Author: Andrew Packer

Technical Analysis

Tastylive: When Stock Prices Swing, Option Buyers Are Losing THIS Opportunity

Posted on by Andrew Packer

While investors may prefer steady markets, volatile markets are great for traders. That’s because big daily swings can create many profitable trading opportunities, whether stocks move up or down.

But not all market swings are created equal. Some markets are volatile with high trading volume. At other times, the market may be swinging with very little volume. During the summer months, for instance, markets tend to have lower volume. It then picks up later in the year.

Typically, market volume reflects market sentiment and potential shifts. When there’s low volume but a fair amount of volatility, investors likely aren’t looking at any fundamental changes. Rather, it’s a sign that the status quo is likely to continue.

Higher volume reflects changing views on the market. And those views tend to play out with higher or lower trends over a period of days or weeks.

For options sellers, market volume can play a big role. Sellers of call options looking to cover a stock position may not get as high returns when stock volume is low.

Sellers of put options during periods of low volume may get stuck being assigned stocks when volatility and volume pick up.

Both investors and traders have the opportunity to buy during calm or volatile markets. For shorter-term trades, knowing how volume impacts markets can play a big role in total returns.

 

To watch the full analysis, click here.

Economy

New Money: Ray Dalio: The World’s Greatest Wealth Transfer Has Begun

Posted on by Andrew Packer

The world is facing a massive wealth transfer. It stems from decades of government spending, driving up debt costs. Today, the world faces a debt spiral. That’s due in part to the sheer size of government deficits, which in the U.S. now top $32 trillion.

When interest rates were at zero percent, the debt was serviceable even in a slowly-growing economy. Today, interest rates stand north of 5 percent. And the U.S. government will likely spend close to, if not over, $1 trillion annually funding its debt.

At that level of interest rates, the costs could spiral out of control quickly.

Meanwhile, the private sector is less resilient than it used to be. While personal income is trending higher, the above-average inflation of the past few years hasn’t increased it in real terms. And wage growth has started to slow.

While the economy has largely held up well as interest rates have risen, the impact takes time to play out in the private sector. Investors shifting away from growth stocks for higher income stocks could lead to slower economic growth.

The end result could be a slowing economy, and a government structurally required to spend more and more. That could lead to a big wealth transfer from the private sector to the government, which would significantly lower the standard of living.

Investors can profit from bonds at today’s relatively high yields. And watch out for stocks potentially selling off if it looks like the debt situation is getting out of hand.

 

To watch the full video, click here.

Stock market strategies

Lead-Lag Live: The Last Sustainable Edge With Jim O’Shaughnessy

Posted on by Andrew Packer

There are many investment strategies that investors can employ. The most popular one today is passive investing, where investors simply buy an index. However, since a market index is weighted, that means investors are largely invested in the same large-cap stocks.

That strategy also makes it more challenging for investors to generate excess returns. On Wall Street, the concept is called alpha. While the strategy isn’t perfect all the time, it tends to hold up well.

Investors could see better returns with other strategies. But those returns tend to work well only at certain periods of time. Looking at five-year trailing returns can show a trend better than a one-year period.

When following an investment strategy, results are measured in years, not months. Investors who jump between strategies that been performing well may not see great results. Instead, they’ll likely lag the market. It’s investors who stick with a strategy over time who do consistently well with it.

In the short term, it may be tempting to give up on a strategy when it doesn’t seem to be working. A majority of quantitative investors will override their models during a time of market panic.

As long as investors find a strategy that works for them and stick with it, they can develop a sustainable edge.

 

To listen to the full interview, click here.

 

Stock market

Game of Trades: A Storm Is Coming for Banks

Posted on by Andrew Packer

It’s now been six months since the second and third-largest bank failures in U.S. history. While investors have largely shrugged that off and focused on tech stocks, there could be considerable dangers ahead.

When that happens, bank stocks tend to get hit the worst. That’s because banks often see big write-downs when they report earnings. And investors tend to take a “sell first and ask questions later” attitude.

Currently, banks face multiple potential dangers.

The biggest is the U.S. office vacancy rate. It’s still well under the pre-pandemic level. And it’s unlikely to improve at any point. Many companies renewing their office spaces are shrinking their footprints.

Some office building owners are already throwing in the towel in places like San Francisco. In short, banks with significant exposure to office buildings could be at risk.

The next biggest potential danger is depositor flight. That’s what caused the bank failures earlier this year. It wouldn’t take a bank panic, either. Many banks pay low, if any, interest on their accounts. Yet investors can move to money market funds or U.S. Treasuries for higher yields. That could entice depositors to move their money to earn a higher yield.

If interest rates creep higher, investors looking to protect their capital may do just that. U.S. Treasuries are considered risk-free. And even insured bank deposits could take time to sort out in a bankruptcy.

 

To watch the full analysis on the dangers for the banking sector, click here.

 

Economy

QTR Fringe Finance: 3 Reasons A “Nasty Recession” Will Soon Arrive

Posted on by Andrew Packer

While markets sold off in the first part of August, much of the drop was reversed in the second half. Traders have started to adopt a “bad news is good news” mentality. That’s because a slowing job market could mean the potential for interest rates to drop sooner rather than later.

If so, that could help take stocks to new all-time highs, even if there’s a brief drop before that happens.

While that sounds good on paper, it’s possible that things could go the other way. Several reasons suggest why. First, the economy of the past 15 years has been largely created at a time of zero percent interest rates.

Those who claim we’re in an “everything bubble” point to this trend. The low cost of borrowing made many projects look viable that aren’t at 5 percent interest rates.

If we are in a bubble, the unwind will come faster than the buildup. And the bubble popping could lead to prolonged side effects. After all, if we are in an everything bubble, it was started in the first place by the collapse of the housing market.

The coming months will also see the end of excess pandemic savings being worked through. And student loan payments are set to resume, which could further dampen consumer demand.

In turn, that suggests not only a lower move in the stock market. And a longer path for markets to take before making new all-time highs.

 

To read the full rationale behind a potential recession in the months ahead, click here.

 

Income investing

Dividend Growth Investor: Eight Dividend Growth Companies Increasing Dividends Last Week

Posted on by Andrew Packer

Typically, investors look forward. They want to invest in a company ahead of future growth. That’s where big gains can be made.

However, one metric looks backward, but also provides a clue to market-beating gains. That clue is a history of dividend growth. Companies that can grow a dividend payment over time are capable of delivering increasing cash flow. And that also tends to benefit the share price over time.

Fortunately, even in choppy markets, a handful of companies will routinely raise their dividends.

For instance, Altria Group (MO) just raised its dividend for the 54th consecutive year.

The cigarette manufacturer increased the payout by 4.3 percent, a bit better than the current rate of inflation. Over the past decade, it’s been a much more impressive 8.1 percent.

Shares currently trade under 9 times earnings, and the stock yields 9.1 percent. Returns have been solid for the company over time, even as the long-term fundamentals of the tobacco industry have slowed.

Another company increasing its dividend is First American Financial Corporation (FAF). They provide insurance services. They just raised their dividend for the 13th straight year. Over the past five years, the growth has averaged 7.4 percent.

While the current yield sounds low at 3.5 percent, dividend growth over time is paying off for shareholders.

 

For the full list of companies raising their dividends now, click here.

 

Personal finance

Bigger Pockets: Generating Infinite Returns in Real Estate – Is It Possible?

Posted on by Andrew Packer

Real estate tends to be a great long-term investment. Part of the reason is that buyers can use leverage, putting down 20 percent or less to acquire a property. For investing in home rentals, mortgages are amortized, meaning they get paid off over time.

First-time homebuyers can put up even smaller amounts of capital, typically in the 3 percent range or higher. But investors can also put down no cash when making an investment.

When that happens, the profit margins become infinite.

There are a few ways to make that happen. The first is to invest in a property, then refinance in the future, taking back the initial capital.

The other method is to use a syndication deal, taking a stake in an investment as a managing member, putting down no capital.

While it’s not technically infinite capital, it does go to show that patience can pay off in the real estate market. Acquiring a property requires capital, but it doesn’t have to be your capital. And that improving a property that’s undervalued for its market can lead to big returns over time.

With interest rates rising to their highest levels in over 15 years, finding potential investors may prove a good way to invest in real estate right now. By avoiding the high cost of financing, it may be possible to get an exceptional deal in today’s markets.

 

To read the full article, click here.

Economy

The Maverick of Wall Street: The Fed Is Losing Control Over the Bond Market

Posted on by Andrew Packer

For years, a small group of investors have warned about the total outstanding debt. It doesn’t matter if it’s government debt, consumer debt, or corporate. Its growth requires ever-larger capital to pay the interest on.

Now, with interest rates surging to their highest levels in over 15 years, that debt could prove unsustainable. And it also suggests that the Fed could soon lose any control that it may have over the bond market.

For instance, outstanding credit card debt has now topped $1 trillion. That’s high-interest consumer debt that usually carries double-digit interest rates. Rising credit card debt and declining savings may indicate that today’s consumer spending is unsustainable.

Higher-income households are also reporting that they remain in credit card debt longer. And one top reason for that higher debt is the result of emergency expenses.

Either way, with consumer spending such a huge component of the economy, its potential to stall out could mean trouble for markets. It suggests that stocks may see a further decline, particularly consumer-oriented companies.

Meanwhile, with interest rates high and potentially moving slightly higher, the bond market may not be a bad place to park capital. Earning a risk-free 5 percent right now could offer higher returns than the volatile market, especially on a pullback. Even if the Fed’s control of the bond market seems doubtful right now.

 

To watch the full video, click here.

Income investing

Deep Knowledge Investing: Putting Today’s Interest Rates in Perspective

Posted on by Andrew Packer

Interest rates have hit their highest levels since the mid-2000s. Mortgage rates topped 7.2 percent recently, a 25-year high that’s keeping potential buyers out of the market. It’s also keeping potential home sellers from moving, given that the rate of the average mortgage is 3.6%.

The Federal Reserve has hiked interest rates at its fastest pace in 40 years. However, coming off of zero percent interest rates, the current rate of 5.00-5.25 percent isn’t that high historically.

Looking at the post-World War II era, interest rates are just now moving into territory slightly above their historical average. Rates have been 4.6 percent on average, going back to 1954.

The Fed’s goal in raising interest rates was to slow down the economy. The measure for that is the drop in inflation. When the Fed started raising rates, inflation had soared to 40-year highs, topping out at over 9 percent.

The Fed has suggested that it may need to raise rates further. However, chances are the central bank is near its peak.

Investors who buy bonds now, particularly long bonds, could benefit in the next year or two as interest rates peak and then start to decline. And right now, with investors pricing in a recession next year, investors can buy short-term Treasury bonds for higher yields than longer-dated ones.

 

To read the full analysis, click here.

Stock market

Elliott Wave Options: Elliott Wave 4 Break Down? Cryptic Fed Leaves Traders Guessing

Posted on by Andrew Packer

The market has seen more volatility in the past few weeks after a quiet run higher since the start of the year. The increased activity reflects growing uncertainty in markets by traders and investors alike.

One reason for that increased volatility has come from the Federal Reserve. They’ve continued to raise interest rates this year. Since the start of the rate hike cycle, they’ve gone from zero percent to over five percent. And they’ve hinted at more hikes to come.

The start of rate hikes, which vastly increased the cost of capital for borrowers, fueled last year’s bear market. And with rates still going higher, this year’s market rally may look premature.

That can be seen with traders mixed as to whether or not the Fed will raise rates in November.

In the meantime, that’s leading to mixed signals in the market as well. The potential Elliott Wave 4 drop of the past few weeks should lead to a Wave 5 that takes stocks to new highs.

However, with rising uncertainty, the market is also showing a head and shoulders pattern right now. That’s a bearish sign that stocks could have more room to decline.

In the short-term, that bearish sign may prevail in the coming weeks before a strong rebound. Seasonally, that also makes sense, given that August and September are poor performing months for the market. And October tends to have the worst one-day drops of all.

 

To watch the full video, click here.