Author: Andrew Packer

Personal finance

Bigger Pockets: The 11 Lasting Truths of Real Estate

Posted on by Andrew Packer

Usually, the largest asset for most Americans is their home. That’s because a property is bought and held for many years while a mortgage is paid down and prices appreciate. However, by understanding just a few principles, those returns can substantially improve.

Real estate markets continue to the rapid changes over the past few years. Covid initially led to a short drop in real estate activity before it was turbo-charged by historically low mortgage rates.

That initial burst has slowed down. And mortgage rates more than doubled over 2022. While still historically on the low end, they’re near their highest level in 15 years. But potential sellers, having refinanced, are largely sitting tight.

So looking at deals today will require a bit more strategy than in past years.

That’s why one of the key essentials to succeeding in real estate investing is to perform proper due diligence on every deal.

Understanding a market’s current prices and price trends is essential for buying or selling at an optimal price. And, it’s also useful for understanding rents given the big shift in prices there.

It’s also important to remember that prices tend to revert to the mean. That means that some markets will be hot for a while, and then cool down while other markets catch up. Investors should avoid paying top dollar in hot markets, and may instead want to wait for the market to cool.

 

To read the full list of 11 real estate truths, click here.

 

Economy

Drezner’s World: The Risks of De-Risking

Posted on by Andrew Packer

The U.S. dollar has been the world’s reserve currency since the end of World War II. Most countries have used that for their international trading. And it’s been convenient to price global commodities such as oil in dollars as well.

Now, there’s been a trend towards de-dollarization. Countries are increasingly using their own currencies for trade with other nations. For some, that spells and end to the dollar’s global dominance. And it could be a sign of trouble for US investors.

After all, without global demand for dollars, it will be more difficult to export inflation. Americans would have to pay more taxes and live more within their means to pay for government services and imported goods.

However, this narrative may be driven more by the view that the world is de-coupling from the dollar. A more likely scenario is that the rest of the world is de-risking and diversifying from the dollar.

The same nations using fewer dollars are diversifying their currency holdings, largely in those of other large nations. And many central banks have been buyers of gold as well. This trend may be in part to the slowing growth rates in the U.S. overall, which makes the dollar less attractive than in decades past.

That’s also a sign that the end of the dollar isn’t in sight. But trends are changing, and investors may fare better with international investments in faster-growing countries in the years ahead.

 

To read the full analysis, click here.

Economy

Quoth the Raven: The Economy Is a Powder Keg, Boiling Over and Ready to Blow

Posted on by Andrew Packer

Since March, five banks have collapsed. Four of them have been in the United States. And they mark the second, third, and fourth largest bank failures in history. The fifth is Credit Suisse, an international player.

These banks largely collapsed due to an imbalance between their short-term borrowing and their long-term investments. Banks typically receive customer deposits and can use that as collateral for other assets, such as long-term bonds.

The rapidly rising interest rates of the past year led to a massive imbalance. One bank, Silvergate, chose to voluntarily wind down operations.

Silicon Valley Bank, the first of the collapsing institutions, had “risk free” long-term U.S. Treasuries on their books. But those assets were marked down as interest rates soared over the past year.

The initial wave of bank failures then led to a six week pause. Government stepped up with assistance to regional banks. And big banks did a stealth bailout, providing excess deposits for these institutions.

Yet six weeks later, First Republic Bancorp was shut down.

All told, these bank drops aren’t the sign of a healthy economy. They’re a sign that tremendous misallocations occurred from years of interest rates being set at zero. And that things may get worse before they get better. Especially as interest rates are set to continue higher.

 

To read the full analysis, click here.

Stock market strategies

The Lead Lag Report: Navigating Murky Waters: How Mega-Cap Tech Earnings Mask Underlying Market Uncertainties

Posted on by Andrew Packer

Four times each year, corporate America reports earnings. An entire cottage industry has been built up on Wall Street of analysts who parse the data and speak to company executives. They then try and predict earnings in advance. These predictions become earnings expectations.

Typically, the bar is set a bit low. That makes it easy for a company to beat expectations. Usually, when that happens, a stock’s price tends to move higher.

Last week saw some solid, but not exceptional, earnings out of most of the big tech companies. In pure dollars, they represent a big chunk of total earnings overall.

However, small-cap stocks have shown more signs of a struggle. However, these companies don’t make the headlines like the big-cap names that are familiar to investors… and a major part of any market index.

Looking at corporate America as a whole, the picture is more muted. Lower volatility stocks have generally performed better than higher volatility stocks. That suggests that investors are staying a bit more cautious than they have earlier in the year.

And with banking failures in the spotlight once again, long-term Treasuries have been holding strong as well.

While all this data may not point to a market crash anytime soon, it does indicate a slowdown is underway. And that the recent rally may stall out for a few weeks.

 

To read the full analysis, click here.

Stock market

Game of Trades: US Economy Just Hit a Massive Debt Wall

Posted on by Andrew Packer

The past year has seen the fastest rise in interest rates in over 40 years. This big shift has rapidly changed expectations for the economy and corporate performance. For most investors, that’s meant navigating a bear market.

However, corporate America in general has more to worry about than a slowing economy from rising interest rates. That’s because debt that was accrued during the era of zero percent yields is about to come due.

Refinancing that debt could mean significantly higher interest rates. Given the strains in the banking system right now, it could mean a company is unable to refinance. That could lead to a surge in bankruptcies.

Businesses that were generally unprofitable, but cash flowed, were able to make payments when debt costs were low. These so-called “zombie companies” could be about to get crushed in the next 12-18 months.

Now, there are signs that this process has started to play out over the past few months. And it’s likely to get worse.

Why? In short, the current interest rate set by the Federal Reserve still remains well under the current rate of inflation. That means monetary policy hasn’t tightened enough yet.

Fortunately for investors, most “zombie firms” are smaller and not publicly-traded. But any fears will hit heavily indebted publicly-traded companies hard if things look like they’re about to spiral out of control. And that could lead to another market drop.

 

For the full video, click here.

Stock market

Trader’s Insight: Bed, Bath and the Great Beyond

Posted on by Andrew Packer

The world of retail lost a big name this week, as Bed, Bath and Beyond announced its bankruptcy. The company had been struggling for some time. In fact, they closed nearly half of their locations in 2022.

But that wasn’t enough to right the ship financially. Attempts at issuing convertible shares, and obtaining loans secured by inventory also failed to improve the company’s dire straits. That left bankruptcy.

That wasn’t the case just two years ago. Retail investors, flush with stimulus checks, rushed into heavily-shorted stocks. This created a short-squeeze, which sent shares jumping higher quickly.

However, squeezing a heavily-shorted stock doesn’t change a company’s fundamentals. Radical transformation of a company’s operations does. For a company operating in a brick-and-mortar retail space, the changes need to be fast – and sharp.

Meanwhile, many investors may have simply supported the company’s shares out of a sense of nostalgia. As with other so-called “meme” stocks, a loyal group of shareholders could be found. Even those willing to buy Bed, Bath and Beyond’s attempted private offering of convertible shares.

Trading a short-squeeze play should be just that – a trade. By staying with a company with weak, and worsening, fundamentals, investors in Bed, Bath and Beyond have now lost nearly all the money they put into the trade.

 

To read the full analysis, click here.

Cryptocurrencies

Consensus Magazine: What Taylor Swift Can Teach You About Investing

Posted on by Andrew Packer

Investors in failed cryptocurrency brokerage FTX are still looking to be made whole. One of many lawsuits has gone out against a number of celebrities who endorsed the company during its heyday.

However, one celebrity spokesperson isn’t on the list. That’s pop musician Taylor Swift. She turned down a $100 million sponsorship with FTX. While that’s a big chunk of change even for her, it’s also a sign of a key investment lesson.

The lesson? Do your homework. Swift reportedly met with representatives at FTX and asked about the company’s listed assets. Specifically, she wanted to know if they were unregistered securities.

Right now, securities law hasn’t caught up to cryptocurrencies. And many see cryptos as unregulated securities, as they have similar characteristics. Only big-name cryptos such as bitcoin and Ethereum are likely to avoid significant scrutiny from regulators.

This question kept Swift out of a deal. And it didn’t even involve asking the company about its financial status and management. Those are the kinds of questions that potential investors – or spokespersons – should be asking.

During the crypto boom, asking any questions about the legality or safety of potential returns would have likely led to someone moving on to the next opportunity. Amid the crypto bust, it’s clear that asking questions about any investment, and thinking through potential dangers, can save a big headache later on.

 

To read the full article, click here.

Commodities

George Gammon: The Gold Experts Are Totally Wrong (Here’s Proof)

Posted on by Andrew Packer

Gold prices have moved back to $2,000 per ounce. That’s near the highs set in mid-2020. And expects are starting to predict that gold may trend higher in the months ahead.

That’s based on the view that gold serves as a hedge against inflation. And inflation has certainly remained sticky, which could help keep gold prices high. However, it’s also possible that the gold experts are wrong.

That’s because we may be entering a recession as rising interest rates have slowed the economy. Going into a recession, gold prices tend to move down at first. The trend tends to start at 90 days out.

It’s only a few weeks after the start of a recession that gold prices tend to move higher. The big move higher tends to peak out about 116 days after the start of a recession on average.

Typically, central bankers look at data that’s several months old. That’s why a recession isn’t announced until we’re well in it. Looking at gold data can provide a closer clue to real-time as to the start of a recession.

It doesn’t have to be an exact science, but doing so could help avoid a selloff in assets. Fortunately, history also shows the Fed stops raising interest rates and even pivots to rate cuts before the start of a recession. So investors likely have time to plan ahead now.

 

To watch the full video, click here.

Economy

Deep Knowledge Investing: The Reserve Currency Status Is Going to Be a Problem

Posted on by Andrew Packer

Although the United States dollar has been the world’s reserve currency since the end of World War II, the trend is changing rapidly. A growing number of countries are employing bilateral agreements to use their own currencies for international trade.

The trend increased following Russia’s invasion of Ukraine. Sanctions against Russia included financial ones, led largely by the United States.

With nations seeing the power of being cut off from the dollar, they’re making moves to get ahead of that trend. It’s clear that the use of the dollar internationally is now subject to the views of U.S. policy. That’s in stark contrast to using a currency as a store of value.

Most analysts looking at the shift from the dollar point out that there’s no replacement reserve currency. But there doesn’t need to be. Each nation state or region can use their own currency as they see fit.

That’s why China, home to the world’s second-largest economy, made a deal with Saudi Arabia for pricing oil in yuan. It benefits both parties, and avoids any disruption if they’re cut off from the dollar.

The long-term trend of global de-dollarization continues. Unfortunately, for U.S. citizens, it means that it will be harder to export dollars, and therefore inflation. And it could mean less interest in U.S. investments by international investors, which could weigh on valuations for U.S. stocks going forward.

 

To view the full analysis, click here.

Economy

Meet Kevin: The Worse, 2nd Wave Massive Economic Correction

Posted on by Andrew Packer

The Federal Reserve has now been raising interest rates for over a year to slow down inflation. However, as interest rates are essentially the “cost” to borrow money, higher rates have made it less attractive to borrow.

That impacts everything from car and home payments to a willingness for corporations to borrow and expand. That’s why rising interest rates have led to bank failures, and a higher risk of a recession.

But, if the Fed stops raising interest rates while inflation still remains higher than average, it risks a second wave. Another wave of inflation, coming while the economy is slowing down, leaves a high risk of stagflation.

That’s similar to the economy in the 1970s. That period saw slow growth and high inflation. And, overall, the stock market moved nowhere for about 12 years while this economic pain played out.

Some Fed officials are already predicting a recession this year. While that could help drive inflation rates lower in the short-term, it also means millions of job losses to get there.

We’ve also seen for the past few years that trends take longer to play out than expected. It took nearly a year after the massive Covid-era money printing to see inflation peak. So by the time the Fed reacts to a second wave of inflation, it may mean more unnecessary pain for the economy.

 

To watch the full video, click here.