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|Is There a Next Gear for the Markets After Earnings? |

|Neil George’s Profitable Investing |

|investorPLACE MEDIA |

Slide 1

NG: Hello everyone. This again is Neil George and welcome to the May webinar for Profitable Investing. Thanks all of you for attending, and I will do my darnedest to make sure that it will be well worth your time. So, the format of the webinar, I’m going to give my presentation. We’re going to be talking about the markets, the economy, many of the market segments, some of the individual securities that I’ve been recommending as well as some coming attraction ideas, things I’m working on.

Also, as I mentioned in the May issue, I’m going to be going through some details surrounding some of the big reforms that I’ve done for the Model Mutual Fund portfolios, and I’ll be going through each of the Model Mutual Fund portfolios with all of the new and current holdings. Then of course I’ve been getting numerous questions and comments that you’ve been sending in, and I thank you for that, and I will be addressing those and giving my replies and my comments and my answers to those. So that is the format for today’s webinar.

So, as we start, as the title shows there, is there a next gear for the markets after earnings? Now so far, we’ve had the vast majority of the members of the 505 stocks that make up the S&P 500 index have turned in their reports for the first calendar quarter of 2019, and overall the numbers have been fairly beneficial. In fact, I think the numbers showing growth in revenue as well as growth in earnings have been I think fairly to much better than what many were expecting for the first calendar quarter. I’ll be addressing a little bit more of that specifically in a few moments.

So, we’ve had so much of the earnings. The market is digesting it, so what basically are we looking for next as far as being a big driver for the market? Of course I will be addressing what has been foremost of the market this week which are dramatic concerns and the resulting selling pressure that’s been hitting many stocks in the market and, therefore, impacting a lot of the indexes over the last few days, and we’ll be talking about what’s going on with that and what to expect and some potential outcomes that I see from the trade negotiations with the Chinese as well as other nations and economic blocs.

So, for that let’s take a look at what’s been going on with our markets.

Slide 2 00:06:12

Here basically we’re taking a look at the S&P 500 index, and with the index of course we were doing fairly well last year until we got into the fourth quarter of last year. Of course, we had big concerns that were impacting.

I think driving that big sell-off we had was the expectations that the earnings growth for many of the companies in the S&P were just as good as it was going to get, and it was going to be lower for 2019 and, therefore, people just sort of dumped shares until we hit sort of a bottom on December 24th, Christmas Eve, and since then the market has totally sort of cast off those concerns as well as concerns over the Federal Reserve and its Open Market Committee and, therefore, since then the stock market has been very much on the ascent until of course these last couple days. You see that little drop-off at the very end into May, so the idea, is the market going to continue to motor onward and upward?

Slide 3 00:07:13

Well, here’s I think one of the big things that we need to be looking at. So, this is a graphic that I’ve been putting into the issue, and I’ve also made mention of it and shown in the journal as well. This is basically the combined reported and estimated average revenue growth and average earning change per quarter for the members of the S&P 500 stock index. Therefore, if you look at where we were in 2018 for those prior quarters, you’ll have seen that the both the average sales growth was very strong for last year.

Many of the quarters were actually at eight percent or greater and, therefore, that was really starting to show up for the companies’ bottom lines. Also, we saw that earnings were increased dramatically which for all of the calendar year of 2018 we were seeing earnings that were very much advancing at a double-digit pace. Therefore, that was all very, very positive.

Now part of the earnings gain of course came from the tax benefits from the Tax Cuts and Jobs Act of 2017 in which it reduced the corporate income taxes and, therefore, a lot of that tax savings fell right to the bottom line, resulting in some higher earnings. Then when we headed into where we are now in 2019 for the first quarter, the average sales gains have been a bit less, and we’ve also seen the average earnings gain has also been somewhat less.

As I was looking at the rolling tally of the average that have been reported so far, we’ve been seeing sales gains that have been running in the four percent, in the positive improvement, and we have been seeing earnings have been increasing between one and three percent on average for the members of the S&P 500 index as they’ve been reporting so far. Therefore, that basically has been supportive of the market and been supportive of where the overall index has been going and the direction for many of the stocks that make up the S&P 500.

Now the key thing of course in the stock market is we need to look at not only where we’ve been for the first calendar quarter but where we are and where we’re heading for the current quarter as well as the subsequent quarters for 2019 and into 2020, because as we all recognize, the stock market is an instrument that discounts the future. So, it discounts the future value of companies as far as their book of assets. It discounts the value of the future sales of the company, and it discounts the future of the forward earnings of the company.

Therefore, if people can project and/or expect higher sales and improved underlying book value and/or improvements in earnings, then that will be a compelling case to move stock prices higher to reflect what those future sales, earnings and underlying book value are going to be worth.

As you can see, right now the projected compiled estimates that Bloomberg utilizes ... now Bloomberg effectively looks at all of the posted estimates for revenue for the various companies and the posted earnings expectations, and they compile all these. Therefore, they basically allow me to navigate that and be able to show where the general consensus is for the members of the S&P or other indexes. I pick the S&P as being indicative of the general stock market.

Now as you can see, the expectations are for the rest of the year into 2020. We are looking for sales of companies, in other words the revenues of companies to continue to show improvement, and we’re looking for the amount of earnings that are also looking to improve further. So, this basically is giving reason to defend some higher stock prices.

Slide 4 00:11:38

Now what’s basically driving this? Well, the first major driver of course for the growth engine and for that next year that I mentioned before is the overall economy’s gross domestic product, and so GDP has been very much on the ascent particularly from some of the lows in 2016, and then subsequently post the general election in ’16 we’ve seen a very big and sustained improvement in the growth of the domestic economy of the United States.

It’s been fueled by major regulatory reforms in varied industries ranging from the financials and the banks through to manufacturing and of course into more specific industries including the petroleum and other energy parts of the landscape. Then of course it will also further enhanced by tax reform, both on the corporate level, reducing corporate income taxes, making some further allowances for deductions for certain expenses and then for individual income taxes some major tax cuts, particularly on those that are on payroll and particularly those that don’t necessarily itemize.

So the middle class and lower middle class saw a big tax cut when it came to the standard deduction which was increased dramatically and other allowances which meant that there was more money left over in their pocketbooks to go out and spend, and that basically was what we saw with the further upswing for GDP through 2018, and we’re seeing that continue into 2019 with one of the strongest first quarters of the calendar year in some time. Therefore, that all is very positive for the general stock market.

Slide 5 00:13:33

Now the next part of the growth engine that might very well give another gear to the stock market are jobs and wages. Now what I plotted here is we’re looking at the total unemployment rate for the U.S. as compiled and released from the Department of Labor. Now that’s basically shown on the white line, and then the gold or yellow line is effectively looking at the wage growth, and this is basically plotted on the month-by-month basis. You’ve seen from 2016 into 2019 there has been a steady decline in the rate of the unemployed in which we now are with the most reported monthly figure from April.

We have one of the lowest rates of unemployment in the United States economy going back for nearly 50 years. Therefore, that is quite a major improvement and a great driver for the consumer to have that confidence to continue to want to spend money. Then at the same time you also see there’s been a sustained improvement and growth in wages in which we’ve seen wages currently expanding for the most reported month on an annual basis improving by 3.2 percent.

Now that’s an average overall across the survey that is done on a monthly basis we get for the first Friday of each month for the prior month. Now what is more important about this number as I mentioned a second ago is an average, and if you actually look at the full jobs report, you’ll see that they basically report segments as far as different groups as far as wages. If you look at the middle and lower end of the spectrum, that’s where we’ve seen much higher rates of wage growth and, therefore, that is basically providing more of the population with even more growth in their pay.

As I mentioned a moment with the Tax Cuts and Jobs Act of ’17, not only are we seeing wage growth, but we’re seeing after-tax take-home pay is also improved dramatically. Therefore, that also is helping to drive more consumption, so more jobs, less unemployment which brings more certainty and higher wages which will be supportive of consumer spending.

Slide 6 00:16:12

Then of course what we also have as far as providing some gear is the very low level of inflation.

Now we just got the quarterly gross domestic product data as I mentioned a moment ago and embedded in the gross domestic product is the personal consumption expenditure index. This is the PCE. Now you’ll note that the PCE basically is reported on a monthly basis, on a running basis, and then it’s also summarized within the GDP data on a quarterly basis which will then go through some revisions in the ensuing weeks.

So, if you look at the core part of the personal consumption expenditure index which measures not a basket of goods like the consumer price index but all consumer products and services. So, it’s a much broader and much more indicative of the overall rise in prices. That rise is down dramatically; particularly in 2019 where the last reported quarter saw the PCE is now running at a mere 1.3 percent. That is extremely low, particularly given that we’ve seen wage growth which is advancing at much more than double and then some beyond that and, therefore, it shows that the economy is one of the healthiest that we’ve been in which we have falling prices, rising consumer spending, rising business spending and rising wages, and yet inflation is very low.

Therefore, what is also important is that the Federal Reserve last year really bungled its approach to monetary policy by trying to raise the target rate for fed funds, in other words the rate of deposit or the rate of lending by member banks for reserves to other member banks which is a tool to help to direct the overall market for short-term interest rates.

That was entirely unneeded and, moreover, the Fed and the Open Market Committee, as I’ve been reporting to you, has stated very clearly that they have the goal of seeing inflation as measured by the core PCE at that two percent or above. If the economy was healthy, the FOMC has been stating they would like to see the PCE and be happy to see the PCE at two, two and a half percent if the economy is growing at the same time.

But obviously the rate of inflation is not going up. It is going down and, therefore, it was unnecessary for the Fed to take action, and that’s why we’ve seen almost a complete reversal of their stance on inflationary pressures in which they have now paused as far as their direction for monetary policy, and they also have paused the discussion of unwinding the trillions of dollars that they had in their bond-buying program stemming from their intervention post the 2007, 2008 financial crisis.

So again, that’s another big positive which not only is helpful with keeping the Fed at bay for the stock market, but it’s also extremely good news for income investments, for the bond market, for preferred stocks, for municipal bonds and so forth. All of that is very good news with this low rate of inflation.

Slide 7 00:19:55

Now what is this all translating to? Well, we look at the consumer.

Consumer consumption is the vast majority of the U.S. economy. Therefore, what I’ve been drawing your attention to was one of the best measurements for not only how consumers see their condition currently but also how they see their condition and the economy and so forth going forward. So, Bloomberg basically does a massive survey each and every week from a very wide sampling group, and they compile the viewpoints of people as far as how they see their personal financial situation, how they see their expectations for that condition, how they look at the economy.

That basically is turned into the Bloomberg Comfort Index or as I refer to it as the Comfy Index. The Comfy Index, going back from those extreme lows in 2016, has been very firmly on the upward ascent to the most current weekly report that we had which is over a 60 percent rating on this index. So, what this means is that the consumer has a lot of comfort, a lot of confidence in which their personal financial condition is good.

They see good conditions for their job. They see rising wages. They’ve seen their lower taxes, and that basically translates into the ability to spend money. It’s that spending of the money that is going to continue to be one of the drivers for the underlying performance of so many of the stocks that are inside the general stock market.

Slide 8 0:21:35

Of course, this also has to correspond with businesses, and business leaders of course look at where things are for their customers, both their business as well as their consumer customers, and they make assumptions as far as where they’re going to make investments.

One of the bigger, broader ways of looking at this confidence is not just, are you going to buy another machine today, but rather are we going to build a new factory? Are we going to acquire another building? Are we going to expand another facility? In other words, long-term massive capital expenditures and, therefore, one of the ways we can get a read on this is done by the Federal Reserve’s Bank of New York and the Business Leaders Index.

Again, I’ve been showing this to you over the past year in which you’ve seen we’re very much in the positive. You look at this index back in 2016, the later part of ’16 was well under ten which was in a low right before the election in late October at about seven, and now we’re basically about triple that in the most current survey. So, this is showing that the leaders of the major corporations in the U.S. have a viewpoint that they are budgeting for investing for long-term capital expenditures.

Therefore, that means more book value for our companies and, therefore, that could be supportive of a higher price to book ratio and, two, it means that they are making a commitment which should result in more revenue from this equipment from their customers that are more confident and comfy to spend more. So that’s where this all gets plugged into my viewpoint on the stock market.

Slide 9 0:23:22

So, let’s look at where we are as far as the valuation, because it’s one thing to say, okay, I can see the case that the consumer might spend more money, and I can see the case that businesses might be willing to commit to more capital, but the stock market has gone up so much. Are we basically at fully valued? Well, in the May issue I drew your attention to some of the basic ways to value the S&P 500. The way I’m going to start with this is we’re going to look at where the price to earnings is today relative to the S&P index’s average of all those 505 stocks.

As you can see, in the beginning of 2018 we were very in the peaky range in that near 24 times. Then 2018, as earnings were increasing and the stock prices in general for the S&P weren’t necessarily increasing at that same pace of the earnings. The actual P/E was actually down quite a bit, and even in the fourth quarter with the stock market dropping off on those expectations for a slowing in earnings I mentioned a moment ago, the overall price to earnings continued to be way, way down until we hit that bottom right at the end of December of 2018.

So subsequently into 2019, the price to earnings or P/E ratio of the S&P has been climbing a bit higher, but we still are well below some of the recent peaks, not only back in 2018 but in 2017 and 2016 and, therefore, looking at it from this basis with a P/E of about 18 times, again we’re looking at a market that is not really fully valued and not toppy from this way of measuring value in the stocks in the S&P.

Slide 10 0:25:29

Then of course other metrics that you’ve seen me write about when talking about individual companies and how their stock is valued is the price to sales ratio, and so again here we’re looking at here’s the price to sales of the S&P 500 index. So, calculating it out, we are now sitting just a smidge above two times sales. So again, it is well below from where we were in 2018 and even where we were during 2017.

So again, on this measurement which I think is cleaner than looking at the earnings because for companies, unless they’re committing fraud on their reporting, sales are sales and, therefore, you can’t really hide for the most part sales with some fudging, but again it’s generally much cleaner than earnings which can be managed from quarter to quarter. So, on this basis again the S&P 500 stock on an average basis it not looking overpriced right now.

Slide 11 0:26:39

Then of course one of the other measurements is the price to book, and so the book value, all the tangible and intangible assets of the companies that are boiled down and, therefore, what’s that worth versus what the stock is worth. Right now, we’re sitting at about 3.3 times, and again that is down from and not necessarily near the peaks that we saw in 2018. So, while it’s slightly more pricey than looking at the price to earnings or the price to sales, we are still not quite there.

In addition, as I mentioned a moment ago, with businesses committing to budgeting for further investments in big capital expenditures, that would result in an improvement in the underlying book and, therefore, a higher book even if the price to book stays the same, that means a higher stock price. Therefore, again there is some reason to see some further improvement in the stock market going forward just like the price to sales.

Remember that chart I showed you earlier with the average revenues and the average earnings, what the projections are for revenues to continue to advance in the current quarter as well as in the third and fourth quarter of 2018. Therefore, if sales are going up even if the price to sales stays the same, that means that the stock price will go up and, therefore, those are two gears that can lead to some higher prices for the overall S&P.

Slide 12 0:28:20

So where are we going to be finding some of the next gears? So, this is a screenshot coming from my Bloomberg terminal, and you’ll note this is how I go through and calculate some of the graphics that I show when I post the total return for indexes or individual stocks. But I also wanted to show you more detail as far as the impact for some of the major sectors in the market that we have both in fund and ETF as well as individual stocks inside the model portfolio of Profitable Investing.

So, if you look at all those lines, that basically is plotting out day by day by day over the past calendar 12 months what the total return has been for various market indices. What we’re tracking here is in white it’s the Bloomberg US Real Estate Investment Trust, or REITs index. In the orange you’ll see that’s the S&P 500 Utilities index, and then you look at the gold. That’s the S&P 500 Information Technology index. Then in the brighter red, that’s the Alerian MLP index. So, the Alerian MLP index is primarily the infrastructure, the toll takers.

These are the pipelines and so forth which we have a collection of those throughout the portfolios. Then the green line is the S&P 500 Health Care Sector which we have various participants in the market for health care, whether it’s in the drug segment, whether it’s in the medical properties field including one of our more recent additions with Medical Properties Trust which is also in the REIT segment. That’s what’s that would comprise.

Now as you can see for 2018, most of those were in fairly good shape for much of the year, particularly looking at the health care sector, particularly looking at what we had in the utilities even in the fourth quarter and of course in the REITs which were also faring fairly well. Then towards the very end of the fourth quarter most things were then sort of being dumped until Christmas Eve when the reversal came. Then subsequently we’ve seen all of these core segments that we have representation in the model portfolios have all been having some fairly good performance.

So, if you look at the data above the graph, you’ll see the securities listed, one, two, three, four, five, six in the upper left-hand corner. So, you’ll see the first one is the Bloomberg REIT index, and if you move across there you’ll see price change, total return and the average annual equivalent. What I want to draw your attention to is the difference between the price change and the total return. This again is for the trailing 12 months from May 7th of last year to May 7th of 2019.

So the Bloomberg REIT index, the Real Estate Investment Trust has gained 10.56 percent in price, but with those very high dividends which again come with the tax savings that were part of that Tax Cuts and Jobs Act where you can deduct 20 percent of your distribution from your taxable income, that basically filters through on your 1099-DIV form which many of us filed if we completed our taxes on April 15th, or if you’re doing that in through October you’ll see that under box five when you see your reporting for your REITs dividends. The total return includes those dividends and, therefore, the overall performance of the REITs has been 15.40 percent which has been quite good.

Then you look at the next one down, number two. That’s the Utilities index, and you see a price gain of 12.7 percent, again very stellar, but with that higher dividend that comes from utilities, the overall total return has been even more impressive at 16.7 percent. Now we have several utilities both in the Incredible Dividend Machine, and we also have in the Total Return portfolio.

In the Total Return portfolio, we have the indexed Vanguard ETF and of course we have NextEra Energy which has the regulated power business in Florida and it also has one of the largest collections of wind and solar operations throughout the U.S. with some foreign installations as well. So, all of these have been doing quite well within this period and should very well be followed. I’ll just take a step back and remember on the REITs again we have a lot of participation in this.

When I first started writing for Profitable Investing with Richard Band and when I took over for him that was one of the first things I started writing about was not only the advantages I saw for REITs for last year but also the tax advantages that were being misunderstood. So, the REIT space in the Total Return we have several of them. We have W.P. Carey which just reported their earnings recently. Revenue was up dramatically. Profitability was up dramatically, and yet again they raised the dividend distribution, so they’re one of the very few true dividend aristocrats in their payouts.

Then we also have the newer member which is Medical Properties Trust as I mentioned earlier which they operate their own triple net leased hospital properties. Then of course we also have other including Life Storage which is in the temporary storage business which I have as a stock that will do well during the good parts of the market and will also be defensive if and when the economy pulls back as people might have to move around or store their stuff as they approach another chapter in their lives. Of course, we have some of the other REITs as well that also are doing well, American Campus Communities, Digital Reality Trust. All of these basically have been performing quite well for us.

Now moving on to number three with the Information Technology index. This is really sort of traditionally one of the big grower parts of the S&P, and so companies like Microsoft which again turned in their earnings which I talked about in the journal yesterday which were very good. The movement from unit sales to recurring income has been a good business model for the tech sector, and Microsoft is one of the leaders in doing this.

Then of course we have the ETF in this space as well with the Vanguard ETF not only in the Total Return but in the Model Mutual Fund portfolio. So, this area, 11.96 percent of price. They are more stingy typically with their dividends, and so you’re looking at the total return is not much more at 13.6 but again healthy including the sell-off that we had for the first couple days of this month.

But one of the things that I might draw your attention to is if you’re following along with my Wednesday filing that I do for Neil’s Dividend Digest, I wrote and filed something today. It’s being edited for posting. If you’ve signed up, it’s free for subscribers as well. I talk about five technology stocks with higher dividend payouts and, therefore, you might want to read up on that since it’ll be posted later today. You can click on that by going to the main Profitable Investing web page, and you’ll see the orange button on the upper left-hand corner saying, “Dividend Digest,” and you’ll be able to read that right there.

The next one down of course, number four, is the Alerian MLP index. These are the pipelines and other infrastructure parts of the petroleum industry. This for the past year, because petroleum prices have gone through some gyrations, and the outlook for this segment actually lost a little bit in price, but it reversed that almost in a mirror image with the total return because of the higher dividend distributions which also come with some tax advantages.

So, Enterprise Product Partners, the big gas and oil pipeline. We also look at Plains GP Holdings with its big pipeline infrastructure coming out of the Permian Basin. Then we have some of the other parts of the pipeline, Magellan and so forth in the Incredible Dividend Machine. All of those are part of that index.

Then number five is the Health Care index, so it includes the drug companies and other related parts of the health care market, Merck and Pfizer that we have in the Dividend Machine. Of course, Medical Properties is in the real estate segment, but again it shows the progress. So, the overall price gains for the trailing year positive by 9.83 percent, with the dividends 11.74. So again, this has been one of the other resilient parts of the marketplace particularly into last year and into this year.

As I wrote when I brought out the Medical Properties Trust this year, the overall market for health care is unfortunately quite good. The U.S. from a population demographics standpoint is older. It’s less fit. It’s fatter and, therefore, it’s spending more and more and more on health care. Therefore, unfortunately all that means is that the companies that provide these services and the facilities should see more revenue growth and more earnings growth and, therefore, their stocks are well-defended. That’s why I’ve been talking about these, and I will continue to potentially expand some of the health care.

Now I know there’ve been some concerns with the 2020 election underway in which some of the presidential and congressional candidates, either declared or undeclared, are talking about national health care or single payer or Medicare for all or other vernaculars or price controls on drugs.

Again, a lot of this rhetoric has been very scary if we’re invested in the health care spectrum, and of course that basically has been giving some people pause. It’s resulted in a lot of articles in the financial pages talking about the risks involved in this, but again even if we were to see big changes in the electorate in November of ’20, the idea of getting everything through as far as the House, the Senate and potentially the White House, the idea of having the political will and the muscle to make such dramatic changes, you would see a lot of the demographics of the voters, regardless of which part of the political spectrum that they’re residing, actually following through and demanding a nationalization or national controls on health care and health care pricing.

Therefore, I think the risk of a dramatic change that would threaten the healthcare market I don’t think is quite as significant as has been pitched in the financial markets and the financial news of recent.

Slide 13 0:40:00

So next I’m going to talk about what are some of the big hills that we’re going to have to climb as we’re reaching and taking advantage of those next gears. I think two of the big hills climb, the first one of course is trade. Now this week, as I mentioned just a moment ago, the trade talks with China have been going on now for some time.

There has been a lot of news and discussion that there is progress that is being seen by both sides, and that basically came to a screeching halt with a presidential tweet a few days ago in which there was a threat that if we didn’t see some changes in some of the intellectual properties for U.S. companies that are doing business inside China, that we might see some executive branch imposition of additional tariffs and raising of tariffs.

Therefore, the stock market did not like that, and there was a panic that things were becoming unhinged. The progress and the optimism that was being priced into the stock market, that the trade negotiations were going to result in something in the near term with U.S. delegations in China and Chinese delegations here or increasing in the United States, that we were going to get some sort of deal signed, hands shook between President Xi as well as President Trump.

So, we’ve got to get past this and right now from my reading, I think we’re going to get some sort of a deal even if it’s not completely a big deal, the idea that at minimum we’re going to get some opportunity for both presidents to get a handshake. They both need this for political reasons. Xi needs it for stability with the perception of stability in China, and the current administration needs the deal in order to show it as they move into 2020 and the elections, and also they need it because they want and need the stock market and the economy to continue to be very buoyant, because that’s one of the general arguments that they’re making for reelection. Therefore, I think we’re going to get a deal done.

In addition, of course, as you might know, I have spent a lot of time in China over the past decades doing my work and so forth, and I’ve watched and seen how the Chinese adapt to various challenges within their domestic economy and their outward look to dealing with other nations. Again, I think there is a willingness and a desire to come to an agreement, to smooth things out and create more certainty with trade, investment flows between China and the United States. So, I think that basically will get done.

Moreover, if you look at the U.S. economy which we’ve been doing in this webinar, we have such strong growth, such strong consumer demand which is resulting in a lot of sales of Chinese goods, that if that were to be further curtailed, that would be a real crimp on the Chinese economy. The Chinese economy has been slowing in its rate of growth, and there are some further fears that it might slow even further.

So, there’s a political impetus by the Beijing government as well as regional leadership of the Chinese government to get a deal done because they cannot afford the potential instability that could come in China if we were to see further hikes in trade tariffs and more trade animosity which would put more uncertainty for businesses in the mainland. Therefore, that is a very compelling reason for the Chinese to a deal. If it can be done where Beijing doesn’t look like they’re capitulating, again for political stability reasons, then we’re going to get the handshake, and we’re going to be able to move on. So that’s what we’ve got to get past.

The other parts of the trade climb, we still have the U.S., Mexico and Canada trade agreement ratified with the modernization of the NAFTA agreement. We also have the trade negotiations with Japan which are underway. We also have trade negotiations with representation from the European Union and with Britain hopefully coming to a conclusion to on their Brexit deal.

We will have trade negotiations with the United Kingdom, and we also have other trade deals which the current administration is actively engaging in right now. Therefore, if and when these deals get done, that will basically provide I think some further buoyancy for the market, because it will result in companies having more certainty in their trade and, therefore, helpful for the revenues and helpful for their earnings.

Now the other big hill to climb which I was referencing when I was talking a moment ago about the medical part of the marketplace is the elections. 2020 has been off and running for some time now and, therefore, the election process is going to be very much of a challenge for the economy and the market. So, what we’re looking at now is, what would be some of the potential outcomes?

Well again, you know I spend a great deal of time inside the beltway. I follow a lot of news and intelligence sources within the beltway. I follow a lot of legislative actions. I pay attention to what’s happening on the minutia of government solely to be able to identify companies and market segments that are either going to be helped or hurt by changes in government.

Therefore, what we’re looking at for 2020 is that the Senate is going to be very difficult to change from Republican control to Democratic control. The Democrats have to pick up a number of seats. They also have to stand for a number of reelections. So, they have a lot on their plate. Also, a lot of the current senators are in the presidential race and, therefore, they basically are being sidelined from campaigning for their Senate seats and, therefore, that puts a bit of a problem for some of the Democratic Senate candidate. Therefore, that I think is one of the compelling reasons for why we might see stability in leadership within one side of Congress past 2020.

The next part of the equation is looking at the White House. Now regardless of whether you like the current resident of the White House or you don’t like the current resident of the White House, what you want to look at is what has been occurring in the economy and in the stock market. Forget the craziness and forget some of the criticisms, but we’ve got strong growth, and that growth has come from regulatory reforms, deregulation in various industries, the tax changes.

All of that has moved to drive consumers to spend more, and it’s enabled companies to sell more and to keep more on an after-tax basis and, therefore, that means higher earnings and, therefore, more sales, more confidence from consumers and businesses means more investment and more revenues. That means more earnings and, therefore, all of that helps to not only keep stock prices higher but will drive them even higher in certain segments.

If you reverse some of those things, that’s potentially a problem, and that’s why a lot of analytical groups are looking at a lot of the economic data. They’re saying if these items continue to advance as we get into the election in November of ’20, it’s very difficult from a statistical standpoint to make the argument for a change in the White House. Therefore, that basically provides a little bit of certainty from that standpoint.

At the same time, again, I’m going to be preparing as we continue to move month after month after month through ’19 and into 2020 for what’s happening in each of the Senate races, what’s happening in the primary season and in the general election for the White House in 2020, and what are going to be the ramifications for not only the general market and the economy but for specific market sectors.

Therefore, as we start moving along, you’re going to see me drawing attention to here are some of the positives that will be occurring. Here are some of the negatives, and here’s how it might very well play out for each one of the segments and the economy and each one of the segments of the market and these individual companies. Therefore, I’m keeping an eye on that.

Now on the House side, again there’s a lot more variability there, but again a lot could happen but the idea that if it stays the same with the Senate remaining where it is, the White House remaining where it is or if the Senate stays and the White House and Congress go to the Democratic side, you’d still have that big check on power which would still be somewhat positive. So again, I’m just following through on this. I’m not making an endorsement. I’m just basically looking at how it’s going to impact our stocks, our bonds and our funds. That’s the sole reason why I bring up the election part of the equation.

Slide 14 0:49:49

Now I also want to draw your attention to a couple of things that I think are a positive for the current stock market and is potentially an offset to some of those challenges that I just mentioned. Here what we’re looking at are the tracking of inflows into various funds that are invested in stocks in the U.S. marketplace. As you can see, for 2019 all of 2019 has seen negative flows, meaning that there have been outflows from stock funds while the stock market has been going up dramatically.

What this basically is telling me is that if we’re seeing so much money coming out of the stock market and yet the stock market continues to go up even with this recent sell-off this week on the discussions of the trade negotiations, there’s not a lot of money that would need to be yanked out or is about to be yanked out. Therefore, even if the stock market were to slide a little bit further into the ensuing days or even into next week, we’re not looking that there’s a ton of hot money that’s in the stock market. That hot money isn’t in the stock market.

Hot money is not flowing in. It’s the money that’s in the stock market are those that are convinced by looking at the numbers that the stocks are justifiably still good values and that there are expectations for their performance. So hot money has actually been leaving. Good analytical money is still there and, therefore, that I think provides a little bit more confidence that the stock market isn’t looking to see a big reversal right now.

Slide 15 0:51:48

Now the other way of looking at another part of the marketplace is the bond market. Now here we’re looking at the amount of inflows into the bond market. As you can see, for all of 2019 so far, we’ve been seeing big inflows. Now those inflows have taken off from April into the beginning days of May and, therefore, this came with the Federal Reserve’s Open Market Committee meeting in the last week where we got further clarification that the Fed’s not going to do anything when it comes to policy.

We continue to have further discussions that we might very well see some Fed easing through its Open Market Committee either through some of their bond-buying exercises and/or their target rates for fed funds or by making some further adjustments without their deposit rates on excess reserves. In other words, when banks are leaving cash on deposit with the Fed and then get paid by the Fed, that’s another tool that the Fed uses. So again, if they pay them more, then that basically effectively gives more cash to those financials.

So, the bond market has been very positive. Now again as we saw for 2018 the measurement of inflation, the PCE, we just barely blipped at two percent. We spent most of the year at under two percent. We’ve seen that under two percent on a monthly basis has been the trend for the PCE. Then on the big measure with the GDP number, the core PCE was at 1.3 percent which I just showed you. That means that there’s no inflation that’s rearing its head, and there’s no sign of inflation rearing its head. That’s phenomenal for bonds. Therefore, that makes bonds that much more appealing.

The next part of the equation is that the bond market is comprised of different parts. There’s the Treasury market which basically is theoretically risk-less from the credit standpoint part of the market, but also is the lowest yielding part of the marketplace. But even that is seeing a lot of buying in the fund market.

Another part of the equation is the corporate bond market, and there again that’s where I’ve been drawing your attention to for the past many months by looking at the corporate bond market, so the Osterweis mutual fund that we have, their Strategic fund that has a big focus on the corporate space within some of the ETFs that we have in the portfolio, both the Total Return and the Model Mutual Fund portfolios as well as the mini bonds that I brought into the Total Return, the individual corporate securities that are paying us so well.

Therefore, the bond markets for corporates are doing quite well. The demand for corporate bonds is exceedingly high, and this has a couple good things for us. One, it supports our bond investments including our investments in the preferred stocks I’ve been drawing your attention to because that means there’s more demand for those types of securities. But it also means that corporations can borrow money much more effectively and, therefore, the idea that there is ample credit that is out in the marketplace so that companies can borrow money to make those big capital expenditures at a lower cost and, therefore, that goes into their calculation as far as if they’re willing to make those further investments. So lower borrowing costs is another helpful gear for the stock market.

Then we get to one of the other markets which I’ve been really arguing you should buy which is the municipal bond market. Municipal bonds have been doing quite well. We have the three closed-end funds in the muni space in the Total Return portfolio, the BlackRock and the two Nuveen. Then we have some muni funds in the Model Mutual Fund portfolio. Again, the big drivers for municipal bonds has been low inflation, improved tax revenue and with the improved economy further improving the fiscal conditions of state and local issuers around the country. Therefore, credit is getting better.

There’s also been less need to issue more bonds, so it means supply is more constrained and demand has been there much as it has been for corporate, taking advantage of the higher yield that’s there. So, the muni market is doing exceedingly well and, therefore, that’s basically been helping. So, Treasuries are supporting. The corporate bond market is very much in demand and municipal bonds are performing and the demand is there. Therefore, no wonder that the inflows into bond funds is going quite up, so that’s good for fixed income investing that we have in Profitable Investing. It also means lower interest rate costs for companies, and that’s good for the stocks. That’s why I wanted to put this in front of you.

Slide 16 0:56:38

So now I want to get to the Model Mutual Fund portfolio. Now in the May issue of Profitable Investing, I made some big changes to the Model Mutual Fund portfolios and, therefore, I want to talk about that, and I want to go through each one of these and give you my rationale for what’s now in these and what my plan is for these going forward.

So, I start with, what was my rationale for doing this? Well, for the past few months I’ve been looking at the structure of these mutual fund portfolios that have been around for many years. I looked at that they weren’t necessarily fully capturing what we were able to benefit from in the Total Return portfolio with the funds and the individual stocks and so forth that are in that portfolio as well as the other types of stocks that are in the Incredible Dividend Machine.

So, my goal was to make sure that investors in the Mutual Fund portfolios were getting to get the same opportunities that were in the Total Return. Therefore, then I wanted to look at the sector specifics for up side. So, I want to make sure that everyone was getting exposure to the utility part of the market. They were getting exposure to the information technology companies. They’re getting exposure to the real estate investment trusts. They were getting exposure to the energy companies and other parts of the marketplace, and they were getting the right parts of the bond market.

Therefore, I wanted to use the best of both the open, closed-end funds and the exchange-traded funds, ETFs. I also wanted to match the allocation between the stocks and the fixed income. So in each of the Model Mutual Fund portfolios, I have the exact same allocation that I have for the Total Return in which it’s still a little more conservative than others might, and perhaps I could have been a little more aggressive with the stock market doing so well, but I’m still guarded, and so 56 percent we have in stocks and 44 percent we have in fixed income. Out of that, 11 percent of the overall I still have in cash as being one of the buffers for us as well as providing an opportunity to use that cash for some further acquisition.

So, what I wanted to make sure that each Mutual Fund portfolio had was the general stock market of the S&P but with a focus on the dividend component of the S&P 500, so again making sure everybody has exposure to the stock market but with that focus being a little more on the conservative side of the S&P with the dividend focus. So, I have in each of the Models I have a fund or an ETF that does exactly that.

The next part of the equation is I have the real estate investment trusts. So, in each Mutual Fund portfolio, I have the REIT fund or ETF that gives you the exposure to the REIT market. The information technology, that’s been a big winner in the stock market this year and last year for growth as well as for some income. Therefore, I make sure that each of the portfolios has information technology funds or ETFs in them. The energy sector with petroleum from crude oil and natural gas and other parts of the energy space having the energy focus so you can capitalize on the fundamentals that I’ve been writing about.

So, each one has an energy component and then the health care which I talked about earlier in this webinar, making sure that you have exposure to the drug and other health care-related companies that are also benefiting from the growth in spending in the U.S. for health care. Then on the fixed income, 44 percent of it is allocated to there, again ten percent is cash.

So, I want to make sure that everybody gets the benefits of the corporate bond market, so again each portfolio has a fund or an ETF that has a keen eye on making sure that we capitalize on the high yield as well as the price performance of the corporate bond market. Then the preferred shares, again giving us a conservative way to have a little bit of stock performance with a fixed income and a higher coupon with preferred market, so each has a preferred fund. Then the municipal bond market which I think is one of the best parts of the bond market right now which also generates cash that is tax-advantaged.

Now one of the big changes that we had in all the portfolios was up until May I had each individual fund had its own individual percentage mapped out. What I wanted to stress going forward in the May issue was that I know that everybody has different circumstances, and I wanted to make it as easy and clean as possible to buy the funds and, therefore, with the stocks it’s 56 percent. I recommend basically splitting it evenly with the general stock market as well as the individual sector parts of the funds.

You’ll end up with predominantly a little heavier weighting on the general market, but you also will have an equal weighting with all these other sectors that I think will balance out into the coming quarters. The other things that you’ll note is that I don’t make mutual fund changes that often with the exception when a fund company changes the rules, closes a fund or changes how the fund is going to operate. Then I have to.

That facilitates a change like I did with my alert on Monday for some of the Vanguard funds in which Vanguard closed the fund to new investors and direct people to buy another version of the fund in their Admiral series and/or made changes to their minimums and, therefore, I needed to make a change because they did with virtually no warning and I didn’t see a heads up. So, the idea is I wanted to make sure we had changes, so I did the changes. You’ve see that. It’s been posted on the website for the portfolio.

I’m sorry that we had to make these changes, but again the idea was that I need to have more certainty that Vanguard isn’t going to make some more changes to their funds. So instead I went to their ETFs which have different rules which they can’t just yank an ETF out or close an ETF. Therefore, I rolled out the new ETFs to replace those changed funds in the Vanguard thing, and I’ll talk about those very specifically.

Then the fixed income just like I recommend. It’s 44 percent, so you split it evenly between the corporate fund, the preferred fund and the munis and then keep your cash in a money market or another cash account.

Slide 17 1:03:40

So, let’s start looking at each of the individual parts of the funds. So, the first up are the All-in-the-Family Fund portfolios. We have three of them. We have the ones that are in the Fidelity family of funds. We have the T. Rowe Price and we have the Vanguard which I was just talking about a moment ago. Now in the Fidelity we start off with the iShares Core High Dividend ETF, so this gives you the large caps, bigger dividend payers of ETFs, so it gives you the good general stock market with all of its positive performance that I think we’re going to be seeing throughout the year.

Then we move on. We want to have the real estate exposure. So, we have the Real Estate Investment Index Fund. Therefore, that gives us our REITs exposure. Then we have the Utilities and we move onto the Software and IT Services. That gives you the information technology. Then we have the Energy and then we have the Healthcare.

So again, we have 56 percent of the overall portfolio. That amount of cash then should be broken up and spread evenly amongst each of these funds in the stock section. In the fixed income we have the High Income Fund. This focuses on corporate securities but also has some Treasuries and government in that as well, so that gives us the exposure to the positive things that are happening for income and growth there. Then we have the Preferred Securities Fund which gives us preferred. Then we have the munis in the Municipal Income Fund.

Now we come to T. Rowe Price, and you’ll note T. Rowe Price has a little bit more of a challenge because unlike some of the other major fund companies, T. Rowe Price really doesn’t offer sector or index-specific funds. They prefer that they would like to have customers come to them and have them basically do their own allocations within their generic funds and, therefore, that is very difficult.

I'm not going to recommend a generic fund and say trust these guys. I want to be very specific where I can measure their funds and look at the individual holdings and see that this fund will give you the subscriber what I think you need to own for the best in growth and income with minimizing a risk.

So, the best I can do within the T. Rowe Price family of funds, I have the Equity Income which gives you the stocks, the S&P predominantly with dividends. I also give you sort of the Value part which brings in a little bit more of some of the utilities and so forth, and they have the Growth Stock. You’ll see some other pieces in these funds and, therefore, a combination of those three will give you some of the exposure that you need to some of the tech as well as some of the more defensive parts of the stock market. Then they do have a Real Estate Fund, so that was easy, and they do have Science and Technology which gives us some of the tech part of the equation.

So, the healthcare, the utilities as well as the rest of the S&P, those are made up inside the Equity Income, the Value and the Growth parts of their funds. Therefore, when I dug through and looked at their holdings and their allocations, that’s what I was able to come up with that I think will work going forward. Then on the fixed income, they don’t really have much to go with, but the Spectrum Income gives most of what we need to have in the corporate space as well as the government and other space within the income part of the equation. Then of course you have the cash.

Then we come to Vanguard which I had to make the changes on Monday because of the closing of funds and some of the other shenanigans going on over in Malvern, Pennsylvania. Within the stocks we have the High Dividend Yield ETF. We have the Real Estate ETF. We’ve got the Utilities ETF. We have the Information Technology ETF. We still get to keep the Energy Fund, although I’m looking at this very carefully, and we still have the Healthcare Fund.

So again, that basically pairs off very nicely with the general allocation just like I’ve done in the Fidelity. In the fixed income we have Intermediate Investment-Grade which basically gives us the corporate. There are some other good things inside this fund despite its name. Then we have the Preferred and Income Securities iShares ETF that plugs in this one, because Vanguard isn’t quite as easy on this process. We have the Tax-Exempt Bond ETF, the VTEB. That’s the new edition, and then we have cash.

Slide 18 1:08:27

Then we come to the Fund Supermarket. In the Fund Supermarket we have stocks that are at 56 percent, and we have fixed income at 44 percent matching up with the same in the family ones. So, we start off with the Vanguard High-Yield Dividend, so again that’s just like we have in the Vanguard one. We have the Real Estate ETF, and we have the Fidelity Utilities one that came from the Fidelity family. We have the Vanguard Healthcare Fund for now, and we have the Vanguard Energy Fund for now and the Fidelity Select Software and IT Services Fund for the tech part of the space.

In the fixed income I’m pulling in I think one of the best corporate particularly in some of the lower credit grades, so Osterweis does a lot of credit research on their holdings and, therefore, it makes a great way to play the fixed income market. Then we have the iShares Preferred Income and Securities ETF, PFF, which we also have in the Total Return portfolio. Then we have the Fidelity Intermediate Municipal Income Fund. That gives us our muni exposure, and then we have the cash or money markets. So again, that’s what we have in the Supermarket.

Slide 19 1:09:34

Then in the Hassle-Free ETF portfolio, again these are all ETFs and, therefore, you can plug and play these in any sort of a market account that you will have. So, we have the general stock market with the S&P 500 ETF Trust, one of the most liquid of the ETFs in the business, SPY. We pick up the Vanguard Real Estate and the Utilities and the Information Technology ETF, and then we have the Energy Select SPDR ETF. This is what we also have in the Total Return portfolio to give us exposure to petroleum and other parts of the energy sector at XLE. Then we have the Vanguard Healthcare ETF which we also have in the Total Return.

Then in the fixed income we pick up the Intermediate Corporate Bond Fund, the SPIB, which we also have in the Total Return. We have the iShares Preferred ETF, PFF, which also is in the Total Return. It’s also in the other Model Mutual Fund portfolios, and then for the muni one we have the SPDR Nuveen Bloomberg Barclays Municipal Bond ETF, TFI. That gives us the muni exposure and that tracks one of the key indexes that I track very specifically for the muni market. So, this tracks the index that I track. Then you have the cash part of the equation.

Slide 20 1:10:55

Then we come to the Ten Minute Retirement portfolio. So unfortunately, after the May issue you had to take more than ten minutes, and I apologize for that, but again the changes I had in May with the exception of having to deal with Vanguard’s change in their funds, I think we can own these for some time. So, I’m not expecting nor am I looking to have to make any big changes.

So hopefully if you took the time when you read your May issue, great. You made your changes. That’s great. If you’re in the process of doing it, it’ll take a little more than ten minutes, but I think it’s going to be worth it. So again, I cleaned it up to match up with the other ones and to match up with the Total Return, so you get the SPDR ETF Trust.

You get the Vanguard Real Estate, the Utilities, the Information Technology. You pick up the Energy Sector, the Vanguard Health Sector, and I also basically wanted to add a little bit more to the energy space with the toll takers, and I did this last year. This is a closed-end fund which is run by Goldman Sachs, so it’s the MLP Income Opportunities Fund, so this has the pipelines in it. I wanted to make sure you had a little more of that in the Ten Minute portfolio, and so this trades under the symbol GMZ, and we’ve had this for some time now.

In the fixed income again, we have the Osterweis Strategic Income Fund. Again, I think it’s so good. I think you can buy it and you can own it. Then the iShares Preferred and Income Securities ETF that we have in several of the portfolios, and then you pick up the Bloomberg Barclays Municipal ETF. Then you have your cash or money market.

So again the goal of each one of these things has been we’re going to match up the sector performance that we have as far as the goalposts for the main newsletter and for the main portfolio of the Total Return, and you now by making these changes from the May issue, you should be good to go by getting the best of what the market has for the coming quarters for the market and its individual sectors.

Slide 21 1:13:06

So now I’ll just touch on a few of the coming attractions, and then I’m going to be looking and I’m going to be addressing some of your questions and comments. So, one of the things that I talked about in the last webinar was I started to roll out some of the agricultural technology companies, and so I believe that agriculture is one of those parts of the market that has a lot of need out there. There’s a huge demand, and there is not enough supply to meet demand for both consumables as well as industrial agricultural products.

So, we started off with a recent addition of FMC Corporation. Through its divestitures and new acquisitions, they now are purely focused on the agricultural space particularly in the chemicals part of the equation, pesticides, herbicides and devices and services that are used to monitor and administer these in crops around the planet. It’s a very old corporation with a long history of innovation and good management and the foresight to see changes that are needed for shareholders. It has executed on those changes throughout the many decades. So, I think it’s a very impressive company, and again it’s one of some others that I’m working on to provide other parts of the tech space for the agricultural markets.

Information technology. Again, there are a lot of things going on here. I’m spending much further time on the fifth-generation parts rollout which we already have some companies in this space, and then we also have other parts of technology that are involving 5G which is autonomous vehicles. BlackBerry is a company that again many of us know from their devices. It doesn’t do those devices now. It does have the software and licenses that software out, but it also has tremendous other sorts of its technology and software for security which is vital for networks.

It’s also vital for the fifth-generation communications including the Internet of Things. It also is very integral for vehicles as far as the backbone technology and platform for various infotainment and driver technologies. Again, it has a lot of moving parts, and I’m spending some further time on this as well as some other companies in this space, and you’ll be seeing that going forward.

Then of course I also started to bring up the idea of looking at gold. I made an argument for gold in which some of the big drivers for gold are lower interest rates in the short term in U.S. dollar terms and a weaker dollar. Those two things are one of the bigger drivers for gold prices. The dollar has been very strong which I’ve been writing about. So, I’m watching that for an indicator. Interest rates in the short term of course have eased and show very little reason for increasing. So, we’re getting a mixed bag right now for gold, but one of the ways that I’ve been looking at, I’m looking at how things are actually operating and some of the history behind their operations.

There are a couple of companies that are like our Viper Energy which they don’t dig gold out of the ground, but they either lease their properties for gold to be dug up out of the ground and they get a piece of the lease and the royalties, or they basically stream gold where they buy production from other companies and, therefore, basically buy the gold and sell the gold and have a stream of income. So, I’m looking at several companies that are in this space. A couple that still hold my attention as I go through my analysis are Franco-Nevada and Wheaton. So, you’ll be looking at some further discussions about where I see the price of gold and what companies we might be able to get some income from this.

I’m also looking for more yield at under-the-radar companies. I brought you a variety of some companies that were off the beaten path including Compass Diversified, Hercules Capital and others, MFA Financial. So, I’ve got some other ones I’m doing my diligence on. You’ll be seeing those in coming issues. Then I’m also looking at stocks and bonds at discounts.

What I’m looking at here is just like I brought you the closed-end municipal bonds, the BlackRock and the two Nuveen funds that were great muni funds that were trading at big discounts. When they first came into the portfolio, they were big double-digit discounts. Those discounts keep narrowing and, therefore, that paid because we got to buy them for much less than what the funds were worth.

So, I’m looking at stock closed-end funds that fit some of the same sort of conditions, and there are different permutations of this. There are some funds that have a finite date in which they need to liquidate, so therefore we have a certainty as far as when we might see a closure of that discount and almost seeing a built-in potential for a gain. There are others that basically are in perpetuity. So, I’m reviewing some of those, and you’ll be seeing those coming forward.

As I’ve been talking about, I’m waiting for the turn in the global markets. The U.S. is the place to be right now. There are some exceptions to that around the globe, but with the dollar basically being so strong, that basically hinders some of the potential returns, but this has been my area of expertise.

Where I first started working for decades was with my first real job in central Europe in the banking and financial markets and working in various parts of the planet subsequently. This is the area where I have a lot of expertise as far as being able to dig into and understand rules and regulations within local markets and who are the leaders in different industries. So again, I’m following this and I’m itching to be able to bring some opportunities for you.

Now we have brought in some newer international ones. FMC of course is on a global scale. Covanta is a company, the energy-to-waste incinerator company. They have expanding operations in Ireland and the U.K. So, we do have some global exposure. We also have Nestlé and some others that I vetted, but I’ll be showing you some more interesting companies going forward.

Slide 22 1:19:30

So, with that I’m going to shift gears now and start addressing some of your questions that you’ve been sending in. Bob basically writes in and says, “I’m interested in buying Viper Energy as you recommended, but I don’t want the hassle of getting the K-1s purposes(?). This also applies to some of the MLPs you recommend.”

Again, he argues that the K-1s oftentimes come late. “Are there any alternatives to owning Viper or other pipelines without the tax hassles?” So Bob, yes. First off, Viper is no longer issuing K-1s. They changed the status of the company in the middle of last year. Therefore, the last K-1s were filed for last year and, therefore, the two dividends that we basically were paid since it was added to the portfolio in the second half of last year, those were regular dividends and that won’t cause a problem for your tax income.

Viper also filed the forms with the IRS. That’s also on their website which I’ve written about in the journal that says that the two payments that they made, two dividends in the second half of the year, even though they’re regular dividend payments, are considered return of principal. Therefore, they do not incur any current tax liability, but for all of the distributions for 2019 and beyond, no more K-1s. So, you can own Viper and not get any K-1s.

Now on the pipeline front, Enterprise Product. They do the K-1 with the benefits that come with that and Plains GP Holdings. That’s a general partner. That does a K-1, but Kinder Morgan, KMI, that’s a regular corporation, and Pembina is a Canadian corporation, so again no K-1s on those. Of course, if you want a great closed-end fund, the Goldman Sachs fund that I highlighted in the retirement model portfolio, GMZ. That’s another way you can buy into it without the K-1 hassle.

Then D.A. basically writes something that says, “A common and preferred stock trio, NuStar, Seaspan and Teekay Shipping.” I have positions in two of the three. The preferred shares that we added into the Total Return portfolio come from NuStar Energy, and then we have Seaspan in the leased shipping business, so like a landlord of shipping, and Teekay LNG Shipping moves LNG. Therefore, the idea that these are all basically trading around $25, and again I’m going to be making some adjustments in my buy prices a little bit higher, and I’ll be talking a little bit further in the issue about pricing.

So, they are all callable at $25 and, therefore, when we first brought them in, I recommended buying them up to $25, but each one of these have different call dates that are also noted in the issue. Therefore, if the price to call still is an attractive yield, then we can pay more for those and still end up getting a great yield on these.

But I always basically recommend with the preferred stock and with the mini bonds, because these typically are bought and owned by individual investors, and they aren’t traded. They’re not part of indexes and so forth. They don’t have a lot of volume. You can’t just throw a market order in, wanting to buy a big block of them, because that will drive a price. You put a limit order in and be patient, but I think we can pay a little bit more for each of these, a little more above 25.

Then Edward basically talks about after today and Tuesday, the trade war fears are priced in the stock market. Edward, as I addressed earlier in this webinar, I do think the trade things are directly what’s driving a little bit of the panic. So, I talked earlier in the presentation. I think there are a lot of compelling reasons for why the trade negotiations will come to a positive conclusion.

Then Charles asks, “Any attractive long-term emerging market stocks?” Well, Charles, yes there are. There are a plentitude of these sorts of stocks, but again the key problem is that the U.S. market is still so attractive that it’s pulling cash in. Secondly, the dollar is basically so strong. That basically makes the returns for U.S. investors that much more challenging in emerging markets, and some of the growth in emerging markets isn’t as good as it has been.

So, at the same time I am looking at a lot of companies, and I have a lot of them that I’d like to buy if certain conditions happen. So again, stay tuned. There will be a time in which I will say here are some great individual stocks to buy. Here are some great individual bonds to buy, and here are some great individual funds that take advantage of I think a lot of opportunities there.

Larry asks, “Any good 5G stocks?” Well Larry, two of the companies that are going to be big beneficiaries immediately are going to be AT&T and Verizon that we have in the Dividend Machine portfolio. Then of course we have the software and hardware companies that include Microsoft, Cisco Systems that we have, and of course to a certain extent Intel will have a little bit of exposure to that. I would like to own Huawei but again, privately held.

Ericsson has some other baggage. Otherwise, I’d be looking at that stock with an eye towards recommending it as a buy. I also think that I’m also looking at BlackBerry because of their communications security which is a vital need in the 5G space, and I’m looking at some other companies. You will be reading about some additions in this space.

Joe asks, “Any number of financial advisors recommend dumping stocks now, going to cash and precious metals and alternative investment.” Well Joe, the market has been going up quite a bit, and as I showed you in this webinar, from a valuation standpoint and a price to earnings and price to sales and a price to book basis, the stock market is not even back to where we have been last year. Moreover, the idea of looking at drivers for improving revenues, improving earnings and improving underlying book value means that there is the potential for the underlying values of the companies to go higher. So, I don’t think there’s a reason to panic now.

All that said, I just went through with the Model Mutual Funds the allocations that we have are still very conservative; 56 percent stocks, 44 percent fixed income including that 11 percent cash. That’s a very defensive stance and, therefore, I think just like we muddled through the fourth quarter pretty well with the utilities and the REIT space being much more defensive for us, the bonds hanging in there, again I think we’re in pretty good shape with our current allocation if there’s going to be a further problem.

Henry asks, “Any opinion on gold and silver?” Henry, I just mentioned right now the argument for gold in particular is about half and half. Interest rates are low. That makes it cheaper to finance, cheaper to hold it as an alternative, but the dollar is still strong, and that makes gold a little bit less attractive, but if the dollar were to start being reduced, then that would be a bit more of a reason to buy gold back into the portfolio, but I am looking at some of the landlords in the gold space like I just mentioned, so you’ll be reading about some of those in the coming future.

Kenneth asks, “Any sectors to avoid if China walks out of trade talks? Farming, banking?” Well, Kenneth, farming I think is one of those things that I think is going to be very helpful. Now farming has had a challenge in which Chinese retaliated initially and then have been making concessions with commitments to buy more beans and corn, et cetera.

At the same time as I wrote about when I first brought an FMC Corporation, overall global demand for consumable agricultural products as well as industrial agricultural products is extremely strong, and the demand outpaces supply. Therefore, I do think the farming market is very good even if in the near term some of the beans and corn prices might be adversely affected if China basically walks out.

Then of course companies that are more focused on the domestic U.S. stock market and the domestic U.S. economy, so U.S. banks like Citizens and Regions that both turned in some good quarter reports I wrote about in the journal yesterday. That’s a good idea. The technology space, everything from Hercules Capital to Microsoft and so forth. What you want to be avoiding are the big cap companies that are on the firing line for their China operations.

So, we have United Technologies which again there’s a lot of value that’s still going to be unlocked when they break the company up, but they’ll probably take a little bit of a hit but less so than let’s say a Boeing or some of the others like that, Caterpillar which we don’t have. Those big, well-followed, big cap industrial stocks; those will be the ones to really avoid, but we don’t have many of those in the portfolio.

Michael asks, “Are the Incredible Dividend Machine portfolio equities are set to stand alone and perform through dynamic market conditions?” Michael, they are, because it’s a wide variety of companies. Most of them are pretty well defensible. So, you’ve got the phone companies. You’ve got the pipeline companies. We have the refinery. So, we have a lot of very varied companies including the utilities and so forth that are set up to be in pretty good shape overall.

Of course, since they all pay dividends, and some of them pay bigger dividends including some of the REITs we have, those should provide a good offset during some downturns. So, the idea that each of the portfolios in Profitable Investing can be cut out of the letter and then acted upon and be on its one, and so the Dividend Machine is one that can stand alone during volatile times. Again, we saw that during the fourth quarter last year.

John asks, “Are you concerned with the flattening of the yield curve and the recent inversion that we saw as a precursor to recession?” Well, John, we really didn’t have a genuine inversion which really looks at the two and ten-year as being much more indicative of that sort of change. The three-month and the ten-year, there’s a little more variability with that.

So, the idea that I’ve written about is that the yield curve doesn’t cause a recession. It’s indicative that there are expectations for slowed inflation and demand for longer-term bonds. What that typically comes from is that investors particularly in the bond market are looking at the economy and saying, “I think inflation is going to be lower with lower growth and with lower growth it means lower interest rates and, therefore, I want to buy longer-term bonds,” and, therefore, they start buying them.

Now what has happened in the U.S. market is significantly different. One, the U.S. economy is not slowing down. Expectations aren’t for slowing, but we’re looking for the economy to still be percolating along even in the two percent range from 2019 into 2020. Therefore, that’s not a slowing. The other part of the equation is how the Treasury has been borrowing money.

The Treasury has been focused primarily on issuing bonds on the shorter term to fund some of the near-term obligations. They’ve been issuing less bonds on the longer end. Therefore, that’s been driving a little more of the supply in the short end while the supply in the longer end hasn’t been quite as good, and the demand has been fairly constant from institutional investors and pension funds and insurance companies that need those longer-term bonds.

So, it really is a lack of supply and constant demand that’s given us a little more of the drop in longer-term yields versus slightly higher shorter-term yields. Then of course the Fed through its Open Market operations tired to maneuver short-term rates a little bit higher even though they didn’t need to last year, and they admitted that. Therefore, I think that was part of that process, and that has gone away. So that’s why I don’t think that’s going to happen.

Celina is asking, “Please discuss CDs. I’m retired and need safe income.” Well, Celina, CDs are one of those opportunities and just like we talk about in the money market alternatives in the Total Return portfolio, the Synchrony Bank, they do offer some attractive CD rates that you can buy that might very well be better than your local bank, but again looking on the income side, we have a lot of fixed income things I think are very safe in the main portfolio.

Look at some of the bond funds that we have in the muni side if you have something in a taxable account or on the corporate side for the tax-free account, the mini bonds, the preferreds and on the preferred funds and ETFs. Those also work as a great alternative for safe income beyond just a CD.

John basically writes, “Can you shed some light on Viper Energy’s reduced dividend announcement? Is this a minor speed bump or is there something more serious?” Well, John, I wrote about this in the journal that was put out yesterday in which it was part of a recap of numerous earnings for the companies that are inside the Total Return portfolio that had reported fully for the first calendar quarter. VNOM basically had a little bit of a disappointing, a little bit surprising, but it really shouldn’t have been surprising results in which it saw a little bit of a reduced revenue coming in than what was expected.

The key reason for that is that, if you remember, the petroleum market price was going down as petroleum was being sold off almost in tandem with the stock market. It wasn’t really following along with the fundamentals of the petroleum market. So, if you’re in the oil production business, you’re looking at where the price of oil is going, and then you’ve got to then make your commitment as far as what you’re going to build out or turn on as far as producing. Therefore, November/December oil prices were going down and, therefore, you couldn’t basically make the bet that oil price was going to recover and then some in January and February.

So, you basically were being more conservative because you learned your lesson during 2014, 2015 and you learned it before if you’re older that oil prices go up and down, and you can’t just bet the farm. Therefore, a lot of the companies that lease land that’s owned by Viper basically kind of pulled back to conserve cash, conserve some of their resources, and that meant that they were producing less oil and gas for the quarter.

On top of that, we still have the problem within the Permian Basin that there is a lot more oil and gas than what the infrastructure of the pipelines and the gathering equipment can pull out of there. So, there is a discount of the oil and gas that comes out of the Permian versus where it can be sold to other parts. Therefore, the average price of petroleum that was coming out of the ground for Viper was in the 40s versus the market price was in the 50s and then (Inaudible) on average for the first quarter. That was part of the equation.

Now with the overall petroleum price much higher in the current quarter, VNOM basically is expected to see much better improvement on their revenues from their royalties and the distribution. So, the distribution that we got from the first quarter is going to be much less I think than what we’re going to look for, for the distribution for the current quarter.

Then Ed asks, “Can you give a current synopsis of the pipeline MLPs please?” Well, the current synopsis is that the pipes are very heavily utilized, and their gathering facilities in the various fields are being well-utilized again in the current quarter. We also have seen that marine terminals are getting fully utilized because of the administration’s allowance for exports of petroleum which is a very crucial driver for even more pipeline demand.

We’ve seen that U.S. exports of crude oil even to Europe and elsewhere is up dramatically which tankers coming in from U.S. marine terminals into European terminals is oftentimes driving the price for European crude which is tracked by Brent, and that means that those tankers are getting even higher prices for their crude than what they would get in the U.S. Therefore, that basically drives more demand for the pipeline MLPs, particularly those that have marine terminals.

The next part of the equation is expansion. You look at each of the pass-throughs that we have as well as the corporations like Kinder Morgan that are all basically expanding their operations for oil and gas. Kinder Morgan basically is putting a big investment in a new LNG terminal in Oregon. Some of the local people are fighting it. The Trump administration is basically fighting for it. Again, this will basically bring in a tremendous amount of revenue as well as the rest of the LNG space is very important and a big part of the growth story in pipelines. But again, more pipe, more utilization of the pipe is all basically good for further distributions.

Victor asks, “I’ve always had a portion of my portfolio in the petroleum industry. Given the various factors on a global basis coupled with the current administration’s desire to become less energy dependent, do you see the price of oil moving on a short-term and a long-term basis?” Well, Victor, I think oil in general terms is supported by global demand which is outpacing global supply.

I also look at in the near-term Iran with the U.S. sanctions. Even though they’re trying to act all big and tough, threatening the U.S. by saying to the Europeans and the Chinese, “Do something independent of the U.S.,” is not going to be effective. That takes a lot of supply out of the market, and the waivers won’t be there.

You also have other parts of the world’s production fields are not in the best of shape. Nigeria and other western African nations come to mind. Libya is not a country anymore. It’s just tribes fighting tribes. Then of course South America has some of its own problems including Venezuela and other capital needs that are needed in Brazil with their turnaround in the politics. So, all that is just not there. Therefore, you look at the U.S. market. We can produce more and more oil if we can pipe it and ship it and, therefore, it’s all about getting the capacity to move this stuff. I think it will help the price for U.S. crude as tracked by WTI.

Longer term I do think that eventually oil is not going to be as important to the U.S. and global economy than other parts of energy just because there are other ways to do things and there’s competition from battery and other energy generation certainly for moving vehicle, but that’s a very long term out. Generally, I think that from the upstream, the producers, particularly the ones that are on the property at Viper, the midstream, the pipeline companies and the downstream and the refiners like Marathon, I think all these are being able to capitalize on the up, mid and downstream part of the oil market.

Lynn says, “Do you eliminate all stocks in the Incredible Dividend Machine?” No. I don’t eliminate all the stocks. I think, Lynn, you’re asking me, do I follow all the stocks. Yes, I do. Again, we’ve been following those. You’ll see in an upcoming journal I’ll be detailing all the earnings reports for the Dividend Machine member stocks. Again, all of them continue to putter along pretty well.

Sandy then writes, “Do you believe in the stock market melt-up? If so, when? Because the stock market has been tanking this week.” Well, Sandy, the market basically has taken a pause because of the shock point or at least the shock talking point of the trade talks with China. I just mentioned I think we’re going to see that sort of work its way out. The other part of the equation is I also showed you on the screen about fund inflows. There have been so far this year not fund inflows into the stock market funds but outflows. Therefore, there has not been hot money into the stock market. Since there’s less hot money going in, there’s going to be less hot money leaving. Therefore, that is a defense of the stock market from taking some big hits.

Eric basically asks for ideas for some smaller REITs or utes that can grow their dividends. Let’s say the next W.P. Carey or NextEra Energy. Eric, yes, I do, and I’m working on some smaller companies that have some bigger dividends, and again that’s in the coming attractions, so keep reading and keep subscribing. You’re going to get some new ones.

Then we get Gerard basically asking about Facebook. Facebook is not a portfolio stock, and I really can’t see it being one. I think the platform has some challenges. Demographics don’t necessarily favor it compared to other alternatives for younger people. It’s moved to pledge to bring in more privacy controls with the data. Basically, it sort of hits at the core business model for the company, and that doesn’t bode well for shareholders. So, we’re not a buyer in the portfolio and, therefore, I wouldn’t be recommending owning it and I would not recommend owning it at all.

Then Bill asks, “How could the Fed claim zero inflation when they continue to increase the money supply?” Well, Bill, the idea that you have to look at the rate of inflation in which inflation is the amount of cash against the amount of goods and services. Now as I was illustrating earlier, we just got the GDP report last week in which we saw the overall economy expanded by the 3.2 percent, and at the same time the rate of inflation was only at 1.3 percent. So, the amount of goods expanded at a higher pace than the amount of money. We don’t have zero inflation, but we do have 1.3 percent for at least the last quarter, and I expect that the core inflation ex food energy should very well remain well below two percent for most of this year.

William basically asks, “How close are we to a credit crisis where people are unable to pay their bills?” Well, William, one of the things that I am looking at and I have basically been following is looking at the corporate credit market, and there are two parts of this equation. One is the collateralized loan obligations, the CLOs, and I’ve written about this in the journal and in the issue in which the CLO market has expanded quite a bit.

Now what are CLOs? Well, they’re corporate loans that are made not by commercial banks but by hedge funds, private equity funds, other investment funds, insurance companies and financials. So basically, these companies act like banks, make a loan and either hold the loan or they package it together and sell them out and take the fee income.

The amount of CLOs has increased dramatically and, therefore, on the surface it looks like where we were in 2007. Therefore, there could be a rinse and repeat, but again I think the serious heavy money parts of this marketplace are aware of this, and I follow what’s been happened with some of the big financials that have been in the space like JPMorgan that have really kind of stepped aside on some of these transactions because they see some of the risks. I think that’s a good sign that there are some people with brains that are actually using it when they’re looking at these loans.

The other thing I’m looking at is corporate credit. Now one of the things you’ll see me write about in Profitable Investing and in the journal when I’m talking about an individual company. I talk about their sales and their revenue and their margins, but I also look at their debt, and I’ll talk about their debt to assets. So, this is a good barometer of whether they’re lower leveraged or have higher leverage. So, I’ve been looking at a recent statistical grouping of U.S. companies in which it seemed the average debt to assets of public companies in the U.S. now has been creeping to a more recent high, and that might be a warning signal.

So, I am looking at that, but what I’ve seen as far as percentage is not that much of a challenge right now but one that I’m looking for. Remember as I mentioned in this webinar, demand for corporate credit is so strong by financials and other investment funds and pension funds, et cetera, that that’s basically made corporate credit so inexpensive.

In turn you also have to look at what this credit is being used for. If it’s just being used just flutter about, then that would be a problem. If it’s being used to invest in the underlying businesses, that’s actually buildings and value that backs up that credit. What we’ve been seeing is that companies have been using that to actually build up the value of their businesses. It’s not as much of the leverage as it is to fund further growth.

Melvin asks, “How do you feel about the healthcare sector going forward? When do you see the bull market ending?” Well, Melvin, unfortunately I think the healthcare market is just in the middle of an upswing. The U.S. has been spending more and more year after year on health care given the fact that we are an unhealthy lot, and we are also getting older. The demographics do not change that going forward. In fact, by some of the estimates that I’ve been following within the professional end of the spectrum that follow the demographics and follow the demand for certain products and so forth, they’re looking for a speeding up of the spending, not only as a percentage of the GDP but in actual dollar items.

Therefore, I see that health care, there’s a lot further up side unfortunately for the demand for these products. That said, if we were to see big changes in how the U.S. government sets prices, if they change how insurance companies work, if they try to get in the business entirely by the government through nationalization, that would be a whole new ball game, and again I do keep an eye on the political developments as I just mentioned, but again I don’t really see necessarily that coming to pass.

Let’s see. Carl asks, “How many team members do you have helping you with your financial research?” Well, Carl, I am basically a very hardworking fellow. I’m typically up about four or five every morning, and I go through my collection of my newspapers both online and delivered. I delve through them, and I basically take copious notes. I also read a lot of professional journals. I go through my Bloomberg Terminal. I spend a lot of time researching and poking through companies, markets.

I also do some offsite stuff. I talk to a lot of other folks. So, a lot of it is done primarily by me, but I do have a good team of some very professional people who have been in this business for some time, and again they basically provide some additional needs, good sounding boards for some ideas, and I’ve got to sell them before I get to put it in the letter. So again, we have a good team that all basically comes to make Profitable Investing all the more profitable for you.

Steve asks, “How do you decide which portfolio holdings to liquidate for cash in absence of specific sell recommendation?” Well, Steve, that’s a point that’s been drawn to my attention, because I’ve kept the cash in the allocation pretty constant over the last few months, and I’m adding some new positions. Therefore, I think I’m going to be making some potential changes.

If I add a new position, I’m probably going to want to reduce the cash a little bit in order to pay for some of this new stock and also will need to make some changes in some of the allocation. In addition, I’ve gone through and done a lot of big changes in the allocations for the Model Mutual Fund portfolios.

I’m also looking at and I’ve been evaluating the allocation model for the Total Return portfolio. I want to make it easier and more direct, so you know where to put money to work in new things, so you don’t sell something that you shouldn’t sell to buy something else. Therefore, I’m working on coming up with a way to improve that, so that’s in the works, Steve. Please stay tuned. I’m well aware of that challenge. I’m going to make it easy for you.

William asks, “How do you position yourself for an upcoming repeat of the 2008 drop in stocks?” William, as I like to write, every stock drop comes for different reasons, but each time there is, that gives something else to learn from, and I get a new tool in the toolbox to find problems. Now the 2007, 2008 financial crisis came from some very specific reasons which I don’t think necessarily would come to bear today.

However, the stock sell-off we had in the fourth quarter, that came predominantly from two things. One was the rapid acceptance of the fact that earnings growth that had been going at double-digits for the quarters in 2018 was going to slow in 2019, and that took a hold of a lot of folks, and there was a lot made of that, and that I think was a lot behind the stock drop.

The other part was the Federal Reserve. The Federal Reserve I think really bungled their discussions with the public in talking about that they want to see inflation with the PCE at two percent, and yet they weren’t, and yet they were trying to drive short-term interest rates higher. They were talking about reducing their bond portfolio and their balance sheet. Then they’ve said, “Well, now we don’t have to do that.”

So, there was a lot of bungling in that, and I think that was part of that equation. The Fed I think now is fully on board that they basically don’t want to shock the marketplace. There’s no inflation, so they don’t have to worry about that, but they want to keep the economy humming along, and basically, they don’t want to be the ones that basically end an expanding economy, a positive market, positive bond market as well and low inflation. Therefore, that’s not there.

So, the next part of the equation is looking for what are some of the other challenges? We’ve got trade not just with China and other trade agreements. We’ve got global growth which is slowing, and so the U.S. is one of those beacons that can only be on its own for so long. We also have the election, and so then there are a variety of other risks that are out there. So, I constantly review the risks that are out there, and so the idea that that’s why we can and will basically make some changes if necessary.

Also, if we take a step back and look at the allocation in the Total Return as well as the Model Mutual Funds, there’s only 56 percent stocks and 44 percent fixed income including the 11 percent cash. So, we’re much more defensive than a lot of portfolio allocations that might be 70/30 in favor of stocks. So that I think worked out in our favor in the fourth quarter particularly with our utilities and our REITs and our preferreds and our bonds and so forth. I think that will provide some shock absorbers along with a lot of the bigger dividend payers that we have when we get another drop.

Then Robert asks, “I’m 75 and retired. I have to make my minimum required IRA distribution. Recently I bought some of the preferred stocks in my IRA that you were recommending including Seaspan, Teekay and NuStar, and I sold shares and some bond funds in order to buy these preferred shares.

By doing this, did I alter my original allocation of fixed income? Should our preferreds be considered fixed income?” Robert, yes. The preferreds should be considered fixed income. So even though they are called preferred stock, I really treat them more like a bond of that company. So that’s why I have it in the fixed income section of the Total Return portfolio and why I have the preferred funds and ETFs in the fixed income section for the Model Mutual Fund portfolios.

Then Charles basically says, “I’m retired, and I have a 30/70 percent stock allocation, and I have some additional cash I want to put to work that will grow with lower risk.” Charles, again everyone has their own individual requirements and so forth. I can only provide a broad guidance for all the subscribers, but again I think the idea that if you’re a little more conservative on having less stocks and more bonds, then again, I would be focusing your attention on the fixed income parts of the equation that we have in the Model portfolios.

So that would include again the municipal bonds that I think have a lot more growth risk with some higher yield. I’d look at some of the mini bonds, the preferred shares, some of the corporate side. I think that’s part of the fixed income that I think has some good opportunities.

Then on the stock side again look for some of those bigger dividend payers that I think will provide you the growth in which if you take those dividends and reinvest it or just stack those dividends up, that will give you some pretty good growth. So, if you’re getting that eight, nine or more percent yields, that basically can give you a pretty good return. So those would be some thoughts in general terms.

Anthony basically says that, “Compass Diversified has a K-1, but your website doesn’t mention this.” Again, Compass Diversified is a pass-through security, and it does issue a K-1, but I know that a lot of subscribers would like to invest in this. So, the key thing about Compass is that while it is a pass-through, it hasn’t necessarily been shielding much of its income distribution. Therefore, most of the income that it has from its distributions actually has been taxable.

That’s why I vacillated a little bit on whether I recommend it as a tax-free or as a taxable, but the key thing about Compass Diversified is that theoretically you could take some of the risk by having it in a tax-free because even if part of it were shielded, I would expect it to be very little given the history of the company’s performance and its reporting.

Again, as I’ve been writing, when I make a new recommendation in the write-up, Anthony, I will specify whether it will issue a K-1 right up front, because when I write something is a pass-through, I basically have made assumptions that people say, “Oh, it’s a pass-through. That means I’ll get a K-1.” So, I’m going to be even more specific on every write-up going forward, saying here’s a new company. It’s a pass-through and it’s going to issue a K-1, so you’ll see that right upfront. Again, I know exactly what you want to do, and that’s what I’m doing right now.

So, let’s see. We have Ram basically asks, “I think Neil should include more individual stocks in his recommendations.” Ram, I agree with you. So, in the May issue I spent a lot of time in the mutual funds, and I know some people would like to see more in the individual stocks and bonds. I agree with you, but I needed to address that and spend some time to effectively reform the mutual fund portfolio, and that’s why we had some more space for that. The June issue that I’m working on, we’re going to have some new individual recommendations as well as some review of some of our other holdings that are good buys right now. Again, I think you’ll be very pleased.

I also mentioned in the coming attraction section of this webinar I’m working on some other new ideas for some individual securities, so you’ll see more of that going forward. Of course, with this webinar, I wanted to spend some time to address the Model Mutual Fund portfolios because I did so many big changes but hang in there. Next month it’s going to be all about individual securities with much less of the mutual fund focus.

Then Christian basically asks, “If ETFs generally have a lower expense ratio, is there any reason to favor the funds over ETFs?” Well, Christian, in general terms I can look back, and I’ve had some various concerns with ETFs, because exchange-traded funds aren’t really mutual funds per se. They basically have an unallocated interest to a group of synthetic securities that are not really part of any individual ETF, because ETF effectively is an ownership stake in a creation unit which is another piece of the building pieces that make an ETF. Therefore, there are a lot of moving parts that for some ETFs, particularly ones that are leveraged and particularly ones that do things in an inverse fashion or involve themselves in a commodity directly that have a lot of challenges. Therefore, it doesn’t really make sense, and I’ve had concern.

But if we’re buying an ETF that follows liquid indices, then that is less to virtually no problem that I might look at. Therefore, you’re right. I think ETFs in many respects can make sense over some of the identical indexed funds that are part of that. That’s why if you noted in the reforms I made for the Model Mutual Fund portfolios, I increased the number of ETFs including in the Vanguard section in this space.

But that being said, while you didn’t ask about, closed-end funds like the muni funds in the Total Return Index and like the Goldman Sachs MLP closed-end fund, GMZ, closed-end funds can offer a lot of good opportunities, because if we can buy these things at a discount to what they’re actually worth, that basically means that if the sector performs, more likely that discount will close and we’ll get more of a gain while getting some additional income along the way. Again, you’ll probably see me looking at some other closed-end funds which might provide some more opportunities there.

Randy basically says, “If we get into a trade war, any defensive action we should look at now? What steps to take if an agreement is made with China?” Well, I mean I think we’ve seen some of the carnage this week where we’ve seen some big sell-offs and then people kind of rethink things and come back into the market. Again, I think we’re going to get an agreement. It’s in China’s best interest to make a deal. They cannot afford to just kind of walk away. The Trump administration really wants to have a deal because they want an economy which is buoyant, and they want a stock market which is positive. Both sides have the impetus to cut a deal and, therefore, I think we’re going to get it.

If in the near term we get some tirades where the Chinese and the Americans break off talks, again you’ll see a little more of a stock market selling of course, but again that’s why we have the allocation between stocks and bonds, so we have a lot of the bonds, a lot of the defensive stuff. We also have a lot of stocks that don’t do anything with China, and I think those are going to be in good shape.

Again, it’s all about that balance, and we don’t have as much exposure to those big cap companies like Caterpillar or Boeing that are really in the front line of trouble without a deal. Then if an agreement is made with China, I think it’s going to be very buoyant for the stock market. I think it will be a rising tide that will raise all boats, and I think it will provide some further onwards benefits and will give us that extra gear that we’re talking about on this webinar.

Then let’s see we have one last question. I want to close us at the top of the hour. Brad asks, “It looks like my style, adding Covanta.” Well, Brad, I’m glad you like Covanta. Covanta is a newer addition. For those of you that haven’t looked at it in the issues, basically Covanta Corporation effectively looks like a utility on the outside but actually is a problem solver in the waste and recycling business.

Waste is piling up in the U.S. with our disposable society and all those Amazon boxes, and the recycling market has just gone away since the Chinese basically said, “No more trash coming into our country,” last year, and so recycling is piling up, and it’s now going into landfills. So, the solution is incineration that generates power. It’s been something that’s been used extensively in Europe very efficiently and very cleanly, and Covanta is doing this in the U.S. I’ve seen their site firsthand down in the Palm Beach area.

I also am looking to take some time and investigate firsthand on their facilities in Virginia, and again they’re expanding their base in other parts of the marketplace including the market in Britain and in Ireland whereby they have a lot of trash and they don’t have a lot of landfill, and they need more power which is like nirvana for Covanta and its investment partner, Macquarie out of Australia. So again, I think that company is going to work out for us. The big thing is we get the market to think of it for what it’s doing and not just as an electric utility. I think as people start to figure out, that’s where we’re going to get some growth.

So, with that I’m going to have to sort of wrap it up and remember the recording of this is going to be posted later this evening or into tomorrow at the latest, and so you’ll be able to re-watch and listen to the presentation or sections of it if you want to fast forward through some of it. Of course, you’ll have the full PowerPoint slides to go along with the recording, so you can review some of the sections and check your notes to make sure you’ve got everything that you needed from me. Of course, I always like comments and questions and suggestions.

So again, there are a lot of questions I didn’t get to. I’m going to address some of those in upcoming journals and the June issue of Profitable Investing, but I read them all and I take them into consideration in doing my research and my writing. If you have suggestions that you’d like to see me deal with for the webinar, for the newsletter, for the journal or other things, or if you have stock ideas or stocks you want me to look at or funds and so forth, send them my way. So basically, you have the e-mail, feedback@investorplace. Make sure you put on the line “Profitable Investing” or “Neil George” and, therefore, they’ll make sure it gets right to me and my team.

So, thank you very much for participating in this webinar. We’ll be back next month with another edition of this, and again thank you for reading and, more importantly, thank you for subscribing to Profitable Investing. I’m very appreciative. Tell your friends. With that this is Neil George, closing for Profitable Investing. Thank you.

(END OF TAPE)

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