Author: Andrew Packer

Retirement investing

Away From the Noise: The World’s Best Investment Advice

Posted on by Andrew Packer

With the rising complexity of financial markets, it’s easy to forget some of the few, simple principles that build wealth. Reviewing those principles, and making sure that one’s investments fit into those principles, can be crucial for building wealth.

That includes not just earning a positive return over inflation. It also means employing strategies to avoid losing money, while not shying away from risk. Striking the right balance can lead to excellent results.

The first principle is to work towards investing in assets that can compound your wealth. That doesn’t mean swinging for the fence trying to earn a big return every day, week, month, or year in the market.

A penny that doubles every day will be worth more at the end of a month than a $1,000 daily payment. But to get there requires time, patience, and a willingness to see an investment strategy through.

The next strategy is to take advantage of dollar cost averaging. Over time, investing in the market whether it’s up or down can lead to better returns than trying to time the market.

Most fail with market timing, as they try to get into a hot stock after it’s made a large move. But the dollar-cost average strategy can help lower the cost basis of an investment, particularly in a down market.

 

To listen to the full podcast, click here.

International Investing

Robeco: Be Patient, EM Fundamentals Will Pay Off

Posted on by Andrew Packer

U.S.-based investors tend to be biased to their home country. The U.S. is a developed country, with strong rules for its capital markets. However, that’s often meant missing out on superior returns overseas.

Of course, international investing can prove risky as well. That’s because it adds in an element of foreign exchange risk and geopolitical risk. Today, those risks look more moderate compared to the rise of international investing in the 1990s.

One positive trend right now is that emerging countries didn’t stimulate their economies as much during the pandemic. As a result, they have lower inflation than many developed countries right now. Plus, real interest rates are so high in some countries that they can start easing now.

For instance, Brazil has interest rates of 8 percent, and low enough inflation to start lowering interest rates now.

Plus, many countries have massive foreign exchange reserves and have trade surpluses. Those polices should lead to strong economic returns for those countries. That includes nations such as Thailand, Taiwan, and South Korea.

Of course, there are some countries with unstable currencies or governments that investors may want to avoid now. That includes Turkey and Argentina, both of which are experiencing monetary challenges.

In the meantime, investors are buying companies at about a 30 percent discount to earnings relative to developed markets. That’s a big valuation gap, and one that can close over time as emerging markets experience faster growth.

 

To read the full analysis, click here.

Economy

Heresy Financial: The Next 40-Year Economic Cycle has Begun

Posted on by Andrew Packer

Markets move in cycles. Some can be rather short, such as market seasonality throughout the course of a year. Others can last for years, like a typical economic cycle. A few cycles can be measured in years, if not decades.

Those bigger cycles tend to have smaller counter cycles within them. But understanding where you are in a long cycle can help prepare to capture the best profits from the primary trend.

Longer cycles tend to reverse a pattern that has been underway for decades. One such trend that may be reversing today is the interest rate cycle.

The last cycle started around 1980, when short-term interest rates peaked in the United States and other nations. Then they began to generally decline overall. They reached their lows during the pandemic, with some countries even offering bonds at negative interest rates.

In a reversal, interest rates could rise over time. That could reflect a variety of issues. One such problem today is the rate of inflation and how “sticky” it is. Higher rates may be needed to keep a lid on inflation.

Higher rates may also help countries act more responsibly in terms of debt issuance. With more discipline in place, the age of trillion-dollar deficits may come to an end.

A trend to higher interest rates overall could lead to slower economic growth in time, as well as lower average market returns.

 

To watch the full video, click here.

Economy

AIER: The Inverted Yield Curve and the Next US Recession

Posted on by Andrew Packer

Investors have largely ignored the inverted yield curve in U.S. Treasuries in the past few months. Typically, the yield curve is positively sloped. Investors want a higher yield for lending money to Uncle Sam for longer periods of time.

Treasury yield curves invert when investors get higher yields in shorter periods of time. That suggests investors expect future interest rates to be lower. Right now, the yield curve is at its most inverted in history.

Since the 1960s, inverted yield curves have predicted all eight U.S. recessions. That’s a 100 percent win rate. And they’ve had no false positives. That means that there have been no inversions that did not result in a recession.

The last yield curve inversion started in 2019, five months before a recession began in February 2020. That gave investors a warning even before the Covid outbreak turned what could have been a mild recession into a sharp and steep one.

So unless that trend is broken, it’s likely that we could see a recession by the end of 2023 or into early 2024.

Investors can prepare by scaling back on leveraged trades now, as well as investments in highly volatile companies such as tech stocks. And it may be prudent to invest some money in short-term US Treasuries, given the higher yield opportunity there right now.

 

To read the full analysis, click here.

Stock market

Game of Trades: This Hasn’t Happened to Stocks Since 1967

Posted on by Andrew Packer

Since January, stocks are up about 11 percent. That move occurred after a signal triggered suggesting that stocks would post above-average returns.

If that signal continues, the market rally could continue. And it’s even possible that the market hits a new all-time high before the end of the year. However, there remains the possibility of a reversal instead.

That’s because the aggressive moves from the Federal Reserve increases market vulnerability.

The signal is based on market breadth and breakaway momentum. Markets had massive breadth at the start of the year, with most stocks trending higher.

Even with a few big-cap tech names really pulling the market, the inclusion of smaller stocks helped signal a bullish move. The signal is more visible when looking at the S&P 500 index on an equally weighted basis.

Going forward, this signal suggests major market outperformance over a six, twelve, and eighteen month period. At the six month mark, that trend holds true. Markets tend to post average returns of 19 percent 12 months later.

That suggests some further upside in the latter half of 2023. However, in today’s market, the excess returns have largely been clustered in companies driving a majority of their business from artificial intelligence. Plus, this breadth signal has never occurred before during a time when the Fed has been raising interest rates.

So investors may want to keep an eye on this trend, and not be surprised if it doesn’t play out fully this time.

 

To watch the full video, click here.

Cryptocurrencies

DAIM Newsletter: Don’t Wait to Invest in Bitcoin

Posted on by Andrew Packer

Cryptocurrencies have moved higher in 2023, a sharp reversal from 2022’s drop. That’s on par with the move higher in tech stocks and a rebound in assets in general.

However, there are some specific developments that may make the space look even more attractive in the year ahead. And within the crypto space, the likely big winner and first mover significantly higher will be bitcoin.

The most bullish catalyst has been the recent filings for bitcoin exchange-traded funds (ETFs) by companies such as BlackRock (BLK). While the SEC initially rejected their application, it was only the second time among the company’s previous 575 applications.

However, BlackRock is free to refile its application, once it adds in the counterparty information the SEC is looking for. Any ETF approval and launch will likely occur within 240 days, about the time before the next bitcoin halving.

An ETF would make it easy to invest in bitcoin. And it could allow for investors to place bitcoin into a tax-advantaged retirement account.

Meanwhile, the halving reduces the reward for mining bitcoin. Each four-year halving period tends to lead to a big move higher for prices. If an ETF is launched around the same time, there could be a combination of lower future supply meeting increased demand.

In short, there are multiple upside catalysts that could come into play in the next year. And with many downside catalysts such as exchange failures off the table, now could be the time to buy into crypto.

 

To read the full analysis, click here.

Stock Picks

Joseph Carlson: 3 Stocks I’m Buying Today

Posted on by Andrew Packer

For long-term investors, there are three simple steps that can lead to effective results. First, investors should buy good companies. That means investing in shares of businesses that are easy to understand, and offer a valuable product or service that can adapt to changes in the economy over time.

The second step is to simply not overpay. That can be tougher than it sounds. In a roaring bull market, valuations get stretched.

And, in a bear market, the fear of a further decline makes it tempting to sit on the sidelines.

The final step is to do nothing. That avoids getting in and out of the market at the worst possible time. And it allows for great companies to compound their wealth.

One company that may fit all three steps right now is Mastercard (MA). The credit card provider is part of an oligopoly.

It has a simple business model where it essentially earns a small fee on each transaction over its network.

Earnings, revenues, and free cash flow are growing at the company. That’s a healthy sign that the company can continue to grow.

And that it can buy back shares, and even pay a dividend. That’s the kind of predictability in a business that makes for a good long-term investment.

 

To see the other two companies worth buying for the long-term now, click here.

 

Economy

QTR’s Fringe Finance: The Market Is A Time Bomb And Other Observations

Posted on by Andrew Packer

Stocks went into a bear market in 2022. The size and severity of rising interest rates off of zero percent led to a massive reevaluation of asset values. However, despite that rise, markets have adapted quickly. And as the pace of interest rate hikes have slowed, investors have moved valuations higher.

That could pose a potential danger. Rising asset values at a time of high interest rates is more likely to lead to a sharp move lower rather than higher.

With markets moving nicely higher so far this year, most investors will likely fall prey to complacency. Stocks have moved blissfully higher. Besides rising interest rates, other issues such as U.S. debt hitting $31 trillion, and geopolitical instability could lead to a widespread market decline.

That doesn’t include the problems related to higher interest rates. Investors already saw the second and third largest bank failures in U.S. history this year. A few months later, however, that move now looks like little more than a speed bump.

The bond market continues to point to a recession in the coming months. The end of the first half of 2023 saw the Treasury yield curve at the most inverted ever.

Traders expect interest rate cuts by the end of the year. However, the Federal Reserve has also stated that they don’t see any rate cuts this year. And that two more hikes are ahead in the coming months.

These are signs that investors should be prepared for markets to move from complacency to uncertainty in the months ahead.

 

To read the full analysis, click here.

Stock market strategies

Clyde Prestowitz: Cheap May Be Expensive

Posted on by Andrew Packer

Value investors are on the lookout for inexpensive companies that have been misvalued by the market. But what if that core tenant of value investing may not always be the case?

That’s because several cultures follow the idea that a good that can be cheap is truly expensive. In the long-run, buying something inexpensive that needs to be replaced constantly may end up more expensive. In may be best to pay up in the first place.

This is why investors who focus on quality brands and buy when there’s a decent value can do better than those looking for an exceptional one.

This trend can also be seen with the global economy. Free trade looks like a reasonable bargain, as all parties seem to be better off over time. However, what works in theory may not work well in fact.

That’s because the assumptions about free trade assume a level playing field. But many governments subside some industries, and they may even punish others with high taxes and regulations. And many countries will be willing to push for exports to boost their own economy at the expense of those playing by the rules.

When all real costs are accounted for, free trade looks more expensive than it is. And those looking to invest internationally may have to factor those differences into account when making investment choices.

 

To read the full analysis, click here.

 

Stock market strategies

Traders’ Insight: Risk Premium Plummets

Posted on by Andrew Packer

Investors have gotten more bullish in terms of sentiment as the market has moved higher this year. There are many ways to measure this sentiment. Most point towards the complete opposite of this time in 2022, when stocks were deeply negative.

One way to look at market sentiment is to look at how traders are considering risk. By and large, as markets have moved higher and investors have become more bullish, the premium for risk has dropped.

That suggests that traders aren’t only bullish. They also don’t see any big potential market downside anytime soon. For a bull market, that’s not a healthy sign. The market usually needs some skepticism to stay healthy as it continues higher.

Right now, the risk premium on the S&P 500 is at 2007 lows. Right now, there’s just a 1.1 percent differential in one key index. That’s the forward earnings yield on the stock market versus the 10-year Treasury yield.

The last time it was this low in 2007, markets had a major meltdown. By the time the market bottomed in 2009, there was nearly a 7 percent differential, and it was time to buy stocks.

While this is just one measure of market valuations right now, it’s a sign that the rally in the first half of the year may slow down as we enter the second half.

 

To read the full analysis, click here.