by tyler | Jun 12, 2023 | CNN, investing
It’s time for investors to start making safer bets.
That’s what Howard Marks, co-chairman of Oaktree Capital, told CNNMoney editor-at-large Richard Quest on “Markets Now” on Wednesday.
“Defense is more important than offense” right now, said Marks, the author of “Mastering the Market Cycle: Getting the Odds on Your Side.”
Investors should consider taking a stake in utilities, and decreasing their investments in more volatile tech stocks, he said.
Defense is the name of the game for a few reasons.
Though stocks have been soaring, Marks warned that we may be nearing the end of the bull cycle.
“I’m not saying get out,” he said. “I think that being out of the market is pretty dangerous today, and I think it would be a mistake to raise cash.” But more reliable stocks can protect investors from big losses if the climate changes.
Marks also pointed to the trade war with China as another reason for investors to tread carefully.
“We have a trade battle with China, it’s probably going to get solved, but it may go off the rails,” he said. “And if it goes off the rails, it has very serious consequences for the world economy.”
“Markets Now” streams live from the New York Stock Exchange every Wednesday at 12:45 p.m. ET. Hosted by CNNMoney’s business correspondents, the 15-minute program features incisive commentary from experts.
You can watch “Markets Now” at CNNMoney.com/MarketsNow from your desk or on your phone or tablet. If you can’t catch the show live, check out highlights online and through the Markets Now newsletter, delivered to your inbox every afternoon.
by tyler | Jun 12, 2023 | CNN, investing
How can I protect my investments against inflation?
Even as your investments increase in value, inflation can eat away at what they’re worth.
There are things investors can do to hedge the immediate effects of inflation, or earn a return that outpaces inflation over time. But it can be hard to predict.
“After-inflation returns are the only ones that matter for investors in the real world,” says Robinson Crawford, an investment adviser with Montebello Avenue.
Even if inflation is currently rising more slowly than analysts predicted, it’s better to be prepared.
Financial advisers say one of the most consistent hedges against inflation is a properly diversified stock portfolio.
Equities have historically outpaced inflation, says Sean C. Gillespie, a financial planner with Redeployment Wealth Strategies says that while there is inherent volatility in a stock portfolio, “equities are a long-term asset for your plan just like inflation is a long-term threat.”
To figure out where to put your money in the stock market, investors could look to a total return strategy that relies on equities to provide positive inflation-adjusted returns over the long term.
“Of course, investors have to accept more risk when investing in stocks and endure periods when the returns have not outpaced inflation,” says Dejan Ilijevski, an investment adviser at Sabela Capital Markets. “Although some investors may assume that higher inflation leads to lower stock performance, US market history shows that nominal annual stock returns are unrelated to inflation.”
Gold and commodities have been standard havens from inflation for investors.
“Traditionally commodities and gold have been good inflation hedges,” says Stephanie Bucko, a chartered financial analyst and co-founder of Mana Financial Life Design. But she says it is important to take into account the US dollar’s strength as part of this equation.
“We like oil exposure, as this impacts our clients on a day-to-day basis related to gas prices, but it also provides a good inflation hedge,” says Bucko, adding that we saw this in the 1970s as inflation doubled and nominal oil prices skyrocketed.
But commodity markets, for the unfamiliar, can be complex and risky.
“Commodities are volatile, more so than stocks, which means that adding commodities to a portfolio may increase real return volatility, offsetting the benefits of hedging,” says Ilijevski.
Real estate is the ultimate hard asset in times of inflation since it will see price appreciation. Financial advisers suggest investors find a place for real estate in a portfolio.
Investors can gain exposure to real estate by directly owning commercial or residential property, or by investing in real estate investment trusts (REITs).
Real estate is a sound investment, says Crawford. “But I would caution that if you’re not increasing rent in your real estate, you aren’t fighting inflation.”
Short-term bonds and Treasury Inflation-Protected Securities (TIPS) are investments that are a hedge against inflation.
“Hedging seeks out asset classes that tend to positively correlate with inflation,” says Ilijevski.
For example, he says, short-term maturities allow bond-holders to more frequently roll over the principal at higher interest rates. This helps inflation-sensitive investors keep up with short-term inflation.
Similarly, TIPS, issued by the government, are also a fixed-income security hedge against inflation. Their principle is adjusted to reflect changes in the Consumer Price Index. When CPI rises, the principle increases, resulting in higher interest payments.
“TIPS absolutely merit a place in a US investor’s portfolio, especially those with significant bond holdings,” says Crawford. “The main issue is that they increase in value in conjunction with the CPI, which many would argue is not an accurate inflation measure.”
by tyler | Jun 12, 2023 | CNN, investing
When is the best time to get out of a mutual fund?
After a recent stock market dip, Ian Bloom, a financial planner in North Carolina got a panicked call from a VIP client: his mom.
“I have to sell everything!” she told him.
He assured her, as he does all his clients, that if she did she would lose much more than she would gain, because they had created a financial plan that already accounted for market sell-offs.
Now would come the hard part: sticking to it.
Fluctuations in the market can leave investors looking at their mutual funds with disdain. They may feel their money could work harder elsewhere.
That may be true. There are situations in which selling mutual fund shares works to your advantage. But you could also encounter adverse consequences.
The time to sell a mutual fund is when you need the liquidity and you have planned ahead to make the move, says Eric Gabor, certified financial planner and founder of Eagle Grove Advisors.
“Any kind of decline in the market or reaction to a geo-political event is not the time to sell,” he said.
Individual investors should only sell funds when their situation calls for a need to make a change, says Amy Hubble, a certified financial planner and principal investment adviser at Radix Financial. Investors may need cash, she says, or need to reduce risk as a need for cash draws nearer.
“Or maybe your target allocation to that asset class has grown outside its tolerance compared to the rest of the portfolio,” says Hubble. “For example, you had a strategic allocation of 10% and it’s now 17% of your portfolio.”
But it can be hard for investors to remember that they need to sit on their hands when they hear bad news.
It’s not uncommon for a novice investor to want to sell their investments when they see declines in the market, says Leah Hadley, a certified divorce financial analyst and chief executive of Great Lakes Investment Management. “That’s why we work with clients to determine an appropriate level of liquidity so that there is less temptation to sell when the market is down.”
Keep in mind that your mutual funds might include more than just US stocks, says Bloom, head of Open World Financial Life Planning.
“Your portfolio will include funds that include different parts of the market,” he says. “Sure there’s the S&P, but there might also be bonds, international and emerging markets. When the market goes down, no one is talking about the other parts, the international investments, the bonds. The part that stands out is the part that is in the red: the S&P.”
While your plan is to stick with your strategy for the duration of your timeline, there are mutual fund red flags that could merit a change.
“I will consider making a change in portfolios if there has been a change in the fund’s strategy and it no longer makes sense in my overall strategy with the client,” says Hadley. “I will also sell out of a mutual fund that is consistently under-performing the relevant benchmark.”
Gabor recommends watching the fund manager, too. “If a manger leaves a fund they have managed for many years and a new successor is named, that may be a time to re-evaluate how it fits into your portfolio.”
He adds that investors should also be on the lookout for tax inefficient funds.
“You could get out if there are large inverse tax consequences,” says Gabor. “That’s why I like tax-managed mutual funds, and exchange traded funds.”
Watch out for high turnover ratios, says Hubble, like those over 25% per year. “Funds with high turnover ratios mean the fund is managed tax inefficiently and you’re likely to receive unannounced short-term capital gain distributions at the end of the year, which have high tax costs.”
Another red flag is high expense ratios. “This is the most important number to look at in a fund,” says Hubble. “Do not pay managers more than 1% to underperform the market half the time in long-term savings accounts. Do yourself a favor and for long-term money, skip the active managers altogether and invest in low-cost index funds.”
If an investor does decide to liquidate the fund, keep an eye on your tax liability.
“If the investor has held the fund for a less than a year, all capital gains will be taxed at their income level,” says Timothy Kenney, a certified financial planner and founder of TK Pacific Wealth. “If they have held the fund for greater than a year, they can get a little break in the capital gains tax, maybe 5% or 20% depending on your tax bracket, but they may have a big tax bill to pay next year since we’ve been in a bull market for so long.”
If you have a fund you are looking to sell and it happens to be at a loss, Kenney suggests paying attention to the capital gains distribution.
Funds tend to pay capital gains toward the end of the year, and by selling before the distribution you avoid getting hit with the tax.
Have an investing question? Ask us here to be included in a future column.
by tyler | Jun 7, 2023 | CNN, investing
Saudi Arabia’s mountain of cash has upended the world of professional golf. But that is only a small sliver of the money it is sinking into a number of prominent businesses elsewhere around the globe as the kingdom moves to diversify away from a dependence on oil income – and as the petro-kingdom tries to achieve its political goals.
The Saudi Public Investment Fund is a government-controlled fund that has $650 billion in assets under management, according to its most recent filing. It is aiming to top $1 trillion within a few years. A state-owned investment fund like the PIF is not unique. It is ranked only the seventh-largest in the world, according to the Sovereign Wealth Fund Institute.
While some of those are pension funds for a country’s citizens or public employees, others, like the PIF, operate the way a private sector investment firm might, trying to make money through a diversified portfolio of investments.
But what makes Saudi Arabia’s fund different from those private investment firms is that since the country faces widespread condemnation for its human rights record, its investments in sports and other entertainment companies can be seen as an attempt to polish that tarnished reputation.
The PIF’s creation of LIV Golf a year ago, reportedly at a cost of $2 billion, attracted many of the sport’s top players away from the US-based PGA Tour and Europe-based DP World Tour by offering big dollar prize money. It led to a year-long legal battle that banned LIV golfers from the established tours and brought some unwanted attention to Saudi’s human rights record. Critics of LIV Golf accused the Saudis of backing the new tour as a form of “sportswashing” its reputation.
But the legal battles, acrimony and competition for the best golfers between LIV and the PGA and DP World Tour suddenly ended Tuesday with the announcement that the three would form a combined for-profit company. The PIF plans to make undisclosed additional investments into the entity.
The chairman of the new golf series will be the chairman of state-owned petroleum company Saudi Aramco, Yasir Al-Rumayyan, who also controls English soccer team Newcastle United and is himself a governor of the PIF.
The Saudis have also been throwing big dollars at some of the world’s best known soccer players, wooing legends such as Cristiano Ronaldo and Karim Benzema to play in Saudi Pro League.
The investment in sports is not a vanity play, according to Al-Rumayyan.
“It all makes financial sense to us. We don’t like to subsidize things,” he said on an interview on CNBC Tuesday announcing the deal with the PGA.
But whether the Saudis’ investments are driven by a desire for profits or good publicity, what’s clear is that pro sports are not the only place where the Saudis are flexing their financial might.
For example, it has a total of $7.5 billion in investments in several leading video game companies, according to its most recent filing, giving it a 9% stake in Electronic Arts
(EA), a 7% stake in Take-Two Interactive and nearly a 5% stake in Activision Blizzard
(ATVI). It also owns more than 5% of Live Nation
(LYV), the concert promoter and owner of Ticketmaster, and significant stakes worth hundreds of millions each in cruiser operator Carnival Corp
(CCL)., Uber
(UBER) and Zoom
(ZM).
Its biggest US investment is in upstart electric vehicle maker Lucid
(LCDX). The PIF owns 60% of Lucid
(LCDX)’s stock, worth $7.6 billion as of Tuesday’s close. Lucid
(LCDX) recently announced the PIF would invest another $1.8 billion in the company to help fund its operations.
In 2018 when Elon Musk was thinking about taking Tesla
(TSLA) private, he sought funding from the PIF, which already had a stake in Tesla
(TSLA) at that time. It no longer lists Tesla
(TSLA) as one of its holdings. But last year it helped Musk with his $44 billion purchase of Twitter by agreeing to roll over its existing $1.9 billion investment in the social media platform to the new Musk-controlled company.
Not all of the PIF investments have been publicly disclosed. For example it’s not clear exactly how much it invested to start up LIV Golf. And the Washington Post has reported that it invested $2 billion into a private equity firm created by Jared Kushner, Donald Trump’s son-in-law, soon after Kushner left his position in the White House in January of 2021. CNN has not been able to confirm that report, but what is known is that LIV Golf tournaments have been held on Trump Organization properties.
Many of these investments, including the creation of LIV Golf, have sparked controversy.
The PIF is chaired by Mohammed bin Salman, the Crown Prince of Saudi Arabia. Bin Salman is the man a US intelligence report names as responsible for approving the operation that led to the 2018 murder of journalist Jamal Khashoggi. Bin Salman has denied involvement in Khashoggi’s killing.
In addition, the US State Department says the Kingdom’s dismal human rights record includes free speech restrictions, torture, political prisoners and enforced disappearances.
And families of some of the victims of the Sept. 11 terrorist attack decried the news of the LIV-PGA agreement Tuesday. Some have accused the Saudi government of complicity with those attacks. Fifteen of the 19 al Qaeda terrorists who hijacked four planes were Saudi nationals, but the Saudi government has denied any involvement in the attacks. The 9/11 Commission established by Congress said in 2004 that it had found “no evidence that the Saudi government as an institution or senior Saudi officials individually funded” al Qaeda.
– CNN’s Coy Wire, Jack Bantock and Steve Almasy contributed to this report
by tyler | Jun 7, 2023 | CNN, investing
What do you get when you mix recession fears, interest rate hikes, a spending slowdown and a housing crunch? A recipe for a bull market, apparently.
The S&P 500 is up nearly 20% from its October lows and within striking distance of a bull market — that’s investor-speak for a period of time marked by rising stock prices and optimism on Wall Street.
But economists are warning investors to hold off on celebrating, at least for now. This could still be a bear market dressed in a bull’s clothing.
What’s happening: The S&P 500 closed at 4,283.24 on Tuesday, within 10 points of the threshold that separates a bull market from a bear market — that’s a 20% gain off of the most recent low, reached on October 12, 2022. If the S&P 500 closes at or above 4,292.44, markets will officially be in the land of the bull.
Markets have remained surprisingly resilient over the past nine months, as 2022 losers like tech and media have bounced back from a disastrous year on hope that the worst is over for those industries.
Over the past week, markets have gained momentum, likely because of the end of the debt ceiling crisis, optimism that the Federal Reserve will pause rate hikes at its June meeting and a recent string of strong economic readings. And while those are all positives for the economy, analysts fear that this is a bear market rally that could end up biting investors.
“We’re very late in the economic cycle that’s starting to slow and probably heading for a recession later this year,” Sameer Samana, senior global market strategist for Wells Fargo Investment Institute, told CNN. “The key difference for us is that you tend to see bull markets coincide with economic expansions, not economic contractions.”
Still, since the last bull market, we’ve had a pandemic, a war in Europe, a banking crisis and a debt crisis among other dramas. Markets are in uncharted territory and while an economic recession coinciding with a Wall Street boom would be a first, “in this market, you never say never,” said Samana.
What the duck: The current situation is a bit more nuanced than the bull market-bear market binary, said Kevin Gordon, senior investment research manager at Charles Schwab. He describes what’s happening instead as a “duck market,” meaning that stocks look nice and calm on the surface but there’s a lot of paddling going on below.
Tech and AI companies with mega-cap stocks like Nvidia
(NVDA) and Alphabet
(GOOG) are soaring higher and “solving” the market’s problems, he said, all while cyclical and smaller companies are suffering.
The S&P 500 is weighted and top-heavy, meaning that just a few companies are able to boost the index even as the majority of stocks struggle.
“Exuberance around artificial intelligence, along with a resurgent US dollar, has produced extreme divergence and concentration risk in the main stock indexes,” said Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management. “Such narrowness is not what new bull markets are built on.”
The bottom line: Investors should “avoid getting sucked into this as a new bull market,” said Samana. “Keep perspective of what this is, which is a very tantalizing bear market rally.”
Investors should take advantage of this swing by trimming the parts of their portfolios that they’ve been waiting to get rid of, he said as opposed to trying to chase the tech companies that have led this upward move.
Hundreds of thousands of UPS workers this week could authorize a strike that will bring the world’s biggest package courier to a standstill.
That’s a really big deal for the world’s economy. The company transports more than 3% of global GDP and nearly 6% of US GDP each day.
A nationwide UPS strike would be the largest work stoppage in US history, reports my colleague Vanessa Yurkevich. The union represents more than half of UPS’s total global employee base – 340,000 UPS Teamsters – which includes drivers and package sorters.
The vote would only authorize the strike if their union – the International Brotherhood of Teamsters – does not reach a new contract with UPS by August 1st.
The vote results will be announced next week on June 16, the union said. Strike authorization votes are routine during contract negotiations, and almost always pass.
At the heart of the negotiations for the union is improved pay and benefits and better working conditions, including adding air conditioning in the panel trucks used for UPS deliveries, which the union says poses a health risk for drivers.
“All Teamsters at UPS must be ready to show these corporate executives how serious we are about our new contract. We’ve been organizing, training, and rallying in the lots. Now it’s time to vote,” said Fred Zuckerman, the Teamsters General Secretary-Treasurer. “UPS is going to give us what we’ve earned. But we have to fight like hell for it. We must be prepared to hit the streets August 1 if UPS screws this up.”
In April, UPS signaled it was committed to reaching an agreement before then.
“Taking care of our people and delivering for our customers is our top priority,” UPS said in a statement.
Chapter 11 filings in the US have reached their highest levels since the end of the Great Recession, according to new data from S&P Global Market Intelligence..
There were 54 corporate bankruptcy filings during May, a slight rise from the 52 recorded in April. In the first five months of 2023, there were more filings than any comparable period since 2010.
From Vice Media to Bed Bath & Beyond, there have been a slew of high-profile bankruptcies this year. In late May, corporate America had its worst 48-hour stretch of bankruptcies since at least 2008.
So far, more than 286 companies have filed for bankruptcy in 2023, according to the latest data from S&P Global, which tallied the figures through May.
Retail companies have been some of the hardest hit in the current economic environment as consumers pare back spending. Party City, Tuesday Morning and David’s Bridal are just some of the retailers to have filed for bankruptcy this year.
by tyler | Jun 6, 2023 | CNN, investing
Investors have pulled around $790 million from the crypto exchange Binance and its US affiliate in the last 24 hours, data firm Nansen said Tuesday, a day after a top US regulator sued both exchanges.
Binance saw net outflows of $778.6 million of crypto tokens on the ethereum blockchain, with its US affiliate, Binance.US, registering net outflows of $13 million, Nansen tweeted.
Neither exchange immediately responded to a request for comment.
The US Securities and Exchange Commission on Monday sued Binance, its CEO Changpeng Zhao and the operator of Binance.US over what it called a “web of deception” to evade US laws.
The SEC alleged in 13 charges that Binance artificially inflated its trading volumes, diverted customer funds, failed to restrict US customers from its platform and misled investors about its market surveillance controls.
The lawsuit, which cited a number of practices first reported by Reuters in a series of investigations into the exchange, marks the most significant step against a crypto company by the SEC in its sweeping crackdown on the industry this year.
In statements on Monday, Binance said it had been cooperating with the SEC’s probes and had “worked hard to answer their questions and address their concerns,” including by trying to reach a negotiated settlement. “We intend to defend our platform vigorously,” it said in a blog.
Bitcoin steadied after falling more than 5% on Monday, its worst daily decline since April 19. The world’s biggest cryptocurrency was last at $25,723, flat on the day but pinned near a more than two-month low.
“It’s another blow to the crypto industry and the crypto exchanges of the world,” said Tony Sycamore, market analyst at IG Markets, of the SEC suit.
Binance’s BNB cryptocurrency, the world’s fourth-largest, fell 0.3% to a near three-month low of $277, after a 9.2% plunge on Monday, its worst daily fall since November.
The SEC complaint is the latest in a series of legal headaches for Binance. The company was sued by the US Commodity Futures Trading Commission in March for operating what it alleged were an “illegal” exchange and a “sham” compliance program.
Zhao said the CFTC claims were an “incomplete recitation of facts.”
