Hub Blogs

Hub Blogs contains fresh contributions written by Financial Independence Hub staff or contributors that have not appeared elsewhere first, or have been modified or customized for the Hub by the original blogger. In contrast, Top Blogs shows links to the best external financial blogs around the world.

Absurdity in certainty: finding yield during a pandemic

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Franklin Templeton/iStock

By John Beck, Franklin Templeton Fixed Income

(Sponsor Content)

An inverted yield curve, historically a harbinger of a recession, lived up to its reputation this year. The beginning of 2020 saw an inverted curve in both the United States and Canada as equity markets reached record highs. Then came the realization that COVID-19 was not simply a regional issue centralized in Wuhan, China, but a pandemic that would turn the global economy completely on its head.

A precipitous drop in stock valuations followed, reaching a nadir in mid-March, but stocks have rallied strongly since then, recovering many of the losses of that late-February/mid-March period. In the bond markets, unprecedented monetary stimulus and across-the-board rate cuts meant yields remained anemic throughout the crisis. That started to change in early June when better-than-expected job and growth numbers saw bond yields edge up. A steepening yield curve with a wider spread between short and longer duration securities is good news for both fixed income investors and the wider economy.

Across the Atlantic, the European Central Bank (ECB) announced in early June that its bond purchasing program would run to at least this time next year, spurring a rally in European bond markets.

Central bank policy

Any macro forecast must come with the caveat that a prolonged economic recovery is entirely contingent on the pandemic. A second wave of COVID-19 this fall or winter will likely mean further lockdown measures across the globe. The French philosopher Voltaire famously said: “Uncertainty is an uncomfortable position, but certainty is an absurd one.” Apt words for the current environment, but investors can take encouragement from the efforts of governments and central banks throughout this crisis. Continue Reading…

The Covid-19 Fight: Round 1 goes to Fear, Round 2 to FOMO

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Photo courtesy Pikrepo.com

By Noah Solomon

Special to the Financial Independence Hub

Round One goes to Fear

Prior to the COVID pandemic, it had been some time since investors felt anything close to the level of fear that gripped markets during the global financial crisis of 2008. As global stock indexes plunged over 30% from their late February 2020 peak in little more than four weeks, media pundits and investment managers were predicting Depression-era scenarios.

Round Two goes to Fear of Missing Out (FOMO)

Just as investors were fearing the worst, the cavalry (primarily in the form of the Federal Reserve and the US Treasury) saved the day, unleashing an unprecedented amount of both monetary and fiscal stimulus. These initiatives gave a strong boost to risk assets, which were deeply oversold on a short-term basis. As markets initially bounced off their late March lows, there were few optimists.

As stocks continue to climb to within striking distance of their pre-pandemic highs, many investors have not only become less fearful, but have embraced the notion that stocks have significant upside potential over the near to medium term. Refrains of “Don’t fight the Fed” and “Powell put” have gained increasing acceptance and have caused many market participants to shift from fear to FOMO.

For What It’s Worth (this has nothing to do with the way we manage money … but we can’t resist)

If it turns out the worst is indeed behind us, this would be the first bear market that put in its lows within five weeks of its pre-selloff peak. After the dot com bubble burst, it took the S&P 500 Index approximately two and a half years to finally hit bottom in October of 2002, at which point it had declined 47% from its March 2000 peak. During the global financial crisis, it took the index about one and a half years from its July 2007 peak to finally bottom out in March of 2009, by which time it had suffered a decline of about 55%.

To be clear, we are not insinuating that the massive monetary and fiscal responses that have occurred are irrelevant or that, all else being equal, they are not positive for markets. But the trillion-dollar question is whether they justify the stock market’s 45% gain from its late March lows (in the case of the S&P 500 Index) and the halving of high yield bond yields.

Without going into an exhaustive list of positives and negatives, it is probable that markets have over-discounted good news while under-weighting potential risks. In our view, at current levels the odds aren’t in investors’ favour. There is a distinct possibility that the mighty market brontosaurus has been bitten on the tail, but that the message has not yet reached its tiny brain. This is not to say that markets can’t creep higher, but merely that the probability distribution is unfavourable.

Einstein’s Definition of Insanity

Regardless of whether you think that markets are going higher or lower over the short, medium or long term, what is clear is that the current level of uncertainty is elevated if not extreme. Continue Reading…

How to break up with the IRS through expatriation, Part II: The exit tax

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By Elena Hanson

Special to the Financial Independence Hub

In my last blog I talked about expatriation and reasons you may want to give up U.S. citizenship or long-term resident status (i.e., green card). The key reason to expatriate is to end the reporting and tax obligations that come along with the privilege of being a U.S. citizen, especially when you don’t reside there. But before ending your obligations, you may have to pay expatriation tax, also known as exit tax.

Canada has a similar tax, called departure tax, but it’s imposed on your assets when you are no longer willing to reside in Canada.

Who is subject to the exit tax?

Generally, exit tax applies to U.S. citizens who terminate their citizenship and to long-term residents who terminate their status. However, if you are a long-term resident or green card holder who was not a U.S. resident for eight out of the 15 years leading up to expatriation, you are not subject to the exit tax.

In fact, just being a U.S. citizen or long-term resident doesn’t automatically subject you to exit tax upon expatriation. Last time we discussed implications of being deemed a covered expatriate for U.S. tax purposes. You must satisfy one of three tests, which are aimed at identifying people who are high-earning, high net-worth individuals and who are not compliant. Continue Reading…

Retired Money: Can the Work-from-Home theme protect growth stock portfolios from Covid damage?

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MoneySense.ca/Photo by Claudio Schwarz on Unsplash

My latest MoneySense Retired Money column looks at the theme of emphasizing Work-from-Home (WFH) and Stay-at-Home (SAH) stocks to stay partially invested in stocks but to protect against the ravages of a second wave of the Coronavirus bear market. Click on the highlighted headline to access the full column: Unpacking the new Work-from-Home ETFs.

Thus far, investors have enjoyed a solid recovery from the initial shock of March. How much depends on the extent to which they embraced the SAH stocks and avoided those directly in the Covid-19 blast zone: airlines, cruise ships, hotels, office REITs and others directly affected by global lockdowns.

Periodically the latter rebound on renewed Covid optimism, and are hence dubbed “Recovery” stocks. These have so far proven to be short-lived bounces. But the hoped-for V shape economic recovery expected by optimists seems now more elusive as major American states like Texas and Florida lock down again over a second Covid wave. That bolsters the case for a more long-term stance on WFH/SAH stocks like Zoom Video (ZM), DocuSign, Netflix and Teledoc (to name four I own and so far have profited from.)

Don’t forget the big tech companies like Facebook, Amazon, Google and Netflix (FANG) as well as Apple and Microsoft, all of which locked-down consumers rely on to keep a semblance of social interaction going with the outside world.

2 WFH ETFs coming

At least two WFH ETFs are in development to capitalize on this trend, more on which below. But by the time they are available it may be a bit late: most of the names are obvious ones and can be purchased individually at full-service or discount brokerages. There are 100 (mostly U.S.) stocks in Jim Cramer’s Covid-19 index, which he created soon after the pandemic and bear market began. Continue Reading…

The Evolution of Real Estate Investing

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Image by Pixabay

By Emma Williams

Special to the Financial Independence Hub

An insight into the modern methods of real estate that is much more accessible and inclusive!

We have now shifted from steel locks to smart locks in our homes, but for a long time, the conventional real estate systems continued functioning with similar patterns. One of which is real estate investments.

Real estate investment involves the purchasing and sale of a real estate asset for rental profits or market returns. Historically, this investment has yielded better and continuous returns for investors. However, a major roadblock to this remained its accessibility and high barriers in terms of capital and liquidity. For a long time, this segment was exclusive to a specific niche.

However, with modern instruments and advanced innovations at hand, real estate investment has the potential to widen its range. Through these new models, the potential of real estate investment has entirely been transformed.

Let’s take a look at the future of real estate investment with such modern innovative tools.

Investing With REITs

Image by Pixabay

Real Estate Investment Trusts (REITs) are one of the techniques that has made property investments accessible to a certain extent. With REITs, individuals invest in companies that further deal with real estate investments. In return, shareholders receive dividends in proportion to their investment share in the company.

With REITs, instead of directly investing in real estate an individual would invest in a company that has invested, in part, in real estate. The company then offers dividends through its rental income to its stakeholders. Any investor can hold shares and indirectly become an investor in a real estate asset. This eliminates the need for high capital needed in a traditional system. Continue Reading…