Tag: ETF Investing

Bitcoin ETFs Aren't Going To Produce Same Returns As Bitcoin

Posted on by Matt Thalman

Bitcoin and other cryptocurrencies have once again hit new all-time highs over the past few weeks; many believe this was largely due to the hype surrounding the inception of the first Bitcoin Exchange Traded Funds in the United States.

The hype around the Bitcoin ETFs, like the ProShares Bitcoin Strategy ETF (BITO), was largely due to the idea that now the average investor or fund manager can easily garner access to Bitcoin through their standard investment platforms. The ETF would allow them to invest in Bitcoin without relying on the Coinbase's of the world or setting up a digital wallet and transferring funds into those accounts. It may sound like a small thing, but most investors prefer all their investments in one clean place.

The Grayscale Bitcoin Trust (GBTC), which many considered the first fund that gave the average investor access to Bitcoin in an easily tradable way and is a fund that actually holds bitcoins. BITO and the other newer Bitcoin ETFs, hold ‘futures’ contracts on Bitcoin, not the actual asset itself and this causes some issues with these new ETFs accurately tracking the price movements of Bitcoin. That is not to say that BGTC tracks Bitcoin price movements perfectly either, but it doesn’t have to deal with the same issues the newer ETFs will be facing. *(see footnote)

This type of investing is different from actually holding the asset itself because, in order to gain exposure to the asset through futures contracts, you spend more money to gain that exposure. Plus, you spend it each and every month when you'll roll' from one month's futures contracts into the next. Continue reading "Bitcoin ETFs Aren't Going To Produce Same Returns As Bitcoin" →

Truly Out Of This World Investing: Space ETFs

Posted on by Matt Thalman

In the 1960s, the so-called 'Space Race' was between the United States and Russia. Today we are once again in the midst of another space race. However, this time around, it's not two superpower countries battling it out; it's businessmen. In the 60's the battle for space was in most ways geared around bragging rights, military power, and nationalism. Today, it still is in many ways about bragging rights and as a way to make money. And let's be honest, the billionaires shouldn't be the only ones getting weather from this battle.

To many people, the current battle for space is still seen as a lot of science fiction. But, what a lot of these companies are doing today, could pave the way for the next generation's technological advancements. So, what is taking place just outside our atmosphere is really going to change the way we live, not in 20 or 30 years from now, but just a few years from now.

For example, Elon Musk's SpaceX company offers satellite internet service through its "Starlink" program. The Starlink program is an internet provider that uses satellites floating around Earth to make an internet connection. This is very similar to satellite radio from SiriusXM or satellite TV service through someone like DISH Network. At the time, Starlink is not a huge success, but some predict that it will become more and more popular in the coming years due to the worldwide availability of the internet that Starlink offers. Continue reading "Truly Out Of This World Investing: Space ETFs" →

Real Estate ETFs React To Rising Mortgage Rates - Part 2

Posted on by Chris Vermeulen

As the Real Estate market shifts away from super-low interest rates and skyrocketing home prices throughout the COVID-19 crisis, we are starting to see the Real Estate ETFs weaken in trend and start to move lower. The recent rising Mortgage Rates will likely continue to weaken sales trends and push home prices a bit lower over the next few months. The Real Estate ETF, IYR, is already reflecting a roughly 10% decline in valuation since early September 2021.

In the first part of this research article, I shared a historical chart of the US Average Mortgage rate and some data suggesting the average US consumer is somewhat bound to certain home price constraints based on Average Income. Typically, mortgage payments should stay below 50% of the borrower’s total take-home income. Depending on the borrower and the home price, many US borrowers may already be priced out of the market – even with 3.25% interest rates.

Peak Home Price Affordability Was Reached In Early 2021

Peak affordability appears to have peaked in December 2020 & January 2021 – just after the COVID-19 crisis. This likely correlates to the lower interest rates, at one point below 2% in most of the US, for home buyers while home prices were 20% to 40% lower than they currently are in most areas.

Housing - Home Sales

(Source)

Case/Shiller National Home Price Index Has Skyrocketed 30% Higher Since May 2020

A great measure of the National Average Home Price is the Case/Shiller US National Home Price Average Index. From the chart below, you can see the almost parabolic rise in home prices after the March 2020 COVID-19 event. This incredible rally represents a 30%+ increase in home average US home prices in a little over 13 months. Continue reading "Real Estate ETFs React To Rising Mortgage Rates - Part 2" →

Real Estate ETFs React To Rising Mortgage Rates - Part 1

Posted on by Chris Vermeulen

US Mortgage Rates have risen from levels near 2% to 2.25% earlier in 2021 to levels now above 3%. This increase in the cost of borrowing money for home purchases has a downward effect on home prices and sales. The affordability of homes is directly related to the sales price and the cost of the mortgage to secure the purchase of the home. As interest rates rise, home affordability becomes less attractive and feasible for many potential buyers, and home prices start to fall in an attempt to allow a quicker sale.

The Making of Another US/Global Housing Crisis

The easiest way to think about this is to consider the ability of buyers to secure and satisfy mortgage payments for homes. The more expensive the sales price of the home and the interest rate of the loan is, the more likely the affordability of the home is going to be perceived as undesirable.

As concerns related to the US economy, and the indication by the US Federal Reserve that rates will likely start to increase before the end of 2021 or very early in 2022, mortgage rates have already increased by nearly 45% over the past 60 days. A $500k home would have cost about $2500 a month at a 2.25% mortgage rate (including property taxes, homeowners insurance, mortgage insurance, and principal & interest). That same $500k home costs more than $2700 a month at a 3.25% interest rate (including all fees and costs).

US Interest Rate Chart - Home Buying

Over the lifetime of the loan, the total costs of buying the $500k home have now increased by more than $70k for the buyer. If rates rise to 4.25%, the new monthly cost of that same $500k home rises to nearly $3000 per month. Raising the total cost of buying that $500k home by more than $180k over the lifetime of the loan for the new buyer. Continue reading "Real Estate ETFs React To Rising Mortgage Rates - Part 1" →

U.S. Default Could Be A Disaster

Posted on by Matt Thalman

On September 30th, the United States Congress sent a bill to President Biden's desk to avoid a government shutdown, at least until December 3rd. In the past, when the government has shut down or come close to a shutdown, similar to what just happened, we have seen market turmoil caused by the uncertainty surrounding the situation. However, even with that uncertainty removed temporarily until December 3rd, the markets may not have much breathing room since lawmakers still need to raise or suspend the debt ceiling before October 18th.

If the politicians in Washington can't agree on the debt ceiling, the U.S. could default on U.S. debt, something that most market participants believe would be "disastrous." However, the United States has never in its history defaulted on government debt. So, we honestly do not know what would happen if it were to happen. But, since U.S. Treasury bonds are widely considered "zero" risk and used as a benchmark or starting point to determine the risk of other alternative investment options if the government did indeed default, it would send shock waves throughout the market as other assets would need to be repriced based on their risk level when compared to U.S. Treasury bonds.

The uncertainty which would follow and potentially dramatic rise in interest rates across the board could and very likely would send the U.S. economy into a tailspin with the stock market falling and potentially a rise in unemployment. Some even believe that government spending in the forms of social security payments and bills owed to contractors would be suspended for a period of time while the U.S. Treasury determines what to pay and what not to pay. This would obviously hurt the overall economy as potentially millions of Americans would not receive social security checks and or paychecks if they work for a government contractor. Continue reading "U.S. Default Could Be A Disaster" →