Review Bad & Ugly- UnReliable Investment Program

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For quite some time, we have been talking about weakening macroeconomic and earnings trends, which, combined with more aggressive Fed rate cuts, have historically denoted the beginnings of bear markets.”

None of this has seemed to matter up to this point as market participants have continued focus on the “hope” of trade deals, and more importantly, further monetary stimulus from Central Banks. To wit:

“Investors are hoping a string of disappointing economic data, including manufacturing woes and a slowdown in job creation in the private sector, could spur a rate cut. Federal funds futures show traders are betting on the central bank lowering its benchmark short-term interest rate two more times by year-end, according to the CME Group — a welcome antidote to broad economic uncertainty.” – WSJ

This week, we are going to deviate from our normally more macro-market/economic view to specifically delve into the S&P 500 index and the underlying sectors. We will wrap it up with a review of our reasoning why Fed actions may not have the result investors are banking on.

When looking at financial markets, price patterns can give us clues as to what the market participants are thinking as a whole. This year has been more notable than most, as investors have continued to “crowd” into a decreasing number of sectors in the ongoing chase for returns, liquidity, and potentially some “safety” from a weakening economic backdrop. As shown below, we can define these three “price patterns” as the good, the bad, and the ugly.

Every week, we review the major markets, sectors, portfolio positions specifically for our RIA PRO subscribers (You can check it out FREE for 30-days). Here was our note for the S&P 500 on Thursday:

  • We are still maintaining our core S&P 500 position as the market has not technically violated any support levels as of yet. However, it hasn’t been able to advance to new highs either.
  • Yesterday’s sell-off did NOT violate support, but is also NOT oversold as of yet, which suggests further downside is possible.
  • There is likely a tradeable opportunity approaching for a reflexive bounce given the depth of selling over the last couple of days.
  • Short-Term Positioning: Bullish
  • Stop-loss moved up to $282.50
  • Long-Term Positioning: Neutral due to valuations

This week, we are going to review each of the major sectors as compared to the chart patterns above to determine where money is likely going to, where it is coming from, and what we need to be on the watch out for.

Let’s start with the UGLY

The ugliest of sectors remains Energy (XLE). The trend remains sorely negative, and even the recent spike due to the Saudi oil refinery explosions failed at the downtrend resistance line. With the economy slowing, particularly in the manufacturing sector, the pressure on oil prices, and the energy sector, remains to the downside for now.

Current Positioning In Portfolios: No Sector Holdings, 1/4th weight XOM

Small stocks remain in a declining trend overall. However, volatility in this market has provided some decent trading opportunities for nimble investors. However, Small Cap stocks are the most sensitive to changes in the economic environment and don’t benefit from share repurchase activity to the degree major large-cap companies do. With the small-caps trading below both their 50- and 200-dma, there is more risk to the downside currently.

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There is no reason to be invested in small-caps currently as they have increased portfolio volatility and provided an additional drag on performance.Buy and hold asset allocation models are not a suitable fit for late-stage bull market cycles.

Current Positioning In Portfolios: No Holdings

Emerging markets, like small-caps, are very subject to changes in global trade, and in this case, “trade wars” and “tariffs.”

Also, like small-caps, emerging markets have been in a long-term downtrend and have added additional drag, and increased volatility, to traditional asset-allocation models. With the 50-dma crossed below the 200-dma, the risk to emerging markets remains to the downside currently.

Current Positioning In Portfolios: No Holdings

Transportation is literally the “heartbeat” of the American economy. If you eat it, consume it, wear it, watch it, or listen to it, it was transported to you by truck, train, plane, or ship at some point on its way to you. The importance of this statement is that transportation tells you a lot about the the real-time activity in the economy. Currently, it is suggesting things aren’t all that great.

With transportation trading below the 50- and 200-dma, the risk is to the downside. Importantly, the 50-dma is close to crossing below the 200-dma as well. A break of lows is an important signal for the sector and the economy, so pay attention.

Current Positioning In Portfolios: No Sector Holdings, 1/2 weight NSC

Not BAD, More OKAY-ish

Financials have been trading sideways since May and have continued to consolidate. While the chart pattern doesn’t look so bad, the risk to the sector is rising as credit risk in the sector is high. There is a tremendous amount of debt sitting on the borderline between investment grade (BBB) and junk. There is also a good amount of junk debt related to the energy sector as well, and declining oil prices is accelerating that risk. If you are long the sector, that has been“okay” so far but watch lower support. A break of that level will signal a substantial increase in risk given the weighting of the sector to the overall market.

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Become a RIA PRO subscriber and be part of our “Break It EarlyTesting Associate” group by using CODE: 401 (You get your first 30-days free)

The code will give you access to the entire site during the 401k-BETA testing process, so not only will you get to help us work out the bugs on the 401k plan manager, you can submit your comments about the rest of the site as well.

We are building models specific to company plans. So, if you would like to see your company plan included specifically, send me the following:

  • Name of the company
  • Plan Sponsor
  • A print out of your plan choices. (Fund Symbol and Fund Name)

I have gotten quite a few plans, so keep sending them and I will include as many as we can.

If you would like to offer our service to your employees at a deeply discounted corporate rate, please contact me.

Disclaimer: Real Investment Advice is powered by RIA Advisors, an investment advisory firm located in Houston, Texas with more than $800 million under management. As a team of certified and experienced professionals, we seek to provide our clients with educational services and the necessary information and tools to educate you in the field of finance, investing and economics. To this end, you can use the Real Investment Advice Platform to avail yourself of various video, audio and proprietary collections of information at your leisure to learn and gather the necessary information that you may need in the fields of investment news, investment opinion, financial news, financial opinion, economic news and economic opinion, finance, investing and economics. Utilizing the functionality and tools provided by Real Investment Advice, you can access this information in a variety of ways, including via video and audio programming, audio and visual media content streaming services, downloadable audio-visual media, uploaded, posted or tagged third-party videos, receiving or viewing audio and video clips, blogs, podcasts, and YouTube videos, all of which are accessible on the Real Investment Advice media platform and/or various Internet and communications links that are accessible via the Real Investment Advice Platform and allow for the broadcasting, transmission and streaming of the information and audio-visual content to your media devices and other communications platforms for your viewing and listening pleasure. All of these tools and sources of information are made available to you so that you can utilize the same to make the right financial, economic and investment decisions. Review: Bad & Ugly- UnReliable Investment Program

Carolina leads Cullen International Americas services covering the Telecoms, Media and Digital Economy sectors. She has been responsible for enlarging Cullen´s portfolio in the Americas, most recently developing the new Spectrum service for the region. Before joining Cullen in 2020, Carolina worked at the Argentine telecoms policy-maker, SeCom, for five years as an advisor on regulatory and economic issues. Carolina is an economist specialized in regulation and competition, she has significant presence in Latin America regional events, providing a neutral perspective of the key regulatory issues in the ICT and digital sectors.

Peter is responsible for developing and maintaining close relations with Cullen’s clients and other contacts in Europe. He regularly presents Cullen’s research in industry conferences and training courses. Peter also leads the postal regulatory intelligence service. Peter has developed new lines of business for the company – including the launch of a successful training business in 2020 and the postal service in 2020. Before joining Cullen International in 2020, he worked in the UK and continental Europe for Orange and for Colt; and for Digicel Group in the Caribbean.

CommSec Pocket review: The good, the bad and the ugly of micro-investing

Commonwealth Bank has launched a new micro-investing app called CommSec Pocket which turns saving into investing.

And InfoChoice has downloaded it, opened an account, set up an investing plan and written the first full review of CommSec Pocket!

What is CommSec Pocket?

CommSec Pocket is a micro-investing phone app that enables users to invest as little as $50 directly in the sharemarket via Exchange Traded Funds (ETFs). You can’t buy company shares directly with CommSec Pocket, only shares in one of seven selected ETFs.

What is micro-investing?

Micro-investing was pioneered by Acorns (now called Raiz) and FirstStep. Like other micro-investing apps, CommSec Pocket is aimed at savers who have not yet made the leap into investing.

ETFs are funds that are listed on the sharemarket (so you can buy and sell shares easily). ETFs (usually) invest directly in other companies that are listed on the share market, allowing small investors to diversify and avoid putting “all their eggs into one basket.”

If you want to know about ETFs and investing, CommSec Pocket has articles and guides to help you get informed.

What is the minimum I can invest with Pocket?

CommSec Pocket has been granted a waiver by the Australian Securities and Investments Commission to offer investment transactions below the usual $500 minimum, a Commonwealth Bank spokesperson told InfoChoice. You can invest as little as $50 with CommSec Pocket.

Other online brokers (like CommSec) have a minimum first investment of $500. The big highlight of Pocket is automated regular investing, which is like regular direct deposits into a savings account.

How much does CommSec Pocket cost?

CommSec Pocket charges $2 brokerage for trades up to $1,000. For trades over $999.99, Pocket charges 2 per cent ($20 for a $1,000 trade). There are no ongoing or account keeping fees.

Other online brokers, such as CommSec, charge around $20 per trade.

CommSec Pocket in action

I downloaded the Pocket app, dug out my Netbank client number and password, signed up and used Pocket to invest. So far no problems.

Now CommSec Pocket is telling me it has two ways of investing: Making a one-off trade and setting up a regular purchase. I’ve now used CommSec Pocket to do both of these things and it’s disconcertingly easy.

First you need to choose one of seven investment options. CommSec Pocket’s seven ETF investment options are:

1) Aussie Top 200 – The 200 big Aussie companies

2) Global 100 – Global blue-chips

3) Emerging Markets – Top companies in China, Taiwan, Korea and more

4) Aussie Dividends – Big Australian companies that pay dividends

5) Tech Savvy – 100 top tech and NASDAQ companies

6) Sustainability Leaders – Ethical investing with global climate change leaders

7) Health Wise – Healthcare, biotech, pharmaceuticals

How do you choose? Get advice, be cautious and do some research are the correct answers to that question.

For this review, I didn’t do any of that, which is not advisable. I chose to invest $100 in “Tech Savvy.”

And I set up a regular $50 per fortnight plan investing in “Sustainability Leaders.” And this is how I did both of those things:

Making a trade with CommSec Pocket

CommSec Pocket displayed a message that units (shares) in Tech Savvy are currently worth $19.66 each and the fee is $2.

$100 – $81.84 = $18.16

So, my hard earned $100 would only cover four units with $18.16 left over. So what happened to the rest of my $100? My $18.16?

I asked Commonwealth Bank for an answer – before clicking on “BUY”

“We will only debit your bank account the amount invested plus brokerage – so the leftover funds will remain in your bank account,” said a friendly spokesman for Commonwealth Bank.

Okay, no worries. I clicked on “NEXT,” confirmed and made the trade. I now own four shares worth $80.64. Warren Buffet look out.

Now CommSec Pocket tells me how much my four units are worth – every time I open the app.

Setting up a regular investment with CommSec Pocket

This is the real CommSec Pocket selling point. Making investing look and feel a lot like saving.

Commonwealth Bank says CommSec Pocket is for simple investing with trades starting at $50. We tested that by setting up a fortnightly $50 investment plan.

First, I chose the ‘Sustainability Leaders’ ETF and set up a regular trade to start after my next fortnightly payday.

Now my new investment plan of buying (up to) $50 worth of units in the Sustainability Leaders ETF each fortnight is up and running.

Pros and Cons of CommSec Pocket

CommSec Pocket makes investing in shares easy. With Pocket, investing looks and feels a lot like setting up a direct deposit to a savings account. However, each fortnight, I collect a trade confirmation letter from the mailbox reminding me I’m buying shares, not depositing funds into a bank account.

The app has simple options and a clean look and feel. Pocket’s ETF investment options are provided by iShares and are all respectable funds.

But CommSec Pocket is not a realistic long-term way to build a share portfolio. Over time the fees can’t be justified.

For example, I can use CommSec to buy 1,000 units (shares) in an ETF for $19.95.

Using Pocket to buy two units at a time for $2 each trade could conceivably cost me up to $1,000 for the same result – 1,000 shares.

The spokesman from Commonwealth Bank confirmed that yes, we could pay more in brokerage fees in the long run using Pocket when compared with CommSec.

“CommSec Pocket is an investing app for people who are new to the sharemarket and want a simpler investing experience,” said the spokesman.

“CommSec’s full platform services hundreds of thousands of self-directed investors with access to all ASX-listed securities, international securities, research and a wide range of trading tools such as conditional orders and alerts.

“You can purchase the same ETFs on the full CommSec platform.”

CommSec Pocket can be downloaded from the iOS App Store and Google Play Store. To use CommSec Pocket, customers must have a CommBank Transaction account and a CommSec ID or NetBank ID.

The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. If you or someone you know is in financial stress, contact the National Debt Helpline on 1800 007 007.

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