Author: Andrew Packer

Income investing

Sure Dividends: Can Dividends Make You Rich? How to Get Rich Off Dividends

Posted on by Andrew Packer

The S&P 500 is set to close an above-average year of returns. Investors who sat through last year’s bear market or even added to their positions while they were down have been rewarded. And with tech stocks leading the market this year, investors may still be focused on growth.

However, that trend is shifting. Tech stocks have slowed down their returns in recent months. And other sectors are starting to trend higher. This constant market rotation indicates an opportunity for income investors.

That’s because these investors can get higher dividend yields buying a stock after it’s been beaten down. And following a path of dividend growth investing over the long term can create sizeable wealth.

Dividend-focused investing takes a lot of the short-term market uncertainty away. A dividend stock may not beat the market most years. But the consistency over time can mean holding up better during a market selloff.

During 2022’s bear market, investors in tech stocks had to stomach losses of 50 percent or more. And many smaller tech companies haven’t fully recovered.

Investors in dividend-focused stocks saw a smaller drop. And they’re likely getting paid more today as corporate earnings can lead to higher dividend payments.

For investors focused on the long-term and looking to grow their wealth without having to constantly trade, dividend stocks can create lasting wealth. Not to mention a stream of income.

Economy

Heresy Financial: Hedge Funds Have Put the Entire Treasury Market at Risk of Collapse

Posted on by Andrew Packer

Investor returns in 2023 have shifted largely due to moves in the U.S. Treasury market. As the 10-year U.S. Treasury bond yield neared 5 percent in the fall, stocks saw a big selloff. And as yields on that bond came down, markets rallied.

Currently, hedge funds are building their largest position ever shorting Treasury bonds. That’s not due to any expected big shift in yields. Rather, it’s from using a leveraged strategy to make small, consistent profits.

The trade is known as a basis trade. It seeks to make profits from small changes in the relative value between bonds. That means funds are using arbitrage – simultaneously going long on one bond while shorting another.

And hedge funds can use leverage to borrow as much as $50 for every $1 invested.

If these trades go wrong – and given the bond market volatility this year it’s possible – hedge funds can get wiped out. To face their margin calls on a bad trade, they would have to sell off assets that have been performing well.

That could lead to a cascade of sell orders hitting other bonds, stocks, real estate, and so on.

Even if a fund isn’t wiped out from being on the wrong side of a trade, these trades can increase volatility in the treasury market. That means investors looking for the safety of bonds may get whipsawed.

Economy

DoubleLine Capital: Jeffrey Gundlach on the End of Secular Norms

Posted on by Andrew Packer

For the past 40 years, investors have been able to follow one big trend. That’s because interest rates peaked in the early 1980s from their prior cycle. Investing in bonds at the time provided massive returns as rates declined.

So did investing in stocks. Lower interest rates and lower inflation created a massive trend. And technological developments like the internet created a boost in productivity. Today’s AI technologies may do the same in the years ahead.

However, there may also be a new secular trend of rising interest rates. The past year saw the Federal Reserve raise interest rates back to their 2007 levels, the highest in 15 years.

And even if the Fed cuts rates, it may not go back to zero. Future rate hike cycles may move higher than the current one.

History suggests that the credit market has long-term cycles much like that. From the 1940s to the 1980s, interest rates trended higher overall as well.

Those higher costs to borrow money may impact today’s government spending policies. Besides having to pay more to finance deficits, it could mean less capital moving to the private sector.

Should such a trend play out, investors would want to look defensively with assets such as gold, gold mining stocks.

Companies that can raise prices faster than inflation and who have excess cash flows and don’t need to borrow could also be winners.

However, a historical trend of rising interest rates will likely mean lower stock returns on average.

 

To watch the full webcast, click here.

Economy

A Wealth of Common Sense: The Companies Are Fine

Posted on by Andrew Packer

2023 has seen inflation get crushed. That’s thanks to rising interest rates. The Federal Reserve made its most aggressive series of hikes in over 40 years to do so. However, when something moves that much that quickly, something could break.

We saw the cracks earlier this year as several banks failed. Fortunately, the issue was identified and a short-term plan was put in place. Outside of the banking sector, rising interest rates impact corporate borrowing.

When a company issued a corporate bond at a 5 percent interest rate, today’s higher rates may mean paying 10 percent for their capital or more.

That poses a danger for investors, as single-company credit risk could be on the rise. So far, companies appear to have managed their debt loads well.

Companies can use corporate debt in several ways. If it’s used to expand the business and grow faster, it’s beneficial in the long term.

Investors need to weigh what the debt being raised is being used for. A rising debt load an and of itself isn’t necessarily a bad thing.

So, should some fears pop up in the credit markets again, investors may have an opportunity to buy corporate bonds well under their par value. That can provide high current income, and the safety of a return on capital.

 

To listen to the full podcast, click here.

Stock market strategies

FX Evolution: The Best Stocks Are Not Leading

Posted on by Andrew Packer

The past few weeks has seen a shift in the markets. It’s a small one, but a key one. For most of 2023, the market’s move higher has been driven by big-cap tech stocks. They’re the ones best suited to profit from developments in artificial intelligence.

However, as big as the potential is for AI, it’s only a small part of the economy. People need to go places and do things in the real world too.

That’s why the recent market rally, driven by a shift in stocks leading the move higher, looks positive. It’s not just tech stocks dominating the overall market move higher.

Tech stocks have even had a few down days while the rest of the market has rallied.

This concept is known as rotation. And it indicates that investors are looking to take some profits in winning stocks, such as the AI trades.

Sectors such as gold and materials have been big winners in the past few weeks. That’s a sign that the economy continues to grow and expand, increasing demand for those goods.

Other lagging sectors that haven’t had a run yet include consumer staples and healthcare. A move higher in those sectors could move markets higher overall, even if tech doesn’t play along.

Investors who rotate to those overlooked sectors may get the best returns in the months ahead.

 

To view the full analysis, click here.

Income investing

Bigger Pockets: How to Get Rich Without Investing In Real Estate

Posted on by Andrew Packer

For most investors, their largest source of wealth will come from their home. And investing in real estate has typically allowed smaller investors to get a jump-start on their wealth-growing adventure.

But right now, real estate markets face their worst affordability levels in 11 years. Soaring mortgage rates are keeping existing homeowners from moving. Why go from borrowing at 3 percent when today’s rate is more than double at 7 percent today?

Fortunately, there are plenty of strategies that investors can use to build wealth in any environment.

First, it’s important to live above your means. That could mean finding ways to cut spending and increase savings.

With today’s interest rates near their highest level in 15 years, savers are no longer being punished. Today’s savers earn 4-5 percent in cash. That’s at a time when inflation is declining. Meanwhile, the stock market averages an 8-10 percent return in exchange for higher risk.

Besides cutting back on spending, earning a higher wage can increase one’s wealth. Finding a higher paying job or second job can add to your earning power.

Once that’s underway, investing matters. Investing in companies with a long-term history of growth and increasing dividend payouts can create an income stream outside of a job.

From there, that income can be used to invest in more speculative parts of the market, such as cryptocurrencies.

 

To look at the whole picture for building wealth right now, click here.

Economy

George Gammon: Here’s the Truth About 2024 (No One Is Expecting This)

Posted on by Andrew Packer

Investors and analysts are bullish, following the market’s recent rally. However, going into 2024, a number of factors could play out that lead to a big change in the market’s price.

The biggest factor comes from outside the stock market itself. Instead, it’s the credit market. That’s because last year’s banking crisis got a quick bandage fix, but the underlying problems still remain. And it could start to unravel as early as March.

Last March, several banks failed. Depositors rushed to pull money out. Banks had been investing in U.S. Treasury bonds, a safe asset. However, given rising interest rates, long-dated bonds were worth less than their face value.

That duration issue with the bonds created the insolvency problem. The result? The second and third largest bank failures in U.S. history. The Fed fixed it with a temporary facility to buy bonds from banks at face value. That facility had a one-year expiration date.

Since March, interest rates have trended higher. And there’s no sign that banks have moved to fix their duration issue.

In the meantime, sharply rising interest rates have led to a decline in M2 money growth. It’s only the first time since the 1930s that the U.S. economy has had such a pullback. That could mean less liquidity available to meet the next crisis.

Investors should look to scale out of financial stocks at the start of the year. A banking panic could lead to some big selloffs in that space.

 

To watch the full analysis, click here.

Stock market

Value Investing With Sven Carlin: Stock Market Projections for 2024

Posted on by Andrew Packer

The start of a new year tends to bring predictions about the path of the economy. Many big bank CEOs have warned about a recession next year, which would typically be bad for stocks. However, their research departments are saying slightly different things.

That suggests that investors may want to consider being bullish for now, based on the economic data, but watch out for some dangers ahead.

For instance, with the S&P 500 just under 4,600, Deutsche Bank and BMO are predicting the market to rally to 5,100 next year.

That would be a gain of just over 10 percent, slightly above average for the market’s annual return since the end of World War II.

The estimate is based on several factors, such as the market’s current bullish momentum. But it’s also based on stocks trading at 21 times average earnings.

In order for that to play out, corporate earnings would have to soar over 30 percent next year.

It’s possible for many stocks to have that kind of growth. Even some big tech stocks could hit those numbers if investments in AI play out. But those rough numbers suggest a very bullish view for analysts going into next year.

It may be more prudent for investors to take a more cautious approach. Look for pullbacks to buy great companies. Buy companies that have been out of favor with this year’s market. And look for a pullback in the spring given the strength of this market’s recent rally.

 

To watch the full video, click here.

Economy

Game of Trades: A Once in a Lifetime Financial Event is Here

Posted on by Andrew Packer

Despite being only three years old, the decade of the 2020s is one for the history books. A global pandemic and unprecedented shutdowns led to Great Depression-levels of economic contraction. However, those were followed by the largest expansions immediately after.

Then, we had to contend with inflation, largely from massive amounts of money printing, but also low interest rates and supply chain issues. Finally, that inflation appears to be on the decline.

But is it? History doesn’t exactly repeat itself. But it does rhyme. And that could pose a challenge.

That’s because interest rates peaked just under 10 percent in the U.S. Now, they’re under 4 percent, still well over the Federal Reserve’s target of 2 percent.

If the Fed has to cut interest rates for any reason, such as trouble in the banking system, inflation could reignite.

That would be similar to the inflation of the 1960s and 1970s. It wasn’t a straight line higher, but had ebbs and flows.

And when inflation started to come down, increased government spending or declining interest rates simply fueled a move higher.

That could lead to issues for investors, as some sectors will likely move in and out of favor. But it should be a good time for picking individual stocks and sectors.

Stocks in assets such as commodities could be a strong winner for such a scenario. And for dividend growth companies that can be bought during bearish times for such stocks.

 

To watch the full analysis, click here.

Stock market strategies

Elliott Wave Investor: Positive Signals 460 Remains a Key Level

Posted on by Andrew Packer

While the stock market rally since November has slowed down, it’s not quite over yet. The latest employment data shows that the labor market continues to slow down. Typically, that’s bad news for the economy. But since the Fed has been raising interest rates to slow inflation, it’s a positive sign.

For the moment, that leaves the S&P 500 near a 4,600 level, close to its July highs. And it’s near an all-time high going back to its 2021 peak.

For now, that 4,600 level, or 460 for those trading SPY, looks like a resistance point.

It’s where bears have to defend the market. If the 4,600 level breaks, bullish investors may push stocks to new highs.

However, the rally of the past few weeks has created a number of price gaps.

Typically, markets try and fill these gaps. After the market’s big move higher, having a small 2-3 percent pullback in the coming week or so could fill one or two of those gaps.

From there, stocks would be less overbought and in a better position to remain higher.

So, traders should look for markets to have a poor week next week. But then trend higher into the final weeks of the year. That could even allow stocks to push to all-time highs in January.

After that, the market’s next move will depend on the latest economic data.

 

To watch the full analysis, click here.