Author: Smart Investing

Passive Income

BiggerNews June: Why “DIY Landlords” Will Win in a Recession

Posted on by Smart Investing

Rising interest rates mean higher mortgage rates. That makes home ownership less affordable, which will likely lead to a decline in prices. With the housing market slowing, real estate investors may face additional challenges.

Renters may not be able to pay increased rents at the rate of increase over the past two years. That could lead to a potential squeeze for many landlords.

However, landlords who take a do-it-yourself (DIY) approach to their properties can come out ahead. During a recession, they’ll save much-needed capital by undertaking repairs themselves.

Does that mean real estate investors should throw in the towel? Not necessarily. Many local real estate markets remain tight, as demand continues strong.

Plus, housing tends to hold up well during periods of inflation. Investors who are able to borrow at a reasonable cost can leverage the modest returns of real estate and grow their wealth.

That’s true even if the cash flows from renting out a property are being compressed due to rising costs.

Overall, those who are able to navigate a challenging market will come out ahead in time. And real estate investors who learn how to roll up their sleeves can avoid a reduced profit margin by taking care of their rental properties.

To listen to the full interview on the opportunity for real estate investors now, click here.

Income investing

Dividend Growth Investor: Are Dividend Increases Beating Inflation in 2022?

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With asset prices falling, investors are turning away from growth stories and looking for companies with more consistency. For the long-term, dividend stocks can provide an extra source of income, as well as much-needed stability.

But inflation is currently running at multi-decade highs. With inflation rising so quickly, even companies that have a history of raising their dividends may not be able to match the loss of purchasing power with a higher payout.

Typically, dividends grow at a stable rate over time as the economy grows. Overall dividend payments may drop during a recession. For instance, many companies cut their dividends during the pandemic.

But over time, the rate tends to rise. And, more importantly, data going back to the 1960s shows that dividends tend to increase faster than inflation over time.

Given the rising inflation rates of the 1960s and 1970s, combined with decades of dropping inflation, that’s a good time period to use. It shows that even in periods where stock prices may not be rising, companies can continue to pay out increasing amounts of cash.

Overall, that trend is holding up year to date. 193 companies have announced dividend increases so far this year. 117, or about 60 percent, of those companies have raised their rates higher than 8 percent.

Inflation is running a bit hotter than average right now. But it should cool down in the back half of the year.

To view the full list of companies that have raised their dividends in excess of inflation so far this year, click here.

Economy

Lead-Lag Report: This Bear Market Is Different

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The word volatility gets thrown around a lot during a market selloff. However, volatility can simply mean how much an asset class moves, not necessarily its direction up or down.

For years, central bank activity has helped to hold down volatility. But now, with the economy slowing and interest rates rising, volatility is on the rise. The result? What has appeared on the surface as a calm market has given away to a rockier one.

Some traders have viewed volatility as an asset class, thanks to the rise of products that try to track it. However, volatility is derived from other assets, typically stocks and bonds.

Traders have embraced volatility, as shown by the rise of options trading relative to stock trading. However, with more access comes a higher chance for riskier trades that can blow up.

Meanwhile, interest rates are coming off record lows. Higher rates for the cost of capital are lowering expectations for a number of assets. Companies that made sense at low interest rates may not with the cost of capital is higher.

That makes this bear market potentially different. Changing views on asset classes as interest rates rise may lead to a further selloff. But it may not mean further volatility. That may make it harder to pinpoint a market bottom.

The overall combination could mean a potential worse-case outcome for all assets.

To listen to the full interview looking at how this bear market may be different, click here.

Cryptocurrencies

What Bitcoin Did: The Crisis Across All Markets With Peter Doyle

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Central bankers and governments are finally backing away from statements that inflation would be transitory. However, it may be too late. Markets are in a state of fear.

With every asset class getting hit hard right now, the question is how much worse things could get. After all, governments have taken on a lot of debt, and now interest rates have started rising. Taming inflation without creating more negatives for the economy will prove a tough balancing act.

Trying to tame inflation is no small feat. There’s more to rising costs than monetary policy. For instance, rising energy prices create higher costs to produce and transport goods. Keeping those prices down requires a bigger investment in fossil fuels, not monetary policy.

The other big issue today? Finding investments that can beat inflation. One such investment is potentially Bitcoin. Its long-term track record since its inception has been phenomenal.

However, the cryptocurrency has been caught up in short-term market fears. As a “risk-on” asset, it’s now down 70 percent from last year’s highs.

With stocks down, bond yields up (meaning bond prices are down), there’s no attractive winner here. While cash looks attractive, its slow loss to inflation makes it unattractive in the long-term.

In short, the timing of an energy crisis, debt crisis, and inflation make for a challenging environment for investors now.

To listen to the full podcast outlining the crises affecting all asset classes right now, click here.

Commodities

Game of Trades: SP500 CRASHES as this Chart BREAKS a 20 YEAR Resistance

Posted on by Smart Investing

The past week has been harrowing for investors, as the S&P 500 gapped lower last week following the latest inflation data. It also rejected a key long-term resistance line. The result? A potential further drop for markets ahead.

Until the break, markets were looking on track to snap back from their bearish outlook. Now, with the current economic developments, a further downside looks likely.

Market sentiment, fundamentals, and now the charts show that markets have more volatility in the coming weeks. Investors looking for a short-term buy in the market should look for a further rise in volatility first.

In the meantime, market volatility has risen as US bond yields have also jumped higher. 2-year treasury yields surged to 3 percent. That also broke short-term resistance on a technical basis. While breaks can happen and quickly unwind, they can also lead to a new trading pattern.

Finally, oil prices remain high. With oil yet to fully roll over, bond yields will likely keep rising. And stocks will continue to trend lower, as higher energy prices will weigh on profitability and consumer spending.

In short, traders should look for oil prices to make a major pullback. And for volatility to move higher first, combined with another leg lower in the stock market. Once those factors line up, traders can look for short-term buying opportunities in the next few months.

To watch the full video and see the charts behind today’s trends, click here.

Cryptocurrencies

Simply Bitcoin: Bipartisan Bitcoin Bill Introduced in US Congress, GAMECHANGER

Posted on by Smart Investing

 Cryptocurrencies are a new asset class that have been around less than 15 years. Like any technological innovation, governmental regulation comes in later after the space has developed.

Two US senators have crafted a piece of legislation that would provide a governmental framework for regulating cryptocurrencies. The bill still needs to be debated, passed, and signed into law. Once that happens, it could be a gamechanger for onboarding millions.

The move would provide some much-needed clarity to invest in the crypto space. At present, Bitcoin represents a deflationary currency. The legislation’s potential to avoid a tax headache and speed up adoption as a currency could be huge for consumers.

The bipartisan crypto bill would consider most cryptos as commodities for regulatory purposes. That would allow the Commodity Futures Trading Commission (CFTC) to fill in the regulatory framework.

Currently, the key feature of the bill is that digital currencies would be treated as a genuine medium of exchange. And tax exemptions would be provided for transactions up to $200. That could increase the use of cryptos for everyday transactions.

Overall, there’s a lot to like about the bill. Yes, many crypto enthusiasts may want to see some changes. However, the passage of this bill would make it easier to onboard millions into crypto. And it would make low-priced crypto transactions easier to make as well.

To listen to the full breakdown of the bill and what it means for crypto investors, click here.

 

Economy

Meet Kevin: DANGER: The Coming Recession is WORSENING

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One of the top economic trends being watched this week is inventory levels. Retailer Target (TGT) warned on Tuesday that they would likely face a drop in profit margins.

The problem? A surplus of many goods. While a welcome change from the supply chain issues leading to shortages in the past year, lower profits tend to mean lower stock prices. That in turn, could be a sign of a recession ahead.

According to Target, inventory levels have shown a 61 percent rise on a quarter-over-quarter basis. And foot traffic is down about 20 percent as well. That’s a sign that the retailer may need to get more aggressive with its price cuts to lower inventory.

Other trends in the past few days likewise point to the potential for a bigger recession. One such area is in the labor market. While the unemployment rate may be low, many companies may simply not have the right number of employees right now.

These two factors could point to major deflation ahead. Companies may want to cut prices aggressively to cut their inventory before it ages.

With inflation numbers showing slowing growth and potentially peaking, investors may be blindsided by any surprise deflation in the months ahead. Prices in areas such as shipping, computer chips, and fertilizer have all shown declines in recent weeks.

To view the whole video and look at where prices are likely to decline the most in the coming months, click here.

Commodities

Wall Street Silver Official Podcast: The Fed Is Too Late and Completely Clueless

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While traders are becoming more mixed on the future direction of the economy and the stock market, many can agree that the Federal Reserve is to blame.

That’s because the central bank could have started its tightening policy in 2021, before allowing inflation to rise to multi-decade highs. By waiting until they did, the bank now appears behind the eight ball, and even clueless.

According to analyst Adrian Day, this has been a feature of the central bank. Their changing view on how to interpret policy based on inflation data is one reason.

The central bank has gone to an “inflation targeting” approach over the past few years. At first the idea was unofficial, but then was made official in 2020. This approach allowed the Fed to ignore rising inflation rates, initially describing them as transitory. By the time they committed to act, inflation was nearing a 40-year high.

Further, the Fed has now begun telegraphing its moves far in advance to not spook markets. That can cause a further lag time before policy change occurs, which can cause more economic damage in the meantime.

These moves indicate that inflation will likely continue being an issue for investors into 2023. And that risky assets will continue to remain volatile. It’s also a sign that the economy will continue to face dangers ahead, which won’t be headed off in a timely manner.

To listen to the full podcast, click here.

Stock Picks

The Maverick of Wall Street: Nancy Pelosi Buys the Dip

Posted on by Smart Investing

It’s been no secret that Speaker of the House Nancy Pelosi has managed to become one of the best traders of all time. Thanks to disclosure forms, she’s shown an uncanny knack for getting into stocks (and options on stocks) right before a big move higher.

And overall, following her trades has been a simple way to make decent returns in a short amount of time. Now, Madam Speaker has just started buying the latest market dip.

The Speaker is a big proponent of buying tech stocks over the years. That sector has been the hardest-hit part of the market in the latest selloff.

And her latest buys may indicate that the market is due for a sizeable rally higher.

Those buys? Call options on Microsoft (MSFT) and Apple (AAPL). Pelosi has put up about $2.1 million on these call options.

That’s a fairly high-conviction trade, given that the cost is nearly 10 years of salary for the Speaker.

While some deride Pelosi’s actions as insider trading, and on some level it is, following her trades can lead to market-beating returns.

Investors just need to bear in mind with options trading that it may become time to sell quickly following a big move higher.

To view the full video outlining Nancy Pelosi’s trading activity (and satirical takes on it), click here.

 

Economy

Stay-At-Home Macro: We Are Not in a Recession, Nor Is One Imminent

Posted on by Smart Investing

Talk of a recession has ramped up in recent weeks. The first quarter GDP data showing a drop of 1.3 percent took many by surprise. A second such quarterly decline in a row would meet the actual definition of a recession.

But we may not get there. That’s because the data shows that the labor market is strong. And if the labor market is in a strong, most other economic problems are solvable.

Meanwhile, 7 out of 10 surveyed expect that the job market will be the same or better in the next year. If the labor market remains strong, rather than show signs of increasing layoffs, then the chances of a recession are slim.

Consumer spending makes up about 70 percent of the US economy. Yet spending is up about 3 percent in the past year. Even after adjusted for today’s high inflation levels, it’s clear that consumers are holding up well.

When consumer spending falters, that’s when investors should be concerned about a recession. The stock market will also start to price in the drop in spending, long before a recession is noted and declared.

Looking at these big-picture pieces of data, it’s clear that investors are still worried about inflation. But the possibility of a recession, beyond one that marks a technical drop for two quarters in a row, looks slim right now.

To read the full blog and view the charts and data with it, click here.