The Future of America - Cabot Wealth Network

The Future of America

Featuring Lutts’ Logic:

The Big Election
Trends in America

Where to Invest Next

Tomorrow’s the big election.  Finally, the longest, most expensive presidential race in history will be over.

Here in Massachusetts, the most liberal state in the country, Barack Obama is a shoo-in.  But our neighbor, New Hampshire, has a closer contest, so people from Massachusetts have been crossing the border to campaign for their favorite candidates where their actions might actually have an impact.

Yet we still have interesting contests here in Massachusetts in the form of three ballot questions, the results of which will be binding … probably.

Question 3 would make dog-racing illegal in the state, effectively putting the current two struggling tracks–which now compete with the state lottery system and casinos in Connecticut for gamblers’ dollars–out of business.  Proponents of the question claim the dogs are mistreated.  Opponents say the dogs are well cared for, love to run and that all retired dogs are successfully adopted.

This is a relatively small issue; there are roughly 1,000 people in the industry, and they contribute roughly $41 million to the state’s coffers.  Right now it looks as though the outcome could go either way.
Question 2 would make Massachusetts the 13th state to decriminalize personal possession of marijuana.  Opponents of the change–mainly professionals in the law enforcement industry–say this would increase drug use.  Proponents say the measure would save $30 million in enforcement costs and allow small-time offenders to keep their CORI (Criminal Record Information System) records clean.

This, clearly, is a bigger question, that would affect far more people.  Odds are it will pass.  But the big enchilada is Question 1.
Question 1 would abolish our state income tax, reducing it by half in 2009 and eliminating it totally in 2010.  A similar measure received a surprising 45% of the vote in 2002, and fears of a repeat have brought out the well-funded opponents this time, mainly teachers and other “public servants.”  They claim that cutting nearly 40% of state revenues would decimate educational services and endanger public safety by cutting police, fire and other services … and result in much higher property taxes, as in New Hampshire.

Proponents, however, note that nine states currently function without an income tax (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming), and that a yes vote is needed to send a strong message to the State House, which has refused to honor a public vote in 2000 to gradually reduce the income tax rate from 5.75% to 5.0%.  The legislature only let it fall as low as 5.3% before freezing it.

Polls suggest that the well-funded arguments of the teachers have worked and that the measure will not fare as well as last time.  In all three cases, the results will be interesting.

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And what of the national scene?  Our financial system lies in shambles, and the dominoes continue to fall, bringing down companies and stocks in one sector after another.  Consumer confidence is absolutely terrible.  Friends who previously asked about my market opinion simply as a common courtesy now ask because they’re genuinely worried about their own retirement funds … and about the future of America.

And what do I tell them?

“This too shall pass.”

I tell them America is a country with great and diverse assets, and that while the stock market may have lost more than 40% of its nominal value from peak to trough, the actual loss of real value in our net worth is far smaller.  Plus, many companies now have far better balance sheets!

Of course, a lot of people don’t think about balance sheets, they think about revenues and earnings.  That was one factor in building the recent bubble.  In the future, I believe a little more attention to the balance sheet will be a good thing.

I also believe that the big bear market we’re likely leaving behind has provided a perfect opportunity for investors to clean house, to jettison the stocks of tired old companies and to invest in the leaders of the next bull market when it arrives.

Four sectors in particular are on my mind.

The first is alternative energy, for all the obvious reasons.  Both parties have been making supportive noises and the Democrats in particular can be counted on to advance numerous initiatives in solar power, wind energy, electric cars and more.

And because the industry is still very young and small, relative to the oil industry, the growth potential is enormous.

Cabot did well investing in the solar power industry back in 2007 and we’ve been sitting on the sidelines watching the stocks correct this year, even as the companies continue to make good progress.  In an upcoming issue of Cabot Wealth Advisory, I’ll give you a complete rundown on the solar stocks.

But the stocks don’t look good yet.  The selling pressures that followed the gains of 2007 are still holding the stocks down, and there’s no telling how long this will go on.  Bottom line: you shouldn’t invest in these stocks until investors start pushing them up again.

The second sector I’m looking at is the government … for the simple reason that it’s one of the few sectors that are growing today.  Furthermore, it looks as though the trend toward increasing government involvement in our lives may continue, bringing us a system somewhat closer to those in France and Germany.  Some people applaud the change, some don’t.  I say acknowledge it so you can invest accordingly.

As we move inexorably toward universal coverage of health care, for example, the government’s role in that industry will increase, and there will be winners and losers among the public companies that supply goods and services in the industry.

Which brings me to my third sector, health care.  Health care is already huge; it accounts for nearly 20% of our national economy.  So there’s no way it can boom like the alternative energy industry.  On the other hand, the aging of the big baby boom generation means naturally increased demand for services.  Furthermore, there are some hot spots in the industry where money is flowing fast and where fast-growing companies offer tempting investment prospects.

Genetics is one.  We’ve written about several genetic technology companies in recent months, both here and in Cabot Top Ten Report.

Cancer is another.  Any company that can cure–or even better, prevent–cancer will see its shares shoot to the moon.

Infection control is huge, as well.  It’s a simple problem, yet the most widespread of all.  And the new insurance rules that deny payment to hospitals for their mistakes (like infections contracted during surgery) are excellent incentives for progress here.

The fourth sector is simply this … securities that pay good dividends.  Dividends, you see, have been neglected in recent years.  Investors haven’t craved them, and companies that could have paid them haven’t.  Apple (AAPL), for example, has $25 billion in cash and has not yet chosen to institute a regular dividend.

But the recent bear market means that more companies will be thinking about increasing their dividends to make their stocks more attractive, and that those that don’t, like Apple, might consider instituting them.

It also means, of course, that investors like you are hungrier than ever for safe investments that can provide regular income.  And the best place to get advice on dividend-paying investments is Income Digest, our monthly newsletter.

Every issue of Income Digest includes recommendations of income-producing securities of every stripe, including …

High-dividend common stocks

Preferred stocks


Exchange traded funds (ETFs)

Mutual funds

Bonds and bond funds

Real estate investment trusts (REITs)

International funds … and more.

And every recommendation comes from an industry expert, selected by the editors of Income Digest for the expert’s knowledge of his niche, and his ability to communicate with readers. 

The September issue, for example, included the following.

Roger Conrad of Utility Forecaster recommended a company that operates oil pipelines and storage tanks whose stock currently yields 9.4%.

Eric Dany of Stock Prospector recommended a bank in Greece that yields “just 2.9%.”  But the bank is growing!  In the latest quarter revenues grew 18%.

Richard Segarra of Ford Equity Research Report recommended a big steel-maker in the U.S. that yields 3.2% and saw revenues grow 68% in the latest quarter. 

And there’s more.

You can read the ETF Investor Newsletter’s Jack Colombo explaining why the iShares Russell 1000 Value Index is a great way to get dividends and price appreciation.

You can read Richard Young, of Richard Young’s Intelligence Report, recommending the shares of a well-known chocolate company that yields 3.2%

You can read the opinions of experts like Dr. John L. Faessel and Charles B. Carlson on where the market’s going next. 

All told, the latest issue has advice from 33 experts, covering virtually every kind of investment that pays a good dividend.  In the years ahead, these dividends could be a lot more profitable–and safer–than stocks bought for capital appreciation.

Editor’s Note: Income Digest is your best source of advice on dividend-paying investments.  There’s no place else in the world you can get so much good advice from so many experts at such low cost.  To get started with your no-risk trial subscription, simply click the link below.

Yours in pursuit of wisdom and wealth,

Timothy Lutts
Cabot Wealth Advisory


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