Author: Matt Thalman

Walmart Reminds Us Buyback Programs Aren't Dead

Posted on by Matt Thalman

Now that the economy is less rosy looking than a year or two ago, fewer company executives report or discuss share-buyback programs.

However, in the most recent quarterly earnings report from Walmart (WMT) we got just that, a big, new buyback announcement. Wal-Mart announced a new $20 billion share buyback program, and it should be noted that Walmart is currently just a $400 billion company.

While on the surface, a 5% buyback amount may not seem like a lot, if you dig deeper into Walmart, that 5% buyback, in reality, turns into a 10% buyback based on today's market capitalization. The reason is the Walton family and family trust and foundation control a little more than half of all Walmart shares.

While the family and its Foundation do sell stock from time to time, they have never sold a sizable enough amount to really move the needle. Thus, it is likely that the $20 billion buyback Walmart announced will be purchasing shares not owned by the Walton family and therefore coming from the stock trading on the open market, which is less than 50% of shares outstanding.

Owning a stock like Walmart or, even better, AutoZone (AZO), which has repurchased around 85% of its stock since 1998, can increase the value of your portfolio over decades of ownership. This occurs even when the company you own operates in a boring, slow-growth, or even cyclical industry, like retail.

Now there is some debate about whether or not you would rather have a company you own buy back stock or pay you a larger dividend.

Some investors would instead take a more significant dividend so they can invest it in other stocks, while some investors would rather that money be used to buy back stock.

This is honestly one of those situations where it is more or less a personal decision on which way you would rather a company give you back part of the profits it earns. Continue reading "Walmart Reminds Us Buyback Programs Aren't Dead" →

Is The Bitcoin Crash Over?

Posted on by Matt Thalman

The cryptocurrency Bitcoin hit its most recent all-time high just over a year ago, on November 10th, 2021, at $69,000 per coin. More recently, Bitcoin was trading in the $16,000 range, that's more than a 76% decline.

Long-term Bitcoin bulls will be quick to point out that since its inception, Bitcoin has experienced other declines that fall within the same percentage drops. However, knowing that type of move has happened in the past, and the cryptocurrency rallied back probably doesn't help those who bought Bitcoin up at the highs feel much better about their investment.

But what about if you have been sitting on the sideline, waiting for the right time to buy Bitcoin? Is today a good time to buy the cryptocurrency?

For all the bulls out there, I already know I have been wrong about Bitcoin in the past, and I am wrong again this time. But hear me out before you write me off. I believe there are a few reasons why we have not seen the bottom of the current Bitcoin crash.

First and foremost, we are heading straight toward a recession. You may not want to believe it or face reality. Still, it is coming.

Just last week, Federal Reserve Chairman Jerome Powell told investors that the likelihood of a soft landing was rapidly diminishing. Inflation is still high, and Fed Members have made it clear that bringing down inflation is the most important problem to tackle now. And despite interest rates at levels we have not seen in a decade, the Fed believes we will still need more increases in the coming months.

The coming recession is important for Bitcoin's price because up until this point, Bitcoin has not proven to be a "safe haven" asset.

Furthermore, even gold, an investment that most investors would consider pumping money into during uncertain economic times, has not been rallying during this market downturn.

Many investors point to the fact that the dollar has strengthened as one reason why gold and cryptocurrencies are down. A strong dollar could be due to Treasury bonds paying higher and higher yields. The world considers the US Treasury Bond as the baseline for a zero-risk investment. And with T-Bond yields going higher in 2022, investors worldwide have been flocking to both the dollar and T-Bills. Continue reading "Is The Bitcoin Crash Over?" →

Powell Starting to Change His Tune

Posted on by Matt Thalman

Federal Reserve Chairman Jerome Powell should have started the November Federal Reserve meeting press conference with one of the more widely used movie quotes, "there's a storm coming." Chairman Powell's comments after the Fed meeting were certainly the most hawkish we have heard from him.

First, the Federal Reserve Board unanimously voted for the 0.75% rate hike. That alone is a sign that all members of the Fed believe we still need to slow the economy to fight inflation.

During the press conference, Powell took this perhaps another step further when he was asked a question and responded that inflation hasn't been coming down as fast as the Fed had hoped.

Powell's answer about inflation not coming down as his team expected came after he indicated the likelihood of a soft landing was diminishing. Powell mentioned that November's 0.75% hike, the fourth hike of that amount in four consecutive meetings, was "fast pace," however, he also insisted that it was "appropriate" given our current situation, referring to high inflation.

Powell also stated the Fed has some ways to go with future rate hikes. He continued, "We may move to higher levels than we thought."

Another concerning statement came when Powell said, "the question of when to moderate the pace of increases is now much less important than the question of how high to raise rates and how long to keep monetary policy restrictive."

I had written in the past that I felt the Fed Chairman was "sugar coating" the inflation situation to help stabilize the economy and the market's reactions to his comments.

However, Jerome Powell's comments on November 2, 2022, were the first time he did not come across as soft or sugar-coating about what is happening with inflation and the economy. In several ways, the Federal Reserve Chairman is telling the world that inflation is enemy number one and that what the Fed has done up to this point is not working.

So, what does this all mean for the average investor? Continue reading "Powell Starting to Change His Tune" →

The Downside of High-Reward, High-Risk Investing

Posted on by Matt Thalman

Over the past number of years, the best investments nearly all came out of the technology sector. We had terms like the FANNG stocks coined, we were told value-investing was dead, and year after year, the stable dividend-paying stocks just slowly trailed behind high-flying technology companies.

But, towards the end of November 2021, things began to change.

In November of 2021, the Nasdaq was up 130% on a five-year chart but is now up just 61%. The same chart shows the Dow was up 55% when the NASDAQ hit its peak but is now up just 37% over the last five years. On a year-to-date chart, the NASDAQ is down 31%, while the Dow is off just 11%.

If you look at individual technology stocks, it can get even worse. For example, Tesla is down 44% year-to-date, while Meta is off more than 70% since the start of the year.

But, something like boring old Coke-Cola, is flat on the year. And I should mention Coke is yielding a 2.96% dividend, which, if calculated into the year-to-date return, would put your investment ahead for 2022. Not very many big-name NASDAQ technology stocks can say that.

Every investor wants a big return. Seeing a stock climb 10, 20, 30 percent, or more in a single year. And it certainly beats seeing a stock climb a measly 4 to 6 percent.

However, the more important thing investors need to remember is that when stocks rise by double digits or more, they probably carry a lot more risk than a stock that hardly looks alive.

The Dow Jones Industrial average is full of stocks that creep along. They don't seem like suitable investments if you look at them on one-year charts. But, over decades, these stocks have been outstanding performers, especially if you add dividends, when considering their total returns.

Furthermore, the slow growth comes with low, or at the very least, much lower risk than the higher return stocks. That low risk could be what keeps you from making a rash decision with your portfolio.

When a holding in your account is down 40 or 50 percent in a year, it is easy to simply say you are cutting your losses and selling the stock.

However, history has proven the best method of investing is a long-term buy and hold. And that means holding stocks when they are down or lost massive amounts of value. Continue reading "The Downside of High-Reward, High-Risk Investing" →

Best Performing ETF Group is Not What You Think

Posted on by Matt Thalman

With just two months to go in 2022, the best-performing group of Exchange Traded Funds year-to-date may not be what you would have expected it to be when we started the year.

After a strong bull market rally coming off the march 2020 Covid-19 dip, most investors would have assumed stocks, mainly big technology stocks, would again be the market leaders in 2022.

However, the market never ceases to surprise, and as hindsight is always in 20-20 vision, it feels like we all should have seen the signs that 2022 wasn't going to be a good year for stocks and another asset class was going to dominate.

What asset class are we speaking of? Bonds! Well, to be more specific, shorting Treasury Bonds.

Shorting longer-dated Treasury bonds has been, hands down, the best trade of 2022. Whether you use leveraged and-or inverse products or not, shorting Treasury Bills has produced great results in 2022.

For example, the ProShares UltraPro Short 20+ Year Treasury ETF (TTT) is up 176% year-to-date and more than 50% over the last three months. Direxion's version of the same ETF, the Direxion Daily 20+ Year Treasury Bear 3X Shares ETF (TMV), is also up 176% year-to-date. The ProShares UltraShort 20+ Year Treasury ETF (TBT), which is a 2X leveraged inverse fund, is up more than 100% year-to-date.

Even the funds that short the shorter term Treasury bills, the 7-10 year term bills, like the Direxion Daily 7-10 Year Treasury Bear 3X Share ETF (TYO) and the ProShares UltraShort 7-10 Year Treasury ETF (PST) are up 66% and 42% respectively.

If you had run a screener at the beginning of the year for non-leveraged and non-inverse funds because the risk involved with those products are not necessarily in your comfort zone, you still could have bought the Simplify Interest Rate Hedge ETF (PFIX). PFIX holds over-the-counter interest rate options and US Treasury Inflation-Protected Securities or TIPS, and still produced a return of around 100% year-to-date.

So you may be asking how and why shorting longer-dated Treasury bills produce solid results when interest rates, Treasury bills, and bond yields are climbing higher. Well, it is a little complicated on the surface but pretty simple once you understand how it all works. Continue reading "Best Performing ETF Group is Not What You Think" →