El Salvador wants to be “the financial center of the world” … five top dividend stocks for 2022 … a homework assignment from Eric Fry to strengthen your portfolio
El Salvador – which made bitcoin legal currency in June – just announced plans to construct “Bitcoin City.”
Apparently, Bitcoin City will be circular and feature a central plaza designed to look like a Bitcoin symbol from the air. Geothermal energy from the Conchagua volcano in southeastern El Salvador will power it.
From CNBC:
The city will have residential and commercial areas, services, entertainment, restaurants and an airport…
Construction will begin in 2022 and the city will have no taxes except from value added tax (VAT).
From El Salvadorian President Nayib Bukele:
This is going to make El Salvador the financial center of the world.
Invest here and make all the money you want… This is a fully ecological city that works and is energized by a volcano.
It’s yet another sign of crypto adoption – a massive one at that.
***However, bitcoin’s price has been slumping in recent weeks, down roughly 16% from its high earlier this month
The financial press has been all-too eager to point this out.
For instance, last week, we highlighted an article titled “Has the ‘crypto winter’ arrived? Bitcoin slides back to $60,000, Ether under pressure.”
Yesterday, Yahoo! finance brought us another zinger: “Why you can still lose it all in cryptocurrencies.”
So, should we ignore stories of adoption like Bitcoin City and instead panic about a crypto winter that results in us being penniless and destitute?
Let’s turn to our crypto specialist, Luke Lango, and his Saturday Crypto Investor Network update:
With respect to the recent drawdown in Bitcoin to below $60,000, we are not at all concerned.
This volatility is par for the course. Historically speaking, it is not unusual for Bitcoin to break to new all-time highs – like it just did – and then retreat and consolidate for a few months before taking another leg higher.
We think the current trading action is all very normal and healthy. Nothing to worry about here.
Now, if you’ve been following along, some of the anxiety about the crypto space in recent days has related to fears of government regulation.
The government has been slow to respond to the growth of the crypto sector. And many investors worry that when it finally acts, it will be heavy-handed, enacting policy that kneecaps sector growth, resulting in a steep selloff.
Back to Luke:
On the regulation front, we think it is largely determined what is going to happen with the regulation and development of stablecoins in the U.S.
Stablecoins will need a bank charter, and they will need to be backed 1:1 by U.S. dollars. One stablecoin equals one dollar.
Alternative instruments here are interesting but ultimately unnecessary. At the end of the day, if simple works, simple will win – and we think in this case, simple does work.
We do not foresee any big regulation risks on the horizon. There is some tax noise in current legislation making its way through D.C., though we ultimately view that noise as inconsequential to the long-term adoption trends of crypto.
Big picture: Don’t let transitory regulation risks scare you out of the crypto markets.
We’ll keep you up to speed with developments on the regulatory front. But for now, ignore the noise, ride through this volatility, and keep focused on the future.
***Meanwhile, even as the market dances around new highs, don’t forget about dividends
It surprises many investors, but when measured over the decades, dividends make up nearly half of all gains in the market.
A study of S&P 500 returns from January 1926 through December 2008 found an annualized total return of 9.69%. What shocks many investors is that price appreciation only accounted for 5.5% of that average 9.69% gain. Meanwhile, dividends were behind the remaining 4.19%.
In other words, dividends drove more than 43% of the long-term return of the market.
Now, there’s been some structural changes that could skew this number today. For example, companies often use their cash to buy back stock, which wasn’t an option available decades ago. This has reduced the money flowing into dividends.
But the broader point remains – dividends are incredibly important for long-term returns. And who doesn’t love some “mailbox money” anyway?
A few days ago, our technical experts, John Jagerson and Wade Hansen of Strategic Trader, highlighted five top income plays for 2022.
We’ll get to those in a moment, but first, let’s address a common misconception about dividend stocks in a rising rate environment – something we’re likely to see in 2022.
From John and Wade:
Rising interest rates are also an issue for income stocks (those that pay a high dividend) because the future cash flows are “discounted” at a higher rate. So if all else remains the same, a big dividend payer becomes less valuable as interest rates rise.
At least, that’s what many investors have been led to believe.
The truth of the matter is that income-paying stocks do tend to get beat up a bit when rates rise quickly, but this is a good illustration of the inherent irrationality of the market.
The reality is that dividend payers tend to follow HIGHER interest rates over the medium term (anything longer than 6-12 weeks).
Why is that?
Growth drives both dividend payers and interest rates. Most stocks will rise in a growing economy, and inflation and interest rates increase accordingly.
Bottom line: Every time the initial shock of higher rates sends dividend payers lower, it represents a buying opportunity to profit when investors start acting more rationally.
In John and Wade’s free newsletter, Trading Opportunities, they highlight five top income plays for 2022. But one that caught my eye was Energy Transfer LP (ET). It’s an energy pipeline company that just saw a 106% jump in revenue from last year.
From John and Wade:
Companies like ET are interesting because they are relatively unknown outside of oil-focused investment circles. They have upside and rise quickly when a catalyst hits.
Recent price projections suggest an average upside of 42%, but that is very likely rising as oil supply deficits worsen.
Best of all, ET boasts a dividend yield of 6.14%. That goes a long way toward beating inflation.
You can click here for the entire list.
***Finally, a quick homework assignment for Thanksgiving weekend
If you’re looking to escape from family, turkey, or football for a stretch this weekend, how about doing something productive with your portfolio?
As the market hovers around all-time highs, let’s enjoy it, but let’s be realistic – at some point, it will end.
So, a little preparation today will go a long way if/when these blue-sky conditions turn.
On that note, here’s our macro specialist, Eric Fry, with an assignment for you:
We should take a few minutes to reexamine each of our investments to be sure that we are still enthusiastic about each of their prospects going forward.
At the same time, we should make sure that our total allocation to stocks aligns with our actual risk tolerance and investment objectives.
Run a simple test that goes like this: If a market selloff caused my stock holdings to fall 20%, would I be okay with it? What if my stocks fell 40%, would I be okay with that?
Another way to ask that same question would be: What would bother me more; missing out on a 30% gain… or suffering a 30% drawdown?
Only you know the answers to these questions, but given the market’s sky-high valuations, you should probably be asking them.
As you run Eric’s assignment, remember that you don’t have to be “all in” or “all out” of stocks.
For example, if you find yourself a little uneasy with your exposure to the market, you can keep all your current positions, but just trim them to a “sleep easier at night” level.
If you’d like to sign up for Smart Money, click here. Each issue is loaded with valuable, actionable content, and best of all, it’s totally free.
Have a good evening,
Jeff Remsburg
