The week is off to a rocky start for stocks. Falling oil prices are dragging down energy shares, which are dragging down the rest of the market.
At last check, crude has slipped below $46 a barrel for the first time since April 2009. Thus is the S&P 500 adding to Friday’s losses, down nearly 1%, to 2,026.
“Most investors would be much better heading for the hills in 2015,” says Zach Scheidt — weighing in with the latest of our team’s forecasts for the year.
Zach is the newest member of the Agora Financial editorial team, specializing in income. We’ll tell you about his background in a bit. But with a forecast this bold, we figure we should cut to the chase.
Understand, within his own sphere of expertise, he’s feeling serene about 2015 — heck, almost euphoric: “I can’t tell you how excited I am about this upcoming year.”
Just not for the majority of stock, bond and mutual fund investors, heh…
“There are three key market shifts that will occur this year,” he explains, “that will make life extremely challenging for most investors. But these market shifts will actually work out to our favor because of the unique income opportunities that we’re involved in.”
“First, interest rates will rise,” Zach asserts.
“We’ve been living with interest rates near zero for years now. When the Fed allows interest rates to rise in 2015 — and they will allow rates to rise — it will be a major shock for income investors.
“Most blue chip dividend stocks like utilities and consumer staples will get crushed, but our income strategy will be hitting its stride.
“Second, the U.S. dollar will continue to strengthen,” Zach forecasts. “We’ve already seen this trend start in 2014.
“As the U.S. dollar rises,” Zach goes on, “companies with profits in other, weaker currencies will be hurt. This includes large multinational companies” — the kind conventional income investors have chased after in recent years. The pain they’re feeling now is only starting…
“Third, volatility will re-enter the market,” says Zach. “Stock prices will bounce up and down like a 6-year-old on a pogo stick.”
We’ll interrupt just long enough to point out this is what Zach said at the end of 2014. Here’s a snapshot of the S&P 500 so far in 2015 — about an hour into the seventh trading day of the year…
“This action,” Zach said, “will give most investors ulcers. After all, no one wants to see their net worth swing up and down like a yo-yo.
“But ironically, this gyration in market prices will give you plenty of opportunities to make money from the crazy stock market action.”
But not in income-oriented energy plays. Just in case you were wondering.
“At this point, the oil industry doesn’t look bad,” says Zach. “it looks horrible.
“Saudi Arabia has declared war on U.S. oil producers by turning its oil spigots on full blast. They don’t care how low oil prices go, as long as they go low enough to put U.S. producers with higher production costs out of business.
“Some oil stocks should go low enough to become tremendous buying opportunities. But I don’t think we’re there yet. Oil stocks are still too risky. Wall Street and Main Street are just now becoming aware of the long-term effects of Saudi Arabia’s oil war.”
Again, we’ll interrupt and point out Zach wrote this to his readers on Friday. This morning as we write, XLE — the big energy ETF — is down nearly 3%.
“For now, I recommend that you enjoy the low gas prices,” he concluded. “But stay away from oil stocks. I’ll continue researching the oil sector for opportunities. I’ll be sure to let you know when it’s time to start scooping up bargains.
“My first priority when picking out income opportunities is to make sure that our investments are safe,” says Zach.
Zach cut his teeth at a boutique hedge fund in Atlanta. “My job was to help high-net-worth clients generate income while minimizing risk.”
His mentor racked up more than 20 straight winning years — not always knock-your-socks-off performance, but consistent. “Bill knew the secret to keeping his clients happy,” Zach recalls. “He would tell me repeatedly: ‘Zach, our clients don’t care if we shoot the lights out. But they absolutely require us to protect the money that they have trusted us with.'”
It’s that mentality he brought to the newsletter business, racking up several years of success — enough success that he made the cut to come join us. “When researching income opportunities,” he says, “I have three criteria that absolutely must be met for me to recommend a position:
- There must be a low level of risk. I want you to buy stocks that are unlikely to trade lower
- We must have room for growth. I want to buy into companies with growing dividend payments and stock prices
- Our investments must pay an attractive amount of income.
“This investing methodology has served my readers well over the years. I’m devoted to bringing that same success to you.” Zach’s entry-level publication is Lifetime Income Report.
About the volatility so far this year, which Zach expects to continue: Sophisticated investors can make it work to their advantage.
“When stocks are bouncing around, option prices move higher,” he explains. “Why? Because investors buy options to profit on swings in stock prices.
“When markets move quickly, option buyers push the prices of options higher. And if you sell options to collect income checks, higher option prices mean larger checks for you.
“There are big issues moving stock prices, including a massive decline in oil prices, a strong U.S. dollar and economic uncertainty in Europe. As the stock market rises and falls this year, you should have numerous chances to pocket some fat income checks.”
[Ed. note: Don’t let the word “options” scare you off. Zach walks you through his trading recommendations step by step. Soon you could be pocketing $74 in two minutes… $144 in 59 seconds… or $260 in just over a minute.
But don’t take our word for it: We have compelling video evidence proving how people just like you are doing it… and growing their retirement nest egg. Seeing is believing, so click here.]
Once again, frightened money is moving into Treasuries today — sending yields down. At last check, the 10-year yield is 1.93%.
Gold is little moved from its price on Friday afternoon, now $1,226.
“I’m sure we’re never going to see $100 [oil] anymore,” says Saudi Arabia’s Prince Alwaleed bin Talal.
The prince held court with Maria Bartiromo from Fox Business over the weekend. He admits his country has been hurt by oil’s steep drop since June… but “the decision to not reduce production was prudent, smart and shrewd. Because had Saudi Arabia cut its production by 1 or 2 million barrels, that 1 or 2 million would have been produced by others.”
Asked if prices would keep falling, he said, “If supply stays where it is, and demand remains weak, you better believe it is gonna go down more. But if some supply is taken off the market, and there’s some growth in demand, prices may go up.” Just not to $100, apparently.
Fair enough. But Ms. Bartiromo failed to ask perhaps the most important question. Last July as oil had begun its fall, the prince said his nation needs $90 oil because 90% of the government budget depends on oil revenue. Less oil revenue means less money to buy off the restive masses.
So it’s up to The 5 to ask questions to the wind: How’s that going to work if prices continue to fall? And what if King Abdullah’s health takes another turn for the worse? Imagine a succession battle at the same time mobs take to the streets.
That’s not a forecast, but it’s a distinct possibility. Heck, it might even send oil back to $100.
“As bad as it looks, it’s really even worse,” a reader writes after we explored the labor force participation rate on Friday.
“Back in 1977, the demographics of the job sector were much different. If you look at the graph of the participation rates of women versus men, there is a far higher percentage of women in the workforce today than in 1977. Back then, 25-54-year-old men had just under 95% participation, but women of the same age made up just over 55% participation — 40 percentage points. Today, those participation percentages are much, much closer together — about 15-20 percentage points apart.
“With all due credit to women’s lib, that was also because many (most?) households back then could function on a single income. Not so today: Most households NEED two incomes. I wonder if we could get those participation numbers as a percentage of households.”
The 5: Yes. The family that enjoyed a middle-class lifestyle on one income in the ’50s and ’60s needed two incomes by the ’70s… needed to raid its savings in the ’80s and ’90s… needed to take on debt in the 2000s… and is trying desperately to climb out of that hole today.
“If the Bureau of Labor Statistics said wages rose 1.7% for all of 2014,” another reader writes, “I wonder how much of that was from pay raises to government employees?”
The 5: Average hourly earnings in the private sector grew from $24.17 in December 2013 to $24.57 in December 2014, according to the BLS.
That’s a 1.7% increase, so the increases appear to have been evenly spread between the private and government sectors. Go figure…
“Is deflation really bad for everyone all the time?” a reader muses on the inflation-deflation debate.
“For an export-driven economy like Japan, I agree, because it makes their goods more expensive to the rest of the world. Yet for a country like the USA that is net importer and consumer, it makes everything we import cheaper. Sure, manufacturers might hate it, but won’t the Wal-Marts love it? If a person is retired and on a fixed income, they will love it too, as their purchasing power keeps going up.
“Personally, I think the problem with both deflation and inflation is the same. Neither is properly managed. On the inflation side, wages never keep up with inflation, so purchasing power of the individual is in constant decline. On a deflationary side, the same is true, only in reverse. Wage decline does not keep up with deflation, so individual purchasing power goes up and business profits go down.
“I would think that in an ideal economy, you would have neither deflation or inflation, but human nature (greed) makes that impossible. People never believe they have enough and always want more. They also believe they deserve more than the other guy. That will always lead to inflation. Enough on that, as I could spend all day on this topic.”
The 5: The problem is inherent in the notion experts can somehow “properly manage” inflation and deflation.
Absent the interventions of politicians and central bankers, the value of money would be stable and the general price level would slowly decline as production methods became more efficient. This is what happened for the most part in the United States during the period between the end of the Civil War and the start of World War I — perhaps the most rapid advancement in people’s standard of living anytime, anywhere.
“There is,” a reader writes, “a relatively new substance called ‘graphene’ that may revolutionize products from computer chips to airplanes.
“Can you do some in-depth research on this and the companies developing this technology?”
The 5: Uhhh…. You must be a newer reader. We were on the graphene beat as early as mid-2011. Can’t say we’re not cutting-edge around here.
As an investment theme, it’s been something of a disappointment to date. But we still have our eyes open for possibilities….
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. A program note: Jim Rickards’ live online briefing exclusively for Agora Financial readers has been rescheduled for today at 4:00 p.m. EST.
If you can’t take part while it happens, you can always check out the rebroadcast. These events are free for subscribers to Rickards’ Strategic Intelligence. Access here.
Our executive publisher — and the founder of this e-letter — Addison Wiggin cordially invites you to the next “Chill Weekend” at Rancho Santana on Nicaragua’s stunning Pacific frontier, Feb. 4-8.
It’s been nearly two years since we’ve hosted one of these events. So whether you’re a newer reader who’s never heard of this… or an older hand who passed up the opportunity in the past… we encourage you to check out this ultimate way to diversify a portfolio.
But that’s understating the difference the ranch can make in your life and the lives of literally everyone you know.
See, as my friend and colleague Peter Coyne from The Daily Reckoning explains below, the ranch offers the ultimate way to “set an example” for your family, your friends, your business associates and everyone else in your circle. Pete, take it away…
Come Chill With Us Next Month
An Invitation From Peter Coyne
Dear Reader,
“Mmm-hmm! Eggs-ackt-lee!” I grunted, sporting sauerkraut from the corner of my mouth.
I’d taken a big bite from my Reuben right as I wanted to agree with what Matt Turner was saying. Bad timing.
Matt is lead counsel for Agora Inc., The Daily Reckoning’s holding company. We had met up for lunch at the DR’s second office — Baltimore’s very own Mick O’Shea’s pub.
As a matter of fact, besides working for Agora, Matt and I also share an alma mater — nearby Loyola University Maryland. Though it was called Loyola College in his day.
But that’s not why we connected that afternoon. The real reason was, strange as it sounds, to talk about you… and plan our upcoming “Chill Weekend” at Rancho Santana from Feb. 4-8.
If “Rancho Santana” doesn’t right a bell, that’s our residential and resort development on the pacific coast of Nicaragua. Matt, in addition to his legal duties for Agora, honchos the operation there.
The last time we hosted a “Chill Weekend” at the ranch was almost two years ago. After spending my honeymoon down there in June, we decided it was high time to host another.
Today, Addison and I would like to extend an invitation to you. Already, we have a committed group coming with us. Long-suffering readers will know the routine. If you’ve joined us in the past 24 months, however, here’s how it works…
You come down to ranch… roam around… relax… check out the beaches and properties… ask one-on-one questions with the team and grab a drink with Addison and me.
The goal is to showcase what we believe is an ideal way for you to diversify your portfolio.
All foreign real estate offers you four kinds of financial protection from government:
1. A shield: At the very least, you get to move money you’ve saved out of your government’s political jurisdiction and into something that’s nearly impossible for them to confiscate — foreign real estate.
2. Diversity: It helps you diversify your investments in addition to stocks, bonds, precious metals or whatever else you have in your portfolio.
3. An out: It can sometimes help speed up or help you obtain second citizenships or outside bank accounts, if that’s your goal. And…
4. Privacy: If you own foreign real estate in your name, you don’t have to report it to the government. Of course, you have to report income if you rent your property out. (And you should talk with whomever handles your taxes to double-check your specific case.)
But Rancho Santana offers something no other foreign real estate opportunity does. Not only that, but it’s something that only a 5 Min. Forecast reader like you can appreciate.
There are good and bad investments in any market. Answering certain questions can help you separate the wheat from the chaff.
For a residential and resort development like Rancho Santana, those questions should include: Who are the developers? What’s their vision? Why are they developing? What does their balance sheet look like? Are they developing for the long haul?
The Rancho Santana development here in Nicaragua is backed by the same team you’ve come to know and trust each day…
It’s the same team behind Agora Publishing, our parent company. Like Bill Bonner and our founder, Addison Wiggin. They’re both invested heavily in the ranch.
Or if you subscribe to some other Agora affiliate newsletter divisions — like Stansberry & Associates or Money Map Press — many of their top newsletter editors and management are heavily invested in the ranch as well.
They treat Rancho Santana as a legacy project. They’re not trying to get in and out fast to make a buck. The philosophy has worked too. In almost 20 years, it’s turned jungle into a tasteful and unique contrarian getaway.
When you own property in Rancho Santana or visit regularly, you become a part of that vision. It’s an added bonus that you get to protect your hard-earned cash from the clutches of Big Government.
Perhaps best of all, you join a community of like-minded folks. Men and women who think and hold values like you do.
I think that’s why you’re most qualified to recognize the opportunity Rancho Santana presents. Because you’ve been reading Bill Bonner, Addison and our other editors’ investment newsletters all along.
You know that we value stable growth based on prudent savings and investing.
You balk at mainstream ideas.
Well, the ranch is where the contrarian ideas we pen each day are put into action. All of the revenue the ranch makes is plowed back into infrastructure improvements.
The way Matt put it at our lunch was, “We’re teaching capitalism.” In fact, that’s what I tried to agree with right after stuffing my face with corned beef. The ranch is the living embodiment of free market principles — and life is good there.
That coupled with the ranch’s beautiful environment should convince you to come chill with us. If you’re not careful, you might fall in love with the place.
At the very least, you’ll leave refreshed and give Addison and I the chance to get to know you better.
For that reason and more… we’d like to invite you to come to Rancho Santana. If you’re interested in learning about diversifying into the foreign real estate there, please join us for our Chill Weekend from Feb. 4-8.
If you have no interest in foreign real estate but still want to come and relax, you’re welcome, too.
To learn more, simply send a personal email to Marc Brown. He’s director of sales and a friend. His email address is: marcb@ranchosantana.com. He’ll hook you up with all of the information you need to help you decide if the trip will be the right fit for you.
Be sure to mention that Pete from The Daily Reckoning sent you. I told the folks when I was down there last that I’d put you in touch, so they’re expecting you.
Enjoy the weekend,
Pete
The Daily Reckoning
P.S. Since this is the time to make forecasts, I’ll roll up my sleeves put myself out there.
2015 will be major turning point for our Rancho Santana development. I forecast that the number of guests arriving at the ranch will double by the end of the year.
The reason? This…
When I was at the ranch last June, they broke ground on the new nearby airport. Today, I checked with Matt Turner and it’s halfway done. Besides roads and telecommunications, easy access to airports are what catapult travel destinations to the next level. That’s how neighbor Costa Rica became the hot spot it is today.
It’s only logical that when the airport is finished, it will bring more traffic to the ranch. And that’s good for property owners. For renters too, if you make a trip to the ranch a regular tradition with friends and family.
By the way, as long as we’re speaking about completing new projects… Rancho Santana’s new Inn was halfway done when I was in “Nica” last, too. Below, the team has an update on the finished project.
Rancho Santana still has its best decades ahead of it. It has modern luxuries like strong Wi-Fi connections, air conditioning, beautiful Spanish coastal architecture, amazing food, great adventures and services like drivers. It’s everything you’d want — except in a locale that’s much less expensive than the U.S. And now, there’s the added bonus that the new Inn is open for business…
The Inn Is Open for Business
By the Rancho Santana Team
The two-story Inn — which will also feature its own art gallery, courtyard, cafe and lounge — is just steps from Playa Santana, one of our five beaches.
Prior to the decision to build The Inn, if you were eager to visit “Las Cinco Playas,” you had your choice of private ocean-view homes, garden-view casitas or oceanfront villas. Not surprisingly, as the buzz about Rancho Santana has spread, these luxurious residences have become increasingly popular vacation destinations.
But the new 17-room Inn promises you a totally unique experience as a guest. (And coincidentally, Rancho Santana just celebrated its 17-year anniversary.) The Inn is tucked intimately into the hub of all “the ranch” has to offer, including renowned farm-to-table restaurant La Finca y El Mar.
The new Inn at Rancho Santana
Rancho Santana’s 2,700 acres along two miles of shoreline boast a unique isthmus climate that creates steady, but varied, patterns of coastal breezes. When paired with year-round warm ocean waters, the breezes make the beaches’ surfing conditions some of the most coveted on the planet.
It’s only natural that The Inn’s architectural design, interiors and landscaping all drew inspiration from their coastal locale.
Inside the clubhouse at Rancho Santana
The building’s use of materials and thoughtful finishes reflect Rancho Santana’s unique “agrarian meets coastal” architectural style.
Each of the 17 handsomely appointed guest rooms and suites ranges in size from 350-850 square feet and is spacious but inviting. Down to earth, and yet overwhelmingly beautiful — the rooms are much like the ranch itself.
The interiors were imagined as a collection of four schemes that reflect the distinctive natural elements: earth, water, air and fire. And though no two suites are identical, together, they are a seamless and thoughtful portrait of life through the eyes of Rancho Santana.
The Inn is truly a homegrown affair.
Take the artistry of the woodwork, for example. It was designed by Altevers Intl. and created on site by the ranch’s very own wood shop. The casual, comfort-centric furnishings like abaca lounge chairs, ottomans and benches were also custom-made by the wood shop to suit the seaside sanctuary.
Details like curtain rods, which are typically regarded too simply as a necessity, were carefully crafted by hand in the ironworks at Rancho Santana, while the window treatments were designed exclusively for The Inn by Peter Fasano and fabricated locally in Nicaragua.
Peter’s note: The new Inn is the two-story building on the left.
The clubhouse is to the right.
The calming coastal breezes swirl through the vaulted ceilings overhead and inspire a change of scenery by drawing attention to the private covered terrace with views of the pool, the sands of Playa Santana and miles of uninterrupted coastline, which is our own Matt Turner’s most favorite feature of them all.
“So many destinations right now strive to deliver a shock factor. We never wanted that,” says Matt. “‘Sublime’ may be the word. ‘Stunning’ will do, certainly — but not ‘shocking.'”
We hope you’ll join us in February with Addison and Peter. If you’re interested in joining them and experiencing all we have to offer, please email our sales director Marc Brown. His email address is marcb@ranchosantana.com. Please let him know you’re a 5 Min. Forecast reader when you message him so he knows you’re a VIP.
Hope to see you at the Chill Weekend next month!
The Rancho Santana Team
For The 5 Min. Forecast
P.S. We were honored to be featured by American Express’ Departures magazine and to make Travel + Leisure’s list of Best Places to Travel in 2015. We hope you’ll come in February to see what all the fuss is about. Again, Marc Brown’s personal email address is marcb@ranchosantana.com. Send him a message saying you read The 5 and are interested in learning more and he’ll give you hassle-free information about coming.
