Author: Andrew Packer

Commodities

Asset Strategies International: Gold Pausing for a Fed Pause

Posted on by Andrew Packer

Several asset classes have been volatile over the past two years, but have largely gone nowhere. That includes the stock market, which peaked in late 2021, sank in 2022, and has neared a full recovery this year.

Another asset making a similar move is gold. The commodity rose ahead of inflation expectations in 2020. It briefly moved over $2,000 ounce. Today, it’s just under $2,000 per ounce.

Investors who were right about surging inflation fared well moving into gold three years ago. Today, gold prices remain near their highs as inflation starts to perk up again.

While it may not mean gold soaring to new all-time highs, today’s high gold prices reflect market uncertainty. That may be why sales volume on physical gold buying remains high.

That includes both individual investors picking up fractions of an ounce, as well as central banks buying by the ton.

Meanwhile, prices are most likely to move again based on the next move by the Federal Reserve. The central bank held interest rates steady this week. That helped keep gold prices stable, relative to stocks.

With the rising chance of interest rate cuts next year, inflation pressures may increase further. That could lead to more demand from individual buyers.

 

To read the full analysis on how you can hedge your investments with gold, click here.

Economy

Bigger Pockets: Cities are Cracking Down on Short-Term Rentals – What Does It Mean for Investors?

Posted on by Andrew Packer

For most Americans, their primary asset is their home. An increasing number of Americans also invest in real estate to enjoy the long-term price appreciation potential and income that it provides.

In recent years, the income potential from short-term rentals has soared. That’s thanks to the rise of companies like Airbnb (ABNB). The company brings together homeowners and customers for anything from a single room to a whole home. However, many cities are putting in regulations on short-term rentals.

In 80 percent of markets, there’s at least some regulation on short-term rentals. And some places are even charging taxes that have been subject to hotels and resorts. The impact of these rules is a restriction of short-term rentals.

That could impact the housing market. Many investors bought a second property for the high-income potential of a short-term rental in recent years.

The inability to rent out a short-term property may be slowing listings. New York City has about 40 percent fewer listings than in 2018. But in regulation-light Phoenix, listings have grown by 96 percent.

Ultimately, potential real estate investors need to consider the impact of a short-term rental versus a long-term one. Even an accidental violation can trigger fines, fees, and higher taxes.

 

To read the full impact of laws impacting short-term rentals, click here. 

 

Economy

Data Driven Investor: Your Pre-Investment Decisions Might Be Behind Your Stock Market Losses Despite Investing in Quality Assets

Posted on by Andrew Packer

Investors who focus on buying quality assets, such as industry-leading companies, tend to perform well over the long term. However, there may be several issues getting to that long-term.

In fact, investing in quality assets is no guarantee of success. And many prospective investors have thrown in the towel after seeing initial losses. Ensuring that you avoid that outcome could help substantially improve your investment returns. Even if you don’t improve your investment picks.

Several factors are at play when investing.

The first is simply buying into a stock – even a great one – without a game plan. Having a plan in place ensures that investors not only know what they’re getting into. Rather, it includes what happens after the buy.

It may be prudent to have a game plan for what to buy and sell when markets are more volatile.

Investors who quickly sell during a market selloff rather than buy shares of a great company could miss out.

A market decline may offer a great chance to buy a quality company on a discount. Market selloffs tend to paralyze some investors, allowing those who plan ahead to profit.

That’s the importance of having a plan. Of course, investors also need to stick to that plan. Otherwise, they could turn a potentially great investment into a short-term loss.

 

To read the other key factors to consider before investing, click here.

Economy

Deep Knowledge Investing: Ready for Un-Disinflation?

Posted on by Andrew Packer

The market’s narrative this year has settled on the idea that higher interest rates will wipe out inflation. That’s largely been true. Since a peak of 9.6 percent last year, inflation has slowed to under 4 percent.

However, that’s still well over the Federal Reserve’s target of 2 percent. And the most recent inflation data shows that some prices are ticking up again. That spells a more complex outcome for investors in the coming months.

The notion has been that disinflation, or a decline in the rate of inflation, is paying off. In other words, prices aren’t declining. But they are increasing at a slower rate.

Today, investors are looking past the Federal Reserve and at the drivers of today’s inflation. One area is the energy market, where oil prices have risen back to $90.

That’s thrown a wrench in the plans of the White House, who was hoping on prices to drop under $70. That way, they could refill the Strategic Petroleum Reserve on the cheap.

Another problem is Congressional spending. The deficit will be over $2 trillion this year, a record amount for peacetime. That money hitting the economy can fuel inflation. And it isn’t even the Fed’s fault.

With little incentive for Congress to spend less, inflation may start to tick up again. This could be a form of un-disinflation, and could weigh on the economy and assets such as the stock market.

 

To read the full analysis, click here.

Commodities

FX Evolution: Is Something Broken Again in The World Markets?

Posted on by Andrew Packer

Worried about the markets? One measure of market fear says you shouldn’t be. That measure is the volatility index, or VIX. It’s recently slid to a new post-pandemic-era low.

That could be a sign of the market’s resilience. However, drops to lows have typically been short-lived. Volatility is prone to spiking higher. What the VIX may really be warning about right now is market complacency.

The last time the VIX was near a low was back in March, before two bank failures led to a massive jump higher. That took months to settle back down.

Traders could be in for that kind of move again. The question is where that could come from.

One potential area is in the oil market. Oil prices have moved over $90 in recent sessions. Some traders see oil moving to $100 per barrel. Either way, the higher energy costs are, the less money there is for consumers to spend elsewhere.

Another potential danger is in rising interest rates. Treasury bonds saw a brief spike higher in rates last week. While the market has adjusted to the Fed’s rate hikes over the past 18 months, any vulnerability there could quickly ripple through the economic system.

If something is broken or breaking in global markets, investors may want to take their speculative trades off the table. And potentially hedge with put options or covered call options on existing positions.

 

To watch the full analysis, click here.

 

Stock market strategies

CBOE: Evaluating the Market Impact of SPX 0DTE Options

Posted on by Andrew Packer

The past few years have seen an explosion of investor interest in trading options. That includes trading daily options, known as 0 days-to-expiration (0DTE).

They now make up about half of all options market trading. That’s up from about 5 percent of all trading in 2016. 2022 saw the introduction of Tuesday/Thursday expirations, which helped volume rise to 40 percent. This could lead to potential market dangers.

The big concern among traders is market makers hedging these daily options trades. Their moves could lead to unexpected swings in the S&P 500 market itself.

So far, market observers have blamed the rise of 0dte trading for creating both more volatility and less in the past year.

However, what’s overlooked is that high volume may not reflect high risk. There’s no time to adjust an option trade expiring the same day. So, traders tend to use sufficient collateral to cover losses.

And, there’s a balance between buyers and sellers, which means that the trades themselves are hedged overall.

So far, realized volatility in the market versus intraday volatility remains close. That’s a sign that the rise of 0-day option trading offers little overall market risk.

And that’s a sign that traders might want to add this tool to their portfolio to earn extra returns while waiting for longer-term trades to play out.

 

To read the full analysis, click here.

Economy

How Money Works: If Nobody Can Afford a Home… Who’s Going to Buy Them?

Posted on by Andrew Packer

Home prices have held up well, even as mortgage rates went from the 3 percent range to over 7 percent in the past 18 months. While that’s the highest level in 18 years, those who want to buy a home have been able to buy new homes.

Existing homeowners aren’t looking to move now. That would entail giving up their low mortgage rate for a more expensive one. With today’s high rates, it takes a six-figure salary in most markets to buy a home.

That leads to a simple question – who can afford a home right now?

With affordability so low, logic would dictate that home prices would be set to drop. However, there’s only been a modest decline in most markets.

One potential solution would be lowering down payment requirements. Instead of the standard 20 percent down, some lending programs allow borrowers to only put 3 percent down.

A few companies, such as Zillow (Z), are even looking to create a lending program that requires just 1 percent down.

At that rate, the down payment isn’t a problem. But paying for so much of a home’s value at today’s high interest rate is. That will make it difficult for small investors to invest in real estate with leverage.

Ultimately, the real estate market looks stuck until mortgage rates can move lower. Or until potential sellers can get comfortable with today’s rate.

 

To view the full analysis of today’s real estate market, click here.

Economy

Data Driven Investor: Six Key Learnings From the BlackRock 2023 Midyear Outlook

Posted on by Andrew Packer

Investors looking to beat the market have a variety of options. One of the best ways is to find an institution with a history of beating the market and then replicate their moves.

One of the top asset managers in history, BlackRock (BLK), has consistently outperformed the S&P 500 for more than 25 years. While the S&P 500 index given 4x returns so far this century, investors in BlackRock made 58x.

And, each year, the company updates investors on where they see the market heading. That includes big trend changes that could impact asset valuations.

For instance, BlackRock sees the market in terms of narratives. That’s simply a way of saying that investors have a “story” for why the market is performing the way it is. Those narratives can change quickly.

The current narrative is based on rising interest rates. But there are other narrative lines at play.

One current narrative is geopolitical. That includes deteriorating relations between the U.S. and China, as well as the war in Ukraine. This trend could mean more diversified supply chains, and less international trade.

If that narrative carries out, asset returns will be lower in the future. That would simply be a consequence of a more inefficient way of structuring the world.

 

To read the full set of BlackRock’s market predictions and what they mean for investors, click here.

Economy

George Gammon: It’ll Start Oct 1st… Here’s Why

Posted on by Andrew Packer

An increasing number of economists are lowering the chance of a recession in the next year. Instead, they see the potential for a “soft landing” for the economy. That means slowing growth, but not a recession.

However, despite slowing inflation and a slowing economy, there could still be the potential for some danger ahead. And a few overlooked signs could point to danger for both the economy and the stock market.

There’s even the potential for the economy to move into a recession in the next month. That’s due to a number of reasons.

First, student loan repayments are restarting following years of being paused for the pandemic. The resumed payments will mean millions have to pay down debt each month. That’s money that will no longer be going into the economy on consumer spending.

Reduced consumer spending could create a feedback loop. As companies have less capital coming in from consumers, they may be forced to slow down and lay off employees. Those laid-off employees will then have to cut back on their spending.

That feedback mechanism could lead to reduced spending in the economy sufficient to send things into a recession.

With three out of five Americans living paycheck to paycheck, the loss of a paycheck means an economy that’s slowing could quickly slide into one that’s stalled out.

 

To look at the other factors that could lead to a recession, click here.

 

Stock market strategies

FX Evolution: Hedge Funds Are Selling Stocks Again…

Posted on by Andrew Packer

Investors looking to profit in the stock market can get a sense of what to do by following big players. That includes institutional traders such as hedge funds.

They tend to be ahead of trend shifts, lowering their allocation to risky assets before a selloff. And by the time retail investors get the memo and panic out of stocks, they’re ready to buy. At the moment, they’re scaling back their investments.

Several reasons indicate why.

The stock market remains off its July highs. And it’s spent the week largely hanging out near its 50-day moving average.

Some sectors, like the Dow Transports, are trending lower. Typically, this sector tends to lead the overall market.

That suggests further downside may be ahead for stocks in the coming weeks. That would be normal for this time of year. It likely doesn’t mean a full-blown bear market, and it may not even hit a correction level.

Meanwhile, global liquidity has declined in recent weeks. That could make it more difficult for institutions to buy stocks on margin. Less margin in the market makes it less likely stocks can trend higher.

While stocks can likely still trend higher going into the end of the year, the next few weeks could be volatile. Investors should brace for a pullback in the coming weeks, and look for hedge funds to start buying as a sign the worst is over.

 

To watch the full analysis, click here.