WWII 038: Investing Themes for 2017, Are Drone Companies Invest-able, Bond ETFs Will Fall

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It's a new year and time to look for major trends for the year that can play into your investment decisions.

Main Topic: Major Trends for 2017

  1. Rising Interest Rates - The Federal Reserve raised the Fed Funds Rate once in 2016 but are indicating three raises in 2017 to match with what the underlying economic data is saying. Banks and insurance companies should benefit from rising rates.
  2. Having been tame for the last ten years, there are indications that the fundamentals required for inflation to re-assert itself are now in place and this could be a major trend. Not a prediction, it just seems to be more possible now than in previous years.
  3. Millenials buying houses (Ages 20-36) - Millennials, whom we define as those ages 18-34 in 2015, now number 75.4 million, surpassing the 74.9 million Baby Boomers (ages 51-69). And Generation X (ages 35-50 in 2015) is projected to pass the Boomers in population by 2028. The Millennial generation continues to grow as young immigrants expand its ranks.
  4. Stronger dollar - Although the dollar has shown strength in recent years, your new president has made comments that the era of the "strong dollar policy" is over and the dollar should be allowed to weaken to make the U.S. exports more competitive. To many off-setting factors to make a trend call on this topic.
  5. Political Chaos - Definitely expect political chaos as the Republican led Congress attempt to unravel a bakers dozen of Obama policies.
  6. Lower taxes – Maybe not until 2018 as it will require an act of Congress.
  7. Recovery in GDP growth - The first three trends on this list should result in increased GDP overall and send the U.S. economy back to 2-3% growth again from the tepid less than 2% growth we have experienced over the last few years.
  8. Continued strength of US economy - Don't bet against the United States the land of freedom, democracy, and capitalism. Our economy is showing it's strength and there are plenty of domestic companies one can invest in.

Ask JB: Should One Invest in Drone Companies?

Can drone market bring some opportunities for small investors? (self.investing_discussion)

submitted by TheBinaryAdvisor

The drone market is dominated by DJI Technologies, and there is no rival for them at the moment, not even AeroVironment, who builds drones for the military. Drones are mainly acquired for entertaining purposes, and this is why DJI’s revenue is way bigger than AVNV’s, who focuses on military drones. Looks like none of the companies that are specialized in building and selling just small parts to huge companies are worth investing in. The finished product earns a company more revenue than separate parts of the product. The growth of companies that sell parts is limited and slow, so it really makes no sense to invest in them. Does someone has a different opinion about this niche? Maybe it has hidden features that are not apparent to me?

JB Says: I went to a shopping mall over the holidays and found a kiosk in the middle of the bottom floor with twenty types of quadcopter drones for sale. Most were priced around $100 and had high definition cameras, automatic take-off and landing, and homing technology.

Most models had flight time of only 12 minutes, no matter what size they were. 12 minutes is not much time to do anything. Until battery technology improves, most quadcopters will be for hobby use only.

I just don't see any barrier to entry, competitive advantage or anything else to indicate defensible profit margins in this industry and so, for now, I consider it to be un-investable in my humble opinion.

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JB Says: You should be aware of all aspects of any financial instrument that you buy including, but not limited to: structure, underlying assets, performance in normal times and performance in unusual times.

Long term bond prices will fall as interest rates rise because there is an inverse relationship there, so bond ETFs with long-term bond holdings should fall in price as well. What happens if everyone who holds a long-term bond ETF begins selling them all at the same time? It's unclear, and that is my point.

Thoughts on this podcast? Disagree with me on some point? Something I missed? Leave a comment!

About the Author

Jeremy Scott Bailey is an investor, author, entrepreneur and host of the "What Works In Investing?" podcast now available on iTunes. He is founder and Chief Investment Officer of Burgeón Group, Inc. an investment advisory firm that provides portfolio management services to families and individuals.

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