Author: Andrew Packer

Personal finance

Data Driven Investor: 5 Trading Lessons from the Greatest Samurai

Posted on by Andrew Packer

Investors looking to improve their returns may want to look at different philosophies and how they can apply to the stock market.

One philosophy that may hold some clues to improved investment success is the samurai code of conduct, known as Bushido, or way of the warrior. It brings together ideas such as discipline, focus, and mental fortitude in a way that can help avoid common investment mistakes.

One core idea of Bushido is that one should strive to perfection, but recognize that it can never be achieved.

Even great investors will miss the mark on some investments. One such example is Warren Buffett’s investment in airline stocks ahead of the pandemic.

Financial markets are complex and ever-changing. They can be influenced by many factors. And that may change over time.

Looking to continuously improve and not get frustrated by those changes can help in several ways. The biggest is that an investor avoid being caught on the wrong side of a market change.

Another core idea is constant training and preparation. Investors and traders alike should know before making an investment the potential risks.

They should also think about the potential rewards, including when to take profits. That can ensure that a paper profit doesn’t turn into a real loss when markets change.

 

To read the full list of trading lessons from the Bushido, click here.

Stock market

Traders’ Insight: Who’s the Marginal Buyer?

Posted on by Andrew Packer

When a stock goes up, the simplest explanation is that buyers exceeded sellers. And when a stock goes down, likewise, it’s easy to say that sellers exceed buyers.

That leads to a question of who’s doing the buying. If there’s big buying volume, chances are a fund or other institution are moving in. The same is true when a company sees a big selloff. That leaves the question of the marginal buyer.

The stock market this year has been driven by a rebound off of last year’s lows. The big winners have been big tech stocks. These companies tend to see steady buying volume. As large-cap stocks, they tend to get regular buying interest from funds and institutions, even those just buying an index.

This momentum in big-name stocks can attract both big institutions and retail investors. The explosion higher in artificial intelligence (AI) stocks this year may be more retail-investor driven.

Given poor market sentiment among investors right now, it’s clear that even if retail investors are driving the market right now, they won’t forever. That will leave big fund buying.

That could create a situation where markets trend higher thanks to big-cap companies. But those companies will look increasingly overvalued, while smaller-cap stocks start to look undervalued and an opportunity in the months ahead.

 

To read the full analysis, click here.

Stock market

EPB Research: These Banks Are Next…

Posted on by Andrew Packer

The second, third, and fourth-largest bank failures in U.S. history have occurred so far this year. That suggests the financial system is anything but healthy. And that more issues are likely to occur before things calm down again.

A number of regional banks are under pressure. These banks are dealing with depositor outflows, and a potential mismatch in asset duration. Simply put, they may own assets like Treasuries that are usually safe. But not if they must be sold immediately.

To combat the possibility of further failures, the Federal Reserve has created a bank funding program. This allows banks to sell assets at par value.

In turn, they can receive cash. Even if the current value of those assets are well under par.

In the meantime, banks are unlikely to make money right now.

That’s because rising interest rates have cut into bank profitability as deposit rates have also had to rise. And borrowers have been more reluctant to borrow at current interest rates.

Some regional banks have already cut dividends to preserve capital. And they’re updating investors on deposit activity.

But given the low profitability in the sector right now, it’s clear that there will likely be more bank failures ahead this year. As that happens, expect a further stock market selloff.

 

To watch the full video, click here.

Economy

QTR’s Fringe Finance: Our Economic Arrogance Will Be Our Undoing

Posted on by Andrew Packer

Predictions are often wrong. That’s true whether they’re made by laymen, or made by experts armed with prior knowledge.

For instance, many central banking and government officials noted that rising inflation in late 2020 and 2021 was “transitory.” It would soon drop. Yet as inflation continued to move closer to double-digit levels, it was clear that it was far from being transitory. Action became needed.

We’ve now seen that action with the fastest pace of interest rate hikes by central bankers in over 40 years. And interest rates are at a 15-year high.

That move is now having consequences. Several banks have failed, and have required government assurances to be quickly acquired and avoid a 2008-style meltdown.

Will that be enough? Saying yes to that right now would feel much like saying inflation is transitory. It’s simply too soon to know for sure.

What we can say is that we will have bank failures in the future. Those can’t be prevented. Neither can recessions. But the economy feels more like a recessionary one than a growth one.

Rising interest rates are having an impact on the rate of change in household debt. It’s now growing at its lowest rate in two years. For a credit-based economy, that’s a sign that a slowdown is well underway, and that a recession is still on the table. Ultimately, that could lead to lower asset prices across the board.

 

To read the full analysis, click here.

Economy

Game of Trades: Credit Markets are Flashing the Same Warning Signal For Stocks That We Saw In Late 2021

Posted on by Andrew Packer

Investors don’t often pay attention to credit markets. But it’s a space that tends to be more cautious. Consequently, it spots trouble earlier than in the stock market.

Right now, credit spreads are rising. This trend higher suggests that cautious investors expect more potential trouble ahead. While it’s still in the early stages of warning, by the time the alarm bells are blaring, other markets will have sold off.

Credit markets will likely continue to deteriorate in the coming months. Spreads rise when there’s increasing concern about a slowing economy. Credit spreads then tend to spike during a recession. That occurred in 2001, 2008, and briefly in 2020.

Spreads then tighten as risks come down. That makes credit spreads leading indicators for how the stock market will perform. And a good sign for when a crisis has hit.

With rising credit spreads amid a rising stock market so far this year, it’s clear that there’s a disconnect. It’s a sign that the market’s move higher in recent months may not be healthy or sustainable.

This last occurred in 2021, and the disconnect between credit markets and the stock market lasted for six months before a market selloff.

And that investors can expect more market volatility… and likely a meaningful drop ahead.

 

To watch the full video, click here.

Cryptocurrencies

Swan Bitcoin: Bitcoin & the Doom Debt Spiral

Posted on by Andrew Packer

When it comes to the economy, investors may think about factors like corporate earnings or the jobs market. That’s true for big one-day swings in the stock market. Over time, however, other trends can either help or hinder investors.

One of those components is total debt. While debt can be used productively to help a company grow, it can also hinder an economy’s performance. It may take more and more work to make payments on that debt.

Today, the world is awash in trillions in debt. That doesn’t even include off-book government programs like Medicare or Social Security. Paying off that debt is now nearing a point of mathematical impossibility.

That raises the possibility of a debt crisis. And it could cause a country’s currency to lose value as creditors look to get out at any cost.

When a monetary system requires more and more intervention to work, it can override other institutions. That weakens trust in institutions, and can lead to a breakdown in the rule of law.

In short, a doom debt spiral could move beyond a monetary crisis. It could lead to a breakdown of society.

That bodes poorly for investment assets. But that could also create a situation where those with the ability to buy during a crisis further consolidate their wealth.

 

To listen to the full interview, click here.

Income investing

Dividend Growth Investor: Seventeen Dividend Growth Stocks Raising Dividends Last Week

Posted on by Andrew Packer

While the market has trended higher so far this year, rising interest rates and slowing markets such as real estate point to lower returns moving forward. That’s where investors can perform well with astute investments in places such as dividend stocks.

More importantly, as some companies are cutting dividends right now, finding those companies that are rewarding shareholders with an increasing payout can provide a source of growing income and improved long-term results.

So far this month, nearly 20 companies have announced dividend increases. Some are in the double-digit range.

That includes PepsiCo (PEP). They raised their payout by 10 percent, with a new dividend payout of $1.265 per share per quarter. And Pepsi has now raised its dividend payments for 51 years in a row.

Yes, the stock’s current yield of 2.6 isn’t that impressive compared to the stock market’s average. However, the growth component ensures that investors can be well paid over time.

Some companies aren’t massive dividend growers. But they’re still capable of showing investors great long-term returns. Tech company Apple (AAPL) just increased their dividend payout by 4.35 percent.

While below the rate of inflation right now, an investment in Apple should offer great returns over time. That’s thanks to the company’s growing revenues and share buybacks on top of the dividend.

While dividend investing takes a long-term approach, the long-term results can be better than trying to bet on growth stocks haphazardly.

 

To view the full list of companies with recently-announced dividend increases, click here.

Commodities

George Gammon: Why Is The World’s Most Important Market Crashing?

Posted on by Andrew Packer

Energy is the key to the economy. And in the energy market, oil remains the key player. This energy is critical for transportation. But it’s also useful for power generation and industrial production. Despite being a heavily-watched commodity, its moves can sometimes take the market by surprise.

Right now, this commodity is crashing. Just weeks after oil cartel OPEC announced production cuts, which should have led to rising prices, oil has dropped nearly 20 percent in less than a month.

What causes such a move?

A weaker economy is the likely culprit. Oil prices collapsed in 2020 amid the pandemic, as stay-at-home orders kept millions of drivers off of roads and factories closed. That even led to some oil contracts briefly trading at a negative price.

Another factor weighing on oil prices is backwardation. That’s a term for when longer-dated oil prices are lower than current prices. That’s another sign that traders expect the economy to be weaker in the future. If that’s true, oil prices will be lower too.

As with the U.S. Treasury curve, it’s normal in an expanding economy to see prices move higher over time. It’s when things are negative looking to the future that there’s a potential danger ahead.

Given the weakness in the oil market amid lower future supply, it’s likely this market is also hinting at a weak economy and poor stock market performance ahead.

 

To watch the full video, click here.

Economy

American Institute for Economic Research: Bank Term Funding Program Discounts the Discount Window

Posted on by Andrew Packer

The banking crisis of 2023 flared up, died down, and flared up again. Is it over yet? Probably not. This time around, central bankers added a new tool to help out struggling banks. It’s called the Bank Term Funding Program (BTFP).

The BTFP is designed to allow banks to trade in assets such as U.S. Treasury bonds. These assets may be at a loss for the bank if they were bought before interest rates rose.

The BTFP will pay for the assets at par.

Essentially, this moves the holding risk of the asset from a troubled bank to taxpayers via the Federal Reserve. While the program has a one-year expiration date, the Fed could renew it.

In other words, a Treasury bond with a par value of $100, bought by a bank at $100, may now be valued at $80. A bank could sell this bond to the Fed via the BTFP and get the full $100. When the bond matures, the Fed would be made whole.

But other assets are included in the BTFP. That includes mortgage-backed securities. A declining real estate market could leave taxpayers on the hook for billions in assets.

Like many of the central bank’s programs, it was designed to support American businesses and households. But it may simply be an expensive way to plug a leak in the banking system. Judging by the second flareup in the banking system a month later, it may not be enough.

 

To read the full essay, click here.

Stock market

Elliott Wave Options: Are Bonds Hinting Next BIG S&P Move?

Posted on by Andrew Packer

Markets have had much to digest in the past few weeks. From big tech earnings to the latest Federal Reserve meeting, there’s been a lot of things that can potentially move markets.

Yet overall, markets have been muted. They sold off a bit ahead of the Fed meeting, and recovered late last week. Then, markets largely held their ground, trading relatively unchanged. While many investors may have been relieved to avoid a loss, the bond market offers better clues now.

The bond market shows that investors are getting bullish. Bond yields have been holding steady. However, they have been near the lower end of their range over the past few months. That’s a sign that investors expect interest rate cuts by the end of the year.

In fact, expectations have gone from one rate cut by the end of the year to a potential 2-3 rate cuts. That could mean a 0.75 percent drop in interest rates.

If that happens, stocks may reflexively trend higher. However, such a move lower may also occur amid declining economic data showing a recession has finally arrived.

That means any move higher in stocks following interest rate cuts may reverse, as a recession will mean lower corporate earnings.

Overall, the bond market continues to hint that interest rates will drop by the end of the year, one way or another.

 

To watch the full video, click here.