Happy fall. I hope you had a fantastic summer filled with travel and get-togethers that were missing from our lives since the pandemic.
A few notable events and trends that may impact investments in general include the following:
There is a growing concern about escalating geopolitical tensions, trade protectionism and the heavy debt burden of global economies. U.S. debt is currently over $30 trillion, which is about 120% of the GDP. With high interest rates, this creates a difficult outlook.
Overall, the U.S. economy is still holding strong, with a relatively low unemployment rate of 3.8%, and moderating wage growth and inflation. At the same time, the Chinese economy is in the doldrums, with falling prices due to low demand and an expected inflation of just 0.5%.
In the recent U.S. jobs report, food service and hospitality workers accounted for the most jobs added within the wider leisure and hospitality sector.
U.S. household debt is at $17 trillion. Credit card debt, in particular, has risen rapidly, reaching an all-time high of $1 trillion.
On the positive side, climate initiatives and the U.S. semiconductor industry have seen improved investment support. Also, the energy transition away from fossil fuels is increasing at a rapid pace. One recent notable action was $7 billion in federal grants to build regional hydrogen projects, which underscores hydrogen fuel’s role in the energy transition.
Cybersecurity awareness
October is Cybersecurity Awareness Month, and in the spirit of raising awareness, I’m bringing you some of the incidents and trends in cybersecurity from the FBI’s Internet Crime Report.
As remote work and connected smart devices have increasingly become part of our lives, the risk of cyber threats is prevalent. Even though reports of cybercrime incidents decreased by about 5% between 2021 and 2022, the potential total loss from these crimes has grown from $6.9 billion in 2021 to more than $10.2 billion in 2022.
Although phishing is the most common cybercrime, personal data breaches, tech support scams, investment scams, credit card/check fraud and business email crimes are increasing and cause the most monetary loss.
In 2022, investment scams were the costliest scheme reported to the FBI’s Internet Crime Complaint Center. Investment fraud complaints increased from $1.45 billion in 2021 to $3.31 billion in 2022, and crypto investment scams saw unprecedented increases in the number of victims. Common frauds involve celebrity impersonators, cryptocurrency mining, social media hacking and fake employment offers. Many victims have assumed massive debt to cover the losses from these fraudulent investments.
Identity theft, where the stolen identity of a person is used to extort money, is a common crime that predates the internet, but artificial intelligence is making these types of crimes more sophisticated. For example, with voice phishing, scammers use AI-assisted voice cloning to imitate a friend or family member who is in “distress.” You can hear one mother's testimony from a recent U.S. senate meeting of her experience with voice phishing.
Source: https://www.ic3.gov/Media/PDF/AnnualReport/2022_IC3Report.pdf Here are some tips to better protect yourself from cybercrimes:
Limit sharing your personal information, including your whereabouts, connections and preferences, on social media or any other means to the wider public.
Use multifactor authentication, or two-step verification using your phone.
Make an offline backup of important data.
Have a safe word or verifiable information to confirm the identity of friends or family members who may be calling for help.
For investments, stick with what you can research and review financials. If it's too good to be true, it isn't true.
Opportunities
Cybersecurity
From the rising number of data breaches and financial losses to the growing sophistication of hackers, cybersecurity statistics highlight the urgent need for robust cybersecurity measures. The SEC adopted cybersecurity rules in July of this year that require companies to disclose cybersecurity incidents, risk management and governance related to cybersecurity as events occur and in periodic earnings filings. This will certainly put more urgency on companies to invest in cybersecurity and identity theft prevention, which creates promising investment opportunities in companies that provide these products and services.
Bonds
After two consecutive years of losses, bonds — especially long-term bonds — now offer an excellent opportunity, with a higher yield and potential rate cuts in 2024. See below for bond investment opportunities listed along with duration (price sensitivity to yield changes).
Interestingly, we are experiencing a phenomenon called positive convexity, where the estimated total returns from a yield drop (e.g., +74.7% for a 30-year treasury bond with a 300 basis point fall) are greater than the estimated total losses from the same yield rise (e.g., -30.4% for a 30-year treasury bond with a 300 basis point rise), as you can see in this chart. That is, the potential reward is more than twice as high as the risk.
As always, refer to the Mesh Invest watchlist for the latest investment opportunities for both stocks and bonds.