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“The Great Depression Ahead: How to Prosper in the Crash Following the Greatest Boom in History” – By Harry S. Dent Jr.

Editor — Sun, 07 Mar 2010 17:55:00 +0000

The most important cycle change for your wealth, health, life, family, business, and investments is just ahead during the first and last depression you are likely to experience in your lifetime. Words: 418

Below are further edited excerpts (by Lorimer Wilson) from Harry S. Dent Jr.’s (www.hsdent.com) book ‘The Great Depression Ahead’ in which he advises, in detail, how we should deploy our assets in the 2010s based on his demographic approach to forecasting.

1. Late 2009 to mid-2010:
a) Sell commodities and commodities and energy stocks.
b) Allocate 100% to T-bills or money markets and safe currencies.

2. Mid- to late 2010:
Start to allocate to 30-year Treasury bonds only after their yield begins to spike.

3. Late 2010 to mid- 2011:
a) Allocate to 20-year corporate bonds when yields go to extremes.
b) More conservative investors should focus on AAA corporate, more aggressive investors toward BAA.
c) All investors must recognize, however, that even high-quality bonds will be in question as to their viability, given that the downturn between mid-2009 and 2012 is anticipated to be more extreme than anything we have seen since the early 1930s, mid-1970s, or early 1980s.

4. Mid-2011 to mid-2012:
Allocate to long-term municipal bonds when yields seem to be peaking (high-tax-bracket investors).

5. Mid- to late 2012:
a) Aggressive/growth investors: allocate majority into Asian stocks and lesser into U.S. multinational, technology and health care, with minor allocation in long-term corporate, Treasury, or municipal bonds.
b) Conservative investors: focus largely on 10- to 30-year Treasuries and 20-year corporate AAA bonds, with minor allocations in multinational, health-care, and Japanese stocks.

6. Late 2011 to early 2015:
Look for selected opportunities in real estate (small condos and starter homes early on; vacation and retirement homes later; trade-up homes by 2015).

7. Mid- to late 2014:
Aggressive/growth investors: allocate more to leading stock sectors such as China, India, health care, multinational, technology, and financials on a likely short-term correction between late 2013 and late 2014.

8. Early to mid-2017:
a) Sell stocks in all sectors.
b) Convert largely back into long-term bonds and, to a lesser degree, into T-bills or money markets.

Editor’s Note:
- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
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Stocks: The Place to be During Coming Inflation

Editor — Mon, 01 Mar 2010 21:20:25 +0000

With governments having injected huge sums of money into their economies, more and more top strategists are becoming very worried about inflation. Words: 664

In further edited excerpts from the original article* John Reese (validea.com) goes on to say:

It may seem like jumping the gun, given that both Canada and the U.S. have been experiencing deflation in recent months but the threat is serious. For investors, that raises two key questions:

1. Does Inflation Mean Troubled Times for Stocks?
Many say high-inflation periods are indeed trouble for stocks. As inflation rises, governments will raise interest rates, the theory goes, and investors will flee stocks and head to Treasury bills.

The reality is much more complex. While history has shown that the stock-fleeing scenario can happen, it doesn’t always. In 1975, when U.S. inflation averaged 9.2 per cent, the S&P 500 surged about 30 per cent while 10-year U.S. Treasury bills averaged an 8-per-cent yield. In 1980, when inflation averaged 13.6 per cent – the highest annual reading of the past 60-plus years – the S&P gained almost 30 per cent, while 10-year T-bills yielded an average of 11.4 per cent throughout the year.

Over the longer term, some of history’s top strategists actually say that inflation is a big reason to buy stocks – not to avoid them. Foremost among them is Warren Buffett. His inflation research goes way back. In 1977 – just before the U.S. was about to enter into one of the worst inflationary climates in history – in a column for Fortune magazine he said, “stocks are probably still the best of all the poor alternatives in an era of inflation – at least they are if you buy in at appropriate prices.”

Why keep your long-term focus on stocks if inflation is coming? For starters, they have an overall advantage over fixed-income investments because of the equity risk premium – the notion that stocks return more than fixed income investments over the long haul because investors demand greater returns for taking on greater short-term volatility.

Just as importantly, when you factor in inflation, that advantage becomes even greater. When inflation hits, stocks can draw on increasing earnings streams as companies raise prices and increase profits to keep up with inflation. Most bonds and bills can’t do that and when inflation is factored in, the equity risk premium becomes crucial. Fixed-income investments, because their nominal yields are usually lower than nominal stock returns to begin with, have a much bigger percentage of returns eaten away by inflation.

In his book “Contrarian Investment Strategies” , David Dreman noted that from 1946 to 1996, compound returns after inflation for stocks were better than those of bonds 84 per cent of the time if your holding period was five years. Stocks also outperformed T-bills in 82 per cent of those five-year periods. Using 10-year periods, stocks beat bonds 94 per cent of the time and T-bills 86 per cent of the time. When you look at 20-year holding periods, stocks beat both bonds and T-bills 100 per cent of the time.

2. How Can You Position Your Portfolio to Deal With an Inflationary Climate?
If you knew, if and when, major inflation was going to set in and how long it would last, you might – and, I stress, might –be able to make some short-term profits by jumping back and forth between stocks and fixed-income investments but no one knows those factors in advance, which is why I’m sticking with stocks.

My Buffett-based approach targets stocks that have boosted earnings per share in at least nine of the past 10 years, have 10-year average returns on equity of at least 15 per cent and have positive free cash flows, all of which align with Mr. Buffett’s inflation-protection advice. My model is quite stringent, and currently gives 100 per cent scores to less than a dozen stocks in the market.

*http://m.theglobeandmail.com/globe-investor/investment-ideas/features/experts-podium/ask-buffett-if-inflation-comes-stocks-are-best-bet/article1279016/?service=mobile

7 Things to Consider Before Buying Dividend Stocks

Editor — Sun, 21 Feb 2010 21:59:14 +0000

The basic principle behind dividend paying stocks is that they pay YOU to own THEM but do they outperform non-dividend paying stocks over time and what should you consider when buying a dividend stock? Words: 514

In further edited excerpts from the original article* Sean Brodrick (www.uncommonwisdom.com) goes on to say:

The answer to this question is that in most markets, dividend paying stocks do at least as well as non-dividend paying stocks, once you add dividends back in, and in bearish or underperforming markets, dividend paying stocks can really outperform. Specifically, over a 35-year period, non-dividend paying stocks posted an average annual return of 2.5% – that’s less than T-bills – but dividend-paying stocks averaged an annual return of between 8.9% and 10.9%. That’s a huge difference. The combination of hefty dividends and share price appreciation is called “Total Return” and in the decade of the 2000’s, dividends contributed 56% of total return, according to research from Dividend Growth Investor.

Before you buy, here are 7 “Do’s” to consider when buying a dividend stock:

1. Dividend Growth
Look for a good history of dividend growth, with the potential for dividend growth over time. After all, dividends are what this service is about.

2. 3% or Higher
When it comes to the actual dividend, we want at least 3% and preferably higher. Higher is better, as long as the dividend is safe.

3. Financial Growth Potential
Find a company with strong financial performance in the past, and the potential for even better financial performance in the future.

4. Good Free Cash Flow
Strong free cash flow helps a company grow its dividend and its business.

5. Below-average Debt
The financial leverage ratio, which is total assets divided by shareholders’ equity (book value), is a good all purpose debt measure. A leverage ratio of 1.0 means that the company has no debt, and the higher the ratio, the more debt, with leverage ratios below 5.0, and lower is better. Some industries carry more debt as part of their business models, so look for stocks with below-average debt compared to their peers.

6. An Outstanding Business Model
An advantage in the company’s business model, something that will protect them in the bad times and help them outperform in the good times.

7. A Good Entry Price
If a stock has already run up, consider entering it in stages because one truth of the market is that stocks go down as well as up, and we may get a better price later on. That said, you want to avoid stocks trading below $5 a share. They’re probably in trouble, and that means their dividend probably is, too.

The above are guidelines, not the clasps on a straightjacket, so there will be exceptions but it’s a good start.

*http://www.uncommonwisdomdaily.com/7-do%e2%80%99s-of-dividend-resource-stocks-3-8123 (Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets.)