The Daily Recap of 02/04/21 : Dividend stocks, the dollar and OpenDoor

Dividend stocks are not just for boomers?

If you want to protect yourself from the next possible recession, you might not want to take highly leveraged companies -except if they’re tech companies, somehow they do well in all types of markets. Having already a lot of debts when banks are very risk averse when lending money is not a situation you want to be in.

Some people took this idea to the extreme and bought stocks with very high dividend yield as this is usually a sign that they have a lot of cash available at all time.

This strategy doesn’t really work as, usually, the higher the dividend yield is, the worst the company’s financials are.

If that strategy doesn’t work it’s because they went too far but the core idea is good : the easier it is for a company to get money in a crisis, the better the chance they’ll survive it. So the dividends might be the wrong thing to look for, maybe watch their bond yields? The less risky it is to lend them money, the more people will do it during a crisis where funds and banks are looking at anything to derisk their portfolios.

Some companies with “junk” bonds seem to agree :

U.S. companies considered risky enough to warrant below investment-grade, or “junk,” credit ratings have borrowed about $32 billion in the corporate bond market so far in 2021, the fastest clip ever.

Goldman Sachs analysts pegged the new bond supply as “off to its strongest start ever,” through Jan. 20, or about 35% ahead of last year’s pace, “which itself was elevated relative to historical standards.”

Or, instead of only taking the least risky ones, you could remove the riskiest ones? I don’t know, I just wanted to share an idea that I had.

US Dollar bull case and its impact

Well… Welcome to an other episode of “I was supposed to write this yesterday but didn’t think the security would move that much so I decided to wait a little bit” article! Same thing as the Renault-Daimler story of yesterday’s article, I still think there’s room to profit off of this. So here it is.

So, the dollar is driven by 3 factors :

• High government yield : if government bond yield increases then more outside money will be converted into us dollar and the dollar increase in value.
• The trade balance (the difference between imports and exports).
• Sentiment : if investors expect good us economy then the dollar increases in value.

For the first point, the bond yields have been increasing at a steady pace since the covid pandemic. As german bond yields are going negative and the overall european bond market giving pretty terrible returns, foreign investors will more likely put money in US bonds. And this is happening : foreign buyers bought 68.6% of the $24 billion available for auction.

For the trade balance, the tech sector have helped putting a lot of foreign money into the us economy. The US Oil business is doing great and is expected to do even better. US banning Chinese goods will hurt Chinese’s exports. Europe exports have recovered pretty well since February 2020 but are expected to decrease at least until 2022. So US trade balance forecast is good! And tomorrow, we will have the actual number for the month.

And for the sentiment? Well… The China ban is great for the dollar as China has been devaluing their currency to make their exports appear more attractive for a while now. France and Germany, the leading European players, are not doing well economically as the pandemic is forcing them to put more restrictions. Since the Treasury has been issuing more US bonds recently, the mentality on the dollar has shifted completely and most bearish investors are becoming more bullish.

So the dollar might increase in value in the coming months, but what could that do for the stock and bond market?

That depends on how much risk investors are willing to take. In the last week or so, investors seem to be looking to derisk their portfolio and there’s no sign that they’ll stop in the next future so they might turn to US treasury securities for a while. But after their portfolio reallocation that may take days or maybe a month, I see a very good prospect for the US stock market at least until June.

This increase in dollar’s value will also have an impact on gold because people invested in commodities as an hedge against the currency.

Real Estate going online?

Buying, selling and financing houses have always been a tedious and long process. But not anymore? Opendoor is trying to change that at least.

Their plan is to put this business online. In their website, you can submit your house address and property information, make a video call from your phone to show your home, and receive a offer to sell your real estate in a matter of hours.

Outside of changing how we see the real estate, this is the best timing ever for a company like that. A lot of people have been struggling to sell their houses during the pandemic because of the restrictions put in place. So making the valuation and listing online is giving Opendoor a place in a totally new untaped market. And by the time other startups follow this trend, Opendoor would already have a big edge.

I might drop a more thorough DD on that company with analysis of their financials and the management team.

This is not financial advice. This is for informational and entertainment purposes only. I’m not responsible for any losses that you may have as a result of your trading. You should make informed decisions and you shouldn’t blindly follow anyone’s advices. Also, english is not my native language so I apologize if I express myself poorly.