Reader Q&A: Word On The Street (VIDEO)
Welcome to my video presentation for Friday, June 4. My article below provides greater details.
Today, I’m stepping back from the daily ups and downs of the financial markets to address reader emails, on a range of investment topics.
You have questions; I have answers. Let’s get started. I’ve edited these letters for the sake of concision and clarity.
From Ponzi to Madoff…
I begin with this email from a reader:
“You asked if we had personal tales to share about financial scams that affected us. The answer (in my case) is a resounding YES! And very similar to the Madoff debacle.
In 2016, as my daughter was preparing to go to college, we signed up with a consultant to explore her options for scholarships. This consultant recommended his own solution: an ultra-safe, can’t-lose investment in real estate. We followed his solution, to the tune of $250K. For about a year, the interest payments arrived on time and in the amount advertised. Then the situation changed, for the worse.
In December 2017, Woodbridge Investments went bankrupt. As the plot thickened, it turned out to be a Ponzi scheme. The principal is in prison. And the consultant was a broker who stood to financially gain from our investment! We ended up suing the consultant and got a settlement. At this point, we have recovered only about 25% of our original investment.” — Name withheld.
Regrettably, this tale of woe is increasingly common. Internet-related financial fraud, in particular, has become an epidemic. Take a look at this chart:
You should always investigate a financial consultant’s background. Conduct background checks of your consultant, starting with the Financial Industry Regulatory Authority, which regulates the financial advice industry. They’ll let you know if there is a history of sanctions, disciplinary actions or client complaints against your consultant.
Also check online reviews from other advisers and traders, which can give you insights into a consultant’s strengths and weaknesses, as well as his or her integrity. Another tip: Don’t click unknown websites that have appeared in your inbox via unsolicited emails.
Assessing the risk of inflation…
I’ve received numerous reader emails inquiring about inflation and whether it poses a severe risk. The concern is that the Federal Reserve’s unprecedented amount of stimulus is planting the seeds of economic overheating, which will in turn lead to higher interest rates. Here’s a typical example, from a reader named Paul:
“I’m nearing retirement and I can’t afford to have inflation eating into my nest egg. I lived through the 1970s and hyperinflation is no fun. How worried should I be about inflation?”
My view: If inflation rises too sharply and stays elevated for a prolonged period of time, that’s a big problem. But considering the persistent slack in the labor force and the lingering uncertainties of the pandemic, most economists don’t expect runaway inflation this year.
The U.S. Labor Department released its May jobs report Friday morning, showing that 559,000 new non-farm jobs (compared to 675,000 expected) were added to the economy, bringing the headline unemployment rate down from 6.1% in April to 5.8% last month, a pandemic-era low.
Robust jobs growth is renewing fears of inflation, but a full recovery is being impeded by a shortage in job candidates. Spikes of inflation are likely to be temporary and prices should eventually settle down as pandemic-caused anomalies (e.g., supply chain disruptions) get ironed out.
Aluminum shines brightly…
“In your coverage of commodities, I am surprised you haven’t recommended aluminum as an investment opportunity, given the importance of light-weight materials in all areas of future world production.” — Peter T.
You’re right: aluminum is an economically sensitive commodity that’s experiencing a huge demand boom that should continue this year and beyond.
We’re facing a commodities “super-cycle” and aluminum is one of those commodities. A super-cycle is a decades-long, above-trend, upward trajectory in a wide range of base material prices, stemming from a structural change in demand. It’s how fortunes are made.
The recovery from the pandemic is accelerating and fueling the commodities boom. Another commodity to keep an eye on is lithium.
Lithium is among a slew of commodities that are poised for huge price gains as demand for commodities explodes. Global infrastructure projects also will boost the need for lithium.
Lithium is a silver-white metal that’s crucial for a variety of industrial applications. The biggest growth driver for lithium is the demand for lithium-ion batteries used in electric vehicles. Renewable energy, such as wind and solar power, also requires a massive amount of lithium.
Global demand for lithium is expected to more than double over the next four years. However, demand for lithium is outstripping supply, which is great news for companies that mine and process the metal. For details about America’s number one lithium play, click here now.