Video Update: Reader Questions, Answered
The financial markets this week have been volatile and looking for direction, amid contentious fiscal stimulus talks, mixed third-quarter earnings results, a resurgent coronavirus pandemic, and a presidential contest that resembles a carnival freak show.
Partisan divisions are so deep in America, we’re actually seeing headlines in the mainstream media that warn of civil war. Meanwhile, as of this writing on Wednesday, the U.S. is averaging 59,000 new coronavirus cases a day, the most since the beginning of August. The pandemic isn’t waning; it’s skyrocketing.
Tired of the coronavirus? Well, the virus isn’t tired of you. Until the pandemic is contained, the economy will never fully recover and investors will labor under a cloud.
The search for perspective…
I periodically like to step back from the daily clamor to form a bigger picture. Today for perspective, let’s examine representative samples of recent reader correspondence.
I greatly value emails from readers. Your feedback keeps me on track with what’s relevant to your investment needs. All too often, editors sit in an ivory tower and presume to know what their constituency requires. Your letters-to-the-editor keep me focused on Job One, which is to make you money.
In the following video, I answer your latest queries. If you’d rather read this question-and-answer session, check out my article below which also contains links to special reports and investment opportunities.
How often does “quadruple witching day” come around? Is it once a month, quarterly, or another time frame? What is the significance of this event? — Susan K.
Quadruple witching occurs quarterly, in March, June, September, and December. The event refers to a date on which stock index futures, stock index options, stock options, and single stock futures expire simultaneously.
Quadruple witching days witness heavy trading volume, due to the offsetting of existing futures and options contracts that are profitable. As such, it may result in increased volume, volatility and arbitrage opportunities.
Will the Federal Reserve’s easy money policy come back to haunt us? — Tim B.
We could face a looming financial crisis, caused by a perfect storm of inflated asset valuations, mounting corporate, government and private debt levels, and massive fiscal and monetary stimulus. The Federal Reserve’s aggressive intervention has caused equity market distortions, with stocks decoupled from fundamentals.
The Fed’s balance sheet has ballooned to $7.1 trillion as it buys everything from U.S. Treasurys to mortgage backed securities, in its efforts to stimulate the coronavirus-damaged economy.
Problem is, the Fed is buying a lot of corporate debt that’s toxic, which in turn is creating “zombie” markets that are mispriced and distorted. The Fed also is buying the debt of hugely profitable companies that don’t even need the help. Many of the recipients of this largess remain a secret.
The Fed has signaled, though, that it will maintain its bond-buying program and keep interest rates low long after the November 3 election.
Keep in mind, the Federal Reserve and other government entities have been systematically dismantling the reforms and buffers that were put in place to prevent another 2008 meltdown. A slew of regulations and capital requirements have been loosened.
A debt crisis could be the pin that bursts the stock market bubble. The recession is putting new strains on already indebted companies. Diminished demand and supply chain turmoil are creating a cash flow crunch for many businesses, making it difficult for them to service their debt burdens.
What are two appealing asset classes now? — Dan J.
It’s not too late to take actions that will simultaneously protect your portfolio and generate gains. Consider gold and utilities stocks.
The hedges portion of your portfolio should total about 15% of assets (see the following pie chart, for general allocation guidelines).
A key component of your hedges sleeve should be gold. Gold is a proven hedge against crises and it’s poised to continue shining in the coming months, as investment perils increase. For details about our favorite gold play click here.
You should also increase your exposure to equities in historically stable sectors, notably utilities. Dividend-paying utilities have demonstrated the ability to weather downturns. Their solid balance sheets make them effective shelters from the storm.
Utilities aren’t glamorous enterprises, like the high-tech “story stocks” that get hyped on CNBC. But utilities are consistently profitable over the long run.
You don’t need an advanced degree in economics to see why utilities are cash machines. Utilities provide “essential services” that customers will never stop buying. Regardless of the recession and pandemic, everyone needs electricity. Click here for our list of high-quality utilities stocks.
Is 5G really such a big deal or is it a lot of hype? — Tom P.
5G, which stands for “fifth generation” wireless, is one of the biggest investment opportunities you’ll see in your lifetime.
5G technology will provide faster and higher capacity transmissions to carry the massive amount of data that will be generated by the Internet of Things, smart cities, smart homes, autonomous vehicles, video streaming, virtual/augmented reality, and more.
Sure, 4G is fast and it paved the way for the smartphone revolution. But 5G is much, much faster. The following chart tells the story.
On October 13, Apple (NSDQ: AAPL) unveiled its new iPhone 12, which is 5G-capable. The iPhone 12 is the first offering from the Cupertino-based giant that provides super-speedy 5G connectivity. The iPhone 12’s A14 Bionic chip, designed by Apple, is the fastest chip ever in a smartphone. Apple plans to ship at least 80 million of the new 5G phones.
But it’s not just smartphones. The users of all interconnected devices will soon get accustomed to the fast download times made possible by 5G and they’ll settle for nothing less. The fastest 5G networks are expected to be at least 10 times faster than 4G. Let that sink in.
5G wireless heralds the beginning of an economic renaissance. The companies developing and leveraging 5G are huge money-making opportunities. The profits you see as an early 5G investor could be 1,000 times greater than they were for any Internet-era company.
However, you need to get aboard the 5G trend now, before you miss the most lucrative opportunities. Some 5G stocks are too expensive, whereas others will lose to their competitors. Selective stock picking is key. For details on the smartest way to invest in 5G, click here for our report.
John Persinos is the editorial director of Investing Daily.