Rorschach Test
The Global economy tanks, Dividend investing, and Bear market rallies
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A few years ago, I read about an interesting psychological test used to identify someone’s underlying thought process. The gist of the test is this: The participants are shown a collection of cue cards with different inkblot figures on them. Then, they are asked to describe what the figure looks like.
Although the inkblot has no specific shape, the expectation is that the participants will project their strongest emotions or past experiences onto the cue card image. Popularly known as the ‘Rorschach Test’, your interpretation of the ambiguous images brings out the latent features of your personality: the inherent hopes and fears in your mind.
Right now, the stock market is a Rorschach Test. Last week, the S&P 500 went up by 2.3%. Perma bears see this as a bear market rally (or a dead cat bounce) while Perma bulls see this as the start of a new bull market that will erase all the past losses.
To be fair, there are supporting arguments for both and prudent investors should know that this kind of volatility is expected during times of economic uncertainty. I want to know what you make of the recent rally.
Across the world, Xi Jinping is set to start an unprecedented third term as general secretary of the Chinese Communist Party as their economy struggles due to COVID lockdowns and new export restrictions on chips enforced by the US government. The prime minister of the United Kingdom resigned after a slew of bad economic policies tanked the UK economy and you guys made my tweet on it go mega-viral😂.
There is a lot of chaos in both the domestic and international markets right now, which also brings about some niche opportunities to invest in. Let me quickly fill you in on that.
The Next Great Reset | Why The UK Is Collapsing
With Hong Kong and Chinese stocks crashing to a 13-year low, the ongoing crisis in Ukraine, and the International Monetary Fund ominously warning that the ‘worst is yet to come’, it is clear that the global economy is in for a rough ride in the immediate future.
In addition to a bond market meltdown, the UK is suffering from a crisis of faith in governance as many believe that the government there is no longer equipped to deal with the economic fallout. The recent flip-flopping by the government on their proposed tax cuts and regulations has spooked investors, and they are now hesitant to deploy money in a rapidly changing political and financial landscape.
On the other hand, China abruptly delayed releasing the GDP data, which raised fears that they are masking a disastrous result. The strict zero COVID policies involving tight lockdowns and regulations had already limited the Chinese economy’s ability to expand, leading to one in five Chinese youth being unemployed.
The UK and China are among our largest trade partners and crises there could likely have ripple effects back home. In this video, I describe the major issues troubling both these economies right now, so make sure to check it out.
Passive Income: How To Make $100 Per Day With Dividends
I wanted to take a break from the overall mindset of doom and gloom and instead go back to my roots to talk about generating passive income and gaining financial independence. Specifically, in this video, I discuss the fairly niche area of dividend investing and describe how you can use that to generate reliable passive income.
Essentially, dividends are a portion of the company’s profits that they pay you for holding on to their stocks. Now, not every company gives out a dividend, but when they do, they are often well-established and pay anywhere from 1-5% of their stock price every year.
Dividend investing isn’t for everyone and if you are considering it, then it’s critical that you are familiar with the pros and cons of this method.
Pros - Dividend payments are less volatile than stock prices and even during market downturns, the payout has remained fairly constant with a +/- 10% variance. This insulates you from the fluctuations of the stock market and generates consistent cash flow even during economic downturns.
Cons - While historically companies have avoided reducing dividends, they are not guaranteed. Further, dividend payouts are tied to the value of the stock and could reduce when the base value of the stock itself decreases. For example, T-Mobile pays a 7% dividend, but its stock has lost 45% of its value in the past five years.
The key part of this video is how you can generate $100 per day in dividends starting from scratch. I describe the kind of portfolio required to generate this and how you can reach that amount by investing as little as $17 a day. Let me know what you guys think!
The Worst Market Collapse In 50 Years
The recent rally in the market has left folks confused. After all, earnings reports are weak, a recession is all but confirmed, and JP Morgan has recently warned that prices could fall another 20%.
Michael Burry has chimed in on the recent events and predicted that inflation will continue to get a lot worse and stocks will erase all their gains. Interestingly, Burry also pointed out that since December, we are in a pattern of falling 8-10%, rallying 5%, and then falling another 8-10%.
With an uncertain market and turbulent economic conditions, here’s everything you need to know about bear market rallies, Burry’s recent comments, and how times like these are opportunities to build wealth.
So that’s it for my Sunday round-up. For the new folks here: In this newsletter, I give a quick recap of whatever you may have missed over the week on Sunday, and on Wednesday, I will be doing my deep-dive article on one of these topics.
Btw, I have a recommendation this week → Check out the GRIT Capital newsletter.
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This week, Genevieve writes about the latest hotter-than-expected inflation numbers where she breaks down the data, dives into what happened, and opines on what we can expect from here. Subscribe to read more!
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Passive income hack #234 😂
did you mean AT&T instead of T-Mobile?