Author: Andrew Packer

Economy

Ray Dalio: The Thinking Behind Why Cash Is Now Good (and not Trash)

Posted on by Andrew Packer

In early 2020 amid the pandemic meltdown, billionaire investor Ray Dalio famously stated “cash is trash.” Today, the billionaire sees cash as a favorable asset for investors to consider today.

To see why, investors can start by looking at the returns being made on cash. In 2020, interest rates went from 2 percent to zero percent nearly overnight. The returns from sitting in cash were negligible.

Today, it’s a different story. Investors can earn 5 percent or more on their cash holdings. That’s with U.S. Treasuries, which are considered risk-free investments.

With inflation now near 4 percent, investors can earn a real return of 1 percent over the rate of inflation. Of course, that’s not a huge return. But, it’s a sign that holding a higher level of cash may be ideal right now.

Plus, today’s interest rates may be near a peak. That suggests that investors should consider investing in bonds now.

Bond prices got knocked down by the rise in interest rates. Bond yields on 2-year notes are up over 2,000 percent from their 2020 lows. Why? Because investors flocked to Treasury bonds during the start of the pandemic. That led to an all time low of 0.3 percent. Today, that rate is over 5 percent.

In other words, cash looks attractive as an asset class. Its returns are based on the Treasury rate, which also looks attractive now. And should interest rates drop, bond prices will soar.

 

To read the full post, click here.

Economy

Game of Trades: This is Unlike Anything We’ve Seen

Posted on by Andrew Packer

The three-month U.S. Treasury bill has hit a 5 percent yield. That’s the first time in 16 years that a short-term bond offered such a high return.

With inflation under 5 percent, that short-term bond also offers investors a solid real return. That’s the highest level since 2007. Some see danger ahead, as 2007 was the year of the market peak before the 2008 market crash.

The rapid rise in interest rates fueled a bear market in 2022. Many still talk of a “soft landing” where the economy slows but doesn’t hit a recession.

Unfortunately, the central bank has a poor track record trying to cool the economy without crashing it.

In the worst-case scenario, a deflationary spiral could result. That means consumers cut back on spending. Companies lower prices to lure consumers, but demand remains slack. That leads to further price cuts.

While that sounds great for consumers, it’s not good for business. It means bankruptcies, layoffs, and significantly higher employment.

That’s why central banks have fought so hard to avoid deflation in recent years. The recent jump in inflation caused them to change their tune.

That leaves markets in a new and unique circumstance. Investors will want to be more nimble given the possibility for more volatile markets and more pressure for corporations.

 

To watch the full video, click here.

Economy

Deep Knowledge Investing: Counter-Intuitive Inflation – How Overspending Creates Inflation

Posted on by Andrew Packer

Investors have focused on the Federal Reserve and its interest rate hikes over the past 18 months. Higher interest rates can cut inflation, but often at the cost of the economy. We have seen a slowdown in inflation, but an uptick in unemployment.

However, the central bank doesn’t operate in a vacuum. Other factors are at play which could create and keep inflation running higher for longer. That includes fiscal policy, the Washington term for government spending.

In 2023, the U.S. government is running a $2 trillion deficit. That’s the largest in peacetime on a percentage basis. And it’s also helped push the national debt to $33 trillion.

That $2 trillion in government deficit spending spreads throughout the economy. That can help push the costs of goods and services higher. In other words, it can help fuel inflation.

That overspending trend should slow down in the months ahead. Nearly one-third of U.S. debt will roll over in the next two years. And rather than rolling over near zero percent, it will roll over closer to today’s 5 percent interest rates.

Government spending on interest on the debt alone has now topped military spending. And it’s on track to top $1 trillion this year.

When this government overspending comes down, so will one of the biggest remaining inflation factors today.

 

To read the full write-up, click here.

Income investing

Trader’s Insight: Walking Gingerly into October

Posted on by Andrew Packer

The final quarter of 2023 has arrived. Following September’s slump, markets are down over 7 percent from their recent peak.

Typically, some seasonal weakness in the fall is normal. Traders generally expect markets to tick higher this month, as well as rally into the end of the year. This year, things may be a bit different given the unique conditions right now.

September’s Federal Reserve meeting hammered home the idea that markets may need to stay higher for longer. That’s led to a surge in bond yields. The bond selloff is also weighing on stocks.

Many interest-rate sensitive stocks such as utilities and real estate plays have taken a dive in recent sessions. That may be due to the higher yields now offered on bonds.

Why risk a 3-4 percent dividend in a highly indebted company, when the risk-free yield is now at 5 percent?

October also marks the resumption of student loan payments.

That could lead to slowing consumer spending in the months ahead. When borrowers have to start repaying loans, there’s less cash flow available to spend in other parts of the economy.

In the plus column, the government avoided a shutdown going into the month. That could have also weighed on the economy over time, and could have pushed markets lower.

Overall, markets will likely remain volatile in the coming weeks.

 

To read the full analysis, click here.

Stock market

Elliott Wave Options: Elliott Wave 4 Bounce? … Support at 50% Retracement

Posted on by Andrew Packer

After the market’s steep drop in September, investors are looking for where the market may find support and start moving higher.

There are several key points where the market could find support. The past week has seen some volatile intra-day moves, and some overall flat days compared to the big swings in the last week of September. Does that mean we’ve found support?

Possibly. Using the Elliott Wave model, a downturn was likely moving into September. That wave has nearly been fulfilled, with markets sinking to June lows.

Last Wednesday’s drop to 4,220 on the S&P 500 and sharp rebound off of that low, followed up by this week’s trading over that level, suggests markets are now starting to consolidate before a bounce higher.

There are two other key technical levels to monitor in the days ahead. The first is the market’s 200-day moving average, which is right around 4,200 for the S&P 500.

On the upside, stocks could rise to 4,400, which would fill the gap that markets had after the September Fed meeting. After that, markets may struggle on the upside in the short-term before moving higher.

It’s clear that markets are still volatile on a daily basis. And that investors can buy some much better deals on oversold stocks here. Traders can benefit from trading the market’s big intra-day swings.

 

To watch the full analysis, click here.

 

Cryptocurrencies

Arca: “That’s Our Two Satoshis” – Waiting For Demand to Return to Crypto

Posted on by Andrew Packer

While the stock market has seen considerable volatility in the past few weeks, the crypto market has been quiet. There haven’t been any major moves.

Compare that to the bond market. 30-year Treasury bonds issued 3 years ago have dropped 50 percent in value thanks to sharply rising interest rates. That kind of move makes crypto look more interesting, especially with so little interest in it after last year’s collapse.

Ultimately, all markets are driven by supply and demand. The latest market events haven’t yet created any change in demand for cryptocurrencies. When that changes and demand rises, prices can truly take off.

On the supply side, some cryptos, including industry leader Bitcoin (BTC) have a set rate of supply growth. Many see Bitcoin moving higher next year, following its next halving.

That’s the process when the supply of new bitcoin from mining gets cut in half. Prior halving periods have kicked off massive rallies for Bitcoin. And where Bitcoin goes, smaller cryptocurrencies tend to follow.

For crypto projects that don’t have supply constraints, the lack of demand also hurts. That’s because issuing new supplies without demand would cause prices to drop. For some crypto projects that need funding, there may not be a choice.

For crypto projects that are looking to build a lasting platform, however, issuing new tokens or coins now doesn’t look attractive.

 

To read the full analysis on the crypto market, click here.

Commodities

StockMarket.com: 2 Natural Gas Stocks to Watch in September 2023

Posted on by Andrew Packer

The energy market is starting to show signs of strength again. That’s thanks in part to a move higher in oil to $90 per barrel. Some analysts see it tracking toward $100. However, a better opportunity in energy today may come from natural gas.

That’s because it’s a clean-burning fuel. It’s crucial for phasing out dirty coal. Plus, it offers a high and consistent baseload compared to green energy like wind and solar.

It’s also a growth play, given increasing U.S. natural gas production. Investors have a wide array of investments, from explorers to producers to infrastructure players.

For instance, investors can buy Occidental Petroleum (OXY).

While known as a big oil company, they’ve increased their exposure to natural gas in recent years

Earnings and revenue have been consistently on the rise, offsetting energy’s volatility in the past year.

Plus, on drops down to the low $50 range, Berkshire Hathaway (BRK-A) has been a buyer of shares. CEO Warren Buffett has sought approval to buy up to 50 percent of the company.

In the past, Buffett has used this move to eventually acquire the other half he doesn’t already know. And Buffett has other operations at Berkshire that also play to the natural gas trend. Investors may want to follow along on this long-term play here.

 

To learn the other natural gas stock worth watching now, click here.

Stock market

The Rational Reminder Podcast: Expected Returns of the AI Revolution

Posted on by Andrew Packer

The stock market has been driven higher by the prospect of AI technologies this year. Every industry can benefit from using AI to improve operations and drive efficiency higher. Some industries are already pushing for big returns.

For investors, there’s more than just an interest in AI-related stocks. There’s also been a rise in interest in using AI to find investment opportunities. This tool could be used to beat the overall market.

This isn’t the first time that investors have been excited about AI technologies. The past few decades have seen the rise of trading programs. While not as sophisticated as ChatGPT, they’ve still been useful for finding great investment ideas.

In fact, there have been big cycles of hype over AI technologies, followed by disappointments. That’s similar to market cycles, with bull market peaks and bear market troughs.

History shows that technology changes and improves human life. But the past few decades have shown that transformative technology can lead to asset price bubbles.

The best example was the internet and tech bubble of the late 1990s. While the internet was still in its early stages, it kept growing even as internet stocks crashed in 2000.

That suggests investors should take a cautious approach to buying AI stocks. And they should look to buy into the top names during times of market pessimism.

 

To listen to the full podcast, click here.

Stock market strategies

Chart Advisor: Classifying SPY’s Lower Lows

Posted on by Andrew Packer

Stocks hit their yearly peak on July 27. Since then, they’ve pulled back, rallied, and pulled back again. And so far, each rally hasn’t been as high as the one before it. This is known as setting lower lows.

Typically, that kind of chart pattern is bearish. It suggests a further selloff in markets. Some traders also see a head-and-shoulders pattern. If that fully plays out, there could be more market pain in the coming weeks.

Investors can watch for a number of dangers. One of them is the high concentration of tech stocks. Currently, Apple (AAPL) represents 7 percent of the weight of the S&P 500 index due to its sheer size. Other big tech names also dominate the index.

Tech companies tend to have more volatility. So if there’s more downside volatility, it can weigh on markets more.

Besides Apple, another big trend this year has been semiconductor companies. The chipmakers have been big winners as the market has been interested in all things AI.

That trend has broken down as well. And it’s broken down after hitting its 2021 peak price. That suggests a potential double top. If that’s the case, semiconductor stocks have some downside in the months ahead.

Overall, this is shaping up to be a standard market correction. This time of year, such a pullback is natural. Investors looking at trading patterns should wait for the market to make a higher high on a rally before getting fully bullish again. But that will likely play out in the next few weeks.

 

To read the full analysis, click here.

Economy

Lead-Lag Report: Understanding the Turbulence of Financial Markets with Gary Shilling

Posted on by Andrew Packer

The stock market has struggled in recent weeks. The S&P 500 slid 3 percent last week, and is down over 6 percent from its 2023 peak. Daily volatility is on the rise, with large swings from day to day as well as during the day.

Human nature hasn’t changed much. So similar circumstances can lead to similar outcomes. For investors, the current financial conditions and market reaction suggest more turbulence ahead.

Right now, the market consensus is bearish in the short term. But it’s bullish in the long term.

Over the long term, that makes sense. Markets tend to rise over time. However, there are times when markets won’t go up. Investors who can go against the bullish grain at the right times can earn big returns.

Plenty of cracks have appeared in today’s markets. China’s multi-decade growth has stalled. Part of that is becoming the world’s second-largest economy. Another part of that is overspending on some parts of the market, such as real estate.

A slowdown in China could lead to a global slowdown, especially for countries exporting commodities to China.

Financial markets are also adjusting to the next phase of globalization. Countries are moving production out of China and into other parts of Asia, as well as India and Latin America. These costs are somewhat higher, but also provide more robust supply chains.

While markets look turbulent, long-term opportunities are emerging in other parts of the world.

 

To listen to the full podcast, click here.