Author: Andrew Packer

Income investing

A Wealth of Common Sense: Dividend Stocks Are Cheap

Posted on by Andrew Packer

With the stock market trading near all-time highs, it’s easy to forget that just a handful of stocks powered most of that move. That’s especially true given the high market concentration in the Magnificent Seven tech stocks.

However, other parts of the market have started to perk up. That’s a healthy sign for stocks. It could mean that other companies could take over market leadership in the months ahead.

Outside of the big cap tech stocks, dividend-paying stocks are still unloved by the market. These companies tend to trade more slowly, but can deliver steadier returns. Especially when invested in for the long-term.

Remember, companies pay a dividend when their earnings exceed what is needed to reinvest in the company. Since shareholders are owners of the business, they get some of the excess capital involved.

Over time, several studies have shown that earning and reinvesting dividends can account for more than half of a portfolio’s total return.

Plus, with interest rates set to decline, dividend-paying stocks will look more attractive for risk-averse investors. That’s particularly true for higher payers such as real estate investment trusts (REITS) or partnerships (LPs). These types of high-yielding stocks also carry different tax considerations.

Even with the overall market near all-time highs, plenty of dividend stocks offer investors a relative value today.

 

To read the full analysis, click here.

Economy

Tom Bilyeu: “My Biggest Fear Is a Reverse Market Crash”

Posted on by Andrew Packer

Many investors expect some kind of market crisis. Interest rates soared to a 15-year high, and have now stayed there for over a year. That higher cost to borrow has led to some struggling companies file for bankruptcy.

The last time interest rates were this high, the housing bubble was being fueled. Loan officers found creative ways to ensure that even those with zero income could buy a home. The end result? A massive crash.

Over the subsequent decade, ultra-low interest rates made homeownership more affordable. Lending standards were tighter for a home. But for consumer and business borrowing, rates were near historic lows.

And low interest rates meant that savers were punished, earning little, if any, interest on cash in the bank. The result is now rising total debt, at a time when personal savings have been depleted.

Thanks to this trend, consumers have effectively leveraged up their balance sheet. As people run out of money, they will start to cut back on spending. Some may even look to sell their homes or otherwise free up cash.

While interest rates are set to come down, it’s now clear that economic data may start to decline at a faster pace. Historically, a recession tends to start within a year of a final interest rate hike, about where markets are now.

Given the current climate, however, markets may first deliver one last major push higher to end the year.

 

To listen to the full explanation on the economy, click here.

Stock market

The Maverick of Wall Street: We Are Entering a Time of Economic & Market Chaos

Posted on by Andrew Packer

Stocks are off to an ugly start for September. The S&P 500’s 4% drop represented over $2.2 trillion. Yes, the second week of September gave a partial rebound. However, markets are usually weaker in the second half of the month.

In the meantime, some of the market narratives are starting to shift. The biggest trend in markets for nearly two years has been the rise of AI. However, many are starting to question that trend.

ChatGPT user time is dropping substantially. That could indicate that users are moving to other, proprietary AI tools. Or it could be a sign that the initial hype of AI has played out.

That doesn’t mean the AI boom is over. The internet was just getting started when the tech bubble burst in 2000, after all.

But it does mean that markets may no longer trend up in a straight line. They have so far this year and in 2023. If the trend is shifting, stocks may be more volatile.

That means investors might have more opportunity to trade market swings, rather than buy and hold. And that traders who can hedge or even short the market before a big swing lower can rack up quick profits.

With markets likely to be more volatile ahead, the game has changed. And investors need to be prepared.

 

To watch the full analysis, click here.

 

Commodities

Daniel Lacalle: How Government Debt Is Killing the US Dollar

Posted on by Andrew Packer

In the span of a year, the federal debt has risen by nearly $2 trillion, and is now topping $35 trillion. This represents a hefty deficit in what government spends versus what it brings in from taxes.

Meanwhile, whether the economy drifts up or down, there could be an additional $16 trillion added to the debt by 2034. That’s a baseline that does not include some potential changes that could result following the presidential election.

Crunching the numbers, the total accumulated debt over the past three years, measured against growth, paints an ugly picture. The United States has increased its debt significantly and only gotten slow growth. By one measure, it’s the worst such performance in 90 years.

In order to operate, governments need money. Besides taxing, they can borrow. Taxing imposes a cost on those who have to pay the tax, whatever form it takes. Borrowing means the government has an additional spending obligation to pay back that debt.

Either way, rising debt and continued government spending over tax revenues point to a worsening balance sheet.

Eventually, things could reach a tipping point. And taxes will either need to rise, or government spending will need to shift to paying down debt. Either of those events could have a negative impact on the economy.

This weakening of the dollar may suggest why commodities such as gold and silver have been trending higher this year, and why that trend may continue.

 

To read the full analysis, click here.

 

Stock market

Swordfish Trading: We’re Getting Close

Posted on by Andrew Packer

Stocks moved to recover this week after stumbling in the first week of September. While markets tend to be weak in September and October, that weakness usually doesn’t appear until later in the month. More importantly, in an election year, that volatility can carry through the election in early November.

2024 is shaping up for some extra volatility. We’re on the cusp of an interest rate cut, which will likely kick off a trend in interest rates declining over the next year.

While lower interest rates mean a lower cost of capital, stocks will likely remain choppy. The recent economic data has led some to believe that the rate cuts are coming too late. It will take a few more months of data to determine if that’s the case.

For now, investors should expect markets to trade sideways. Big down days could be used to buy shares of companies for long-term holdings. Traders can look to trade the swings.

That includes a variety of asset classes, including both stocks and bonds.

On the plus side, market volatility is starting to come down after some wild swings in August and again last week. That suggests that while markets will trade sideways, some of the biggest moves may be over for the coming weeks.

 

To watch the full analysis, click here.

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.