Author: Andrew Packer

Cryptocurrencies

Simply Bitcoin: Investors Ditch Dollars for Bitcoin in Record Numbers

Posted on by Andrew Packer

Investors have had to contend with big shifts in currency values and interest rates this year. Many are looking for a safe-haven from volatility. Historically, that’s come from areas such as precious metals.

But even gold has been down this year, even if not as much as stocks or bonds. However, even with prices significantly off of last year’s highs, investors are moving into cryptocurrencies, particularly bitcoin.

With a UN Agency asking world governments to stop raising interest rates even with inflation at multi-decade highs, it’s clear that pressures are here to stay. And as governments shift from tightening to easy money policies once again, cryptos are likely to take off.

In the meantime, cryptos offer a way to invest outside the conventional investment universe. That system is partially a political beast, as seen by the lack of bankers being criminally punished for misleading investors or crashing financial markets.

It’s no wonder that investors are continuing to flock to the space. Fiat currencies like the Euro and British pound are watching the value of their currency drop. The move is different than the speculative moves that often occur in the space, given the lack of volatility.

It’s clear that investors are adding to crypto holdings at current prices, with an eye towards protecting their wealth over time, rather than speculating on crypto prices.

Commodities

Two Dollars Investing: The Fed Will Crash Precious Metals

Posted on by Andrew Packer

Right now, the Federal Reserve has two poor choices. They can raise interest rates to get inflation down, but potentially at the cost of an economic implosion. Or they can stop raising rates, and hope that inflation slows down. But if that happens, inflation may run at an above-average level for some time.

This problem is responsible for the big swings in the market that investors have had to contend with this year.

Amid this monetary policy problem right now, fiscal policy remains loose. The government continues to spend more money than it brings in via taxes.

The total debt has increased by over $1 trillion in the last 8 months. This has to be financed via debt or a direct printing of new money.

Without deep cuts in government spending, inflationary pressures will remain. If the government wants to get rid of inflation, they’ll need to spend less.

In the real world, this is unlikely to happen. Such a cutback could cause a number of companies to have insolvency or bankruptcy issues.

The rapid rise in interest rates this year is creating a number of financial stresses on the market.

That could cause another “Lehman moment” where a crisis erupts on Wall Street. If that happens, stocks could hit new lows, and lead to a selloff in safe-haven assets like precious metals.

 

To watch the full video, click here.

 

Economy

A Wealth of Common Sense: Could We See Another Lost Decade in the US Stock Market?

Posted on by Andrew Packer

Markets are known as mean-reverting. In English, that simply means that if markets have some great up years that are above average, a few below-average years are likely to occur. That evens out returns relative to their historical norms.

Some are now calling for a lost decade in the stock market. That’s occurring even though we’re only down 23 percent from an all-time high set at the start of the year.

While it may be a bit early to make that judgment, we have seen two bear markets in under three years. That’s because the Covid crash, while short-lived at just 33 days, saw a 33.9 percent peak-to-trough decline in stocks.

And so far this century, stocks have already had six down years, of which four were down more than 10 percent. Meanwhile, markets have had six years with gains of 20 percent or more. That’s on track for a lower performance than in the 20th century.

With markets performing more poorly on average, and with more down years already on average, the likelihood of a lost decade sounds a bit higher.

It’s never out of the realm of possibility. But over the long-term, markets do recover from such long periods of underperformance.

However, with such a strong bearish outlook right now, future market performance could be better than expected as a result.

 

To read the full blog post, click here.

Economy

Money For the Rest of Us: Why Is the US Dollar So Strong? Will It Continue?

Posted on by Andrew Packer

The US dollar is trading at its highest level in decades, as measured against other currencies. It’s now stronger than the Euro, which has dropped under $1.00 for the first time in 20 years. And the British pound traded close to parity with the dollar, hitting a low of just under $1.04 before moving higher.

A strong dollar creates some big challenges for the rest of the world, given the dollar’s prevalence in global trade.

It’s a sign of investors moving into the dollar out of a sense of safety, at least relative to other currencies. And it goes to show that the Federal Reserve is being aggressive with its interest rate hikes compared to other countries. Perhaps even overly so.

With rising interest rates, the US dollar looks more attractive as a global store of value. That tends to also mean that risky assets don’t look as attractive given the comparative returns on interest-bearing assets like bonds.

That’s why asset prices have been under pressure as interest rates have started to rise. And why they’ll continue to be in a downtrend until the Fed pauses or changes course. That would also help reverse the dollar’s strengthening trend.

Investors may not like today’s high inflation. But with rising bond yields and inflation potentially coming down quickly in the next few months, bonds have become attractive as an investment.

 

To listen to the full podcast with the implications for a strengthening dollar, click here.

Stock market

FX Evolution: The World’s Biggest Stock Market Hedge Has Mean Reverted!

Posted on by Andrew Packer

Markets can be tough to figure out. Sometimes, good news is good news – leading to higher prices. At other times, bad news can be good news.

For instance, bad news about the economy slowing down may entice policymakers to stop raising interest rates. That could lead to stocks moving higher. And when such news pops up, so too do stocks in anticipation of such a move, even if no actual change happens.

How can investors best trade such a market where changes in expectations can lead to big moves?

One way is by looking at market hedges. With investors looking discouraged right now, prices may have fallen too quickly. That can lead to a fast rebound in the stock market.

There are plenty of ways to look at how markets are being hedged. Over the past few years, trading with options has exploded. And right now, options traders are paying a considerable amount for market protection.

In fact, the only time this measure has been higher has been in October 2008, right as markets were melting down during the financial crisis. It’s tied for the peak of the Covid selloff in early 2020, right before stocks soared.

That could be a sign that markets may have a stronger bounce ahead, but we likely won’t feel like we’re in a bull market for several months to come.

 

To watch the full video, click here.

 

Cryptocurrencies

Tom Bilyeu: Crypto Is Crashing – Once in A Lifetime Opportunity to Build Wealth Is Here

Posted on by Andrew Packer

The past year has seen a massive drop in all financial assets. That includes risky assets like tech stocks, but even safe, conservative investments like bonds are down substantially this year as well.

That leaves investors hurting no matter how they’ve allocated their portfolio. The culprit? The low interest rates that were set at zero during 2020, which caused speculation to explode. With that process reversing, it’s likely that there’s further downside ahead for most assets.

As a result, investment models are broken, and will likely remain so as long as the Fed keeps raising interest rates and inflation remains high.

However, market pullbacks tend to be a great time for investors – provided they’re buying for the long-term, and not selling. That can be true of any asset, from beaten-down stocks and bonds to riskier assets like cryptocurrencies.

Knowing where to place your assets and understanding how inflation can impact those assets are key to investors. Owning real assets can hold up well against inflation. Traditional assets like gold and real estate can fare well if bought at the right price.

So can cryptocurrencies like bitcoin. That’s because the king of cryptocurrencies has a solid track record overall. The downside? Bitcoin can have significant drops. The crypto has averaged at least one 50 percent correction every year since it started trading.

Investors who buy Bitcoin only on such a significant dip can fare well when prices rise again. And because bitcoin can be stored personally, it offers a level of privacy that other assets don’t offer.

 

To listen to the full podcast, click here.

Income investing

Dividend Investors: Stay the Course

Posted on by Andrew Packer

Nobody knows how long a bear market will last, or how steep it will decline. While there’s an average to each of those, every market will be different. It’s safe to say we’re not done with the current bear market, as the Fed continues to raise interest rates.

However, investors who follow a long-term strategy can be served by today’s prices. One simple and popular long-term strategy is to stick with dividend-paying stocks.

In order for a company to pay a dividend, it needs to have stable cash flows. This tends to occur in more mature companies, which also tend to be less volatile.

Those who buy dividend stocks while markets are down can best take advantage of the power of compounding, by getting a higher starting dividend. And dividend payouts tend to grow over time, even during bear markets when a stock’s price is down.

Over a long enough timeframe, most bear markets end up looking like a small bump on the long-term stock chart. That’s why it’s important to stay the course, even when markets look bad and a sea of red may tempt investors to sell out at the worst possible time.

Investors who put a little money into the market every month, and aren’t scared by the price volatility of stocks, will end up creating substantial wealth over time.

 

To read the full article, click here.

Economy

Daily Profit Cycle: Are Mortgage Rates Headed to 20%?

Posted on by Andrew Packer

The housing market has been slammed in the past few months. 30-year fixed-rate mortgages, the industry standard, now yield over 6 percent. That’s double off their lows from just over a year ago.

Some see rates continuing to rise as the Fed continues to raise interest rates this year. There’s a possibility that rates will be closer to 7 percent by the end of the year. But if the Fed overshoots, it’s possible rates head even higher – possibly to 20 percent!

While that may sound impossible, it’s in the realm of probability.

Many see the housing market as robust. That’s because we’ve come a long way since the Great Recession. Homebuyers have tighter lending standards.

And home equity is at an all-time high, making it harder for homeowners to get underwater on their mortgage if home prices decline.

However, with no end in sight yet to the interest rate hikes, it’s possible that mortgage rates could continue to creep up. At the current rate of increase, they could even end the year closer to 8-10 percent.

In the meantime, banks are keeping excess cash on hand with the Federal Reserve, where rising overnight rates are yielding banks higher yields with no downside risk.

That could cause rates to go even higher as capital for mortgage rates gets sucked out of the market as it moves to safer places.

 

To view the full interview, click here.

Economy

Animal Spirits: Powell Wants You to Lose Your Job

Posted on by Andrew Packer

Markets sank following the Fed’s September meeting. While the bank raised interest rates 0.75 percent, in line with expectations, the Fed warned that more “pain” would be needed to slow inflation.

That pain is in the form of job losses. Nothing slows the economy quite like someone losing their job. By losing the income needed to buy goods and services – whether essential ones or luxuries – real cutbacks in spending can occur.

A drop in the stock market won’t cut it. Even with the S&P 500 down 23 percent from last year’s peak, that’s not enough. It doesn’t matter that gas prices are down, or other commodities as well.

Or that mortgage rates have now doubled in the past year, and are back to levels last seen in 2008.

The fact remains that the job market has remained strong, even with signs of a slowing economy in the past few months. That’s the fast way to slow the economy, rather than let consumers adjust to the rapid interest rate increases in the past few months.

The Fed’s steep interest rate hikes this year will likely look like a policy error, given how late the Fed was to start interest rate, and the central bank’s history of overcorrecting for past mistakes.

The Fed has shown that it’s willing to break markets and throw the job market off the cliff in order to slow inflation. It doesn’t matter that millions may lose their job in the process.

 

To listen to the full podcast, click here.

 

Stock market

Game of Trades: A Major Capitulation Event is Occurring on the Stock Market

Posted on by Andrew Packer

The stock market broke down last week, rejecting a key technical level. That led to a large amount of selling in the week following, causing stocks to go back to re-test their June lows.

The move has the early signs of a capitulation event, which could mean an end to the current bear market. While it may not mean the start of a new bull market right away, it could be welcome news after the market’s performance this year.

The price action is similar to the market breakdown in June.

The market move has been driven by rising interest rates, as rising Treasury yields compete with stocks. With 10-year bond yields closing in on 4 percent, the return looks better than the volatility of owning a dividend-paying stock.

Plus, changes in bond yields have been a leading indicator. As yields have gone up, stocks have subsequently gone down.

However, investors are still concerned about inflation, which continues to run hot. And given the current high rate of inflation, the Fed funds rate still remains too low to provide a real return.

That suggests further rate hikes are likely, which could continue to add pressure on the market. But a change in the rise of interest rates could give the market what it needs to come off its bearish outlook.

 

To view the full video, click here.