‘Buy American’ Does Not Apply Now
January 19, 2016
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If you are still determined to stay in the stock market, then at least consider looking outside of America for investments.

Most Americans only have a very small percentage of their stock portfolio in foreign stocks. The main reason I am more bullish on foreign stocks right now is because most foreign stocks are trading at a much lower multiple. At this time if you are still keen to invest in the stock market look at market ETFs from developed nations like Germany and Italy. I would still avoid China as it could have huge swings and even professional traders find it hard to predict trading patterns in China.

I discussed China as a high risk play in late 2013 and at club meetings discussed ETFs like ASHR and YINN. At that time valuations were low and I felt a lot of money could be made. Well we hit it correctly and these ETFs had triple digit gains.   In 2016 the risk is just not worth the reward no matter how much the sell-off. The government totally manipulates the stock market in China and there is a host of new concerns that did not exist in 2013-2014.

Having said this I still look at foreign exposure as a better idea than investing domestically. Still, you need to remember that investing in stock markets abroad is a definite risk. The biggest risk has to do with the currency conversion when you take profits. Here is what I mean.

It is possible for a foreign market to outperform the US market by a wide margin. However, if the US dollar continues to move much higher, then any gains you make could turn to vapor when you convert your investment back into US dollars.

I believe that if investors wish to invest in stocks then the same foreign markets have more upside than what I foresee for the American market. As stated I like developed nations and would avoid the emerging nations. I like Italy and Germany. Having said this I am “long” on nothing in the stock market for 2016.

If you invest in foreign markets you definitely need to do your homework in this arena before moving in. Pay attention to currency fluctuations, news, politics and everything about your investment, so that you don’t get hurt badly in a sudden shift, or short-changed at the end game.

As for myself, throughout 2015 I sold all my remaining stock positions and as of December 31, 2015 I had less than one-percent of my net worth in the American stock market.  For all members I advocate holding a much smaller position in all stocks.

I am on the sidelines until value begins to return to the markets. By value I mean at least a 20% correction to attract true upside interest. I am hoping for a huge sell-off and expect it may occur in the first quarter of 2016.

One reason I say that is because I am seeing many stocks had huge gains in 2015 and investors will wait to early 2016 to sell these stocks to delay paying tax for another year. I believe these stocks will see downward pressure in the New Year and even on the first trading day of January 4.

As 2016 starts we will continue to witness volatility in the capital markets for a prolonged period of time. A 20 percent to 30 percent correction is equity prices would only then signal to begin to look at a possible re-entry to buy stocks.   The earnings of US companies in 2016 will continue to contract in the S&P 500 largely due to a strong US dollar.

I believe 2016 does have an entry point with a large sell off and I am not all ‘doom and gloom”.   I am still ready to put money to work if stocks go on sale throughout the year.

My Final Concern about the markets in 2016 is that central banks are running out of ways to stimulate the economy.   Central banks around the world can no longer repress financial volatility and therefore any major negative economic news will take longer to restore stability. I predict huge quick sell offs in 2016 if additional downward sell off in oil or bad news out of China.   In the United States where central bank easing can no longer be used to assist markets the lawmakers on Capitol Hill will have to use the old fashion methods of reforming corporate taxes, reducing debt and joint ventures between the public and public sector on overhauling out dated infrastructure.

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Mike Lathingee

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