Author: Andrew Packer

Cryptocurrencies

Bitcoin Magazine: The Warning Signs Were There: The Collapse of FTX Was Inevitable

Posted on by Andrew Packer

The past two weeks have seen a wave of defaults and bankruptcies among cryptocurrency platforms and brokerages. The reason? The failures of FTX, then the second-largest platform globally.

As with the traditional financial system, the brokerage platform was supposed to have a fiduciary duty to its customers. Instead, it used customer funds to shore up its financials, and make transactions with other parties. FTX’s collapse has been as fast and stunning as its initial rise since 2018.

However, all the signs for a potential fraud were there. The company’s founder became valued as a billionaire overnight. And he spent plenty of time and company/user money hosting conferences, making investments, and other high-profile activities.

And FTX started appearing everywhere, spending millions on ads, naming arenas, and garnering celebrity endorsements. Yet many well-respected fund managers and billionaires invested in FTX despite all the red flags.

With the collapse of FTX has come a crisis of confidence in the crypto space.

Those who stored their own cryptos off of exchanges on digital or hardware wallets are fine. They don’t have to deal with the bankruptcy case now winding its way through the courts to get their money back.

Part of the idea behind cryptocurrencies was to take possession of your wealth without having to deal with a third party. The blowup of FTX reveals why that forgotten element of the space remains crucial.

 

To read the full article, click here.

 

Cryptocurrencies

Schiff Gold: War on Cash: New York Fed Launches “Digital Dollar” Pilot Program

Posted on by Andrew Packer

For centuries, human beings have used money. Money is simply a good that allows for the easy trading between any other two goods or services. It eliminates the complications of direct trade or barter.

While money has taken on many forms over the years, for most today, it’s in the form of dollars. Most dollars today aren’t even physical pieces of paper in a wallet. Rather, they’re in the form of digital ledgers in bank accounts.

So while today’s dollar is already mostly digital, the Fed is testing out a 12-week pilot program for a fully digital currency. Dubbed a CBDC, or central bank digital currency, digital tokens will represent bank deposits.

There’s been no decision on whether to fully implement a CBDC. But this trial could move the world closer to the launch of a CBDC.

Under such a program, trading and settlement could occur faster than under the current financial system.

However, it would also mean that the centralized authority would be able to monitor all transactions. Those who value their privacy tend to be against this development.

Many view a CBDC as the next step forward in money. And under the right conditions, it would replace physical cash. Time will tell how that plays out, but those who value cash transactions may see their days as numbered.

 

To read the full blog on the implications of this development, click here.

Economy

Lead-Lag Live: Portfolio Construction Past the Melt-Up

Posted on by Andrew Packer

Investors who think for the long-term can get fantastic results. Looking past the market’s daily swings can lead to a better understanding of where value is. More importantly, it can mean identifying opportunities for massive returns that take years to play out.

Thinking systematically is key. That involves creating a set of rules to determine your investment allocation and risk. Building such a set and sticking to it helps with long-term investing.

Systematic investors have the discipline to follow a strategy. That can give them an edge over emotional traders in the market. Many traders get hurt investing because they get overly pessimistic during down markets. They sell out when they should be buying more.

Meanwhile, market optimists tend to stay invested too long during a bull market. They end up losing big paper gains when the market turns.

That edge appears over the long term, not necessarily within a single market style.

Meanwhile, the stock market is being set up for a melt-up next year. Once the Fed pivots on its interest rate hikes, it’s possible that assets such as stocks, bonds, and cryptos could soar.

Investors who come up with a strategy to take advantage of that melt-up will be able to grab gains. More importantly, they’ll be able to keep most of those gains when the melt-up ends and many big returns start to stall out.

 

To listen to the full interview, click here.

Economy

ContrarianEdge: Why Non-Transitory Recession Is Coming and How to Face it as an Investor

Posted on by Andrew Packer

Many market participants are looking at the current data showing slowing inflation with a sigh of relief. It appears the economy will avoid a so-called hard-landing. In other words, a deep recession is likely off the table.

However, that overlooks the fact that we’ve been in a recession. The first two quarters of the year showed negative GDP growth in the US. Historically, that’s been the definition of a recession.

And while inflation is starting to decline, the latest read of 7.7 percent is still the highest in decades. Inflationary pressure is still on thanks to supply chain issues and fiscal policy.

The good news? A recession can act like a forest fire. It can weed out bad companies and clear out the underbrush. However, like fire management policy, trying to avoid recessions causes a buildup that can make the next one worse.

Given the amount of proverbial dead wood accumulated since 2008, it’s possible that the next recession won’t be transitory. It could be deeper and longer-lasting than most participants expect.

With stocks still looking bullish, and with valuations still historically above average, a steeper market drop could be ahead.

Meanwhile, while a recession will take inflationary pressures off the table, paying for higher government debt could mean higher taxes. That would also, in turn, reduce consumer demand and delay an economic recovery. The end result? An increase in the likelihood of a non-transitory recession.

 

To read the full article, click here.

Stock market

Game of Trades: Is a European 2008 About to Trigger a Stock Market Collapse?

Posted on by Andrew Packer

US investors are cautiously optimistic as inflation is starting to show year-over-year declines. That indicates that the Federal Reserve is likely closer to changing its current policy of regularly raising interest rates.

While that’s good news, the US isn’t the only player in the global financial system. Europe has been struggling this year. And a potentially harsh energy shortage ahead could lead problems. And that could impact US stocks, given the significant trading relationships in play today.

While the US stock market has just bounced off of its 200-week moving average, European stocks have fared far worse.

German manufacturing has been a huge drag, in part due to its reliance on natural gas. Besides an energy crisis, an active warzone and even slower-growing economy overall point to trouble ahead.

Any slowdown in Europe would lead to a bigger hit for the US than a recession in China.

The Euro has already dropped to under par with the US dollar amid the current stress. The last time the Euro traded this low was in the year 2000.

And there’s been rising concern over systemic risk stemming from the problems in European markets. That could create a 2008-style meltdown for European markets.

So it’s clear that a big enough downturn in Europe could tip the US into a recession.

 

 

To watch the full video, click here.

Cryptocurrencies

Coffeezilla: FTX Collapsed… Here’s Why

Posted on by Andrew Packer

Cryptocurrencies hit 52-week lows back in June, only to start to move higher. The drop was due in part to the collapse of overleveraged crypto brokerage platforms. Those firms have since gone into bankruptcy.

This week, cryptos retested those lows. The move occurred as Binance made a non-binding offer to acquire FTX. This potential merger of two of the world’s largest crypto brokers spooked investors once again. Especially as the news followed rumors that FTX had liquidity problems.

The move also came after the two brokerage firms had a war of words online before the news.

That’s led to a major drop in crypto prices this week. Much like the June lows, this seems to be the result of some insolvent funds having to cash out quickly of illiquid tokens.

With binance appearing to take advantage of a lack of liquidity at FTX, it’s any guess as to when a merger will be completed. It also doesn’t help reassure investors when FTX froze withdrawal from the platform at the peak uncertainty.

While the final fallout from this may not have played out yet, it will continue to drive investors away from smaller crypto projects. That may bode well for major cryptos like bitcoin and Ethereum. But even their recovery will take some time.

 

To watch the full analysis, click here.

 

Income investing

Dividend Growth Investor: Simple Investing Principles to Follow

Posted on by Andrew Packer

In a challenging year for the market, investors who focus on the fundamentals can come out ahead when things turn around. Some investors have been frustrated during the past few years. Traders first put money into highly speculative stocks, driving prices significantly higher.

Now, things have flipped, and it may be time for value investors to see some outperformance as growth struggles. Investors who follow a few simple principles related to value can likely fare well in today’s environment.

The first principle is to never lose sight of the power of compounding. Compounding portfolio returns can make a massive difference over time.

Avoiding highly speculative stocks that could detract from that return in a bear market keeps the compounding process strong.

The second principle is that stocks tend to rise over time. That’s good to remember at a time when the market is falling, seemingly endlessly. But investors who continue to reinvest dividends and add more capital during down markets can further improve their returns.

Finally, many investors may have forgotten that stocks are ownership stakes in a business. They’re not a piece of paper to trade. Looking at holdings in terms of taking an ownership stake can avoid much of the excesses from the past few years.

 

To read the full list of investing principles, click here.

Commodities

WallStForMainSt: Global Diesel Supply Problems Continue to Get Worse?

Posted on by Andrew Packer

Most investors think about energy in terms of their home utility bill and gas prices at the pump. But there’s another form of energy that’s key to our lifestyle today. That energy is diesel fuel.

It’s crucial because all goods are shipped by truck at some point. And trucks run on diesel. While oil prices jumped at the start of Russia’s invasion of Ukraine, gas prices spiked and came back down. But diesel prices remain at elevated levels.

Unfortunately, that trend looks on track to get worse, not better. Global trends, including the ongoing conflict in Europe, point to reduced supply amid high demand. That’s similar to the situation with natural gas.

Both diesel and natural gas could also pose problem in the densely-populated Northeastern United States. This area has underbuilt pipelines and infrastructure.

As natural gas can now be exported from the United States, that commodity can now be sold on the global market. So the price differential between the US and the rest of the world should narrow. That could also create lower supplies in the US if needed.

Overall, it’s clear that cheap energy may not be the case this winter. Some parts of Europe have already seen an explosion in prices.

That could happen in parts of the US as well. Even in a land of energy abundance, global supply and demand, as well as local factors such as infrastructure, can weigh heavily on price.

 

To listen to the full interview, click here.

Economy

A Wealth of Common Sense: No Soft Landing

Posted on by Andrew Packer

Markets have been tricky this year amid a rapid rise in interest rates. That’s led to a number of investors seeing a “hard landing” for the economy. They see the need for a recession to wring out today’s high inflation.

Some still see a soft landing. They tend to get more vocal after the market has a few up days. But the data is increasingly pointing towards a more challenging time ahead for everyday investors.

For starters, those expecting the Fed to pause their rate hike policy soon may be misguided. The latest jobs report shows that the labor market remains strong, particularly going into the holiday season.

Plus, inflation still remains well over today’s rising interest rates. That’s another factor showing that rate hikes are likely here to stay.

Meanwhile, we’re starting to see data that the housing market is about to freeze up. Soaring mortgage rates are keeping first-time homebuyers out. And existing homeowners have sufficient equity to sit through a poor market, so sales are likely to dry up.

Finally, with earnings season, we’re seeing big drops in a number of companies. Many aren’t able to raise prices over their increased costs due to inflation. Others are dealing with a pullback in consumers. Both point to more trouble for the economy now – and in the quarters ahead.

 

To read the full analysis, click here.

 

Economy

Meet Kevin: Prepare: The Market Will Flip Here

Posted on by Andrew Packer

The economy continues to show weakness thanks to a variety of reasons. There’s the ongoing slowdown from rapidly-rising interest rates. Inflation is weighing on investor activity, and supply chains remain out of whack over two years since the initial Covid shutdowns.

While these unique challenges will be dealt with in time, there’s a rising chance that we haven’t seen the final drop in markets for this cycle.

Historically, the post-midterm period is great for stocks. Especially when there’s any sort of political gridlock to prevent any single political party from dominating politics.

Between now and the next year, a gridlock outcome tends to lead to 19 percent average return higher. However, this year’s cycle may be broken in part due to high inflation.

The real item to track then would be peak inflation. Should we see that in the coming months, markets should also rally based on historical trends.

However, until that happens, there’s likely some downward pressure on markets. But investors who look for a peak in inflation can likely buy close to a market flip off of its bearish course.

Besides the stock market, peak inflation is also great for bonds. The historic return over 6, 12, and 24 months can be strong. That’s thanks to rising bond prices as interest rates stop rising and investors lock in a strong return.

 

To view the full analysis, click here.