Economic Distress Translates to Profit for Cunning Investors

Economic Distress Translates to Profit for Cunning Investors

Here's a fresh rewrite of the article, adhering to the specified guidelines and featuring sparse, relevant insights from the enrichment data:

Heck yeah, we're living in a blurry, rollercoaster market since the GFC was just a baby challenge compared to this!

You might think the COVID-19 was bad, but it was relatively short-lived and ended up delivering two years of 20%+ returns- fancy that, eh? However, it wasn't all sunshine and rainbows - the S&P 500 faced a steep challenge in 2015, dipping by nearly 1%, due to economic slowdown in China and the yuan devaluation. Oh, and don't forget 2018, where the S&P 500 took another tumble, losing about 6% thanks to trade wars, slowing global growth, and fears of humongous monetary blunders.

But, c'mon, those bumps in the road were minor compared to what we're dealing with now.

There's no arguing that it feels like every time the market hits a snag, the smart cats on the sidelines are screaming for things to "just go back to normal," regretting the gains they missed. But sit tight, buddies, because history shows us that if you wait for perfection, you'll be waiting a long-ass time.

So, here's the skinny on why things are shaping up to be different this time. Skip the boring part and get down to the 'why' if you must.

The Reason for Cautious Optimism

The S&P 500 has already gained about 2.2% on a YTD basis, putting it in glorious green for the third year in a row. And for those paying attention, the credit spreads are hovering around 300 basis points, which is pretty as a picture and theoretically signals that the overall economy is doing nothing short of spectacular.

But, whoa there, partner, hold on a second. Despite the shining stock market veneer, there are still some looming dangers in the shadows.

Let's break it down for ya:

• De-globalization is on the rise, with companies hesitant to establish low-cost supply chains in foreign countries, causing inflation concerns.
• Production input factors are becoming costlier, with all items excluding food and energy inflating by 2.8% according to the latest CPI report – and there's still a lag effect to process from the tariffs.
• Trade tensions, historical U.S. dollar struggles, fiscal deficits, and policy uncertainty have geopolitical tensions boiling over (ahem, looking at you, Iran, Russia, and China).
• Some frightening fiscal deficits loom large due to rising long-term yields that are proving difficult for the Fed to control via base rate cuts.

And listen, I could go on and on about all the hotspots that have us dancing on the edge of a knife these days. It's a bifurcated market, the S&P 500 and major indices shining on the surface, while a tsunami of uncertainty swells beneath.

The Places Income Investors Should Tread Lightly

So, what's the deal? Expensive assets that haven't shown their earnings potential yet? Uh, no thanks. Unless there's a specific case-in-point, it's a Herculean task to radically drive double-digit growth in earnings efficiently in this environment. Sorry, SPY and Nasdaq-100 (QQQ) investors, you're looking at a "no" from me.

In fact, I'd drop the high-yield (HYG) and private credit (BIZD) investment opportunities like they're last year's trends. Why? Well, for a start, credit risk premiums are nosebleed levels (compared to the level of uncertainty), and companies are enjoying an extended honeymoon period without any major corporate bankruptcies. It ain't smart to ride that wave all the way down.

Don't get me wrong, I'd be the first to say that there are some exquisite opportunities in the private credit space – like Main Street Capital Corporation (MAIN) and Sixth Street Specialty Lending (TSLX). Check out my recent articles to find out why.[i][j]

Busted yet? REITs (VNQ) probably made you spit out your coffee. The main problem? Admonishable risk-reward ratio caused by rising long-term yields (that are largely out of the Fed's control) – who woulda thunk it, right? Infrastructure tends to suffer, and dividends could be in peril as well, especially if inflation raises its ugly head.

But hey, this ain't all doom and gloom, my friend. Some REITs, like Alexandria Real Estate Equities (ARE) and Armada Hoffler Properties (AHH), have been neglected due to reasons that don't matter in the context of long-term and income investing. Wanna know more? Check out my articles.[k][l]

Spots for Prudent Income Investors to Shine

Now, I ain't saying growth's a goner, but it's looking pretty grim in the overall picture. But fear not, my fellow income-seekers, there's still opportunity out there! Infrastructure investments, focusing on MLPs in particular, are knocking on the door.

Think of telecommunication towers, roads, data centers, bridges, fiber networks, midstream – there's little correlation between their demand profiles and pesky external factors like trade, commodity prices, corporate bankruptcies, and inflation. Plus, lengthy usage agreements, embedded CPI escalators, and long-term fixed borrowings mean that risks due to rising long-term yields can be easily managed.

Undoubtedly, I'm head-over-heels for Brookfield Infrastructure Partners (BIP)(BIP.UN:CA)(BIPC). Just peep my recent article to see why.[m]

And, mark my words, MLPs (AMLP) are also catching my eye. They took a hit from lower oil/gas prices and reduced production volumes, but MLPs have since strengthened through de-leveraging in the wake of the COVID-19 pandemic. That puts Western Midstream Partners (WES) and Plains All American Pipeline (PAA) on my radar.[n][o]

Last but not least, covered-call ETFs certainly aren't for the faint-hearted, but I think we're seeing a moment for them on this crazy, unpredictable rollercoaster market we call home. Covered call ETFs produce variable dividends and move in tandem with their underlying indices, but in an unstable market like this one, they can offer a much-needed hedge. My top picks? The JPMorgan Nasdaq Equity Premium Income ETF (JEPQ)[p] and the JPMorgan Equity Premium Income ETF (JEPI).[q]

So, there you have it, folks. In short, taking a measured approach is key, 'cause growth ain't worth a hoot right now – but infrastructure and covered-call ETFs could deliver the income we've been aching for. Check out my articles for a deeper look at the security examples I've mentioned.

Enrichment Data:

• The current economic and market environment presents significant challenges and risks, echoing the difficulties faced in the aftermath of the global financial crisis (GFC).
• Several factors are causing uncertainty, including trade tensions, escalating inflation, geopolitical risks, fiscal deficits, and rising long-term yields.
• Investors should focus on quality income-oriented investment opportunities due to volatile market conditions and diminished growth prospects.
• Fixed-income investments, high-yield corporates, and cash reserves may provide stability in uncertain times.
• Emerging technologies, particularly those that enhance productivity, could offer long-term investment opportunities.

1. Retirement planning in today's uncertain market requires a measured approach, focusing on quality income-oriented investment opportunities.
2. Environmental concerns and sustainable investing can play a significant role in personal-finance decisions, particularly in real estate and infrastructure investments.
3. Technology and education-and-self-development sectors, especially those focusing on emerging technologies and productive efficiency, hold intriguing long-term investment potential.
4. Sports and entertainment can be interesting investment areas, but they are subject to market volatility and should be approached with caution.
5. In the realm of business and finance, diversifying investments across various sectors can help mitigate risks and maximize returns in an unpredictable market.
6. To stay informed about potential investment opportunities, continuous learning and self-development in the context of financial news, analysis, and trends is essential.

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