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Bollinger Bands. What Are They and Can They Be a Useful Tool for Investment Decision Making?

What the heck are Bollinger Bands?

Bollinger Bands were developed by John Bollinger. They are envelopes (or could be thought of as sandwiches with the moving average of price as the filling) plotted at a standard deviation (which can be adjusted) above and below a simple moving average of the price. As the distance apart of the bands is based on standard deviation, the bands naturally adjust to swings in the underlying price being measured.

The width of the bands and underlying trend can be indicative of pending shifts in price. For example when the bands are narrow and remain narrow for a period of time which is indicative of a period of low volatility it can portend a more significant future price movement up or down which in turn would require other technical indicators to evaluate alongside it. The timeframe over which Bollinger Bands are observed or utilized is likewise an important factor to take into account and can also weaken or strengthen their validity or usefulness. If you are observing these over hourly, daily, weekly or monthly time frames they will yield different value.

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The Infrastructure Bill and Implications for The Clean Energy Sector

Some bad news for Democrats in Virginia prompted some much needed urgency and positive action on the legislative front and the resulting upgrading of America's deteriorating infrastructure. The "Build Back Better" or $1.2 Trillion Infrastructure Bill passed through Congress yesterday and is now waiting to be signed into law by the President.

$1.2 Trillion is a number that is hard for most mortals to comprehend. It is a gargantuan ammount of money, the largest sum ever dedicated to the revamping of America's infrastructure.

So, what are the implications of this massive investment program for american companies. Who stands to benefit the most?

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The Case for an Extended Bull Market

We have often written about the "asset inflation" bubble caused by a trifecta of near zero interest rates, record levels of money printing not seen in american history and the federal reserve acting as a backstop for everything! Well maybe not everything, but again more than ever before. The "relative value" of the dollar continues to fall against this backdrop. a trend that has continued over a 50+ year period. The purchasing power of the dollar has fallen by 92% over the last 50 years. Let that sink in for a moment. The only saving grace is that other westernized countries are not faring much better yet none have the size of national debt of the USA. It helps to be the worlds reserve currency!

In the midst of a historic "asset bubble" of "everything" where many fund managers are cautious, there are well respected fund managers talking about a continuation of the bull market into 2038, one that is fueled by the "millennial" generation. The arguments are compelling and we wanted to share some of them in this article.

Cathie Wood, the architect of Ark’s comprehensive range of ETF's sais: “So this is the echo of the baby boom,” in reference to the millennial investors being the new drivers of an extended bull market into 2038 to mirror the baby boomers who fueled a 20-year bull market in stocks during the 1980's and 1990's.

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Technology Disruption in Finance and Everything Else!

We have talked about the blockchain in prior articles. Many people associate the "blockchain" with "Bitcoin" but the blockchain is far more than Bitcoin. Bitcoin is a counter financial cyclical innovation that arose directly after and as a result of the 2007/8 financial crash and depression. We refer to it here as counter-cyclical because it has a deflationary monetary supply built into the code. It is not subject to human, governmental or political motivations that can inflate the money supply to unprecedented levels of indebtedness - in a monetary experiment - that devalues the worth of the currency, causes inevitable inflation and arguably impacts those who are the least well off, the most, over the mid to long term. Bitcoin's supply is fixed and known. It is finite. It is often referred to as a "store of value" - the equivalent of digital gold, except more easily stored on a comparative basis, more liquid and transportable, not to mention an increasingly globally accepted currency and asset class in the westernized world.

Bitcoin is however just the tip of the iceberg of changes and innovations spurred by the blockchain that will sweep the world and impact every industry on the planet. The biggest disruption in finance in the last two hundred years is unfolding now. It will be commonplace soon to be able to send monies for free or fractions of a cent 24/7 to anyone in the world. Businesses will be able to accept payments for cents vs paying 2-4% in fees for every sale. Individuals can access fair market interest rates in exchange for depositing monies with crypto banks. You can do that right now. Yes, these do carry more risk but with over $250 billion dollars accessing the decentralized financial markets today these risks will become more manageable. Insurance products are already being created to manage this risk. This industry is still in its early evolutionary phase and as the products and technology mature so will the ease of use, accessibility and safety.

Another industry that is being reinvented on the blockchain is the gaming industry. In one year, Axie Infinity, a blockchain gaming company is generating more revenue than some of the largest gaming companies in the world. More, many more such ventures are coming. The economics or tokenomics of these ventures allows users to also interact financially whether it is to secure the network, purchase games, buy/sell various items within the gaming ecosystems, compete and generate income.

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China, Evergrande and The Boom & Bust Cycles of Capitalism

The recent headlines in the markets are all about China's "Evergrande" which may require a name change before the dust finally settles. China's quasi capitalist front - the business class - which is under the umbrella of Communism is under fire on many fronts. Let's discuss the economic front first. Evergrande - you may not have heard of the company until now - is China's largest property developer and has been a company at the forefront of China's economic boom and phenomenal new city development and expansion. As can be the case in an economy that has been booming and expanding for decades, it is easy for companies to lose sight that "booms" always come to an end. The economic cycles in Capitalist societies are inevitable, in spite of trillions in government "funding" intervention in the last decade. China is not a capitalist society - at least not culturally - and the interesting juxta-positon between capitalism and communism under one roof is playing itself out now with "Communism" asserting itself in ways that those who have heavily invested in china are now discovering to their detriment.

Evergande's booming business was fuelled by increasing debt and leverage. As can happen, that debt to debt servicing ratio was not properly managed and the banks - yet again - failed in their fiscal due dilligence and evaluation of the company. The US equivalent often cited in the media is "Lehman Borthers". The bottom line is that "Evergrande" is teetering and on the cusp of failure, unable to service its debt with no immediate convincing plan to lower its $300 billion debt mountain. It missed it's interest payment to bond holders yesterday - thursday September 23rd - and now has a 30 day grace period to make good on this or officially be in default. The writing is on the wall. It has effectively lost the little negotiation power it may have had. It's unlikely - not impossible - that the company will survive in its current "Evergrande" form. Will the chinese state intervene? Given the millions of livelihoods at stake and economic repercussions for the region, there is a high likelihood the government will intervene in some way. In wake of China's clamping down on "businesses" that have grown too big and too powerful for the State's liking and its emphasis on the welfare of the people, we see a strong possibility that state financial aid will come, but with caveats or demands that the company be broken into several companies and assets sold off to pay down bondholder and retail buyer debt.

As we have already mentioned, we believe it is unlikely that "Evergrande" will survive in its current form.

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Hawley Advisors
1600 South Main Street, Suite 190
Walnut Creek, CA 94596
Phone: 925-906-9800
Fax: 925-906-9884
info@hawleyadvisors.com

 

 

Hawley Advisors is an investment advisor, registered with the State of California. Any investment ideas or strategies on this website are for the purposes of education and general information only and should not be construed as specific investment advice. For more information about our firm please check the SEC Public Disclosure website: https://www.adviserinfo.sec.gov/

 

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