Welcome To Our Hawley Advisors Blog

We hope you find the articles on our blog informative and helpful. You are always welcome to chat with us if you have any questions about your personal financial situation.

RSI Technical Indicator

RSI otherwise known as the Relative Strength Index is a measure of strength or momentum in the price action of a stock, commodity, ETF or other tradeable instrument. It measures the magnitude of price action strength on a relative scale and is displayed as an oscillator with a measurement parameter between 0 and 100. The top range e.g. 70-100 typically indicates relatively overbought conditions whereas the bottom range 0-30 can indicate oversold conditions within a given or chosen timeframe. The longer the timeframe over which this is measured the stronger the signal as a function of trend.

Investors and traders will use this signal to gauge - over different timeframes - from days to years, potential buy and sell decisions or portfolio rebalancing decisions. As with all technical signals they should be used in concert with other technical signals to confirm the probability or weighting of that signal's validity. Technical analysis can provide probability weightings for buy sell decisions providing a statistical bell curve that will indicate how often a signal or combination of signals in a given market, under various economic conditions and different timeframes is accurate with respect to signalling a change in trend.

As you can see on the diagram in the left, the yellow circles show corresponding lows and highs in the weekly stock price of SESN as well as a corresponding RSI indicator below 30 and above 70. RSI indicators can show multiple signals above 70 or below 30 so the first time the line crosses over these values does not necessarily mean a low or high has been reached which is why it is best to use technical analysis in combination with a range of different signals to get a higher probability signal or confirmation of whether a shift in price trend - up or down - is pending.

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The Case for Negative Interest Rates - Rationale, Risks and Origins

Why on earth would a bank charge negative interest rates? It's so " upside down" and counter-intutive we thought it would be a good idea to cover the topic in this weeks blog post.

During times of economic uncertainty central banks lacking in policy alternatives to stimulate the economy have turned to unconventional policies such as negative interest rates to stimulate the economy. The use of negative interest rates is a tool to counter potential deflationary spirals where - in times of economic uncertainty - there is less incentive on the part of businesses and consumers to spend and therefore less investment, growth, profits and a higher propensity for unemployment which in turn creates a negative feedback loop. By offering negative interest rates banks disincentivize individuals and businesses to hold cash at banks as it now costs depositors money to do so (which turns the traditional banking model on its head) and encourages businesses and individuals to borrow money by actually being paid to borrow by the banks.

Sweden was the first to experiment with negative rates in July 2009 when the Reiksbank cut interest rates to -.25%. The ECB (European Central Bank) did so in 2014 lowering its interest rate to -0.10%. Other European countries and Japan have done likewise with over $10 trillion in government debt carrying instrument with negative yields by 2017. The objective is to encourage banks to lend money rather than hold reserves at the central banks (where they are now charged for the privilege). Another objective is to use negative interest rates to devalue a currency and in essence make it more competitive, stimulating the economy through demands for export of goods and thereby encouraging business expansion.  This has been one of the objectives of the ECB.

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28 Trillion Reasons to be Vigilant

$28 Trillion - take a moment to reflect on this number - is the current total of the US National Debt. As of June 17th it is precisely $28,311,074,615,442.85. We titled this blog post "28 Trillion reasons to be vigilant" because this number is not going down, has not gone down in the last 15 years and is unlikely to go down. So, what does this mean for the USA and for you?

1.The cost of servicing the national debt as a percentage of US revenue is going up.

2.If interest rates rise significantly, even as high as 3-4%, how sustainable is servicing the national debt? The Fed has a significant incentive - 28 trillion incentives - to keep interest rates as close to zero for as long as possible without going into negative yield territory. This would very likely have been the case had COVID never happened. COVID however has provided the US a perfect storm to do keep interest rates at all time lows and inject $6 trillion and counting into the economy. This serves several national purposes: It provides massive liquidity to withstand the shock of COVID, it devalues the US dollar by doing so, which in turn dilutes the national debt value, it keeps interest payments on the national debt as low as possible and it allows for the most optimum conditions for the economy to return to pre-COVID employment numbers.

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Identifying Trends and Moving Averages

Stock, Commodity or Bond prices do not move in a straight line. All fluctuate with changing variables including but not limited to economic, political, competitive, human or technological factors. Identifying price trends is the underlying basis of technical analysis and critical to traders and investors whether it is over a short, medium or long term basis. To do this, the technical analyst has hundreds of technical indicators at their disposal that are now also woven together in trading algorithms, AI (artifical intelligence) and trading BOT's that operate independent (largely) of any human.

Today we are going to discuss 'moving averages" which track trendlines. There are only 3 potential trendlines for any security which is Up, Down or Sideways. Moving averages track and chart prices - over different timelines - and with different formulas. For example, a simple moving average charts the closing prices of stocks over periods such as 20, 50, 100, 200 or 400 or more days. An exponential moving average places more emphasis and wieght on recent price changes than past price changes. These moving averages can be used to track micro, medium and macro trends and trends within trends. Certain moving averages are better suited or more accurate depeding on the timeline being measured. As the name suggests "moving average trend lines track "averages" which inevitably do not account for unexpected sudden events. They are "reactionary" pattern indicators and predictive only to a certain extent. As such they have value for investors or traders but they are not absolute.

Moving indicators track trends and the convergence of various moving indicators can provide "confirmatory strength" signals of a trend or additional weighting to the preponderance of a trend. Again, while no signal is written in stone, they must be understood in the context of "probability analysis" and historic metrics which in turn provide "odds". On a relative basis, these odds can determine risk and positioning in time and over time. For example if a 20 day average crosses a 50 day moving average or a 50 day average crosses a 200 day moving average to the upside or the downside, these can be indicative of a supporting trend and it's strength or weakness.

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The Melt Up Ingredients -Stimulus, Debt, Inflation & Low Interest Rates

We have seen this movie before. After the roaring 1920's, the stock market melted up to euphoric highs only to crash in stupendous fashion. In the internet boom of the late 1990's the NASDAQ hit likewise euphoric highs only to crash back down to earth. Following extremely lax lending practices coupled with low interest rates the flying real estate boom coupled with mortgage backed securities fueled the 2007/8 great recession taking the entire banking and monetary system to the brink. Massive stimulus injections lifted us out of that great depression.

Economists have long seen repeating economic cycles in history. Booms followed by Bubbles and then Busts with long periods of economic stagnation, only for the cycle to repeat. We have written about this before but want to write about it again because while we have seen this movie before in the US and all around the world, the movie we are seeing unfold the US today is different to one's we have seen in US history.  

The convergence of record national debt, stimulus, low interest rates, inflation, a booming stock market in the midst of a global recession have created a mix of ingredients that could fuel one of the great bubbles and busts of the modern era.

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What's Chaikin Folks? Identifying Money Flows

There is a whole lot of Chaikin going on! In todays blog post we are continuing the series about technical analysis and the large toolbox of indicators available. Today we are looking at an indicator that attempts to measure money flows into and out of a security.

The Chaikin Money Flow was created by Marc Chaikin along with the Chaikin Oscillator and Accumulation/Distribution signals to measure the flow of money into or out of a security over a given period of time.

The Money Flow Volume was conceived by Chaikin to measure the buying and selling pressure for a security over a user defined period of time such as 15, 50 or 200 days. The most popular setting for this indicator is over a 20-21 day period. The value of the oscillator swings between 1 and -1 with buying pressure being greatest when the value is closest to 1 and selling pressure being greatest when the value is closer to -1.

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Inflation - How Big a Risk Is It?

The exponential rise in the national debt since COVID began by the tune of more than $3.8 Trillion of stimulus monies was inevitably going to lead to a wave of hard asset inflation as well as consumer inflation. The only question was "how much"?

In the last couple of days, the markets woke up to the fact that inflation might be worse than the federal reserve predicted. The CPI (Consumer Price Index) numbers released for April 2021 rose 0.8% versus an expected rise of 0.2% month over month. Should we be alarmed and worried? In the short term, the answer is "not really". If you have been tracking first quarter earnings calls, you will have heard many CEO's describing how tight supply chains are right now. Higher costs of raw material inputs are being passed onto the consumer. As COVID restrictions ease and consumer demand for goods and services rise alongside tight supply chains operating on "just in time" demand cycles, the natural consequence of greater demand and tight supplies is higher price increases.

It is difficult to say how inflation numbers will fare over the coming months as it will take time for supply chains to re-calibrate and meet rising demand.  However, as this occurrs, inflation numbers will likely decrease as supply increases. Overall, however, we expect the inflation trend to show up as net higher consumer prices across most hard and soft asset categories, compared to before the pandemic.

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The Impact of The Biden Tax Plan

Joe Biden announced his new trillion dollar infrastructure plan last week and how he intends to fund it, which sent chills through the markets and the $400,000 plus annual income earners. Of course, this should not have come as a surprise. The odds of the Biden Administration not implementing such a key campaign promise was close to zero. What the announcement did do was sound the alarm ammong the top segment of american earners that it was time to take action and evaluate steps to mitigate taxes going forward under the likely scenarios outlined by the president.

The actual proposal however still needs to pass the chambers of congress and the resulting outcomes will not be known until it does. It is likely that the proposed announcement of a hike on income and capital gains taxes was a negotiating tactic and it would be unlikley that long term capital gains would be as high as the 39.6% proposed rate and more likely to be sub 30%. In addition, it is anticipated that there will be an increase in estate and gift taxes which will also require heirs to pay capital gains taxes on assets above a certain amount that they inherit.

The cosy tax rules governing asset inheritances which has allowed wealth to be locked up generationally without taxes needing to be paid on any assets held for the long term looks likely to change. The Biden infrastructure proposal needs funds to pay for it and just adding to the national debt to pay for it is not a solution. In a predominant capitalist society the spoils of industry and most advantageous tax rules go to the few while comparatively much larger segments of the population live on sub $15/hour wages and are unable to cover the increasingly expensive needs of life.The middle classes are shrinking and the working classes have felt left behind.The new Biden Tax plan aims to address some of these imbalances.

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Technical Indicators - Bollinger Bands

This week, we are going to continue with our "key technical indicators" series for stocks or any publicly traded instrument for that matter. Today, we are going to explore "Bollinger Bands".

Bollinger bands are a volatility indicator that depict two deviations from a moving average in the price trend of a stock, commodity, fund etc. This is depicted as two lines on either side of a moving average indicator which represent the outer (upper and lower) bands from the moving average. When a stock, on the upside, rises above the outermost upper band as in the chart on the left this can indicate the stock is over bought and may be an opportune moment to sell. Likewise, if the price trend falls below the outermost lower band, it can indicate the stock is over-sold and may be an opportune moment to buy.

As with any technical indicator, these can be used over different trading timelines whether this is intra day, daily, weekly, monthly or any timeframe you may choose. Their relative significance will also vary by the timeline you choose and as always are useful to use in combination with other technical indicators and values.

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Stock Indicators - MACD

Over the coming months we will discuss a variety of stock indicators and how these can help an investor identify market cycles and significant shifts in market or company fortunes. Investors have different time horizons which can vary from 1 day to 30 years. Regardless of the investment timeframe, you must determine an entry and exit price which may or may not sync with your investment timeframe.

Stock market indicators can help identify market trends, volume, volatility and momentum across different timeframes. The longer the timeframe e.g. days, weeks or months over which one can measure results, the more consistent the resulting patterns and analysis will be. If you are trading intra-day then the bigger investment picture or outlook for a company, commodity, fund or ETF is hardly relevant. Chart indicators however can be helpful regardless of timeframe.

In this article we will examine the MACD or Moving Average Convergence Divergence indicator. This indicator can help identify shifts in trends in price both to the up and downside.

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China Issues Digital Currency - The Big News That is Not Being Covered with Giant Implications

China has issued a digital Yuan and it's got governments around the world scared and in catch-up mode. So what's the big deal? The world is moving at breakneck pace to a digital based currency system. Cash is being phased out. Consumers around the world are paying increasingly with debit and credit cards. Cash is being used less and less and this trend has only accellerated since the advent of COVID. It only makes sense in a predominantly digital commerce world that this would be accompanied by government issued digital currencies.

When Facebook announced its intentions to launch Libra, the world took notice and action. When a public company with 2 billion users starts issuing its own currency the financial elite start to panic. Just imagine how much power would shift to Facebook. It could become one of the largest financial payment networks in the world overnight. As if it did not have enough power and influence right now, a move to digital banking would tip the balance of power even further to the digital elite. Mark Zuckerberg's argument was simple. "If we do not do it, someone else will" and that is exactly what is happening with China announcing the launch of its digital currency. However, the implications of China announcing a digital currency are just as far reaching as Facebook's announcement.

From a Geo political and economic standpoint, China's launch into the digital world is a significant threat to the dollars global dominance. A digital currency means the ability to bypass US oversight allowing countries that the US is looking to penalize with sanctions, for example, to bypass international payment networks such as SWIFT (which the US monitors closely) and exchange funds anonymously. China's game plan to weaken US dominance in the world is not exactly a secret. As we have written in previous articles, there is a global economic fight for dominance going on between China, US and the EU (less so). One of the last significant bastions of US power in the world is the dominance of the US dollar as the global reserve currency. Almost 80% of all global trade is done in dollars. China is going to keep doing everything it can to disrupt the last bastion of US power.

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Part 2 - Bubbles, Bonds & The Allocation Dilemma

As we mentioned in part one of this article last week, wealth management firms are managing a cross-section of economic conditions and asset classes that each carry comparative risk. We define comparative risk as the "opportunity cost" of asset allocation in which "yield" is the primary measure by clients.

How much "risk on" or "risk off" is the asset allocation question in the midst of what are inevitably "unknown timeframes" and economic conditions that can outlast any rational mind.

In this article we will talk about some other dilemna's facing wealth management firms and their clients:-

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Bubbles, Bonds & The Allocation Dilemma - Part 1

In the last months we have written about bubbles, bonds and the shifting balanced portfolio model in an inflation prone environment. We have a unique mix of variables in play today unlike any other time in history. Zero to 1.6 percent bond yields that are unlikely to cover the rate of inflation, so in essence, negative yielding. There is little to no room for bond prices to rise so the next logical question is: What's the economic rationale for holding bonds? For most institutions, at this juncture and in a climate of forseable low interest rates per the Federal Reserve, bonds are looking increasingly like a losing proposition.

As Christina Lagarde, the head of the ECB (European Central Bank) recently commented "Higher market interest rates pose a significant risk to financing conditions (e.g. a recovery). Rising bond yileds could lead to premature lightening" of credit conditions which of course would hamper yes, you guessed it, a recovery. COVID has walloped the Global Economy, created sky high unemployment and generated a bigger wealth divide. The answer per the Federal Reserve and ECB is continued stimulus and low, exceedingly low, rates.

The Bond Dilemma unless you are Microstrategy

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The Bond Crisis Part 2 - Challenging The Traditional Asset Allocation Model

In the first part of this article we looked at why the Bond market is in crisis. In this second part we will look at what happened in the bond marketi n 2020 and 2021 to date and what the elite investors are saying about it.

Challenges for the Bond Market in 2020 and 2021

The last year has been challenging. Bonds rallied as equities started to fall in February 2020, but when equity markets collapsed in March 2020 so did bonds.When equity markets bounced back, bonds did not. As a result, the long held assumption about the protection you get from holding bonds which is that bond prices rise when yields fall or the economy slumps has come into question. 

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The Bond Crisis - Challenging The Traditional Asset Allocation Model - Part 1

The Bond market is in crisis. The last 2-3 year market dynamics are challenging the effectiveness of the traditional "balanced portfolio model" comprising in general of a 60/40 Equity/Bond allocation, a model that has stood the test of time in manging risk and equity market cycles. In a close to zero interest rate climate with high inflationary risk, the investment rationale for holding bonds is now being called into question.

Let's dive a little deeper into the issue with a two part article. The first part looks at what is happening in the Bond market and the second part which we will publish mid-week will look at the trends in the bond market in 2020 and 2021 and what the elite of the investment world are saying about it.

What is happening with Bonds and Why?

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4 Powerful But Often Overlooked Ways to Free Up Capital for Investing in Your Financial Future

The expression that the “devil is in the details” refers to the little often overlooked items that can sometimes “cost you” whether it is an overlooked item requiring compliance, a payment or exit clause for ending a contract that you did not see or just overlooking some ingredients in a recipe that resulted in a dud recipe.

In the world of personal finance we can at times be stretched when trying to  find money in our budget to allocate to our investment and retirement plan. Inspecting our spending patterns and finding ways to cut expenses and save what may seem like small inconsequential expenditures can significantly miss  the “devil in the details” and the bigger financial picture.

We are discussing this by way of example to illustrate how this one exercise can make a big difference. Just imagine if your investments and all the other details concerning your wealth were managed with the same expert precision. As we will illustrate, it can make ALL the difference and ensure you enjoy a more comfortable retirement. Let’s look at just 4 examples of where you may be able to cut expenditures and then add up the savings and what the value of doing this for 5 years could add up to over a 25 year period.

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De-Fi: What is it & How It Is Changing the Financial Landscape?

De-FI is an abbreviation for Decentralised Finance and it is changing the global financial landscape. So, what exactly is decentralized finance? De-Fi has arisen in sync with the blockchain revolution and a smart contract platform called "Ethereum" which is an entire universe or the first world computer providing a base technology layer on which every conceivable application is being built to transact business in a secure, borderless and efficient manner. Decentralized Finance or the ability to trade stock, token or asset transactions on decentralized exchanges "peer to peer" without a middleman such as a traditional stock exchange, dramatically lowers the fee structure of what you would pay on a traditional exchange.  

You can now trade stocks, tokens and soon, every type of commodity, asset and collectable "peer to peer" directly without a "trusted middle party" e.g. a bank or stock exchange.These new decentralized platforms also known as DEX's are "Peer to Peer" and "trustless" meaning they do not require Person A knowing and trusting Person B to make a trade or exchange. The Decentralized Exchange (DEX) itself provides the mechanism for a secure exchange.

The Gamestop debacle has opened people's eyes to the fact that not only are "free trading" platforms such as Robinhood not free, they are also subject to censorship rendering the retail investor powerless when it suits the centralized exchanges. Retail buyers and sellers may not know it, but they pay a mark-up or mark-down in the price of any financial instrument (when they buy or sell) essentially paying a premiium for each transaction which is pocketed by the exchange and its partners. Furthermore, as Gamestop investors found out, once losses to a select number of hedge funds became too acute, Robinhood stepped in - under pressure from its peers - to halt or limit trading to the detriment of retail investors.

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Wealth Management Plans While Markets Sour

If you have been reading the market headlines this week, Gamestop and AMC's meteoric stock price increases have been in the news as the "revenge of retail" makes it's mark on the hedge fund industry. This incident has rattled the markets along with a more circumspect re-examination of expectations for a second half 2021 economic recovery given the new South Africa COVID-19 variant and delays in the vaccination supply. The dizzying rallies in Gamestop alongside new market highs and souring expectations has given pause for thought. Have the markets come too far, too soon!

In one of our earlier articles, we outlined why we think that 2021 could be a strong year for the market based on the massive stimulus that has been injected into the economy coupled with close to zero interest rates. We also noted that delays with the vaccination roll out and potential mutations could prolong the "COVID Blues" and delay an expected economic recovery. There are other potential issues such as an escalation of economic tensions with China. These "uncertainties" provide ample fodder for market corrections in a likely continuation of the bull market.

One Professor, Jeremy Siegel, author of "Stocks for the long run" shares a similar ooutlook and is not blinking an eye in the midst of this market correction, standing firm with his latest prediction that the Dow will reach at least 35,000 in 2021.

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What is the difference between a Financial Planner & Wealth Management advisory?

A financial planner typically assists with lifestyle planning which may include budgeting, planning for college and retirement, for example. Wealth management can include financial planning but also covers a wide expanse of financial advisory disciplines including portfolio management, investment, risk analysis as well as looking at how a person, family or foundation can optimize their tax situation, legacy planning (inclusive of Trusts) and how to protect your wealth with respect to potential legal threats or events where you may have liability if you are at fault.

Wealth Management is a far more complex and comprehensive discipline

A wealth management advisory takes a comprehensive look at the financial needs, situation and goals of their clients and will provide a complete A-Z list of financial, risk mitigation and tax optimization services that manage and protect a client’s wealth. Financial planners provide one aspect of financial advisory with respect to helping clients' manage their daily finances, credit, plan for their children’s college and more general retirement advice. While critical and helpful, these services do not compare to the scope and complexity of services provided by wealth management firms.

Differences In Training

Wealth management requires considerable expertise, training and a high level of fiduciary obligation to one’s clients. There are very specific procedures that must be followed with respect to client interactions, safeguarding of information, privacy and so forth. In addition wealth management and investment requires significant training and discipline. Wealth management companies will typically employ CFA’s (Chartered Financial Analysts) and CFP’s (certified financial planners) and have significant experience managing assets inclusive of stocks, bonds and other investments.

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Market Trends for 2021 Part Two

Last week we wrote about trends that we think will continue into 2021 from 2020. Big technology shifts across AI, 5G, IOT, Blockchain and so forth are going to disrupt and accelerate change across many industries. Banking & Finance is one industry for example that is being challenged by the growing defi (decentralized finance) markets which now have north of $20 billion of assets in their ecosystem. We expect this trend to innovate and grow rapidly providing a growing number of options and products to serve the market.

With a new incoming administration, the stimulus packages will continue. Aside from the growing national debt and its staggering size, this continued onslaught of money flooding into the economy will continue to fuel inflation and devalue the US dollar. The latter alongside low interest rates will force asset managers and every day investors and retirees to seek yield that can offset the loss in value of holding cash.

1. The enormous injection of monies into the economy will cause most quality hard assets to rise in value

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Market Trends for 2021

First of all, Happy New Year to you! May we all look forward to seeing COVID in the rear mirror at some point in 2021. No doubt, getting enough of the population vaccinated will take longer than we all hope, but it will happen and science will help us put COVID behind us. There is a known variant circulating, first identified in South Afria and then in the UK and Europe and now in the USA. While it is not certain whether the current vaccines on the market account for this variant, they will find a vaccine for this one too if the current vaccines do not.

Due to the inevitable mutations of viruses, it is quite possible (but still unknown) that we may need to get a COVID vaccine each year to ensure we have maximum protection from potential variants. While this is something none of us look forward to, it is no doubt better than the alternative. Obviously medical science is far from perfect and there will always be a small percentage of people who have adverse events to any vaccine. However this is just about the case with every medicine on the planet. The majority will benefit.

The certainty of a vaccine alongside a more unknown supply and vaccination schedule means it is just a matter of time before we return to a new normal. How much time is the unknown.

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Happy Holidays!

We want to take this opportunity to wish all our clients and readers a Very Happy Holiday!

There are 6 Trillion reasons and counting why 2021 is shaping up to be a positive year for many asset classes.

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What the SPAC! What Is It & Why Is It So Popular?

So, what is a SPAC? And why is there so much market talk about these?

SPAC stands for "special purpose acquisition company". It can also be referred to as a “blank-check” or “shell" company. Essentially, a SPAC is a publicly traded company formed by a group of investors with specialized experience in an industry who are looking to acquire a target company, essentially taking a private company, public. Until it acquires a company, the SPAC does not have any revenue or operational business. Essentially it raises money which stays on the balance sheet until a target acquisition has been negotiated.

There are two weaknesses that can be attributed to SPAC's.

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The Huge 2020 IPO Wave And What It Means for 2021

While COVID, the Stock Markets and yes, the election, can claim the most headlines this year, a lesser known headline is playing itself out in 2020, namely the resurgence of IPO's or Intitial Public Offerings with huge gains out of the gate. A cousin of this trend is the emergence of SPAC's (special purpose acquisition companies) which we will touch on more in a future blog article.

AirBnB debuted today as the biggest IPO of 2020. It ended up offering 52 million shares for sale at $68 each which was significantly above their December 1st target of around $44 to $50 per share. The shares (ABNB) started trading on the Nasdaq today at $146 per share rising to $160 per share valuing AirBnB at more than $110 billion. That is 12.5% of the total value of IPO's this year which have included DoorDash (DASH), Palantir Technologies (PLTR), Asana (ASAN) and others.

Yesterday, DoorDash (DASH) Pre-IPO shares which had sold at $102 a share, debuted it's first trading day at $182 per share rising to over $195 valuing the group at over 70 Billion dollars. These are lofty valuations for companies yet to turn a profit. If you are investing for quick profits you better have a clear game plan form the outset.

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The US Dollar - 2020 Trends & Beyond

We are dedicating todays Blog article to the US Dollar and how it has been tracking almost inversely to the US stock market this year. At the height of the COVID onslaught in March and April of 2020, we saw a steep rise in the US dollar to a new 3 year high as investors rushed to safety in the worlds reserve currency while US and global markets fell in rapid succession as the impact, risk and global spread of COVID was priced into the markets. Conversely, as stock markets rallied back to their pre-COVID highs we have seen the dollar steadily fall. A vast injection of liquidity by the Federal Reserve which dwarfed Bernanke's quanititative easing during 2007-2009 eased concerns, risk and pressures on the financial system which in conjunction with close to zero interest rates has fuelled a wave of money seeking higher yields.

At some point in the future, the Fed will reign in its uber generous bond-buying and liquidity injections. However, that point is unlikely to arrive in the next two years which means that investors appetite for seeking yield is unlikely to taper off until that point. An IPO boom coupled with strong market growth is likely to continue into 2021 not-withstanding any new black swan events.

A weaker dollar eased conditions after the 2007/8 financial crisis and it appears that this trend will be mirrored in 2021/2022. We expect the US economy to pick up considerable steam as we come out of a brutal 2020/2021 Winter and optimism around emerging post-COVID lifts people's spirits and business investment. A strong US economy coupled with a weaker dollar and close to zero interest rates should provide the impetus for the stock market to perform well.

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The Origins of Thanksgiving - It May Not Be What You Think

Thanksgiving roots are not in 1621, Plymouth as you might have been accustomed to think.

The Day of Thanksgiving was originally conceived in England in the English Reformation during the reign of Henry 8th. Prior to the reformation there were 95 church holidays and 52 sundays when people were required to attend church and forego work. 95 church holidays! That is not a typo.The priorities during that era were certainly very different from today.

The 1536 reforms reduced the number of holidays to just 27! Some wanted to eliminate even these holidays and replace them with Days of Thankgiving and Days of Fasting. Positive events such as winning a great war, the birth of a royal heir and so forth would be followed with a day of Thanksgiving whereas terrible crisis such as drought, plague or floods would be followed by days of fasting. Great Negative and Positive events were given divine significance that either required pennance to ensure the continued Blessings of the Divine or Thanks to the Divine.

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Generating Alpha. What is it and Why is it Desirable?

When somone in the investment world refers to "generating alpha" or "beating alpha" they are referring to out-performing a given market indexes annual performance. Alpha is a performance indicator and a component of MPT (Modern Potfolio Theory). The objective of modern portfolio theory (MPT) which was developed in the 1950's is to find the best possible diversification strategies with the objective of achieving a greater expected return with a lower amount of risk. In order to do this it evaluates the following five risk variables:

  • alpha
  • beta
  • standard deviation
  • R-squared, and
  • Sharpe ratio.

The overall objective of MPT, as it has evolved, is for investors or rather investment managers/advisors to find a combination of non-correlated investments that have the best potential expected level of return for an appropriate level of risk. 

Investors want to be able to assess the level of performance vs. the risk they are taking. If an investor is taking outsized risk they will expect outsized performance in the event the investment performs as anticipated. If that is not the case, one would naturally have to assess whether taking outsized risk is worth it. 

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Why Navigating the Markets and Your Financial Future Require a Clear Head?

In a sea of constantly moving variables, navigating the markets (an art and science unto itself) and your financial future ( think taxation, IRA's, life insurance, pensions, other critical insurance, the amount needed for your retirement, estate planning) and the situation can be over-whelming. We cannot see the future, so at best we can imperfectly try to predict it based on historic data and patterns that can often repeat.

In order to successfully navigate and compute all of the above variables and potential changes so that you can both protect and maximize your financial future, you need an uncommonly clear head which comes from experience, expertise, knowledge and the ability to adapt. It's not unlike any profession. However, when it comes to your finances the wrong decisions can have an irreversible impact on your life and loved one's.

As a former airline pilot many years ago, you qickly learn there is no room for "error". The entire process from take-off to landing requires meticulous attention to detail and any flaws in judgement can have life and death implications. This training has served me well over the 28 years of my financial advisory career. We have a significant ammount of money under management for our clients and this alongside each families complex financial situation and requirements requires precise calculations, ongoing calibration and clear navigation.

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Why Moving Averages Are Simple But Powerful Indicators for Investors

Moving Averages are simple but powerful indcators for investors as they reflect a prevailing trend in the price of a stock, fund or indices, over the short, mid and long term. They can be used alone or in combination with technical analysis or Dow Theory, for example, to chart both primary trends and secondary counter cyclical trends.

There are two principal moving averages used by investors:

1. A Simple Moving Average is a historic weighted average price indicator for a stock, fund or market indices. The objective is to provide an average weighted indicator of the stock price that evens out daily or weekly fluctuations in price. A simple moving average takes the artihmetic "mean" of historic prices over a set period of time whether that is 9, 15, 20, 50, 100 or 200 or more days in the past.

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The Mainstream Media Can Help Investors, but Not Always in the Ways You Might Think

Is the mainstream media a voice you can trust when it comes to helping you manage your wealth? While you may see some good articles on occasion, by and large the mainstream media is there to shock and awe! it's important to remember that the mainstream media's primary objective is to get viewers attention. In order to do that, it needs to utilize copy for headlines that will grab people's attention. It's only business one could say. Sure, but this business can have a significant impact on people's emotions and when it comes to making decisions about matters that impact your finances, emotions can and do play a significant role in peoples decision making.

A neutral headline rarely get's people's attention. When stocks drop or rise significantly, the headlines will capture the mood of "elation" or "depression". The "Sky is falling" is typically the mood when the stock market drops significantly or, alternatively, the mood of "Everyone is making money like it is growing on trees" prevails when the stock market is rising or company "x" is going to go up for ever.

The above is a common default position of the media and while the content will of course be different in every case, the emotion of "fear" or "greed" is underlying the content depending on whether the market or a company is going up or down.

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What is BETA & It's Role in Risk Management?

Beta is a "relative" measure of volatility when measuring a stock or fund against a set market index, in this case the S&P 500. Whether the S&P 500 goes up 1%, 5% or 50% the S&P 500 has a constant Beta value of "1". So, "Beta" is a value assigned to a company based on how it performs over time compared to the S&P 500.

So, for example, if the price of Company A's stock - over a period of time - tends to go up by 2% each time the S&P goes up 1%, the Beta of Company A will be "2". Conversely, if the S&P 500 falls by 1%, Company A will decline by 2%. The higher a company's Beta value is, the more volatile the price deviations will be when compared to the S&P 500 percentile moves.

A company with a high beta value above "1" might describe a young promising but unproven company with high growth prospects. As the overall market goes up, it's value goes up by a multiple of the percentage move in the S&P 500.

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What is Dow Theory & Is it Still Relevant?

Dow Theory Charles Dow and Edward JonesDow Theory was first conceived and developed at the end of the 19th Century by Charles Dow, who along with Edward Jones and Charles Bergstresser founded the Dow Jones Industrial Average in 1896. While Dow Theory was developed by Charles Dow, he was unable to complete his ideas around this as he died in 1902. it was later expanded upon by by William Hamilton in the 1920s, Robert Rhea in the 1930s, and E. George Shaefer and Richard Russell in the 1960s.

So what is Dow Theory? Dow Theory is a trading methodology that is based on the efficient market hypothesis. Charles Dow believed that the market was - in aggregate - a good indicator or measure of the the state of the economy or confidence in the economy. Therefore, if one could analyze the overall market, one could identify trends that could forecast the direction of the market and individual stocks.

Part of the analysis included an observation that markets experience three layers of trends. The primary layer or trend is that markets are either in a bull or a bear market. Within each of the latter primary trends there are secondary trends working against the primary trend such as pullbacks or rallies, but these occurr in the context of the primary trend which prevails while in motion. These secondary trends can last from 3 weeks to several months. Lastly there a tertiary trends which are minor and may last for a week or two or three and represent static noise.

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Short Term Trading vs. Long Term Investing - Who Are The Winners?

With so much talk in the news of day traders and investors, we thought it would be useful to discuss whether the allure and excitement of short term trading outweighs the more boring strategy of long term investing. On the surface, day trading or short term trading appears to be a relatively easy way to make money. With Tesla and Apple and other tech stocks posting such enormous gains in a relatively short time frame, what is so complicated about doing that?

The reality is that timing the markets and individual stocks in the short term is very challenging for the professional traders with all the tools and technology at their disposal, which makes the odds of success even more stacked against non-professional short term traders. There are periods in time where short term trading strategies can work swimmingly but this this is not the case over the long term.

It is well documented that in general for the most part, buy and hold investors often outperform short term traders (after tax and other costs are factored in) by 6-7% per annum. There are always a small number of day or short -term trader success stories that are promoted by the media of course, but the reality is that over the long term most day or short term traders are not successful and eventually lose money.

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Why More Stimulus is Inevitable Along With Rising Inflation & A Likely Devaluation of the Dollar

The COVID induced recession has had a severe impact on the economy with the poorer segments of the population bearing the brunt of the impact. Millions have lost jobs or seen their income significantly reduced. While the Government stepped up with over $3 Trillion in stimulus and support to small and large businesses, extending and supplementing unemployment benefits, the supplemental benefits ended last month. States have also stepped up asking utility companies to put a morotorium on payments for those who have lost their jobs. These morotorium's are also expiring in many states.

More Stimulus is Inevitable

It is estimated by the NEADA that electric and gas debts will exceed $24.3 billion by the end of 2020. In Indiana, for example, it is estimated that over 110,000 households are behind on their utility bills by over 120 days. In Wisconsin 3 in 10 households are behind on their bills. This is just the tip of the iceberg. A percentage of the very same households are behind on rent or mortgage payments. The impact on the health, security and safety of families who are impacted by this is serious. Likewise these sums will have a significant impact on the utlity companies themselves.

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Markets and Election Years - Is there a consistent pattern?

As we head into another election cycle, can history provide is with any clues about how the market or rather the institutional money behaves?

Elections and their respective winning party policy outcomes inevitably have impact on businesses, taxation and the economy. The closer the race is, the more diverse the policies and the more unknown the outcome, the less certainty the markets or investors have.

It would be logical to assume in such instances that institutional money is going to de-risk and hedge their portfolios to some extent going into an election.

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Market Valuation Models - Are They Useful for Identifying Opportunity & Managing Risk?

Valuation models such as the Price/Earnings (P/E) Ratio or adjusted versions of the latter such as the Shiller price-to-earnings ratio (which is a P/E ratio based on average inflation-adjusted earnings from the previous 10 years) aim to project and predict the relative earnings power of a company over a period of 10 years. The higher the PE ratio is, the greater the expectation a company will deliver strong growth and profits. The expectations of strong growth and profits and rewarded by the markets with a higher valuation. Conversely, the lower the P/E Ratio, the lower the expectation of the company's growth rate. This is likewise reflected in the overall valuation of a company.  Price/Earnings rate multiples will inevitably decline once a company reaches a certain size which is offset to a degree by the greater earnings realized.

Can the P/E ratio help you mitigate risk and optimize returns? It can be a useful factor or variable that should be taken into account along with a number of other variables. For example, it is a useful measure for comparing a company to it's competitors and the aggregate P/E ratio of companies in a particular sector vs another sector of the economy or the market as a whole. Expectations are of course based on human analysis and an unknown outlook of the future. The higher the expectations and resulting valuations, the more risk as a lot needs to go right and keep going "right" in order to justify higher P/E ratios and valuations.

High P/E Ratios can help you identify up and coming companies that the market is identifying as having the strongest potential. Such companies are often referred to as "Momentum" stocks and can deliver significant gains. Companies with strong sales growth provide a foundational underlying metric that offers investors a rational reason for paying a high P/E Ratio for a company. However, this is not always the case. Companies can command high P/E ratios on the promise of high sales and earnings expectations while not yet having any meaningful revenues or earnings. Such companies command even higher risk and warrant expert analysis.

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Market Psychology & Cycles That Repeat

As investors for the long term, market cycles are an inveitable part of the capitalist boom (expansionary monetary environment) and bust (contraction of credit) cycles that ebb and flow with the economy. Bull and Bear markets are a constant. History proves out for the last hundred years that the overall market trajectory is up, so if you are investing for the long term you dont have to worry providing you are not relying on the market for a significant part of your monthly income. For long term investors who dont need to draw down on their portfolios for income purposes, the psychology to adopt is: "ignore market downturns" and "continue to live your life." The markets will come back. The last hundred years proves they always do!

For strategic traders who want to take advantage of transitions from Bear to Bull Markets or Bull to Bear markets, market psychology can prove a valuable tool (among others) to gauge when to get out or get in.

So what do market tops or bottoms have in common?

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Why Has The Fed Shifted to A New Policy Framework?

The Fed monetary policy is changing, focused now on the "broad based and inclusive goal of full employment". The long held belief that low unemployment was a signal for potential inflation turned out to be a "false" belief. Prior to COVID-19 when the USA apprached its lowest level of unemployment in 50 years economists were surprised to see that there was little to no spike in inflation. The measure(s) of inflation however are complex and an entire paper can be written on the obfuscation of the truth hidden in over 15 different measures of the money supply and how increases in rent, food, health and education expenses are factored into the measure of inflation. We will also not dwell on the fact that trillions of dollars in newly minted currency has entered the economy via the stimulus bills and Fed underpinning of the economy.

For the purposes of this post, we will take the Fed at its word that inflation has been held to less than 2%. That goal however is now going to be sacrificed for the sake of stimulating the economy, job creation and the goal of full unemployment. Forecasts, at this point in time, do not see unemployment falling to less than 5% until the end of 2023. The damage to business and the conomy caused by the coronavirus is going to take time to rectify. The big winners resulting from COVID-19 are the tech businesses that have seen trillions of dollars added to their market cap in less than 6-9 months. It is worth pointing out that ten years ago tech may have represented approximately 16% of the S&P 500 whereas today it comprises almost 37%. That is an enormous shift. At some point "tech" stocks will inevitably correct and with it the S&P 500 to a greater degree given the heavier tech weighting it now bears.

In practice this new Fed policy shift means that they will not consider raising interest rates unless inflation rises above 2% and even then, may continue to keep interests rates low for the purposes of encouraging business investment and a stronger labor market. While this will inevitably mean higher food prices, new asset bubbles forming and who knows what else, the goal of full employment is worth the cost, at least that it is the new theory or belief. This new belief also assumes that if individuals and businesses believe that inflation is inevitable and will result in a dilution of their future dollar spending power, they will be incentivized to borrow, spend and invest their money sooner, leading to a virtuous cycle of stimulating the economy, job creation and rising markets.

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The Markets & Gold Rise Together, Warrren Buffets Goes for Gold - What does it all mean?

The Year 2020 will go down as one of the most disruptive years in modern day life and perhaps the most paradoxical year in the markets history. One fine example of where this paradox is self-evident is what is happening to Gold. In a Risk-On environment, you would expect Gold to rise. A traditional safe haven in times of uncertainty, when the times are highly uncertain and investors get fearful, Gold is where investors rush to. A time tested stalwart of value, you can balance your potfolio risk with a portion of Gold.

However, what is unique during this time is that Gold has continued to rally even while the markets have retraced their march lows to now August re-test of the all-time market highs. The last time that happened was 1979 when both gold and the S&P500 made new highs.. Gold is now over $2,000 an ounce. Historic data show that gold has tended to continue to rally when it starts to trade in record territory and this rally is launching on the heels of a seven-year base which provides fundamental strength for a sustained rally.

Risk is difficult to quantify in a pandemic which has no clearly defined end point yet and an economy that is requiring enormous sums of capital to prop it up. The unprecedented amount of money printing in such a short time period is another reason why investors are moving to gold. How much more debt will it require to get through COVID-19 and is the will there to keep increasing the mountainous debt load if the crisis drags on longer than many expect? What if this wains? In addition, the historic low (close to negative) yields coupled with the money printing impact on the dollar, allow asset managers and investors to make a strong case to move to gold. As more certainty is reached with respect to a likely endpoint for the pandemic, the case for gold will likely weaken but we believe the inflationary impact of the combined stimulus infusions into the economy will still make Gold an attractive asset to hold for some time until the impact of this is more known.

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COVID-19 and The Implications of Rising National and Corporate Debt

The arrival of COVID-19 has caused the greatest disruption in the global economy since World War 2. It has exposed significant weaknesses in the modern day global economy and in the healthcare systems to respond to such a pandemic.

This article is going to focus on the impact that COVID-19 is having on the national debt, both globally and nationally and on corporations as well as the potential implications of the latter, especially as we do not know how long COVID-19 will be with us or when an effective vaccine will be proven out, distributed and administered.

At this stage in the pandemic we can point to actualities. The International Monetary Fund estimates that public debt as a percentage of GDP will rise above 130% in 2020 and 2021. It will exceed levels only seen during and after World War 2. Global debt is close to 331% of GDP or a staggering $258 Trillion and in more mature markets it is estimated to be as high as 393% of GDP. These numbers are hard to digest. Britain's national debt for example is forecasted to be at 418% of GDP in 2070. Only 4 years ago economists were forecasting it would be 87%.

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How Much Do You Need To Retire On?

There is no "one size fits all" when it comes to answering the question: "how much money will you need to comfortably retire on"? It is entirely dependent on your retirement goals, desired lifestyle and how flexible you are. 

The most common wisdom that you will find on the internet will tell you that the number is 70% of your pre-retirement income. That number will of course vary depending on your expenses which in turn will depend on where you are living. The good news is that - if you are flexible - there are different retirement options for almost every budget if you are willing to move where the costs can accomodate your income. For example an article in MoneyWise covers 20 different countries where you can retire on a lot less than you may think is possible.

Countries such as Portugal, Uruguay, France, Costa Rica, Portugal, Thailand are covered in the article where yes, appartment rentals can be found ranging from $350 to $750/month. If you have a retirement income of $2500-$3000/month for example, you may find that one of these countries could serve up a workable and enjoyable retirement. 

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The Status of Traditional Safe Havens & How Much Risk Is Right For You?

In a close to zero-interest and low bond yield environment alongside a massive expansion of the money supply (over 4 Trillion dollars to date) what choices do investors have with respect to selection of conservative safe haven assets that can protect from inevitable inflation and posible dilution in the value of the US dollar.

The disincentive for keeping money in the bank or in bonds has never been higher. Inflation will now outpace the (close to zero) yields in savings accounts or bonds. Effectively, your money while safe from losses, is now losing value.

The counter bet to inflation and market uncertaintly is of course Gold which has been on a tear this year, up 60%, surpassing all time highs. Gold has become a "risk-on" asset.

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Wills, Trusts & Retirement - Is Your House In Order?

With so much economic and health risk in the new COVID-19 era, most people in the 50 and over category (especially those with serious pre-existing conditions) are thinking about their retirement plans, income and nest eggs as well as their Will, Trust and legacy to their next of kin.

You may be asking yourself questions such as:

Is my will and trust up to date? Is it optimized and compliant with the latest tax changes and laws?

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The Investors & Retirees Reality - Living With Uncertainty & What to Do About it

"I dont understand why the Market is acting the way it is"? We hear this question all the time. It's a perfectly natural question and if someone gives you an answer, just know that there is at least a 50/50 probability that they are either correct or incorrect. No one, not even the so called experts know with certainty why the market acts the way it does. Yes, we can arrive at rational conclusions some of the time. For example, once the markets figured out that there would not be an easy short-term fix to the coronavirus and that this would have a negative impact on the economy, stocks fell dramatically. After the Federal Reserve and government promised to provide an almost unlimited backstop of financial support to calm the bond and credit markets, the markets shook off the downside and rallied back to what is now, not far off from the old all-time highs.

On the other hand, we are faced with the highest unemployment numbers since the great depression, the additional unemployment benefits are set to run out at the end of July, we are seeing record missed rent and mortgage payments and a coronavirus that is creating havoc to people health and the economy in hot spots all over the USA with no concensus on how to safely re-open the economy. The market has high hopes for a coronavirus vaccine, but what if those hopes are significantly delayed or dashed altogether? How long can the government and the Federal Resever keep funding everything as record defecits shoot even higher? How long can cities, states, schools survive without their staple revenue sources. And what about inflation? How will this impact the dollar, the economy and our every day lives?

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Long Term Value Investing: The Buffet & Benjamin Graham School of Investing

It's rarely in fashion. It can often be boring. It can take time for the markets to value fairly. What is it?  It is the long term value investing methodology used by some of the greatest investors of all times such as Warren Buffet and Benjamin Graham. The basic premesis is to look at the intrinsic value of a company and if it is priced for less than what the market is saying it is worth you have a net price advantage.

If the company - in addition - has steady growth prospects, a strong cash position, a leading brand, is well managed and is expected to return growth and profits of "x" percent a year and pays out a dividend, then a value investor can make a reasonable investment assessment that the company will not only be alive and well, but also worth more than what he will be paying for it, especially if it's instrinsic value is more than what the market is saying it is worth.

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Sometimes, Forgetting About The Markets is Good Therapy! A July 4th Weekend Should Be One of Those Times

Getting riled up and down or worrying about the markets - all the time - is not a healthy way to live, most people would agree. All Markets go in cycles, and given enough time and providing that you are well diversifed, the markets have proven out over more than a couple of hundred years that they will weather the most harsh storms and continue to grow over the long term. Growth is not a straight line. A long protracted bear market scenario is of course serious but no-one is expecting that to be the outcome of the coronavirus crisis. Yes, it may take longer than any one of us may like to discover an effective vaccine and administer it, but this will eventually happen. An enormous ammount of resources and scientifc brain power is being allocated to the discovery, manufacturing and distribution of a vaccine in every country worldwide. And despite global tensions among super-powers, scientists are collaborating on a global scale.

We will get through this time. Business conditions and markets will improve and likewise employment numbers will rise again. There will also be significant hardship faced by many who are unemployed and we can but hope that governments will continue to find ways to ease their burden until the employment situation can get back to pre-coronavirus levels.

A good reason to get a financial advisor is that they will do the worrying and managing of your investment portfolio for you. They will be more objective in times of crisis and able to provide advice that will help steer you in the right direction and away from doing anything that might worsen your situation.

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Fake News Is Not New! It is a Practice That Has Been Used by Traders, Banks and Large Investors For Hundreds of Years

Fake news is not NEW. It has been used for hundreds of years to mislead or mid-direct in times of war, crisis and when big money is on the line. It's just that there is so much news in todays media rich world, it is hard to know who is telling the truth in any given moment. Everyone has an agenda. Whether it be a CEO, investor, hedge fund, public health official, governor, news channel or president. Everyone has something to gain or lose in a given situation and to whatever degree it is serving someone's personal, business or institutions goals or ambitions, bending the truth to telling outright lies will depend on how much is at stake and how willing someone is to cross ethical or moral lines.

As an investor, it is important to pay attention and ask the hard questions when reflecting on what any particular source of information is saying about a company or market. What is being said, by whom and why are matter of fact questions to be asked. These questions along with a discerning perspective can save you money and make you money, stop you from making rash decisions and help you stay rational.

Below are just a couple of examples to illustrate these points. We could provide many more. These examples are high profile examples of what we are referring to.

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Often, Investing in the Markets is Knowing Who To Listen to & Who Not to Listen To

Jeremy Grantham

There is a saying that "It's not what you know" but "Who you know" in life, that is the most important thing for making progress. There is of course truth to this saying. Getting to the right people for any particular endeavor in life is a combination of research, persistence, creativity, connections and luck as well as a good dose of courage. Fearless entrepreneurs and investors have persistence and courage in spades and you only need to read a few biographies to know that meeting the right people can be a process that takes a few rounds of trial and error. Their vision of "what can be" or "What is" drives them in their pursuit of success. Everyone can do well with the right mentors.

Today, we are going to write less and let you listen to Jeremy Grantham, a veteran investor whose bio is below. In this interview, Grantham share his views on the markets as well as US and global equities. It is well worth listening to.

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Science, Markets & Reality. Who is on First?

In our last blog post which we published last week, we wrote about the Efficient Market Hypothesis [EMH] and whether it was true, half-true or half-false. We fielded different responses to this post, half of which stated "of course, markets are inefficient" and the other half stating "they are efficient most of the time". We pointed out that these theories do not take "human nature" fully into account. History charts a series of irrefutable market bubbles and busts across multiple asset classes. When you are actually in a bubble or bust period, it can feel like conditions will go on indefinitely. The law of market cycles sais otherwise.

Over the last two months, the markets have charted a strong recovery track defying the hard hitting economic realities of the impact of the coronavirus. They have been - or so it appears - in denial of what all medical specialists and virologists are saying, which is that the coronavirus will inevitably re-surface in the fall of 2020, if it even disappears or lessens in-between. There are no maybe's, it's a 100% guarranteed. There is a reason why Operation Warp Speed [OWS], the government funded program to fast track the development of a vaccine, as well as its manufacturing and distribution, was established. Without a vaccine, a large sector of the general population are not going to get back to life, work and patterns of consumption as they were pre-coronavirus. The virus is highly transmittable and without vigilant precautions and collective discipline, we are only going to make it easier for it to find a path to its next host.

It is not a secret that the virus has not been contained and cannot be effectively contained without such collective effort. It is not a matter of dispute among medical experts. Until today, the markets have seemingly been ignoring this fact which has been continuously stated by medical experts. Even Jerome Powell, the chairman of the federal reserve, when interviewed a few weeks ago about the impact of the virus and what the Fed was doing, talked about various scenarios which would of course be worse he said "if the virus were to return in the Fall". But there are no "If's" from the perspective of every virologist on the planet. Did this fact go un-noticed by Mr Powell? We think this is unlikely.

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Efficient or Innefficient Markets - Which One Is It?

What Is the Efficient Market Hypothesis (EMH)? Is it True or False, Half-True or Half-False?

The efficient market hypothesis (EMH), also known as "efficient market theory" states that share prices reflect all known information in the current moment and that ergo they are valued fairly. This in turn infers that consistent alpha generation cannot be achieved and that it is also fruitless to try and beat or out-perform the markets.

According to the EMH, stocks always trade at their fair value. Therefore, expert stock selection or market timing is a myth being chased by investment bankers, analysts and brokers at the expense of investors. Why should Wall Street be paid high fees if they are not outperforming the market. EMH states that the only way an investor can potentially beat the market is by making riskier investments. A low cost ETF or balanced fund that tracks the market is all that most investors need.

EMH or efficient market hypothesis fails however to take one key factor into account, namely human beings. Human beings are not rational. Stock market or housing or art bubbles and busts are littered along the path of progress in human history. They come and go. They repeat, again and again. We can probably go back a lot further in history to illustrate this point but we will start with what was referred to and more commonly known as "The Dutch Tulip Mania" in the 17th century when tulips reached absurdly inflated prices and then collapsed in 1637. Fast forward to the roaring 1920's and crash of 1929 and then to the dot.com bubble leading up to 2000 and the housing bubble of 2007. You get the point. Every one of these bubbles was fuelled by human "greed" and an infinite supply of hope that things would keep getting better or that stocks or property would go higher and higher. Not exactly rational given that the battle hardened and tested "theory-not" of "market cycles" which states that all markets whether it be commodities, stocks and collectables move in cycles.

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