What's up Trillion Dollar Debt?

Dear Climber,

The minutes, economic data released, investing in this market, the biggest investing mistake and tax benefits with 'opportunities'.


The Market. Stocks are the cheapest they have been in nearly 7 years (according to the PEG ratio). Investors are becoming increasingly nervous about growing trade tensions, higher inflation, and rising interest rates. The average loan rate for a 30-year mortgage was 5.10 last week, the highest since the start of the decade. Student loans (totaling $1.5 trillion) have cumulatively grown 157% over the last 11 years, with auto loan debt growing 52% during the same period. Consumer Sentiment Index buying conditions for autos and homes fell as low as they were in the early 1980s. The dollar is up. The US budget deficit expanded to an estimated $782 billion, 3.9% of GDP (country’s debt load= $21.5 trillion).


The minutes. The Federal Open Market Committee released its minutes on Wednesday, and the results were not too surprising. The Fed voted to continue onward with their 2018 rate hike schedule, increasing the range by another quarter percent. Granted, this meeting occurred priorto the volatility spike within the markets this past week. The Fed has stated that 3% remains the target neutral rate in the long-run, meaning that, theoretically, it would not have a positive or negative impact on growth. While President Trump continues to oppose these rate hikes, it is likely that there will be another rate hike in December. We've talked about this mystical "rate" several times, but perhaps we have never fully explained what it exactly is. Basically, it is the interest rate in which banks can lend to other banks. The banks, who are always required to keep a certain reserve amount, can use this lending to meet the requirement. Then, they can lend that money to individuals. The higher the rate, the more expensive it is to borrow. Increasing the cost of borrowing then leads to lowering the money supply. Thus, interest rates are increased and help to slow down the economy by keeping inflation in check.


This week’s economic data. The end of the year is coming up fast, as October reports come in we get to see a clearer picture of the health of the economy and its performance over the year. Dozens of major monthly indicators were reported this week ranging from Retail Sales to the EIA Natural Gas Report. These will be the last major indicators to come in before midterms next month so what these reports entail will be very important in the political future of America. Retail Sales are closely watched by economists, investors, and traders as it is a very timely report, but this month sales were less than expected in 3/4 of the categories (prior= 0.1%, forecast= 0.6%, reported= 0.1%). Next up is the Business Inventories report which tracks the dollar amount of inventories companies kept for the month of the report. This report met the forecast which was down from the prior month, but that is understandable as companies get ready to fill their inventories for the holidays (prior= 0.6%, forecast= 0.5%, reported= 0.5%). Monday was the beginning of the fiscal year for the Federal Government making the treasury budget report an extremely timely indicator as people look to see how well the current administration is performing. The Treasury reported a whopping $119.1B, $41.6B more than was forecast (prior= $214.1B). Lastly, we will look at the Energy Information Agency’s Petroleum Status Report that is filed every Wednesday. This week they reported 0.5 million more crude oil and 2.0 million more gasoline barrels in reserve than were expected by analysts, possibly showing an attempt to keep domestic gas prices from rising.
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 Investing advice for the current market weather, but we are NOT advising.

• Asian markets selling at a discount
  • iShares MSCI Japan ETF (largest Japan ETF)
  • Franklin FTSE Japan ETF
• High-dividend-yielding, undervalued stocks
  • First Trust Morningstar Dividend Leaders Index Fund
• Bonds, Treasuries with yields above 3%, U.S. Treasuries
  • iShares U.S. Treasury Bond ETF
• Defensive investments like utilities, consumer staples, gold, and real estate
  • GraniteShares Gold Trust
  • SPDR Gold MiniShares Trust
• E-commerce
  • ETFMG Prime Mobile Payments ETF
• Cost-average the stock market
  • Vanguard Total Stock Market ETF

The single greatest mistake investors make. Recency bias. Trend following. Momentum investing. The illusion in which a thing that has recently come to one’s attention suddenly seems to appear with improbable frequency shortly afterward. Not using technical indicators and fundamentals which creates blind spots. A psychological dynamic that operates according to well-defined psychological principles based on the belief that past growth in market prices is strong evidence for more growth in the future.


Opportunity Zones. Putting money into funds that are committed to serving “opportunity zones” to avoid the immediate capital gains tax until 2026. Those who commit their money will receive a reduction in the capital gains tax they pay if they hold the money in the fund for 5 years (and more if they hold it longer). The Opportunity Zone fund then uses the money in different ways to serve specific low-income areas. If these funds do make money, the investors will not have to pay any tax on the second capital gain.


Small habits create big changes. The moments when you’ve habituated yourself to a pattern of behavior for long enough that it becomes instinctive. We don’t change our lives in flashed of brilliance, but through a slow process in which assumptions unravel and require new explanations. What you do every single day accounts for the quality of your life and the degree of your success. The outcomes of life are not governed by passion, they are governed by principle. If you want to change your life, you need to make tiny decisions every hour of every day until those choices become habits.


Tether - the USD of the crypto world - so we thought. Tether, a cryptocurrency which is pegged to the USD, should have an innate value of $1. The backing to the USD, is possible by the creators of the coin, Bifinex, holding 1 USD for every tether that is in the market. There has been controversy whether this is true or not, and last week was another case of doubt. Tether is used as a way for crypto traders to stay out of the crypto market, while still staying in the stable currency. Early last week, there was another scare concerning Tether, and we saw traders trying to get out of it which shot the price of BTC up to around $6800, from $6200. This decreased the value of tether from 1 USD, to around $0.93. A week later, it’s still sitting at a 3% discount, at around $0.97. The effect of this? We saw a large rise in traders using other stable coins, such as the Gemini Dollar, created by the Winklevoss’s, and Trueusd.



Keep Climbing,


The Alchanati Campbell and Associates Team