Author: Andrew Packer

Cryptocurrencies

Bitcoin Magazine: The Risks of Stablecoins

Posted on by Andrew Packer

The cryptocurrency market is having a strong year. Bitcoin, the sector’s leader by size, has had a triple-digit return. That’s beaten the returns on the stock market. And compared to the decline in the bond market, it stands out even more.

Investors are looking to the space with a bullish eye. Several positive developments for cryptos are in the works, including the approval of a Bitcoin exchange-traded fund (ETF). That would make investing in cryptos easy, and also possible from tax-advantaged accounts.

That’s leading interest in other cryptocurrencies as well. That even includes stablecoins, which are cryptos designed to trade at a 1-to-1 parity with the U.S. dollar.

These coins offer a bridge between traditional finance and the real world. And they’re easier to accept as a store of value or payment as a result.

However, stablecoins have some downsides.

As with traditional money, there’s a central issuing authority that has to be trusted. Relying on a third party custodian could be dangerous, as has been seen in the past two years with the implosion of several cryptocurrency brokers.

Plus, stablecoins have sometimes deviated from their parity levels, particularly during moments of market stress. Investors looking for stability may be better off in cash rather than a cryptocurrency that could lose its value at the worst time.

 

To look at the full risks behind stablecoins, click here.

Income investing

Sure Dividend: The Pros & Cons of Dividend Stock Investing

Posted on by Andrew Packer

After a strong market rally, tech stocks are again with the grasp of new all-time highs. Other parts of the market aren’t. And many conservative strategies, such as dividend investing, look out of favor as a result.

However, as with any investment strategy, there are pros and cons. Tech stocks can have 50 percent swings up or down in a year. While less volatile, dividend stocks can offer a steadier approach that takes some of the pain out of big market moves.

While hundreds of stocks pay dividends, 68 of them have paid out rising dividends for over 25 years. They’re known as Dividend Aristocrats.

For investors with a long-term horizon, investing in these companies may be a simple strategy. Over the long haul, it’s likely to beat the market over time. And to do so with less volatility.

These companies also avoid one of the potential dangers of dividend investing. That’s investing in a yield trap.

Simply put, a yield trap is a company that pays a high dividend that can’t be covered by earnings from the underlying business. Such a company could see a big dividend cut. It could even eliminate the dividend entirely.

Those looking to invest in dividend stocks should consider a company’s earnings, and how that impacts the payout ratio of their dividend.

 

To view the full list of pros and cons when dividend investing, click here.

Stock market strategies

FX Evolution: Secret Market Volatility Starts to Spike?

Posted on by Andrew Packer

Markets had a brutal September and October. However, November was the opposite, nearly reversing all of the market’s losses since July’s peak.

While stocks are still set up to trend higher into the end of the year, the first half of December may see a mild pullback first. That would take some of the heavy speculation out of the market. And ensure that the remaining rally is a healthy one.

Suddenly, in just the span of a few weeks, market volatility has flipped. It’s gone from being near 52-week highs to a four-year low.

On one level, that’s a sign of complacency. When the Volatility Index (VIX) trades under 15, the market could be subject to sharp and sudden reversals.

Stocks have moved to overbought conditions in the short-term. And greed drives stocks right now. Historically, markets tend to fare well in December, and traders are betting heavily.

But there have been a few exceptions. That includes last year, which was a down market. And December 2018 was pretty brutal. So, there’s no guarantee.

Meanwhile, looking at the skew, a sort of volatility of volatility measure, signs indicate that a short-term drop may be in the cards in the coming weeks. And that there could be bigger issues past the holiday season.

Following the market’s sharp drop and recovery, investors have much to cheer for to close out the year. But going into 2024, it may be prudent to stay cautious given the unusually low volatility.

 

To watch the full analysis, click here.

Stock market strategies

The Compound and Friends: Things That Never Change With Morgan Housel

Posted on by Andrew Packer

When it comes to investing, some things are always changing. For instance, 2023 has seen the market move all-in on the artificial intelligence (AI) trend. That’s helped stocks move out of their 2022 bear market lows.

However, in some ways, that isn’t a change. There’s often some interesting trend attracting the markets. And while that trend changes over time, interest can lead to overinvestment. That creates the risk of a bubble.

Ultimately, understanding change can be easier when looking through the lens of what doesn’t change. That can help understand the stock market’s cycles of fear and greed.

Looking at unchanging ideas like that can help investors better anticipate big moves. For instance, the market’s pre-election year seasonal trend has played out strongly this year.

Markets may have sold off in the fall over fears of rising interest rates. But a look at history shows that such a selloff should have been expected on average.

Applying that same concept of seasonality, we should see more market volatility in 2024.

The last election year cycle had the Covid outbreak. And other election year cycles like 2008 had the housing market crash. And 2000 had the tech bubble bursting.

That doesn’t guarantee a big market crash next year. But it does suggest that investors should take a cautious eye, as election-year drama in markets isn’t likely to change.

 

To listen to the full interview, click here.

Economy

Joseph Carlson: Everyone Was Wrong About Black Friday

Posted on by Andrew Packer

The holiday season is afoot. And despite some concerns about a potential slowdown in spending for the holidays, the numbers look good so far. Retailers reported a strong Black Friday. And online sales set a new record over Thanksgiving weekend.

That could be a sign that the economy is holding up better than expected. Or at least that consumers aren’t going to cut back this holiday season.

Even online outlets like Amazon (AMZN) were posting record numbers, including 1,000 sales per second.

These strong sales numbers bode well for the economy, and the stock market. That’s especially true for retail stocks which have been beaten down heavily this year.

However, it could also be a sign that the economy remains too strong. For the past 20 months, the Federal Reserve has been moving to tighten conditions and slow the economy to curb inflation.

This could play right into the “higher for longer” trend of interest rates that the central bank has warned could happen.

For now, traders and investors can likely see retail stocks make up for some of their losses going into January. And without any fear from the retail space, it’s likely that the rest of the stock market should be on track for a rally in the final wells of the year as well.

 

To view the full analysis, click here.

Cryptocurrencies

Raoul Pal The Journey Man: Dan Tapiero: The Crypto Bull Market: Everything, Everywhere, All At Once

Posted on by Andrew Packer

While the overall economy seems to be showing some signs of slowing down, one sector is showing the opposite. That’s the cryptocurrency market. It had a severe bear market in 2022, amid the collapse of several leveraged brokerage firms.

2023 has marked a move higher, and investors see more potential interest ahead. That’s thanks to big structural changes like the approval of a bitcoin ETF, and bitcoin’s next halving.

The growth of the crypto market marks a new trend in human development. We’re already at a period of exponential growth, thanks to developments like crypto and AI.

But a new crypto bull market could lead to massive profits for investors, even if the rest of the economy struggles.

While many investors may be focused on the price, cryptocurrencies offer users blockchain technology. This tool creates a ledger of transactions that can’t be retroactively changed or adjusted.

And the structure of bitcoin creates a way of transferring wealth without that medium of wealth being manipulated by a central banker.

In short, cryptos offer useful tools for those looking to store their wealth and also profit from growth. So, with trends in place that are bullish for demand, cryptos could be a strong spot for the market going into 2024 and beyond.

 

To view the whole interview, click here.

Income investing

Dividend Growth Investor: Nine Cash Machines Hiking Dividends Last Week

Posted on by Andrew Packer

While stocks have soared, going from oversold levels to overbought levels in just three weeks, a company’s fundamentals are slower to change. Investors may like big price swings on the way up, but not when prices are dropping.

That’s why other metrics can be used to take some of the sting out of investing. One such metric? Why, dividend investing. The process may seem slow today. But using such a strategy alongside short-term trades can produce great results.

Even better, companies that have a dividend and raise it over time can see a consistently rising share price. Investors can buy these companies and reinvest the dividends, further compounding growth over time.

If markets take a turn for the worse next year, reinvesting growing dividends can alleviate the short-term pain over time.

One company raising its dividend now is Nike (NKE). The sports apparel and shoe brand pays a 1.4 percent dividend. While not huge, it’s raised its payout by nearly 9 percent, or double the current rate of inflation.

Another company increasing its payout is Tyson Foods (TSN). The food company pays a heftier 4 percent dividend, and raised its payout just 2 percent. Food tends to be a good defensive sector for uncertain times, and shares may see some interest in 2024.

 

To view the full list of companies recently raising their dividends, click here. 

Stock market strategies

Thoughtful Money: 2024 “Going To Be A Lot Worse” For Markets as Tech Stocks Implode

Posted on by Andrew Packer

2023 has been a strong year for the stock market. But if you back out the seven largest tech stocks dominating the market, it’s a different story. That market is flat, and was at a loss before the recent rally.

Essentially, large-cap tech stocks are the market. When enough of them go down, no matter what reason, the markets will drop too.

And given the strong performance this year and high valuation, 2024 may mark a down year.

While the market is cheering slowing inflation, the labor market is starting to show some cracks. Unemployment is trending higher. That could quickly escalate and spiral higher.

And the impacts of higher interest rates haven’t been fully felt throughout the economy yet.

For instance, homeowners are generally staying put rather than buying a new home. Why? Because it means getting a much higher mortgage rate. That can only be avoided for so long.

Many borrowers with car payments are starting to see prices in excess of $1,000 per month. That’s not a sustainable trend either. The money spent on interest is money that isn’t being spent elsewhere in the economy.

In short, many trends are starting to show the early stages of a reversal. If that happens and stocks start to sell off, tech stocks will see a large percentage pullback. And that will drag the overall market lower.

 

To view the full analysis, click here.

Income investing

The Meb Faber Show: Jim Bianco on “The Biggest Economic Event of Our Lifetime”

Posted on by Andrew Packer

While investors have been treating the stock market as back to bullish following last year’s drop, a bigger trend may have started. It’s a trend that plays out over decades, not years. And it doesn’t take place in the stock market.

Rather, it’s in the bond market. And it has to do with the trend of interest rates. Since 2020’s historic lows, interest rates have trended higher.

More importantly, they’re higher than at any point during the 2010s. And that jump higher ay not be reflected in the stock market right now.

That could mean a rough few years for stocks, as they adjust to higher rates. Stocks may even compress, where the share price stays about the same, but rising earnings gradually brings valuations down.

However, the real story may still be in the bond market. A trend of rising interest rates may be underway. If so, that’s the first time in 40 years – a lifetime for an investor – for such an environment.

In that case, investors may not want to chase tech stocks. Instead, they’ll likely want to rotate to whatever sector of the market is rallying now. And having a higher proportion in short-term bonds can help grab higher yields along the way.

 

To watch the full interview, click here.

Economy

Kitco News: Banking Sector Collapse Coming, Why It Could Happen in March

Posted on by Andrew Packer

While the market is moving towards a calm, seasonal trend higher, there are factors in play that could pose a danger to markets by the spring. 2023 saw a spring selloff amid the second and third largest bank failures in history.

Fortunately, those were quickly contained. The rest of the banking sector has held up well. However, since then, the Federal Reserve has continued to raise interest rates.

So, the increased pressure on the sector could lead to another crisis after the holidays.

One key reason is the end of the Bank Term Funding Program (BTFP). That program was created during this year’s banking crisis. It allows banks who hold U.S. Treasuries to swap them with the Fed for their full face value.

Currently, rising interest rates mean that long-dated bonds are trading well below their face value. That makes this program something of a stealth bailout for the banking sector.

If the program isn’t renewed in the spring, banks may have to issue more shares or debt to ensure ample liquidity. That may not be ideal depending on market conditions. It was that announcement that led to the run on Silicon Valley Bank this year.

In short, the banking sector lives on borrowed time. And that may change in the spring. Investors may want to lighten up on bank stocks out of caution, and look to invest only after a crisis starts to die down.

 

To listen to the full interview, click here.