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3 Reasons to Invest in the Russian Stock Market Right Now

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Who’d have thought the Russian stock market would be the place to put some of your cash, especially now that Moscow just annexed part of another sovereign country and the threat of wider conflict between Russia and Ukraine may be looming?

Because of the volatility of the situation, Russian investors have begun to flee their own stocks; to date, a falling ruble and other economic problems there have led to a 20 percent reduction in the Russian stock market.

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Which is precisely why now might be the time to get in, say U.S. investors.

“[The] sell-off has taken the market to technically extreme oversold levels,” Jacob Nell of Morgan Stanley wrote in an investor’s note March 4, when the crisis was just beginning.

“Valuation multiples have only been cheaper at the depths of the 2008 crisis (when earnings fell by 60%). And oil markets are stable in contrast to sell-offs in Russia historically. Despite the obvious hit to growth expectations implied by the crisis, any sign that tensions are beginning to de-escalate would constitute a buying opportunity.”

Granted, cheap valuations don’t mean that returns will be quick, but you get the idea.

With the Crimea vote for independence and annexation into the Russian federal now past, U.S. market conditions are improving. Wall Street is rising steadily once again after comments by Russian President Vladimir Putin signaled that tensions over Ukraine would likely abate.

“What had been going on in the Ukraine has been weighing on the minds of investors for a while, so it is a relief that we are apparently moving beyond this,” said Joseph Tanious, global market strategist at J.P. Morgan Asset Management in New York.

“While from an economic standpoint the Ukraine doesn’t have a major impact on the global economy, there were worries about more tension between Russia and western powers, and how far this kind of standoff could go.”

Something to think about moving forward as regards your investment portfolio. Virtually all major global events affect markets.

Yet two days ago the White House issued a warning amid U.S. sanctions which froze assets of both Russian and Ukrainian nationals. Today, Russia responded with sanctions of its own against top U.S. officials, barring them from entering the country.

John McCain brushed off the sanctions with a joke, ”I guess this means my spring break in Siberia is off, my Gazprom stock is lost, and my secret bank account in Moscow is frozen.”

However, speculation over Russian ruble and stock markets in Europe and Russia continue. Over the past few days, investors have been eying the ruble and Russian markets which rallied despite the increased tensions and warning issued by White House Spokesman Jay Carney:

REPORTER: The Russian stock market has been soaring the past couple of days. Is this a sign that the sanctions are ineffective if they’re not really paying a cost? And the reality is it’s up about eight-, nine-percent the last couple of days, their main stock exchange.

JAY CARNEY: I think it’s down for the year, and I think the ruble has lost its value, and I think that he long-term effect of actions taken by the Russian government in clear violation of the United Nations charter, in clear violation of its treaty commitments, that are destabilizing and illegal will have an impact on their economy. All by themselves. They will also incur costs because of the sanctions that we and the EU have imposed, and there will be more actions taken under the authorities that exist with the two executive orders that the president has signed. So I wouldn’t — I wouldn’t, if I were you, invest in Russian equities right now… unless you’re going short.

While the White House tends to avoid commenting on shifts in financial markets, Carney said U.S. and European sanctions, compounded by Russia’s aggressive takeover of Crimea, will hurt Russia’s economy.

However, with risk comes opportunity. And “the riskier the stocks the better” says financial columnist and former management consultant Brett Arends.

Arends provides three reasons why he is going to invest in Russia despite the fact that it is a corrupt dictatorship embroiled in international crisis with its leader risking isolation and embargo.

1. The Moscow stock market is just on the cusp of a rare and exclusive club.

The 60% club, reserved for asset classes which have fallen more than 60% from their all-time peak. The Moscow market plunged on Monday in the wake of President Vladimir Putin’s invasion of the Crimea and the potential for a war over the Ukraine. Stocks had already fallen a long way in the preceding few years. This week saw panic.

The Russian market is down 59%, in US dollar terms, from the all-time high seen in the spring of 2008, according to market data firm MSCI.

Even better? Russian small cap stocks nearly entered the 80% club. On Monday, they were down 78% from their peak in December 2007.

These really are rare clubs. Past members of the 60% club include Las Vegas real estate (2011), gold bullion (2000), the Nasdaq Composite index (2002), and the Nikkei 225 (2001).

Cue the Bennett Rule, named for my old friend Peter Bennett, a veteran and highly successful money manager at Walker Crips in London: Always take a wager on a durable asset class (i.e., not, say, Pets.com) when it joins the 60% Club. Over the following five years you will almost always make a handsome profit.

It’s rough and ready, but there is sense to it. When an asset has fallen that far, it’s usually oversold. The market has given up and lost interest. Naturally it doesn’t always work, and things can go down quite a way further before bottoming out. A few very rare assets join the 80% club. One or two join the 90%. But if you hang on, it really doesn’t matter.

2. Everyone else is too afraid to.

Look around. Are you seeing lots of money managers and analysts buying and recommending Russian stocks? Of course not. That’s the point. They’re too afraid.

You didn’t see these people being bullish of, say, gold at $250 an ounce, or Las Vegas real estate in 2011, or Greek stocks in 2012.

The comedian John Cleese once said the typical Englishman’s highest ambition was to go through life without ever being embarrassed. Money managers and Wall Street analysts are in the same boat. Embarrassment is professional death.

And, all other things being equal, when so many people are constrained from being bullish it would tend to make an asset underpriced.

3. They are cheap.

The Russian market trades on just five times forecast earnings, according to estimates. Small company stocks, which have fallen further, seem even cheaper. Of the top holdings in the Market Vectors small cap Russian fund, several are just three times forecast earnings.

The world market trades on 15 times forecast earnings, and United States stocks 17 times, according to estimates.

Yes, there are plenty of risks. But that is a major reason the stocks are already so cheap.

When we buy a share we are just buying a share of a company’s future cash flow. That’s it. And, by definition, the less we pay for each dollar of future cashflow, the better the deal. I don’t think I’ve ever seen a solvent company’s stock trade on three times forecast earnings before.

Remember this is still speculation and you should probably consult your portfolio manager before taking the leap into the Russian market.

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Lifestyle

Top 10 Travel Destinations to the Start the New Decade

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For many, traveling offers an opportunity to disconnect from the everyday and experience new places and cultures. With the beginning of a new decade, it is the perfect time to start deciding your next travel adventures.

When booking your future destinations, consider these spots and tips recommended by travel expert and Bank of America ambassador, Lee Abbamonte, the youngest American to visit every country plus the North and South Poles.

1. Australia

From its deserts to tropical beaches, Australia is a beautiful country to explore. While many people might be familiar with the Sydney Opera House and the unique wildlife, there are many hidden gems in Australia.

“I’ve been to Australia 10 times and I still can’t get enough,” Abbamonte said. “One of my favorite cities is Melbourne. While it’s one of the largest cities in Australia, the heart of the city is hidden and secretive. It comes to life when you visit the alleys, laneways and arcades. The vibrant city has so much to offer: cafes, a unique street culture and street art.”

2. New Zealand

If you are going to New Zealand for the first time, Abbamonte recommends boogie boarding down the sand dunes, hiking up a volcano and visiting the Moeraki Boulders. However, if you are really interested in getting the blood pumping, take a leap from Nevis Bungy near Queenstown. It is among the highest bungy jumping experiences in the world, measuring 440 feet.

3. Mexico

“Mexico City has two of my favorite things – great food and sports,” Abbamonte said. “The street tacos are to die for, and I love going to soccer games at Estadio Azteca.”

In 2020, there will be many festivals to explore. The city is a cultural hub with music, theater, dance and food events throughout the year. While experiencing the festivities, it is also an opportune time to take a step back and enjoy Chapultepec Park.

4. Brazil

One of Abbamonte’s favorite waterfalls is Iguazu Falls located on the border of Brazil and Argentina. While Iguazu Falls might be well known, the falls themselves are truly unique. The waterfall system consists of 275 falls that stretch over approximately 1.68 miles. The Devil’s Throat is the tallest fall with a drop of more than 262 feet.

While traveling internationally can be fun and exhilarating, there are also places throughout the United States that offer memorable activities:

5. Scottsdale, Arizona

If you enjoy being outdoors, Scottsdale is an ideal place to visit. There are many trails to explore in Camelback Mountain, Papago Park and Hole in the Rock. After hiking, follow Abbamonte’s example and golf at The Short Course at Mountain Shadows.

“Scottsdale has some of the most beautiful sunsets in the States, and from The Short Course at Mountain Shadows, I get to enjoy the view while practicing my swing,” he said.

6. Boston, Massachusetts

“I love sports, so I visit Boston regularly for the professional games,” Abbamonte said. “I’m also fortunate that Boston is a beautiful city I can enjoy along the way.”

Boston is one of the oldest cities in the country. Founded in 1630, Boston is filled with history, museums and universities. If you are interested in a more unique attraction, check out the Warren Anatomical Museum, which is one of the last of its kind in the United States.

7. Portland, Oregon

What makes Portland unique are the bizarre and wonderful things you can do when you visit. For example, you can try bone marrow ice cream, stop by Mill Ends Park (the world’s smallest park) or attach your wish to The Wishing Tree.

“Portland is absolutely beautiful,” Abbamonte said. “It has a bit of everything – restaurants, bars, parks – and I enjoy the people watching. Portland has some of the nicest people while maintaining an edgy vibe.”

8. Tampa, Florida

Tampa might be known for its spring break party scene, but it has so much more to offer. For example, the city’s zoos and aquariums provide opportunities to interact directly with animals. Then you can take a break at Clearwater Beach, which is known for its soft, white sand and calm waters.

9. Santa Barbara, California

“I go to Santa Barbara when I want to recharge,” Abbamonte said. “I enjoy the food, walking around, talking to the locals and even watching a football game or two.”

There are wine tours, zoos, beaches, museums and restaurants. While taking in the city, also make time to visit the hidden gems such as Knapp’s Castle ruins.

10. England, Germany, Scotland, Azerbaijan and more

While technically more than one place, these locations have one thing in common: Union of European Football Associations (UEFA) Euro 2020. The international soccer event marks the first time the games will be held across the continent in 12 host cities.

“The year is a big one for sports,” Abbamonte said. “From sporting events in Europe to Japan, it is a fun year for travel and to enjoy once-in-a-lifetime experiences.”

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US Vows 100% Tariffs on French Champagne, Cheese, Handbags Over Digital tax

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Image via Shutterstock
By David Lawder and Andrea Shalal

The US government on Monday said it may slap punitive duties of up to 100 percent on $2.4 billion in imports from France of Champagne, handbags, cheese and other products, after concluding that France’s new digital services tax would harm US tech companies.

The US Trade Representative’s office said its “Section 301” investigation found that the French tax was “inconsistent with prevailing principles of international tax policy, and is unusually burdensome for affected US companies,” including Alphabet Inc’s Google, Facebook, Apple and Amazon.com.

US Trade Representative Robert Lighthizer said the government was exploring whether to open similar investigations into the digital services taxes of Austria, Italy and Turkey.

“The USTR is focused on countering the growing protectionism of EU member states, which unfairly targets US companies,” Lighthizer said. His statement made no mention of proposed digital taxes in Canada or Britain.

The US trade agency said it would collect public comments through Jan. 14 on its proposed tariff list as well as the option of imposing fees or restrictions on French services, with a public hearing scheduled for January 7.

It did not specify an effective date for the proposed 100% duties.

CHAMPAGNE, ROUGE AND GRUYERE

The list targets some products that were spared from 25 percent tariffs imposed by the United States over disputed European Union aircraft subsidies, including sparkling wines, handbags and make-up preparations – products that would hit French luxury goods giant and cosmetics maker L’Oreal hard.

Gruyere cheese, also spared from the USTR aircraft tariffs levied in October, featured prominently in the list of French products targeted for 100 percent duties, along with numerous other cheeses.

The findings won favor from US lawmakers and US tech industry groups, who have long argued that the tax unfairly targets US firms.

“The French digital services tax is unreasonable, protectionist and discriminatory,” Senators Charles Grassley and Ron Wyden, the top Republican and Democrat, respectively, on the Senate Finance Committee, said in a joint statement.

Spokespeople for the French embassy and the European Union delegation in Washington could not immediately be reached for comment.

But prior to the release of the USTR’s report, a French official said that France would dispute the trade agency’s findings, repeating Paris’ contention that the digital tax is not aimed specifically at US technology companies.

“We will not give up on taxation” of digital firms, the official said.

France’s 3 percent levy applies to revenue from digital services earned by firms with more than €25 million ($27.86 million) in French revenue and €750 million (£644 million) worldwide.

The USTR’s report and proposed tariff list follow months of negotiations between French Finance Minister Bruno Le Maire and US Treasury Secretary Steven Mnuchin over a global overhaul of digital tax rules.

The two struck a compromise in August at a G7 summit in France that would refund US firms the difference between the French tax and a new mechanism being drawn up through the Organization for Economic Cooperation and Development.

But Trump never formally endorsed that deal and declined to say whether his French tariff threat was off the table.

Reuters

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Andrew Yang Wants You to Make Money Off Your Data by Making it Your Personal Property

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Andrew Yang, 2020 Democratic presidential candidate, plans to regulate the tech industry by prioritizing in giving people the right to own their personal data (“data as a property right”), thus allowing them to make money by sharing it with companies. Currently, companies entirely own users’ data – users do not have much control over it.

Yang said, “our data is now worth more than oil” and gave emphasis to the great amount of data people create and how companies make money over it. “By implementing measures to increase transparency in the data collection and monetization process, individuals can begin to reclaim ownership of what’s theirs,” he said.

He also cited a report saying that the collection and use of Americans’ personal data has become a $198 billion industry. Yang believes that people should have more control over their data, such as being able to see how their data is being used and having the freedom to opt out if they choose.

Yang added that we need politicians “who understand technology and a modern way to regulate it,” as reported by Engadget. “In order to regulate technology effectively, our government needs to understand it. It’s embarrassing to see the ignorance some members of Congress display when talking about technology, and anyone who watched Congress question Mark Zuckerberg is well aware of this,” said Yang.

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