Author: Andrew Packer

Income investing

Rivkin Report: There is an Alternative (To Equities)

Posted on by Andrew Packer

Investors looking for an alternative asset to the stock market have several options. Cash and bonds currently pay a relatively high yield. But with central banks starting to cut interest rates, the yield earned on that asset is set to decline.

If inflation surges higher, investors could end up losing money in real terms investing in cash or bonds today. Precious metals have been holding up well this year. But they can still be volatile, and don’t provide a yield.

However, alternative assets exist as well. That includes cryptocurrencies, which have great overall returns but significant volatility. Precious metals hold up well over time, but can have significant periods of underperformance. Neither generate income.

Investors can also look at investing in places such as private credit. That offers some upside potential, combined with yields as high as 9%.

Private credit involves lending money to companies or individuals. And such private credit investments don’t trade on exchanges. While that avoids market volatility, it also means investors will lack liquidity. They would need to find another seller to exit the trade.

However, with yields, often paid monthly, investors looking for current income may find this niche part of the market attractive. Private credit provides a high-yielding alternative asset. That can help reduce the damage done by a market downturn.

 

To learn more about how private credit works and how it can be incorporated into a portfolio, click here.

Economy

David Lin: “Bigger Main Event” In a Few Weeks Warns Fund Manager Who Called Yen Carry Trade

Posted on by Andrew Packer

Is the market selloff over? The massive rush for the exit on the yen carry trade may have hit a frenzied peak. But that doesn’t mean that stocks will instantly bounce back to all-time highs anytime soon.

In fact, there could be more danger ahead for investors. Amid this latest selloff, another trend has emerged that suggests that there could be a danger in the coming weeks or months ahead. And as that unfolds, stocks could see a new wave lower.

The trend? The un-inversion of the yield curve. In English, the two-year U.S. Treasury bond has had a higher yield than the ten-year for some time. During the market’s selloff the past few days, that trend briefly reversed.

Typically, when yield curves un-invert, there’s a high probability of a recession within 12 months. While this un-inversion was temporary, that could change. It’s likely to flip and stay un-inverted after the Federal Reserve starts cutting interest rates.

For now, investors should be cautious, and use any market rally as an opportunity to take some profits off the table. That should start with the most speculative trades. And for tech trades, it may mean selling a partial position to lock in profits. The money can stay in cash, or move into defensive sectors such as utilities.

Doing so can ensure that any further market turbulence this year doesn’t lead to a big wipeout.

 

To watch the full interview, click here.

Economy

The Pomp Letter: Are We in a Recession and Should You Be Worried?

Posted on by Andrew Packer

Markets may have sold off largely from traders exiting the carry trade. But last week’s job data suggested another concern that markets may not have priced in yet. By at least one standard, it’s possible that the economy has entered a recession.

That’s based on a concept known as the Sahm rule. Under this rule, the economy is in a recession if the unemployment rate increases 0.5% from its prior 12-month low.

Over the last 65 years, this signal has had a 100% success rate. However, the creator of the rule notes that due to the pandemic-related job market and immigration, the rule may not be holding up quite yet.

For now, further data is needed to support the notion of a recession. The latest GDP data, for instance, suggests that the economy is fine. And inflation, while trending lower, is still high enough to suggest that economic activity remains strong.

Time will tell if this rule holds, or if there was just a technical breach this time around. One rule alone may not be a sign of a recession, at least right away.

For now, traders may want to get more cautious. While we may not be in a recession, the economy is slowing. And markets are showing some late-stage fragility that suggests that investors avoid leverage and invest in more defensive sectors such as utilities and gold.

 

To read the full explanation of the rule, click here.

 

Economy

QTR’s Fringe Finance: George Gammon Explains the Yen Carry Trade Chaos

Posted on by Andrew Packer

The market’s slump over the past two weeks has largely been driven by traders exiting the yen carry trade. Simply put, traders sell short the Japanese yen. They do this because the yen has historically had a zero or near-zero yield.

They then take the money and invest it in higher-earning assets. That could include the U.S. dollar, where cash yields currently sit near 4%. Some more aggressive traders could even use that money to invest in a market index.

However, last week the Bank of Japan raised interest rates to help curb inflation. While rates are still ultra-low in Japan, the quarter-point hike represented a big shift higher. That made the costs of undertaking the carry trade significantly more expensive.

As a result, traders have had to deleverage trades. This has not been an orderly process. It’s meant selling stocks to raise cash, to buy yen and close that short position. Selling pressures resulted in a big move down for markets in a matter of days.

Taking those positions down quickly will likely result in many losses for traders. But it could also avoid a further selloff and the danger of margin calls. Market volatility may have peaked for this year, but investors could still see some big market swings in the weeks ahead.

 

To listen to the full interview, click here.

Stock market

FX Evolution: In 40 Years This Has Only Happened 4 Times

Posted on by Andrew Packer

Monday’s market meltdown resulted in an unusual event that’s happened just a handful of times. On average, just once a decade. The event? A surge in the volatility index, or VIX, up to one of its highest spikes ever.

With a read of 65 in pre-market trading on Monday, the VIX had its third-highest reading. Only the closing of the economy during COVID-19 and the housing crisis had higher readings.

Typically, the VIX trades in a range around 17-20. Sometimes, the VIX gets too low, usually under 15 but as low as 12. When that happens, markets are overly complacent. And there’s the heightened risk of a pullback following an unexpected event.

Usually, when the VIX pops higher to 20, the market tends to calm down. This time, however, markets blew past 20 and to 65.

What happened? It’s likely that traders looking to deleverage and hedge their bets simply overshot the market. The heightened fear led to soaring volatility. And since it happened pre-market, it took less volume to move the market.

For now, it’s clear that traders are looking to deleverage. And that there may be further market downside over the coming weeks. But the worst of the slump may be over for the time being. Markets should see less volatile daily swings.

 

To see the full analysis, click here.

Commodities

Kitco: Three Key Reasons Why Gold Prices Are Going Down

Posted on by Andrew Packer

After hitting new all-time highs in mid-July, gold has sold off sharply. It ended the month near its 50-day moving average, down over $100 per ounce from its peak. Silver similarly sold off, dropping under $28 at its peak.

Part of the selloff was based on market data. The economy continues to grow. Inflation, while still on the high side, shows signs of abating. Those conditions aren’t the best for precious metals to prosper.

Plus, gold has had a strong run so far this year. As with investors shifting out of tech stocks, there may be some profit-taking at play. Given that market volatility is rising, but isn’t yet at panic levels, supports that reason.

In the meantime, investors are waiting for interest rates to decline. Expectations for interest rate cuts have been around for a while. The idea of “higher for longer” on interest rates this cycle took some time to take hold.

In the meantime, investors interested in the metal should expect to see some support around $2,275, and $2,220. The first price is the 50-day moving average. The second is where there’s been considerable support for gold prices going back to March.

Those looking to buy and hold should start adding at those price points. Those looking to trade can use gold options, or gold mining stocks, to leverage a move higher.

 

To look at the full reasons behind gold’s latest decline, click here.

 

Technical Analysis

Tastylive: This One Metric Changed Our 0DTE Trades Forever

Posted on by Andrew Packer

The past few years have seen the massive rise of trading zero-day options. These are options that expire the same day the trade is made. This tool has only been available for less than five years. Yet it’s quickly grown to become about half of all daily option trading.

Because of the short amount of time involved in these trades, traders often get caught on the wrong side. Understanding daily market moves can help get a better sense of market moves.

Looking at data for the S&P 500, there’s some sign that market volatility can play a role. How market volatility looks in pre-market trading indicates how trades may play out.

If volatility is up in the pre-market, investors can earn small, but positive returns. That’s for trades going out as far as 45 days. If volatility is down pre-market, the returns substantially improve.

Generally, when putting on trades, traders want higher volatility. That’s because it means higher option premiums. When selling options, higher volatility premiums generally lead to higher profits.

Option buyers may not want higher volatility for the same reason. Investors who use shorter time periods may want to take their profits sooner in the day. That can avoid waiting until expiration, which could lead to a reversal.

 

To view the full analysis, click here.

 

Stock market strategies

Of Dollars and Data: The Sustainable Path is the Only Path

Posted on by Andrew Packer

Investing and building wealth can be similar to dieting. Most don’t follow a set plan. When they try to do so, they may be able to for a while. But at some point, old habits kick in.

As investors, building a system to regularly add to an investment program is crucial. And those who don’t have an investment plan may not invest at all. If they do, their results will likely prove poor.

That’s why most financial experts suggest setting up an automatic plan, often involving an employer’s 401(k) plan. Doing so means putting in a set amount of money each paycheck. And it’s often invested in a basket of stocks.

That avoids the danger of picking individual stocks at random. And investing inconsistent amounts of money at different times.

A set program also helps remove emotions from investing. Rather than panic during a selloff and move to cash, an investor’s regular contribution will simply buy more stocks than before. Such a program can be tweaked to buy shares of individual companies when they go on sale, with the understanding that there will be more volatility involved.

The goal is to find a sustainable strategy that can continue under any market condition. By sticking to a strategy, investors avoid going all-in on stocks at a market top. And they avoid hiding in cash when the market finally turns around.

 

To look into more detail about creating a sustainable investment strategy, click here.

 

Economy

Sachs Realty: “Society Is Vulnerable” U.S. Economic Collapse Is Coming

Posted on by Andrew Packer

It’s said on Wall Street that stocks climb a wall of worry. That’s been the case in recent months. The AI-driven part of the market rally has started to slow down. And while there’s been some sign of market rotation into smaller-cap companies, some dangers still lurk.

Most market fears are unlikely to come to pass. However, conditions are elevated for a number of potential crises. Understanding what those are and how to handle them can be crucial to protect your wealth.

The past few weeks have seen a massive dislocation amid a computer outage. A security software update caused a number of glitches. They impacted banks, airlines, and other critical infrastructure.

While this latest outage was an accident, someone trying to compromise computer systems could someday cause far more damage. This vulnerability will always remain in the age of networked computers.

Meanwhile, even with a strong economy and market at all-time highs, other vulnerabilities exist.

The relatively high interest rates of the past few years have shown the fragility of our financial system. For instance, banks were caught unprepared for rising interest rates last year, even as the Federal Reserve noted such rate hikes were coming.

While markets are always capable of crashing at any given time, added vulnerabilities could make a selloff worse.

 

To watch the full interview, click here.

Stock market strategies

Elliott Wave Options: Buy the Rumor, Sell the News on Rate Cuts!

Posted on by Andrew Packer

Investors have had to exercise extreme patience over the past few years. First, the Federal Reserve raised interest rates over a far longer timeframe than investors expected. Then, they’ve held rates at their highest levels in 15 years for a prolonged time.

The bank is looking to cut rates at its September meeting. That means the cost to borrow money will finally decline. As that happens, assets should take off.

That’s because lower interest rates make it easier to borrow. That includes everything from buying a home and a car to starting a business. Lower interest rates typically cause the stock market to trend higher, and for the economy to post faster growth.

However, markets are also forward-looking. That means that investors may have already priced in the Fed’s move in September. Meanwhile, the market continues to trade a bit more on the fearful side.

Volatility remains elevated. And with earnings season underway, companies missing on earnings are seeing a bigger selloff than they usually do on average.

If anything, the market’s move suggests that the rumor of rate cuts has pushed markets higher. Once those rate cuts start, they may be slow enough that markets sell off anyway.

For now, traders should remain cautious. That doesn’t mean the market will have a massive selloff. Only that markets will likely see continued daily volatility through the fall.

 

To view the full video, click here.