with the Russell 2000 up almost two-thirds of a percent, and the Dow up barely a quarter.
The Nasdaq? Almost pancake flat, up less than two points. Greg Guenthner sniffs trouble: “The tech-heavy index dropped more than 1% yesterday” — with highflying momentum names leading the way.
“But the real damage happened under the Nasdaq’s surface. Twitter fell more than 4%. Facebook lost nearly 5%. Netflix dropped nearly 7%. Google — which has risen as much as 9% so far this year — dropped another 2% yesterday, chopping its year-to-date gains to a paltry 3%.
“Granted, these popular stocks aren’t the entire market. But they are some of the flashiest stocks retail investors love to buy. Even if you don’t own a single share of these popular momentum names, yesterday’s market action is cause for concern.”
Where’s the money flowing? “Look no further than the old-school technology stocks. After Microsoft’s big breakout early last week, the stock continues to sneak higher. IBM also finished the day higher. And Apple, the bear market wonder, jumped more than 1% on the day.”
After an early-week sell-off, gold has spent the last 24 hours bumping around between $1,310-15.
Copper, on the other hand, just recovered the $3 level for the first time in more than a week.
American-traded Chinese Internet stocks, often a dicey proposition, will be truly dangerous the next several weeks: “The smartest bet right now is to sell Chinese Internet stocks before April,” says Rick Pearson.
Mr. Pearson is the newest addition to the Agora Financial team. He’s been an investment banker for one of the big firms, working in London, New York and Hong Kong. On that last stop, he learned to speak — and write — Chinese.
U.S.-listed Chinese shares have been highfliers over the last year. “Shares of Vipshop (VIPS) are up by more than 400%,” he says. “Once-tiny Dangdang (DANG) is up 300%. Internet game play YY (YY) is up 400%. Meanwhile, search giants Baidu (BIDU) and Qihoo (QIHU) are up 90% and 290%, respectively.
“Yet over the past three years, we have seen accounting scandals with this group of stocks in which problems at one company can drag down the whole sector.”
“The time of peak risk for these stocks is April of every year,” Rick goes on.
“Interim financial statements (quarterly numbers) typically receive minimal review from the auditor during the year. It is only at year-end that the numbers are reviewed.” And the deadline to file those numbers with the SEC — the form is called a 20-F — is April 30.
“Even if you own a company that has no problems whatsoever, the fact that these stocks often trade as a group means that you can still risk suffering meaningful losses just due to the ‘contagion effect.'”
This year could be especially dicey: “New requirements from the SEC will force these U.S.-listed Chinese companies to add scary new language to the 20-F filings. These will warn U.S. investors about structural risks. New and scary disclosure is the theme of this earnings season.”
[Ed. note: Mr. Pearson will lead our newest trading service, launching next week. Its aim: Identify near-term catalysts that could propel a stock much higher in the near term. Already, a select group of beta-testers has gotten the scoop on a medical tech company that could grow 50% in the next three months… and a drug stock that could double by mid-June. Stay tuned…]
Meanwhile, one Hong Kong-listed stock is going straight down the rhinestone-bejeweled toilet.
Magnum Entertainment Group operates nightclubs. Really ritzy nightclubs. Like with rhinestone-bejeweled toilets.
It definitely looks more impressive when the lid is down…
The firm went public two months ago, pulling in $5.7 billion from retail investors. Yesterday, it warned it “recorded a substantial decrease in profit” for the 11 months ending in February. Shares crashed 20% yesterday.
Maybe investors should have read the perspective a little more carefully: “The group’s future success depends in part on its ability to anticipate and respond to the changes in consumer preferences and tastes and other factors that affect the clubbing industry.”
Perhaps shareholders can drown their sorrows in Jagerbombs — which the prospectus says is the club’s most popular drink.
“I think a flat tax would be the best thing,” reads the first of several emails we weren’t surprised to receive after yesterday’s episode. “It would hurt for a while, but in the long run, it would help.
“All the loony left has been yelling about increasing taxes on the rich; this is the way to do it. Or a value-added tax (VAT) on consumption. If you don’t have anything in the game, you shouldn’t be whining about the rules. It would not kill the housing industry any more than abolishing the deduction on credit cards killed that industry or the banks.”
“Forget the flat tax. Get educated about the FairTax,” reads another email we were not at all surprised to receive. “The FairTax [i.e., a national sales tax] will be considered by the Ways and Means Committee in the near future.
“So get educated, and if you agree that the FairTax will solve many of the country’s ills, let your congresspeople know. It’ll be an uphill battle, as all the special interests will lobby against it. However, for real people, it would be great.”
“Never will this happen,” a reader writes of the flat tax, although she might as well have said the same of the FairTax.
“We had a chance when Republicans held both houses. The reason: Congress loses control of the economy. First, lobbying would have to be illegal. The current tax system is designed to give big companies tax breaks while lining the pockets of Congress. Too much money would be lost by both Big Business and Congress, who support the lobbying.”
“Both the Republicans and Democrats in CONgress have been using the tax code to reward their friends and punish their enemies for far too long to give it up now,” another reader adds.
“If any legislative body even mentions a flat tax, the media will immediately start screaming about the ‘unfair’ tax burden on lower-income taxpayers while charging rich people the same rate.
“The corporate tax rate is another issue where, if they try to lower it, that the same bunch will be screaming about rich corporations getting away with robbery. Probably 90% of people don’t ever stop to think that they are paying those corporate taxes themselves every time they buy anything produced by a corporation. They also don’t realize that some of the excess profits of corporations wind up in their pension fund, instead of in the government coffers.
“The way I see it, nothing is going to change very much or very soon, because a huge wall of ignorance stands squarely in the way.”
The 5: What he said.
Furthermore, “the flat tax is not flat,” says the Mises Institute’s Laurence Vance. “It is more progressive than our current system, and effectively has more tax brackets… Under the Forbes plan, a family of four would pay no federal income tax on its first $46,165 of income… And those figures are sure to have increased since they were first proposed back in 2005.”
Meanwhile, “the problems with the FairTax are legion,” Vance goes on — starting with the fact the suggested 30% rate won’t be enough to equal the revenue from all the current federal taxes. Worse, “there is nothing to prevent an income tax from being reinstituted, giving us a two-headed hydra of an income tax and a consumption tax.”
The 5 Min. Forecast
P.S. Rather than let yourself get dragged into the policy weeds, debating the whys and wherefores of one tax system or another, wouldn’t you rather use your time and energy to slash the tax bill you’re already stuck with?
That’s what the Laissez Faire Club can help you do — with a handy guide of totally legal and aboveboard tips gleaned from two generations of a family that knows the tax code inside out. Heck, after reading the report, you might want to file an amended return if you’ve already filed for 2013. See for yourself, right here.