Author: Andrew Packer

Cryptocurrencies

What Bitcoin Did: Bank Runs, Bailouts & Bitcoin

Posted on by Andrew Packer

The latest bank crisis has caused investors to move into a number of safe-haven assets. That includes U.S. Treasury notes and bonds, as well as gold. But cryptocurrencies have been a surprising winner as well.

Part of the surprise in the 30 percent jump in Bitcoin in recent weeks is the fact that the failed banks have been heavy in the tech and cryptocurrency sector. However, there’s a reason why the cryptos themselves have done well.

The reason is that cryptocurrencies are decentralized. That means there’s no single point of potential failure. A mismanaged bank can fail, and in so doing, prevent depositors access to their capital.

The bank failures have also brought to mind the 2008 financial crisis. That was the period where the Bitcoin white paper was first written. Designed as a peer-to-peer payment system without a counterparty, the premise of Bitcoin seems designed for a crisis like today’s.

Now, cryptocurrencies seem poised for further gains. That’s because banks will get bailed out. More capital will move onto their balance sheets. The prospect of higher inflation for longer will continue.

Cryptocurrencies themselves aren’t part of that system. They don’t get bailed out. That can mean some wild swings, and that investors who buy at the wrong price can get hurt. But as a way for taking counterparty risk off the table, cryptos may have the last laugh.

 

To listen to the full interview, click here.

Personal finance

Bigger Pockets: SVB’s Collapse: Is Real Estate at Risk in The Fallout?

Posted on by Andrew Packer

The banking system has seen the second and third largest failures in history, thanks to the seizure of Silicon Valley Bank and Signature Bank. While these two banks were lending heavily for technology and cryptocurrency projects, a wider fear has spread.

The fear is that local and community banks are in trouble. Depositors have shifted their capital towards bigger banks as a result. Yet it’s these smaller banks that do substantial lending for small businesses and mortgages.

The end result? We could see more economic turmoil. And nearly every asset could see an impact, especially real estate.

We may even see a bank crisis hit banks that are solvent. That’s because a bank panic occurs from a perception of weakness. That may not be the reality of it. But if enough depositors want to move their money, that perception of weakness can become a reality.

Investors are likely to be more cautious in the months ahead as bank balance sheets appear weaker than before. While the recent bank failures have spurred the Federal Reserve to be more cautious, interest rates still remain close to 15-year highs.

With inflation still running at 6 percent, a shift lower in interest rates now could mean inflation stays higher for longer. Yet a bank panic could mean a recession and lower valuations in assets across the board.

 

To listen to the full podcast, click here.

Income investing

Dividend Growth Investor: Stocks Versus Bonds Today

Posted on by Andrew Packer

Investors have a number of asset classes to invest in. Historically, liquid investments have been divided between stocks and bonds. Years of interest rates at zero percent made stocks more attractive than bonds.

Even before interest rates went to zero, they were trending down for decades. That made stocks more attractive for some time. Bond investors did well initially, but reinvesting at lower rates eventually made that position less attractive.

Today, the situation may not have reversed, but it’s less weighted to stocks. Bond yields have ticked up, with some banks now offering certificates of deposit with 5 percent yields. Given that fixed income also guarantees your original principal, that extra safety is appealing when stocks are trending down.

And, while a 5 percent yield may be the highest in nearly 15 years, it doesn’t change over time. Investors get locked in. That could be a problem if inflation stays higher for longer.

While stocks are riskier, the income component, dividend payments, can also change over time. Some companies even make the decision to raise their payouts consistently as earnings rise.

While a small minority of stocks, dividend growth stocks can offer a higher certainty of not losing value relative to a non-payer, or even a steady payer. And they can provide more bond-like certainty than other types of stocks.

A dividend growth strategy may not win out over a year, but over a 10 year period or longer, it could be the optimal strategy to invest.

 

To read the full analysis, click here.

Economy

Schiff Gold: Americans Will Pay for These Bank Bailouts

Posted on by Andrew Packer

History may not repeat… but it certainly rhymes. The banking system is in turmoil again, and it’s clear that many are thinking back to the collapse of the financial sector back in 2008.

Regulators have been quick to act to shore up the banking system so far this year. And many politicians and pundits have declared that our banking system is safe. While we may see some further turmoil ahead, many are claiming that the issue is contained.

Contained or not, however, is the fact that taxpayers will be on the hook for bailing out the banks… again. Instead of the housing market going gangbusters, we’re now faced with the consequences of interest rates being too low for too long.

Years of zero percent interest led to a boom in a number of sectors. That’s starting to reverse with interest rates moving higher. One epicenter was technology. Early-stage ideas boomed thanks to support from cheap capital.

But now that’s shifting. And the bank failures so far have been at those that leaned heavily towards servicing new technology ideas.

Meanwhile, the simplest solution to save the banking sector is with a bailout. That means more money flooding into the economy, at a time when inflation is still high. The end result? Continued high inflation combined with a slowing economy – or stagflation.

 

To watch the full interview, click here.

Stock market strategies

Elliott Wave Options: Banking Crisis Helps FAANG Stocks Up!

Posted on by Andrew Packer

The current banking crisis is causing a shift in behavior. Consumers are pulling money out of smaller banks, and placing those deposits with larger banks. This flight to safety is putting smaller banks at risk of a bank run, as reflected in their wildly swinging stock prices.

It’s also causing consumers – in their role as investors – to rethink the financial safety of the companies that they’re investing in.

That means investors may want to shift their wealth towards cash-rich companies. That avoids having to deal with companies that may be dependent on financial markets for more funding during a crisis.

That’s why the current bank woes are giving many big-name tech stocks a move higher. The big-name tech stocks, particularly the FAANG companies, are cash flow giants. They don’t need to take on any debt or draw down a bank line of credit to operate.

And it’s this lack of a need for the banking system right now that makes them look like they could be strong performers.

Of course, risks still remain. Bigger dangers to the banking system could cause all assets to move lower. Under such a scenario, however, tech stocks would likely drop less than bank stocks. 

As a play on relative safety, and given the selloff in tech in 2022, however, this could be a solid contrarian play now.

 

To watch the full video, click here.

Cryptocurrencies

Simply Bitcoin: How they Plan to Use Banking Collapse to Attack Bitcoin

Posted on by Andrew Packer

The banking sector has been on a wild ride. The second and third largest bank failures in history occurred in the past week, as regulators shut down Silicon Valley Bank and Signature Bank.

Regional banks saw a massive selloff – and subsequent bounce later in the week as tensions cooled. However, it’s clear that the banking system is under pressure. And these two banks were heavily invested in cryptocurrency products.

One director at Signature Bank, former Congressman Barney Frank, knows a thing or two about the banking system. And he stated that the decision to shut down Signature was, in part, a way for the government to attack cryptocurrency.

Ironically, the first cryptocurrency, bitcoin, was created during the last banking panic. As a decentralized, peer-to-peer payment system, bitcoin was designed to avoid having your money held hostage in the banking system. That may be why bitcoin soared as investors moved their money out of banks.

However, bitcoin and cryptos in general are under pressure. And with talk of governments creating their own central bank digital currency (CBDC), it’s clear that the issues in the banking system could also be used to attack this new asset class.

That could mean more restrictions on the use of purchase of cryptocurrencies. Or it could mean attempts to outright ban their use. But such bans are likely to fail.

 

To watch the full podcast, click here.

Income investing

Dividend Growth Investor: 25 Golden Rules for Investing by Peter Lynch

Posted on by Andrew Packer

One of the top investors of all time, Peter Lynch ran Fidelity Investment’s Magellan Fund for 13 years. He turned $20 million in assets into over $14 billion, for an average annual return over 29 percent. That’s a far cry better than other well-known investors such as Warren Buffett.

Over the years, Lynch has espoused a number of ideas about how to invest, which have been simplified into a series of rules.

One of the key rules is to start by investing in products and services that you understand. That can allow you to outperform experts, who often have to be experts in nearly all market sectors and stocks.

Another key rule is that professional investors act as a crowd. The big money that they manage tends to act like a stampeding herd. Investors can find overlooked parts of the market, such as small caps, or by getting in or out ahead of the herd.

Over time, a company’s operational performance will drive its returns. But in the short-term, there’s often no correlation between how a company is performing and how its stock will return. That suggests that investors should be patient.

And, it’s good to remember that long shot ideas will often miss the mark. That moves from investing to speculating, which can provide good returns, but often won’t.

 

To read the full list of 25 golden rules from Peter Lynch, click here.

Stock market strategies

Contrarian Edge: The Stock Market, The Economy, Possible Outcomes, How to Invest

Posted on by Andrew Packer

Investors tend to think of the stock market as rising or falling. However, returns over the past 100 years indicate that markets tend to have long-term bull markets, and then long sideways periods.

Those sideways periods have bear markets in them, but may be part of a 10-15 year period of flat returns overall. The bull markets, likewise, tend to last for about 15 years as well.

Market cycles would be less pronounced if valuations didn’t change. However, depending on how fearful or greedy investors are there can be big swings in returns. Without those swings, stocks would likely return close to 4-5 percent annually, with another 4-5 percent in dividends.

Right now, market valuations remain high, even after coming down from last year’s crash. That’s due to the inverse relationship between asset valuation and interest rates.

That points to a sideways market, as valuations need to continue to come down. The good news is that besides falling prices, improved earnings can also help improve a company’s valuation.

We will likely see both at play as the economy continues to work through the distortions caused by Covid and the government response to it.

But with rising interest rates, and with so much short-term debt resetting at higher rates, investors shouldn’t get overly bullish yet.

 

To read the full analysis, click here.

Stock market

Game of Trades: Domino Effect of a Typical Banking Crisis: More Bank Failures Are Going to Lead to Widespread Panic

Posted on by Andrew Packer

Liquidity issues have led to two bank closures in the past week. They mark the second and third-largest closures in history. Investors are concerned that more are on the way. This has led to a drop in regional banks, which have been hit hard, even for those with sufficient capital to operate.

We could be looking at the first banking collapse since 2008. This has the potential to add contagion and fear to other parts of the financial system.

While banks aren’t a massive part of the S&P 500, their collapse could kick off a broader market meltdown. That’s because the banking system plays a large role thanks to its ability to allow companies to operate.

Banks have been increasing their leverage in recent decades. So any small mistake could be magnified throughout the economy. And any small run on a bank can easily lead to a bank’s failure, even if investors have their deposits protected by the FDIC.

As that happens, investors could panic. When that happens, they will want to go to safe assets. That includes cash, government bonds, gold, and potentially cryptocurrencies. These assets have already seen notable moves in the past week.

This move comes as the Treasury yield curve has been negative for some months, suggesting economic pain in the not-too-distant future. And while a banking crisis may stop the Federal Reserve from further raising interest rates, the damage may have been done.

 

To view the full analysis, click here.

Economy

EPB Research: My Final Thoughts on the Coming Recession

Posted on by Andrew Packer

Economies go through boom-and-bust cycles. The boom cycle looks more obvious in hindsight. The massive rally in real estate, stocks, cryptocurrencies, and other assets in 2020 and 2021 were signs of a boom.

The pullback since then is the sign of a bust. While that bust has so far been confined to asset prices, the real economy is starting to show signs of stress. One area that portends pain ahead is in the job market.

So far, most job losses have occurred at big tech companies. These firms may have over hired during the last boom. But the construction sector is a different story. That sector is much more cyclical.

For now, those losses have been minimal. However, this space also didn’t see an explosion of new job creation over the past few years akin to the hiring in big tech.

It’s likely that we’ll see more job losses ahead. While the headline job losses won’t be huge, a rising number of companies laying off workers may tip the economy into a recession.

Construction jobs will likely decline this year. That will follow the data we’ve already seen on slowing construction permits, and units under construction. Overall construction data shows a 20-30 percent decrease from the prior peak. Investors and traders alike may need to prepare for higher unemployment, including the potential loss of their own job.

 

To watch the full analysis, click here.