All posts by Pat McKeough

The Uncertain Future of Globalization: Will World War III or Economic Factors herald its Demise?

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Geopolitical strategist Peter Zeihan offers insights into the collapse of globalization and its potential consequences for major powers like China and Russia.

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Globalization refers to the increasing interconnectedness of the world’s economies, cultures, and populations, facilitated by the cross-border trade of goods and services, advancements in technology, and the movement of investment, information, and people. Right now, there is an uncertain future of globalization.

After Russia’s invasion of Ukraine last year, concerns arose about the possibility of World War III. The Thucydides Trap, a concept highlighting rising trade tensions between the U.S. and China, added to these concerns.

(Thucydides, a fourth-century BC Athenian historian and general, wrote a book about the Peloponnesian War, a conflict between Athens and Sparta. He concluded that the war was inevitable due to the growth of Athenian power and the fear it caused in Sparta. This idea, the Thucydides Trap, has been generalized to suggest that when a rising power challenges a dominant power, war becomes unavoidable.)

However, China has shown no interest in aligning with Russia for such a war. Both China and Russia face obstacles that previous world powers like Stalin or Hitler did not. Today’s young people in China and Russia are well-informed through technology, and both countries face demographic challenges with an aging population and a shortage of young people.

Peter Zeihan, a geopolitical strategist and founder of Zeihan on Geopolitics, is an expert in various areas impacting world trade and economic growth. His insights shed light on the impact of a country’s geography, military strength, and vulnerability on major global events throughout history.

I’ve never come across anybody who has the breadth and depth of knowledge that Zeihan has in the areas he studies. I’ve read a great deal about matters that affect the stock market, but Zeihan’s books have filled in a lot of blanks for me.

Here are some quotes about China from Peter Zeihan’s website, Zeihan.com:

  • The Americans are China’s single-biggest end-market and the Americans import more than triple from the Chinese than the other way around. In any tariff v tariff conflict the Chinese just don’t have much ammunition.
  • The Chinese are the world’s largest exporters. Nearly all that trade is dependent upon the U.S. dollar-denominated and SWIFT-managed trading system. Should China befall American financial sanctions the China story would crash pretty quickly.
  • The U.S. Navy has ten times the power of all other navies combined. Since World War II the Americans have used that imbalance to create a unified global system. Should that commitment fail — and it is — anyone dependent upon global trade is more or less screwed. Like, say, China. Making matters worse, nearly all Chinese trade with the rest of Asia is water-borne and therefore vulnerable.

Instead of worrying about war with Russia and/or China or World War III, Zeihan’s main concern is right there at the end of the title of his latest book: “…the collapse of Globalization.”

Hidden motives in Bretton Woods

I’ve written about the Bretton Woods agreement of 1944, and how it sidelined gold and catapulted the U.S. dollar into its position as the key currency throughout the world. However, there’s much more to it than that. For instance, how did the Americans get their wartime allies to go along with this plan?

The Bretton Woods agreement of 1944, which established the U.S. dollar as the world’s key currency, played a pivotal role in the post-World War II era of globalization. The U.S. offered its naval power to protect global commerce and opened its market to allied exports, creating an alliance against the Soviet Union. This agreement fostered economic growth and stability for several decades.

Containerized shipping and cost-effective Asian wages propelled globalization forward. Japan, with its Just-in-Time manufacturing process, took advantage of these opportunities and experienced significant economic growth. However, the U.S. struggled to adopt JIT manufacturing due to cultural and business practice differences. While Japan was expected to surpass the U.S. as the largest economy, its economy declined in the 1990s.

Recent trade disagreements between the U.S. and China, as well as supply chain disruptions caused by the COVID-19 pandemic, raised doubts about the future of globalization. Some experts refer to this period as the “New World Disorder.” Complex shipping patterns and tensions between countries make supply chains vulnerable. Major firms are considering changes to their supply chains to mitigate risks.

Peter Zeihan predicts significant changes or even a breakdown of globalization by the end of the decade. The U.S. economy, which used to be much larger than the rest of the world combined, now represents a smaller share. China, positioned at the furthest reaches of globalization, faces its own challenges. Its territorial disputes in the South China Sea and strained relations with Taiwan discourage foreign investors. China’s competition with other countries in terms of economics and foreign policy also poses challenges. Continue Reading…

Focus on Blue Chips and hold the good ones indefinitely

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Uncover good companies for long-term investments and you will boost your portfolio returns over time. Learn more here and discover one of our top picks.

 

Long-term stock investment strategies aren’t built to make a fast dollar. They are built to prosper over time, and most importantly, teach you how to pick the right stocks.

In our view, your goal as an investor, particularly if you follow a conservative investing strategy like the one we recommend, is to make an attractive return on your investments over a period of years or decades. Failure means making bad investments that leave you with meager profits or losses. Continue reading to learn about good companies for long-term investments.

Visa Inc., symbol V on New York, is on our list of good companies for long-term investments

Visa has been a terrific performer for our subscribers since we first recommended the stock at $19 (adjusted for share splits) in the December 2010 issue of our Wall Street Stock Forecaster newsletter.

A big part of Visa’s appeal is that it gets most of its revenue from the fees it charges card issuers and merchants using its network. This unique business model means the banks — and not Visa — are responsible for evaluating customer creditworthiness and collecting payments, which helps to cut risk for investors.

The company first sold its stock to the public at $11 a share in March 2008. We held off recommending it at that time, as the best way to cut the risk of investing in initial public offerings is to wait till after the next market slump and/or recession comes along. Thanks to Visa’s unique business model, it was able to avoid big losses during the 2008-2009 financial crisis.

Even though rising interest rates and inflation could slow consumer spending, we feel Visa has many more years of growth ahead. The COVID-19 pandemic accelerated the shift to online shopping, while the easing of restrictions will spur the use of credit and debit cards to pay for airline tickets and hotel rooms.

Visa is also making shrewd acquisitions that enhance its expertise in new areas, such as buy-now-pay-later payment plans. These moves will let it stay ahead of smaller firms with potentially disruptive fintech (the combination of financial services and technology services). 

The company also continues to reward investors. In the first half of fiscal 2022, it spent $7.05 billion on share buybacks. It still has $9.8 billion remaining under its current authorization.

Visa has also increased its dividend each year since the 2008 IPO.

Visa is a buy for long-term gains.

Spotting good companies for long-term investments lets you profit from long-term growth in the economy

For decades — as long as I’ve been involved with the stock market — some brokers have claimed that they favour the “buy and hold” investing strategy in principle, except when the market was so treacherous and unpredictable that their clients had to indulge in short-term trading, options or whatever to make any money. Continue Reading…

Uncovering the Truth behind Short-Term Trading

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Short-term trading may seem appealing to beginning investors, but it’s unpredictable and can lead to significant losses

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Beginning investors may develop an unrealistic idea of how much money they can make by delving into short-term trading. It seems obvious to them that all it takes is some good advice from an expert.

However, any true investing expert understands that random factors play a big role in short-term stock price fluctuations. That’s why these movements are unpredictable. No outsider consistently profits from them.

In fact, there’s a lot of randomness in the stock market and a lot of conflicts of interest. You have to take that into account if you hope to succeed as an investor.

Many investors try to outperform the stock market by going in and out of it erratically, based on their assessment of risk and potential reward. The trouble is that these risk assessments rise and fall with day-to-day or month-to-month economic and business developments, which are also subject to the influence of random factors and conflicts of interest.

As a result, these investors tend to “buy on strength,” as the saying goes. That is, they do more of their buying when confidence is high and stock prices have gone up. By then, however, much of the rise they hoped to profit from will have already taken place.

They are also inclined to “sell on weakness,” when investors are generally nervous and prices have dropped. That way, they hold on to their stocks during much of the decline they hoped to avoid. They may even wind up selling at or near the bottom in prices.

It may seem like a self-evident truth, but it’s worth repeating. While it’s hard to outperform the market, it’s easy to underperform it. In fact, some investors do it almost every year.

Understanding the realities of short-term trading

Many people start out investing with unrealistic ideas of how much money they can make from short-term stock trading, and how quickly they’ll get rich.

Inexperienced investors are shocked when they learn that successful investors rarely if ever do any short-term trading. (That applies to everybody from “The Wealthy Barber” to Warren Buffett.) After all, many stockbrokers, investor newsletters, cable TV financial kibitzers and so on seem to talk about nothing but day-to-day or hour-to-hour market trends. They make it sound easy to GRQ (Get Rich Quick).

It’s easy to sort through yesterday’s investment news and pick out a reason that seems to explain why a stock or the entire market went up or down today. Trying to spot tomorrow’s winners today is vastly harder. Nobody does it consistently. Continue Reading…

The Four-year Rule: One of the Must-Know Stock Trading rules for Beginners

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Are you interested in stock trading rules for beginners? The “four-year” rule is an important one to understand for growing your profits

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Are you interested in stock trading rules for beginners? Most “market rules” turn out to be demonstrations of the fact that random events tend to occur in bunches. The “research” they grow out of generally consists of studying statistics until you find start-and-end dates of periods when a hypothetical indicator would have paid off.

In most cases, if you change the start and/or end dates, the market rules/indicators lose their advantage or go into reverse. Even if you stick with the same start and end dates, the indicator will still go into reverse eventually.

However, the four-year rule is an exception among other stock trading rules for beginners. That’s because it’s based on events that tend to recur in predictable phases of the four-year U.S. Presidential term.

Some statistics are worth a close look

From the election of Andrew Jackson in 1832 till the election of Donald Trump in 2016, the U.S. has gone through 47 complete four-year Presidential terms.

In the first years of each of these 47 four-year presidential terms (starting with the year after the Presidential Election year) the average result for the U.S. stock market was a gain of 3%.

In the second years (the mid-term election years), the annual gain averaged 4.0%. The average result for the third years (the pre-Presidential Election years) was a 10.4% gain. The average for the fourth years (the Presidential Election years) was a gain of 6.0%. (Source: Stock Traders Almanac 2022.)

This pattern probably comes about because of a couple of unchanging things about most U.S. Presidential Elections:

  • First, most U.S. political office holders, regardless of party, want to get re-elected, or pave the way to the election of a successor from their own party.
  • Second, U.S. Presidential Elections bring out many “swing voters” who might not bother to vote in less important elections. They tend to get interested in the Presidential Election because of the torrent of attention it inspires, in the media and in day-to-day conversation.

That’s why newly elected or re-elected presidents often introduce unpleasant necessities in the first year or at least first half of the term. (The best recent example is the need President Trump felt to confront China early in his term.) Swing voters (or voters generally, for that matter) will have had time to get over the shock of the news before the next Presidential Election. In fact, the unpleasant necessities of the first half of the term may have begun paying dividends by the second half. Continue Reading…

Learn to spot the investment Rules of Thumb that maximize portfolio returns

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Some investment rules of thumb will help your portfolio, while others will cost you money. Here’s how to tell the difference.

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You can find numerous investment rules of thumb that aim to tell you when to buy or sell. Most are based on chart-reading or technical analysis. All these work at times, but none work consistently. When they fail, the profits you miss out on are likely to overwhelm any risk they help you avoid.

Meanwhile, one of the top investment rules of thumb — that does work — is that you can cut way down on times when you really need to sell by consistently buying well-established, high-quality stocks.

These stocks can still drop sharply when the economy falters or bad news strikes, of course. But these are the stocks that snap back quickest and most reliably when the trend reverses and bad news comes less often. That’s why it generally pays to hold on to stocks like these through market setbacks.

Here are successful investment rules of thumb to help bring profits to your portfolio

  • Avoid buying and selling too often
  • Avoid buying too many low-quality investments
  • Avoid portfolio tinkering, especially when it comes to selling stocks that have gone up too far and too fast
  • Diversify across industry sectors
  • Avoid buying too many stocks in the broker/media limelight
  • Build a balanced portfolio
  • Utilize proven strategies for compound interest
  • Keep fees low with traditional ETF picks
  • Look for hidden assets
  • Look for dividend-paying stocks

One of the best investment rules of thumb is to stay out of new stock issues

Companies sell new issues (also called Initial Public Offerings, or IPOs) to the public when they feel it’s a good time to sell. That may not be, and often isn’t, a good time for you to buy.

In addition, the underwriting brokerage firms try to spark publicity about the new issue, and they pay extra commission (as much as double the regular rates) to spur their salespeople to sell the new issue to their clients. This tends to create a high-water mark in the price of the new issue. Unless the new company can follow up with business success, the price of the new issue may languish for months or years.

Some new stock issues — so-called “hot new issues” — depart from this pattern. They begin moving up as soon as they hit the market. Some even “gap upward” on their first day of trading: that is, their first public trading takes place well above the new issue price.

This possibility attracts buyers who fail to appreciate how rare it is. In addition, the underwriting brokers can generally tell when this is going to happen, by judging the reaction of their biggest clients (who of course get first pick on their new issues), and the media. They reserve most of their allotments of hot new issues to their biggest and best clients. Continue Reading…