Author: Andrew Packer

Stock market strategies

Billionaire Philosophy: Warren Buffett Interview

Posted on by Andrew Packer

Many investors caught up in big growth stories in 2021 were hammered in 2022. However, those who followed a value approach fared relatively well. That’s because they likely didn’t overpay to get into hyped companies in the first place.

Over time, avoiding investment mistakes will help create the best long-term returns. That comes from focusing on current value and long-term potential, not just the latest headline-grabbing stock or trend.

So it’s no surprise that Berkshire Hathaway (BRK-A) has held up well this year. The company, managed by 91-year old CEO Warren Buffett, is up 2 percent against a 20 percent market drop.

Buffett has been around long enough to see how 2022 has been similar to markets in the past. But the real trick is to look beyond the market to the underlying businesses represented by stocks.

That may be why Berkshire is seeing relatively strong performance at a time when other sectors haven’t fared well.

While Buffett doesn’t see himself as looking to beat everyone else, he’s focused on buying great businesses, not stocks.

That distinction may be why the company seems to lag when investors are piling into technology and other growth stocks.

But the ability of value investors to hold up during bear markets takes the wild swings out of the market. The returns come from long-term patience, not looking at short-term moves in the market.

 

To see the full interview, click here.

Real Estate

George Gammon: The Real Estate Crash Has Started (How Bad Will It Get)

Posted on by Andrew Packer

For most Americans, the largest source of wealth they have is the equity in their home. But real estate isn’t a sure-thing investment that always goes up. As prices fluctuate, so too can a sense of one’s wealth, and how much one spends on items such as cars and vacations.

That could pose some challenges in the coming year. That’s because the trend of declining real estate has just gotten started, and will likely play out well past 2023.

The housing market has now had five months of declining prices from their peak. It’s the first notable decline in housing prices overall since the housing bubble popped. That decline likely has more to go for several reasons.

The first is demand. Mortgage rates soared in 2022, more than doubling. Yes, a 7 percent cost on a 30-year fixed mortgage is low historically over the past 50 years.

However, it’s the highest level in 15 years. That’s keeping potential homeowners away from the market for longer, especially at current home prices.

The second is supply. While there was an oversupply during the housing bubble, the past decade saw a decline in new homes come onto market. While that’s good news, the pandemic saw a jump in home construction that has managed to meet demand.

Of course, some local markets seeing a big change in population may buck the trend. But it’s clear from the big picture data that the decline in housing prices has far more to play out.

 

 

To see the full analysis, click here.

 

Stock market

Game of Trades: This Only Just Got Started

Posted on by Andrew Packer

While investors can get a sense for the market from the big-picture data, looking at the charts can also show the current trend and where things are likely to move.

Ideally, investors should buy stocks during periods of low inflation and low market valuations. That’s because companies can grow fairly well without having to deal with persistent changes in prices. And because low valuations can lead to higher valuations as companies grow.

At the opposite end of the spectrum, investing in high valued stocks during periods of high inflation is problematic. That’s because rapidly-changing prices make it difficult for a company to grow, and they’re already overvalued.

That’s the situation investors were in at the start of 2022, when the stock market peaked on January 3. The rest of the year was a fight to bring down inflation, and high market valuations came down as well.

Investors can get an idea of how stocks are valued adjusted for inflation. How? By looking at the forward price-to-earnings ratio of the market combined with CPI inflation data.

At present, that valuation metric suggests that valuations hit the level of the dotcom bubble. And at the end of the year, the valuation was off its extremes, but well off its highs.

Those valuations indicate that there’s likely more pain ahead for investors. And that those who bought at the highs will likely take years to recover.

 

To see the full analysis, click here.

Economy

Wealthion: “Investors Better Buckle Up” For the Rocky Year Ahead

Posted on by Andrew Packer

Since the Federal Reserve started raising interest rates in April, stocks have continued the downward trend that began at the start of 2022. And interest rates have soared at their fastest rate in decades.

But inflation continues to remain high, and economic conditions continue to show signs of decline, especially as the labor market appears to have been looking overly strong based on the latest data. That makes it a mystery as to the Fed’s increasing hawkishness going into the end of the year.

Typically, a tightening cycle leads to a recession most of the time, although there have been a few “soft landings.”

No matter how that plays out, a tightening cycle gives way to an easing cycle. That allows asset prices to rebound in time, and for the economy to move higher following a slowdown.

Based on the probabilities, investors should expect a recession. For this cycle, bond yields have already resulted in an inverted curve.

That’s been a completely accurate indicator for a recession. And with the curve at its most inverted in decades, those betting on a soft landing may be disappointed.

With other data such as permit orders for construction showing a decline, the data overwhelmingly points to a wild ride for investors next year. The real question is how much of a recession has been priced into the stock market going into year-end.

 

To watch the full interview, click here.

Income investing

A Wealth of Common Sense: 9 Things That Surprised Me In 2022

Posted on by Andrew Packer

With the trading year now over, investors can take a look back at some of the big moves that occurred. Every year will always bring some surprises to the market. But 2022 saw a mix of conditions that led to several big surprises.

That largely starts with the double-digit drop in the stock market. Investors can expect a down year every 3-4 years historically. That’s on top of bear markets, which can often occur and disappear within the span of a calendar year.

The big issue with 2022 wasn’t just the declining stock market, but the big drop in the bond market as well.

Rapidly-rising interest rates led to a quick and massive repricing of bonds. And in order for bond yields to move higher in line with interest rates, prices have to drop.

The past year also saw mortgage rates nearly double. Some rise was expected, as 2021 saw high inflation and historically low rates.

The 30-year fixed rate mortgage moved from under 3 percent at the start of the year to over 7 percent. And it will likely climb higher as rates to too

In the meantime, government bond yields rose substantially. But compared to inflation, they didn’t perform that well. The high inflation of the 1970s and 1980s saw a big spike in bond yields to result in real yields adjusted for inflation. That hasn’t happened yet with government bonds.

 

To read the full list of 2022’s surprises, click here.

 

Commodities

Vancouver Resource Investment Conference: Current Commodity Prices Have Me Feeling Very Greedy

Posted on by Andrew Packer

While 2022 was rough for most investments, the commodity market had a more mixed record. Oil and natural gas prices were strong throughout the year. And amid high inflation and volatile markets, precious metals like gold held their own, with only a slight decline.

The performance is even more impressive when considering how these assets were up against a rising US dollar. Typically, a strengthening dollar will tend to weigh on commodity prices.

That could suggest a further bullish move higher for commodities in the next year. Several commodities, such as copper, are facing potential shortages.

Rising demand for goods, whether from new technologies or improving emerging markets, suggests that prices could have room to move forward. And that could have a tailwind from a weakening dollar.

It’s possible that investors in the commodity space could see some of the best investment opportunities since 1999-2000. That was the last generational bottom for commodities.

Even commodities that have performed well recently, such as oil, can continue to move higher. Demand continues to increase. And there’s been substantial underinvestment in the space over the past few years. Part of that was from the collapse of shale companies. Part was from the perceived shift towards green energy.

Either way, that points to a potential for a further increase in energy prices and energy stocks, even in a slow economy.

 

To watch the full interview, click here.

Income investing

GenExDividendInvestor: Which of My Dividend Stocks are Cheap Right Now?

Posted on by Andrew Packer

Many traders are looking for the next opportunity. Investors might find the best opportunity is one already in their portfolio. That can especially be true with dividend-paying stocks. Especially those that grow their payouts over time.

The market selloff this year has increased the opportunities in dividend-paying stocks. Lower prices can mean higher yields. And for dividend growers, that can be huge for future returns.

So what should investors look for today?

To start, look for a stock that’s trading at least 10 percent under its intrinsic price.

The intrinsic price is a classic measure of value investing. It looks at a stock’s value relative to its assets, or its discounted future cash flows.

A slight discount or even modest premium to the intrinsic value is just a fair price. Investors who already own a stock at a fair price might want to simply reinvest the dividends.

For example, Travelers Companies (TRV), looks fairly priced at today’s prices. Financial stocks may face some pressure going forward. The same is also true of coffee chain Starbucks (SBUX).

However, on a drop closer to their 52-week lows, these companies could drop to a sufficient discount to their intrinsic value to make for a buy.

Investors can also derive value from companies with a buyback program. At today’s prices, many companies aren’t overpaying to retire their own shares. And as that happens, earnings per share can rise, even if a company’s overall profitability doesn’t improve.

 

 

To view the full list of cheap dividend stocks now, click here.

Economy

Lead-Lag Live: Something Is Breaking

Posted on by Andrew Packer

A handful of market analysts have warned that the current selloff could get far worse… and quite quickly. That’s because the rapid increase in interest rates this year and selloff in asset prices could lead to some trouble in markets such as the credit market.

If something does end up breaking, that could cause a sudden shift in the current interest rate hike policies being carried out by central banks globally.

Or it could mean a market intervention that could cause markets to shift higher or lower.

Currently, central banks spent 2022 raising interest rates after two years or being overly accommodative. The Fed raised rates at the fastest rate in 40 years. And coming off of zero percent rates, it was the equivalent of standing on the brakes, not tapping them.

Nevertheless, after 50 years of continued monetary debasement by central banks, all asset classes have arguably been in a bubble.

There’s also the growth of the derivative market. That’s now valued at multiples of the global economy, and any break in the global economy could prove catastrophic.

While there are some potential investments that could avoid overleverage and money printing such as bitcoin, there’s high volatility. Investors who aren’t capable of handling those big swings could end up missing out on a reasonable opportunity.

 

To listen to the full interview, click here.

Economy

The Compound: Will Investors Get Rug Pulled in 2023?

Posted on by Andrew Packer

With the year closing, investors are looking forward to 2023. Most expect the market to have a better year than 2022’s double-digit loss.

2022 even got off to a rough start. Despite setting all-time highs on January 3, by the end of the month the market had declined over 5 percent. The market had some strong returning months, including a summer rip higher. Nevertheless, stocks continued to set lower highs and lower lows.

Those looking for clues for the market’s performance moving forward should bear that trend in mind. Until it changes, it suggests that investors should take some positions off the table on any move higher. And to expect further moves lower.

The mantra for 2022 has been “don’t fight the Fed.” The central bank announced in late 2021 that it would raise rates. And it’s done so aggressively. With the bank still raising rates, 2023 will continue to follow 2022’s moves lower.

Last year also saw investors shift away from speculative stocks the most. SPACs were a popular way to make a quick and profitable trade during the last market rally. But these stocks lost most of their value as markets declined.

Investors will need to be more cautious about valuations that they pay going forward, no matter what the company. And to expect markets to trend lower until interest rates stop rising.

 

To watch the full interview, click here.

Economy

The Big Picture: Powell Should Declare Victory & Go Home

Posted on by Andrew Packer

2022 was a tough year. Investors saw both stocks and bonds decline by double digits for the first time in over 40 years. That’s led to the joke about 401k plans becoming 301ks.

Other asset classes likewise took a massive dive. The only assets that fared relatively well were short-dated bonds – which still lost out to inflation. Or perhaps the US dollar, at least as measured in other currencies.

It’s important to remember that these bad years occur every decade or so.

Yet there doesn’t seem to be an end in sight. However, the past few crises have bottomed out in March. That includes the pandemic selloff in 2020, the end of the housing crash in 2009, and the end of the tech selloff in March 2003.

For now, it’s likely that stocks will continue to grind lower. That’s even as earnings have fared relatively well, especially with high inflation.  The reason? Interest rates continue to rise.

More importantly, we’re seeing the fastest rise in interest rates in 40 years. With the Fed starting to slow with its December rate hike, it’s possible that the bank is done by the end of the first quarter.

So investors should consider some more short-term pain, but we’re likely closer to the end than the beginning.

 

To watch the full interview, click here.