Sometimes you stumble across a sector of the market that is just in the right place at the right time. That may very well be the sentiment driving the remarkable price action in aerospace and defense stocks in the current geopolitical environment.

These companies are the driving forces behind military and commercial aircraft, defense equipment, and other services designed to support the armed forces.

Exchange-traded funds (ETFs) that track defense stocks tend to be more aggressive and potentially more volatile than the broader market based on their concentrated portfolios. Investors that are considering these tools should opt to take smaller, tactical positions compared to a traditional core holding with wider diversification and minimal expenses.

It also goes without saying that politics and global military trends are likely to have the biggest impact on the direction of these ETFs over the next several years. But for right now, all of the macroeconomic winds are on these funds’ side.

….read next Page HERE

But in my opinion, all things in nature occur mathematically.”  ― René Descartes

When I am assessing a business or leader of that business, I listen carefully during the first few minutes of the conversation for the sign of a number, any number! If I hear it, I draw a sigh of relief, knowing that I am talking to someone who is serious about the business.  If I don’t hear a number early on, I start to worry and ask a series of close ended questions to tease out some hope, such as: “What was your sales growth last year?”, “What are your gross margins, or any margins for that matter?”, “Can you tell me one or two key ratios?”.  This line of questioning invariably separates the wheat from the chaff and the truly exceptional business owners begin to emerge.

In my experience, knowing how to describe your business numerically is one of the top, tell-tale traits of exceptional entrepreneurs, business owners, CEOs, executives and managers.  Why?  Because good numbers are objective, not a figment of someone’s imagination, dreams, hopes, wishes and desires.  Good numbers show how the money flowsthrough a business, which helps clarify the business systems and obstacles.  Good numbers show trends which can moderate or accelerate executive actions through enlightenment. Good numbers are acommon language and give common comparisonsacross sectors and the globe.

Here is how I recommend business owners get into the habit of developing financial numeracy skills. 

Focus on a critical few, not the trivial many:  Identify a small number of key financial indicators, no more than 6.  This should include measures of revenue, margins, working capital and cash flow.  Don’t try to boil the ocean. 

Make it relevant:   Pick financial measures that are relevant for your industry sector and stage of growth.   This will keep you focused on what truly matters and will give you real and valuable tools to manage and grow the business.

Improve your financial literacy:  If you lack a business degree from Wharton, don’t panic.  Take some extra education in the form of seminars, webinars, continuing education or what ever works for you.  Treat it seriously and you will learn quickly.

Add financial capability to your exceptional team:A top notch CFO, Controller or Accountant is imperative for the success of your business.  Hire one and get someone good, really good!  Ask them to explain everything to you in detail and make them full partners in managing the entreprise.  They must keep their finger on the financial pulse of the business.

Pick good financial indicators:  While these may vary by sector and stage, here are a few financial indicators that I look at and are applicable across many situations:

• Revenue (most recent period and change from previous period)
• CAGR (Compound Annual Growth Rate) for a key metric
• Gross Margin % (Revenue – COGS / Revenue)
• Acid Test Ratio (Cash+A/R+S/T Investments / Current Liabilities)
• Current Ratio (Current Assets / Current Liabilities)
• Net Profit Margin (% of Revenues remaining after operating expenses, interest and taxes)
• Cash and Working Capital Measures (i.e. A/R, A/P and Operating Cash Flow Ratio)

Additional important metrics include customer retention rates, cost of customer acquisition, customer lifetime value and a measure of productivity.

Becoming well versed in a few key metrics will give you more clarity in the operations and prospects of your business, while giving your investors, employees and partners more confidence that the business is in good hand.  Take the time to learn and do it right!I write, speak and advise on the topics of accelerating business growth and leadership, based on my 25 years of real-life experiences of leading, managing and growing companies.

The following is a summary of our recent Financial Sense Newshour podcast, which aired on Saturday here and on iTunes here.

The S&P 500, Dow Jones Industrial Average, and Russell 2000 have moved sideways over the last couple of months as global markets have outperfomed. Looking at long-term trends and forces, however, US stocks should continue in a structural bull market that will last years more, Piper Jaffray’s Craig Johnson recently told Financial Sense Newshour.

Long-Term Bull Market

We aren’t simply in a bull market, Johnson noted. Investors need to think of this specifically as a long-term, structural bull market.

There are two big forces coming to bear that will keep markets structurally bullish, Johnson stated. The current market has about 20 to 25 percent fewer stocks than in 2000. Also, we’re seeing companies buying back a huge amount of their own stocks.

As a result, there are fewer shares outstanding overall. If we get a repatriation of capital held outside the US due to tax reform or amnesty, it will go toward dividends and further share buybacks.

Though many have suggested valuations are already extended, Johnson doesn’t agree. If we see 10 percent earnings growth next year, coupled with a tax rate cut, we’ll likely see a pickup in bottom-line earnings growth, he noted.

“If the multiple of the market stays flat to where we are now … (markets) are not terribly expensive,” he said. “A lot of people say we’re at nosebleed levels, and at this point in time I don’t believe that is the case at all.”

This could see us push through his current 2424 target for the S&P 500, said Craig.

“This is going to be a structural move higher for equities,” Johnson said. “I think this is not a 1-year move — I think this is probably a 5- or 10-year advance. Because of that, any of these little dips we see in the marketplace … I want to be buyers of these dips for the longer term.”

Watch 10-Year Yields

The 10-year bond yield is the thing we should most understand about this market, Johnson stated. The spread between 2- and 10-year notes has closed quite a bit lately.

“From my vantage point, we need to see some inflation expectations come into the market,” Johnson said.

Everybody seems to believe the Fed is determined to raise rates, he added. While the Fed has a great deal of control on the short end, at the long end it has less control.

Right now, bond investors don’t believe there’s going to be a lot of inflation, and they’re also worried about the flattening of the yield curve, Johnson noted. This suggests they’re anticipating a weak economic environment ahead.

“I will tell you right now … the Fed is not going to be aggressively raising rates,” Johnson said. “They’ll stay on the sidelines. That’s what I think will ultimately be the shift in psychology that investors are going to face certainly in June and definitely July.”

If that proves to be the case, we should look for the 10-year bond yield to move up. Johnson favors a range of 2.75 to 3. As we move above that 2.75 level, we will begin to see the asset allocation shift he’s expecting.

Right now, Johnson suggests buying technology, energy, and materials. He suggests being very selective when buying in the energy sector, and inside technology, he wants to selectively add semiconductors.

This bull market has shrunk, and it looks like its continuing to shrink,” Johnson said. “I think we ultimately know what direction the market goes when that occurs.”

Excess global liquidity pushing Canadian Real Estate and other topics. One point Marc makes is that when the US stock market comes under pressure money will begin to flow into resource stocks and a lot of money will flow into Canada. 

…related from Lance Roberts: The Markets Have Already Priced In Positive Events

….also from Martin: The Coming Central Bank Crisis

People talk about the changing environment. In the financial world around us, things are also changing dramatically. What use to be is no more. There are no real ticker-tape parades any more and future pits are closing opting for online trading. What is changing and why can we not see it? The internet has changed the way people shop around the world with the retail sector currently dominated by Amazon, accounting for almost 65% of online sales.   Amazon pasted Walmart (in market cap) back in 2015 and within the past two years has grown in value to be worth twice as much. Large department stores and the more traditional malls are closing but this is happening as retail spending continues to grow. Admittedly, online merchants have made it far easier, tap a button and our goods arrive at the doorstep the next day, but obviously at the expense of shop staff. The more comfortable we get with online retail the more intelligent we are shopping around and doing it ourselves. Is having the ease of service and renewed confidence a major influence upon why we are turning to index trackers and ETF’s rather than pay a money manager 2% to do it for us?

The ETF market has ballooned since the early 2000’s and is now worth approximately $2.5tn. With this “online” competition, the rumours are that the fees have been reduced to an almost nothing, with money managers taking just 20bp on the fund in the hope that they can make additional returns on the bid/offer spread. One of the problems we could face however, is that the derivative (ETF) becomes more liquid than the underlying. The relationship will work fine in an orderly market but will be tested in extremely or volatile conditions. The concern should be when will Market-Makers widen their spreads so just ensure you are not the last one to see the problems.