The economy is disproportionately affecting lower-income households and higher-income households. The rich, as they say, are getting richer. Many of the not-so-rich, sadly, still need assistance. Let’s face it — if you are reading this column, you are probably well-educated and successful. Most well-educated, successful people are also generous. Generosity is often directed by awareness. I know it’s seemingly callous to consider the economic ramifications of homelessness or lower-income households on investor portfolios. But it’s the very kind of impact that I will continually address, both in this column in “numbers” as well as in my commitment to addressing the…
Insights & Advice
Exchange Traded Funds
Inflation fears weigh on investors
Most stocks took it on the chin earlier this week. Technology shares lead the rout, but it didn’t take long before just about everything else followed tech lower. By the end of the week, it was as if nothing had happened. That’s called “chop.” Get used to it. The Consumer Price Index (CPI), which investors use to gauge future inflation, took the lion’s share of the blame for the downdraft in equities. Economists had warned that we should expect a higher monthly reading (0.2%) for April, but the data came in at 0.8%. That computes to a 4.2% price gain…
Bitcoin is…
Bitcoin is “disgusting and contrary to the interests of civilization.” —Charlie Munger, vice-chairman of Berkshire Hathaway When I was 17 years old, I bought shares of the Stop & Shop Supermarket Company (that grocery chain is now part of the Ahold Delhaize conglomerate). Being the kid I was, I held it only long enough to make the money I needed to buy the computer and the mountain bike I wanted. Stop & Shop wasn’t the only stock I considered. I remember ruling out Berkshire Hathaway because I didn’t have the $6,000-or-so to buy one single share. Maybe I should have split more wood…
The pastrami must be amazing
Corporate earnings for the first quarter of 2021 were released in earnest last week. If you listen to the earnings guidance from one soft drink company, there’s good reason to have a Coke and a smile. Coca-Cola blew past both its earnings and revenue expectations. But since I tend to advocate for the use of exchange-traded funds (ETFs), you may wonder why I care. James Quincy, the CEO of Coca-Cola, called the company’s earnings a “super encouraging” sign that the world is reopening after being shut down due to COVID-19 precautions. Coca-Cola derives about half of its sales from locations…
Will infrastructure spending boost clean energy stocks?
Renewable energy stocks were all the rage last year. This year, however, not so much, with clean energy funds taking hits of between 25-50%. Will President Biden’s proposed $3 trillion infrastructure bill breathe new life into this sector? President Biden ran on a platform that included the build out of an infrastructure plan that would “achieve net-zero emissions, economy-wide, by no later than 2050.” By the time of his November election last year, investors had bid up the clean energy sector, which includes everything from electric cars and clean water to solar and wind power, by over 200% in some…
CAPITAL IDEAS: What a year
“It was the best of times, it was the worst of times … it was the season of light, it was the season of darkness, it was the spring of hope, it was the winter of despair.” — Charles Dickens The year 2020 was dreadful. Our neighbors, friends, and family lost jobs as the economy struggled with COVID-19. Tragically, some of us lost loved ones to the virus. I keep those losses in mind as I review the year for the stock market. My intention isn’t to spike the ball in celebration of how well the stock market performed. Instead, it…
Cross currents confuse investors
You would think that with a $1.9 trillion spending package, an increasing rate of coronavirus vaccinations, and a potential $3 trillion infrastructure package waiting in the wings, the market would be at record highs. The fact it is not should tell you something about the indecision plaguing investors. When good news fails to impress, it usually means stocks (or at least some stocks) are headed lower. That should come as little surprise to readers. I advised investors to raise cash last month in preparation for what I see as a buying opportunity this month. The challenge: when do you put…
Rising rates create headwinds for stocks
The saga of rising interest rates in the long end of the U.S. Treasury market continued this week. Investors, fearing runaway inflation, sold both bonds and stocks. Will the selling continue, or is this a buying opportunity? It depends upon which asset class we are talking about. Yields on the 10, 20, and 30-year U.S. Treasury Bonds, I believe, will continue to rise. How far? It is possible that the benchmark “Tens” could finish the year at 2%. In the short-term, however, I expect yields to fall a bit on profit-taking. Last week, I warned readers that the rise in…
CAPITAL IDEAS: Do you have excess savings?
The U.S. Gross Domestic Product (GDP) has almost recovered from its pandemic loss. According to JP Morgan, the last GDP calculation was merely 1.3 percent less than its February 2020 peak. According to the Atlanta Fed’s GDPNow forecast, the U.S. economy will surpass its pre-COVID-19 peak this quarter. With the caveat that we’re only about two-thirds of the way through and anything can happen in a month (remember March 2020?), the Atlanta Fed’s model currently forecasts a 9.6 percent growth rate of GDP for the first quarter of 2021. Unfortunately, that sounds better than it is. The official unemployment rate of 6.3…
CAPITAL IDEAS: A bubble in ‘stonks’
COVID-19 vaccination update The good news: COVID-19 cases and hospitalizations have improved recently in the U.S. As of February 15, 2021, 54.6 million doses have been given. An average of 1.64 million doses per day are being administered. The bad news: Infections of the more contagious variant from the U.K. are doubling every 10 days in the U.S. This mutant strain may reverse the positive trends that have occurred since January 9, 2021. More infections would slow the reopening of the economy and be a headwind for job creation. Retail trading: Froth and frenzy Retail investors are bidding up so-called “meme” stocks…
Stocks versus Bitcoin
There was no contest this week. Cryptocurrencies took center stage as the stock market churned, chopped and gave investors a little indigestion. Welcome to the market’s brave new world. It appeared that Bitcoin was the answer to whatever ails you. Higher interest rates, the threat of higher inflation, weaker (or stronger) dollar, no problem, just buy Bitcoin. By the end of this week, the crypto coin had chalked up a 15% gain and was trading above $52,000. Ethereum, Bitcoin’s younger cousin, was also up 10%. None of the financial market’s usual suspects—stocks, bonds, or commodities—could come close to those kinds…
Financial froth infects markets
One sure sign that stocks are getting overdone, is the actions of overconfident investors that bid up stocks in a euphoric frenzy, only to dump them at the first sign of trouble. These behavior patterns normally usher in a corrective stage in the stock market, but exactly when that will occur is anyone’s guess. Investopia’s definition of froth “refers to a market condition where an asset’s price begins to increase beyond its intrinsic value.” Wall Street’s “Reefer Madness” event this week is just such an example. Certain stocks in the Cannabis sector saw their share prices double and then triple…
Capital Ideas: Politics unusual
COVID-19 Vaccination Update As of February 2, 2021, 32.8 million Americans have now received at least one dose of a COVID-19 vaccine. That was more than those who tested positive for the virus. The average daily rate of vaccinations has reached 1.34 million doses per day. The average daily rate may be affected by the snowstorms of last week, but it seems to be trending upward. Trading a Pullback Valuations are staggeringly high. Nonetheless, I remain invested in equity for the portion of my portfolios intended for that. Despite sky-high valuations, I am hesitant to take bold defensive moves. I…
Stocks regain momentum
What a difference one week makes! Stocks recouped all their losses this week, and then went on to make new highs. The outcome of President Biden’s proposed stimulus bill will determine the market’s next move. Let me set the record straight. Last week, I wrote that I expected stocks to stumble, hopefully preparing readers for a possible decline of 10-15%. That was a mistake. Instead, traders bought last week’s 3% dip, and, at this point, we are now back to square one. Well, not quite. The U.S. dollar, the Ten-Year U.S. Treasury Bond, and the price of gold have all…
Make way for the retail investor!
By now, you may have realized that this is not your father’s stock market, nor will it ever be again. An entirely new army of investors have arrived on the scene with different attitudes, values, and beliefs. You can either get on this train or be left behind. Back in the day, burnt by the Financial Crisis of more than a decade ago, many investors decided to forsake the stock market, embracing bonds instead. Over that time, Americans amassed more than $3 trillion in savings and 94% of that money went into bonds. Those bond buyers have had a good…
Negotiating the market in a pandemic
Dalton, Mass. — I made a couple more trades in my portfolio last week, so I wanted to dedicate the bulk of today’s column to keeping you in the know. A couple of my put/call hedged strategies reached a hair’s breadth of achieving their maximum return cap. The way these things work, as the prices go higher, the potential downside is reset. While the downside protection remains from the starting point of the ETFs’ anniversary date, you could “lose” the appreciation you had made up until that point. That was wonky. Let me rephrase. I invested in some things that could…