Author: Andrew Packer

Commodities

Kitco: 2 Mining Stocks Cashing In on Gold’s Shine

Posted on by Andrew Packer

Gold prices have been holding up well around the $2,500 mark. The metal has outperformed the S&P 500 year-to-date, gaining over 20%. And strong demand for the metal from both central banks and individual investors may help continue to push the price higher.

With interest rates about to decline, gold may have further upside. The metal can also hold up as a safe-haven asset amid uncertainty. These trends bode well for the metal. And as the metal goes, gold stocks follow.

That’s seen with several gold mining stocks, particularly the major operators. These companies have a global footprint, and operate several mining projects. That reduces the risk of any one project facing downtime or other significant concerns.

As gold prices rise, gold mining companies tend to see improving profit margins. Costs are relatively fixed in the short-term. As more gold is mined and sold at higher prices, that translates directly into more cash that can go to shareholders.

One of the world’s largest mining companies, Barrick Gold (GOLD), is up just 10% year-to-date. That’s underperformed the metal. But shares are trending higher, and could stage a catch-up rally to match the metal’s move higher.

Meanwhile, Barrick pays a 2% dividend, and could pay out more as gold prices rise, depending on the level of profitability.

For now, with gold trending higher, gold stocks have more room to run in the quarters ahead.

 

To read the full opportunity in gold and the second miner worth buying, click here.

Cryptocurrencies

Bitcoin Magazine: The Impact of Institutional Investors on Bitcoin

Posted on by Andrew Packer

After years of speculation about institutional interest in bitcoin, the goal has been reached. The approval of bitcoin ETFs for trading earlier this year has made it easier for everyday investors to own it. And to own it in a conventional brokerage account for ease of mind.

Several companies have also become major holders of bitcoin. The cryptocurrency is volatile, but over time, it has offered better returns than cash and equivalents.

A handful of companies own over 340,000 bitcoin already, out of a maximum of 21 million.

The bitcoin ETFs, since their inception at the start of the year, have accumulated over 91,000 bitcoin. Combined, this is about 6.3% of bitcoin’s total supply.

Meanwhile, over 75% of circulating bitcoin has not moved between crypto wallets for at least six months. That suggests investors are looking for higher gains. It also means that institutional owners could impact as much as 25% of the circulating supply.

Some of those institutions are bitcoin miners, which need to sell off some of their mined bitcoin to continue operations.

So there’s a chance that the rising level of concentration at the corporate level could lead to higher market volatility. Especially if these institutions make large sales at once.

Over the longer-term, bitcoin’s rising use as a store of value will likely keep supply tight and keep prices pushing higher. But the asset will likely continue to remain volatile for the foreseeable future.

 

To read the full analysis, click here.

Stock market strategies

Lead-Lag Live: Mike Green on ETF Innovation, Passive Investing Risks, and the Future of Alternative Assets

Posted on by Andrew Packer

Markets have become more efficient over the years. That’s good news for most retail investors. It means that they generally get the same information at the same time as professional investors. And it’s more challenging for active investors to find overlooked opportunities.

Part of the market’s improved efficiency has come from the rise of passive investment tools. ETFs that track a market index itself have grown popular, especially in retirement plans.

However, that does mean that investors tend to own the same basket of stocks. And since most market indices are weighted by market cap, it means most investors own the same large-cap stocks.

So when a big-name company misses earnings or otherwise sells off, all investors will take a hit. This rising concentration could be fueling higher market valuations than would otherwise exist.

Investors who use non-weighted ETFs may be able to obtain better performance over time.

That’s due to the higher growth prospects of smaller companies, and that such companies tend to have lower valuations and may even offer some income.

This increasing concentration risk in the market may be why wealthy investors continue to look at alternative investments. That includes more actively-managed funds that seek to profit without a heavy large-cap concentration.

 

To watch the full interview, click here.

 

Stock market strategies

Trading Titans Podcast: Volmagedom Lessons from the Crash

Posted on by Andrew Packer

When trading, several factors come into play that otherwise may not occur with a longer-term investment. That’s especially true when trading with options. A trader can get the general direction of a trend right. But if their timing is off, the trade could still lose.

Likewise, market volatility plays a factor in option pricing. The higher the market volatility is, the more likely stocks are to swing higher or lower on a daily basis.

When that happens, option prices can likewise trade higher. And that can impact the profitability of options trades as well.

Early August saw market volatility spike to its third-highest level, just below the pandemic and the housing market crash. The short-term reason? The potential unwind of the carry-trade based on the Japanese yen.

While that proved short-lived, investors who were unprepared for that volatility spike may have given up months of profits in a matter of a few hours.

Traders who are sellers of option premium were able to profit from this spike higher. That’s because higher volatility meant higher option prices. And with the markets calming down nearly as quickly as they panicked, the spike higher in volatility didn’t last.

For traders, the real key is having a consistent strategy that’s robust to handle unexpected events. And to have a plan in place to adjust trades when it’s apparent that market conditions have fundamentally changed.

 

To watch the full podcast, click here.

Economy

Game of Trades: This is Getting Worse than the 1929 and 2008 Yield Curve Inversions

Posted on by Andrew Packer

One heavily-watched economic indicator is the difference between the 2-year U.S. Treasury and the 10-year. Typically, the 10-year offers a higher yield, as investors have to lock up their money for five times longer.

However, for nearly two years, the yield curve has been inverted. That means investors have gotten higher yields on shorter-term bonds. That typically reflects an environment that leads into a recession. 

The real pain tends to come after the yield curve un-inverts. Historically, 6-12 months after an un-inversion, there has been a recession.

Yes, this time may buck that trend due to the circumstances of the pandemic and its aftermath. But until proven otherwise, investors should be cautious going forward. Especially since this latest inversion period is one of the longest and steepest on record.

During August’s selloff, the yield curve briefly un-inverted. It’s likely to un-invert again and stay that way after the Federal Reserve starts cutting interest rates later this month.

However, given the lag time in economic data, a recession will likely be declared well after a market crash. Avoiding such a crash can help avoid years of recovery time for your investments.

With yields starting to trend lower, investors may want to lock in relatively high bond yields now. And assets like gold, which have historically held up well during uncertainty, continue to shine.

 

To watch the full video, click here.

Cryptocurrencies

Bitcoin Magazine: Is the Bitcoin Bull Cycle Over?

Posted on by Andrew Packer

Bitcoin started the year off on a strong note. The SEC approved 11 bitcoin ETFs for trading. Prices hit a new all-time high in anticipation of that move. In the months since, the price has languished.

The past few months have seen choppy price action and some sizeable selloffs. That’s not the typical behavior of an asset making new highs. In that sense, bitcoin has faltered while assets such as stocks and gold have continued higher.

Historical data from past bitcoin cycles suggests that this is nothing new. The 2016-2017 and 2020-2021 rallies in bitcoin saw similar drawdowns after making new all-time highs. Such pullbacks, while more extreme in bitcoin than other assets, seem critical to fuel the next leg higher.

In the meantime, short-term holders have an average price of about $63,000 per bitcoin. At current prices, many new bitcoin investors may be holding at a loss. Typically, short-term investors will see a loss at some point during a bull market cycle.

Meanwhile, the hash rate of the bitcoin network continues to grow. Typically, prices follow moves in the hash rate higher. That’s another sign that the drop in prices off the peak is a pause, not the start of a protracted rally.

Looking at the data as a whole, while price action has been discouraging lately, bitcoin is still on track to push higher in the months ahead. It simply remains to be seen what catalyst will trigger the move.

 

To read the full analysis on bitcoin’s price action, click here.

Trading Strategies

Tastylive: Most Options Traders Make at Least One of These 5 Mistakes

Posted on by Andrew Packer

Traders have a number of strategies that they can use to profit from the market’s short-term swings. Typically, most traders will use options. They’re less expensive than using shares outright. And they can magnify a profit … or loss.

Understanding how to use options responsibly in a portfolio is huge for determining your trading success. And it can also be used as a tool to help boost the returns or hedge a more conventional stock portfolio.

First, when trading with options, many traders first look at the buy side. Buying options, whether puts or calls, can lead to massive returns.

However, those options have to be bought at the right time. And they have to be at the right price. Otherwise, traders risk losing on a trade. Even if they’re generally right.

To counter this challenge, traders can look at the sell side of the equation. Selling options tends to offer lower returns. But it offers a higher probability of providing investors with a gain.

Investors who want to hedge a stock portfolio can sell call options against their position. This “covered call” strategy is a conservative way that can boost returns. And it can help to mitigate some market risk. Selling options also brings in more income, which can then be used to also buy options.

 

To look at the full list of options trading mistakes, click here.

Income investing

Dividend Growth Investor: Seven Dividend Growth Stocks Rewarding Shareholders With Raises

Posted on by Andrew Packer

With interest rates set to decline, yields on bonds will drop. As that happens, their price will rise. Investors may want to lock in bonds at today’s yields in anticipation of lower yields and higher.

Investors can also buy dividend-paying stocks. As interest rates decline, the yields offered on stocks look increasingly attractive. While there are many high-yielding stocks out there, companies that pay a reasonable and growing dividend over time tend to offer great total returns.

Companies that can grow their sales or earnings over time are able to pay an increasing payout. Many shareholders, as owners of the company, appreciate those payouts. While only a small fraction of stocks pay growing dividends over time, there are always some announcements of dividend increases.

For instance, Altria Group (MO) just announced a 4.1% increase in its quarterly dividend. The tobacco firm has paid increasing dividends for 55 consecutive years. At current prices, Altria pays a high yield of 7.8%.

Other sectors also offer increasing payouts now. EastGroup Properties (EGP) is a real estate investment trust. They own industrial properties in Sunbelt states, which have seen significant population growth over the past few years.

EastGroup shares yield 3%, and they just raised their payout by 10.2%. EastGroup has increased its dividend for 13 years running.

 

To see the full list of dividend growth stocks increasing their payout now, click here.

Economy

Heresy Financial: Why Fed Rate Cuts Will Trigger a Recession

Posted on by Andrew Packer

Interest rates are set to decline coming in mid-September. This comes more than a year after the Federal Reserve last raised interest rates, and four years after the central bank last cut.

Typically, the Federal Reserve raises interest rates to slow the economy. Doing so curbs inflation, such as the high inflation experienced after the pandemic. Lowering rates is designed to spur economic growth. It can also be seen as a sign of a slowing economy.

Many times, the economy is already weakening quickly by the time the Fed starts to cut rates. That’s why many see the potential for a recession.

Typically, if the Fed starts with a quarter-point rate cut, markets can continue higher, and the economy may continue to grow. If the Fed starts cutting rates with a half-point cut, it could signal that economic danger is already here.

As with anything else, the economic data will take months to indicate how the economy will fare. Until then, the market trend is higher, although seasonal factors may weigh on stocks over the next two months.

The upcoming election will also create some market uncertainty going into November. After the election, markets will likely be clear to end the year on a strong note. And if the Fed cuts by just a quarter point, stocks will likely close the year at or near new all-time highs. 

 

To view the full analysis, click here.

Stock market

Geeks of Finance: Massive Reversal. The Market Is About to Trap Everyone

Posted on by Andrew Packer

After rallying nearly 10% in three weeks, the stock market is back near all-time highs. Traders remain bullish, even moving into September, historically one of the most challenging months for the market.

Could this year be different? Following a selloff in early August that got into correction territory, it’s certainly possible. However, it’s also possible that stocks still face a seasonal pullback. Traders should be prepared for either prospect.

The chance of a pullback is reflected somewhat looking at the fundamental data. Concerns about a slowing labor force, which drove markets lower a few weeks ago, haven’t changed. Neither have concerns about the level of leverage in financial markets.

Stocks are encouraged by rate cuts, with the first one likely after the Federal Reserve’s next meeting on September 18.

Meanwhile, options data reveals that investors remain bullish. Gamma exposure suggests that traders remain bullish on the markets over the next two months.

In other words, the market is likely to trend higher over time based on the actual positioning of trader right now. Consequently, seasonality may not play as much of a factor as expected this year. Investors simply bought the market drop strongly, and traders expect that trend to continue.

That trend could shift if economic data shifts, so traders should continue to look at gamma exposure on the stock market and on top-traded stocks.

 

To view the full rundown on market gamma, click here.