Alchanati Campbell & Associates
The Market. Home prices in a given location are ultimately tethered to the income of the people who live there. 21% of people surveyed by Fannie Mae said it is a good time to buy real estate while 35% say it’s a good time to sell. Markets react to the plans and talks of Brexit with volatility, expecting rises in UK sovereign yields and strengthening of the pound. The tight labor market could be lifting inflation soon. Federal Reserve Chairman Jerome Powell said the US economy is strong but could face headwinds next year with raises of the interest rates. Global debt-to-GDP is at an all-time high. Oil drops most in 3 years as investors flee a market hammered by swelling supplies and a darkening outlook.
More than one strategy. Last week I briefly discussed the dividend strategy that I have been working on. This will be just one of the 3 strategies that I’ll be putting on top of each other. In my personal opinion, building a portfolio is all about stacking different strategies with different risk tolerances together to form a diversified portfolio representing different equities from each sector, varying on the aspects you are holding the equities for. Like with the previous strategy, we were looking for high yield dividend stocks, with relatively safe dividend payouts. Personally, I feel this has a medium risk tolerance and will make up around 40% of the overall portfolio. My base will have a low-risk tolerance and make-up 30%. This will most likely be based on creating criteria for finding financially stable companies. The last 30% will be a medium to high-risk tolerance, that has a higher return, and will lower the overall correlation by encompassing a non-US equity market.
U.S. Budget Deficit. For the month of October, the United States recorded a $105 billion budget deficit. This number is up from $63 billion from a year ago. You might be wondering why it’s so high. The answer has a bit of irony. Remember when the Trump Administration issued those corporate tax cuts way back? They're beginning to catch up with us. While the cuts may be great for the businesses and giving them more money to reinvest (which data from October shows that they haven't), they also reduce government revenue. The irony lays in the fact that Republicans, generally, are all about reducing taxes (which they did) and spending in general (small government). However, they've increased spending (notably in defense). Increasing expenses while decreasing revenues is not a good formula for success. This places the deficit to come in just shy of $1 Trillion with a T. Last time it was this high was during the years of the recovery from the last recession, except that time it was a Democrat in the White House with Republicans fighting to reduce spending in an effort to the reduce deficit. They've been a little quieter this time around.
The stock-bond correlation. Correlation measures the commonality in the deviation from trend for two series of returns. A positive correlation is when two things act the same and negative correlation is when two things act differently from each other. Investors should care less about how the returns deviate from their trends and more about the trends themselves. Correlation provides little information about the relative performance of stocks and bonds. Bonds provided needed diversification to equity risk in past recessions, but correlation did not matter.
Momentum investing. Betting that the stock market’s recent winners will remain winners in the near term and likewise with the recent losers remaining losers. The basic time frame for momentum investing success is three to twelve months. The strategy involves capitalizing on the continuance of an existing market trend. Momentum investors use trading signals like the 50-day and 200-day moving averages to know when to enter and exit from a position.
Lessons learned from living a full life (we haven’t lived a lot, but we read a lot). Happiness isn’t about a state of constant elation. It’s about being constant. People suck. But if you’re kind, you’ll get the best out of even the worst. Perfection only exists in the mind. It’s not real. Imagine, create, improve. The better you adjust your internal expectations, the happier you’ll be. Growth is what keeps life interesting, and it comes from doing the hard stuff. Over time, the greatest risk you can take is to take no risk at all. Who you let into your life is a vital decision. Don’t leave it up to chance. Everything is approximate. Don’t aim to be right. Aim to be less wrong.
The Alchanati Campbell and Associates Team
WHAT'S UP FRIDAY? is a weekly newsletter that will give you a summary of "What's up?" on Wall Street, in the US and around the World written by The Alchanati Campbell and Associates Team. What makes us unique is we focus on long-term knowledge; knowledge that will still be useful to you 10 years from now.