Asset protection

A Major Support For Asset Prices Has Reversed

In 2019, we wrote about how corporate share repurchases, or “stock buybacks,” had accounted for nearly all buying in the market. A year later, that significant support for asset prices has reversed.

While markets have certainly been on a tear this year, due to massive amounts of Federal Stimulus, it has been an advance solely on valuation expansion. While the decline in 2020 earnings was no surprise given the pandemic, earnings were already declining in 2019. The chart shows this in the return attribution of the S&P 500.

Overpaying For Earnings

Such is not a new phenomenon. Since 2009, sales per share, what happens at the top of the income statement, has cumulatively grown by just 43% through Q3-2020. It is hard to justify bidding up stocks by 400% based on meager revenue growth. So, Wall Street created metrics like “Operating Earnings” to provide justification. The problem with “Operating Earnings” is they are heavily “fudged” to create a more optimistic picture…CLICK for complete article

Millennials Prefer Bitcoin Over Gold As A Safe Haven Asset

The investing universe has labeled millennials many things: lazy, entitled, narcissistic among other unflattering terms. They have also been accused of being highly risk-averse, preferring flashy investments like crypto over slow-n-steady ones like stocks and bonds.

While some of those platitudes are plain wrong (many millennial stock picks have been handily trouncing the markets), others appear spot on.

And now a survey has established that an overwhelming majority of millennial investors actually prefer bitcoin over gold as the superior safe haven.

A recent global survey by deVere,  one of the world’s largest independent financial advisory and fintech organisations, has revealed that millennials really do prefer bitcoin to gold as a safe-haven asset.

The revelation comes just a week after the world’s largest cryptocurrency touched an all-time high of $19,864.

Digital gold

In the deVere survey, more than two-thirds (67%) of the 700+ millennial respondents said that they think Bitcoin simply is a better safe haven compared to gold.

According to de Vere: “From Ancient Egypt onwards gold has always had immense value and has long been revered as the ultimate safe-haven. It’s always been a go-to asset in times of political, social and economic uncertainty as it is expected to retain its value or even grow in value when other assets fall, therefore enabling investors to reduce their exposure to losses. But, as this survey reveals, Bitcoin could be dethroned within a generation as millennials and younger investors, who are so-called ‘digital natives’, believe it competes better against gold as a safe-haven asset.” CLICK for complete article

‘The Zoom Boom’: Asia Leads the World in Covid-19 Economic Recovery

Our friends over at Integrated Wealth Management sent over another article they thought you’d enjoy. ~Ed.
Our market outlook can be hampered by focusing on conditions “in our own backyard” which isn’t indicative of the big picture. Asia is leading the recovery right now. China is projected to grow nearly 2% this year , Vietnam 1.6%, Taiwan will be flat and South Korea to contract modestly compared to a 4.4% global contraction. So what we see as easing demand around us is being picked up elsewhere. ~Sandor Kiss, IWM

Click for article.

Investors Go “All-In” Without A Net

We have recently written a couple of posts about the “exuberance” that has invaded the market since the election. Such is often seen near short- to intermediate-term peaks in markets as investors go “all-in” without a net.

It was on December 5th, 1996, during a televised speech, that Fed Chairman Alan Greenspan stated:

“Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?”

It is an interesting point that the U.S. has sustained low rates of inflation combined with monetary and fiscal stimulus, which have lowered risk premiums, leading to an inflation of asset prices.

As cyclical stocks rebound, investors eyeing whether their earnings comeback will justify the move

Interesting article that our friends over at Integrated Wealth Management thought you’d enjoy. ~Ed. While the market has rebounded significantly since March lows, the recovery has primarily been driven by a handful of tech stocks, while cyclical stocks in energy, industrials and real estate have lagged. But conditions appears to be forming that cyclicals may be poised to reward investors more during the recovery from COVID. Click to read article.

The Housing Debt Bubble Is Going To Burst

The $100B+ Housing Debt Bubble Is Going To Burst

“Being self-employed, I don’t like to add extra bills or burdens, and with a moratorium, there’s no guarantee that later I won’t be further into debt.” 

                                                Lucy, freelance photographer, Colorado – July 2020

Lucy’s concern about accumulating debt echoes across America. Millions of renters and homeowners are anxious about paying both their monthly housing bill and a ballooning debt balance.

Based on present missed payment rates, consumers will accumulate at least $100B in housing debt by January 2021. The following model describes a set of linked health, social and economic events. These events are likely to unfold in next 6 months.  An uncontrolled wave of virus infections drives the cascading economic impact:

    Virus growth uncontrolled > economic activity contracts > unemployment rises

  > personal income falls > consumers miss rent and mortgage payments

 > rent and mortgage payment moratoriums fail > consumers use credit cards to make payments

> small business apartment landlords & homeowners default on mortgages (debt bubble bursts)

consumer spending dives

Our analysis starts by examining the virus 3rd wave and a likely increase in lockdowns.

Virus Growth Uncontrolled

On November 2st the U.S. had a 44% increase in daily COVID-19 to 93,581. The chart below indicates the second wave of infections did not decline to the first wave low. Thus, experts forecast a third winter wave peak of cases will be higher than the second spring wave peak.

Hospitalizations are rising in 42 states. Nineteen states report their highest hospitalization rate since the pandemic began in March.  Uncontrolled virus infections will result in more partial or full lockdowns of intense social activity businesses including, hotels, restaurants, bars, theaters, sports stadiums, indoor arenas, offices, transit, airlines, hair salons, and personal services.  An indication of what the U.S. may face soon is unfolding now in the United Kingdom, Germany, and France. These EU countries are tightening pandemic restrictions at levels not seen since last June.  Meantime, U.S. businesses, such as internet entertainment, technology services, eCommerce and, socially distanced grocery stores, will continue to grow…CLICK for complete article