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MCAN FINANCIAL GROUP ANNOUNCES Q2 2022 RESULTS AND DECLARES $0.36 REGULAR CASH DIVIDEND

MCAN FINANCIAL GROUP ANNOUNCES Q2 2022 RESULTS AND DECLARES $0.36 REGULAR CASH DIVIDEND
Canada NewsWire
TORONTO, Aug. 9, 2022

TORONTO, Aug. 9, 2022 /CNW/ – MCAN Mortgage Corporation d/b/a MCAN Financial Group (“MCAN”, the “Company” or “we”) (TSX: M…

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MCAN FINANCIAL GROUP ANNOUNCES Q2 2022 RESULTS AND DECLARES $0.36 REGULAR CASH DIVIDEND

Canada NewsWire

TORONTO, Aug. 9, 2022 /CNW/ - MCAN Mortgage Corporation d/b/a MCAN Financial Group ("MCAN", the "Company" or "we") (TSX: MKP) reported net income of $4.1 million ($0.13 earnings per share) for the second quarter of 2022, a decrease from net income of $19.4 million ($0.73 earnings per share) in the second quarter of 2021.  Second quarter 2022 return on average shareholders' equity1 was 3.75% compared to 21.28% in the prior year.  Year to date, we reported net income of $19.6 million ($0.64 earnings per share), a decrease from net income of $35.3 million ($1.38 earnings per share) in 2021. Year to date return on average shareholders' equity1 was 8.94% compared to 19.75% in the prior year.  We reported lower total net income mainly as a result of unrealized fair value losses on our REIT portfolio due to the current market environment partially offset by growth in our core business.  Unrealized fair value gains and losses on our REIT portfolio were a $10.0 million net loss ($0.32 loss per share) for the second quarter of 2022 and a $7.0 million net loss ($0.23 loss per share) year to date 2022 compared to a $6.5 million net gain ($0.24 earnings per share) for the second quarter of 2021 and a $10.4 million net gain ($0.40 earnings per share) for year to date 2021.  Excluding the unrealized fair value gains and losses on our REIT portfolio, current net income would have been higher for the quarter and year to date compared to prior year.  While we expect continued volatility in the REIT market, we are invested for the long-term and we continue to realize the benefits of solid cash flows and distributions from these investments. 

The Board of Directors declared a third quarter regular cash dividend of $0.36 per share to be paid September 29, 2022 to shareholders of record as of September 15, 2022.  As a mortgage investment corporation, we pay out all of our taxable income to shareholders through dividends.  At this time, we expect to have taxable income per share materially consistent with our regular cash dividends per share.

"Our second quarter results from our core business were in line with our expectations given the current rising interest rate environment, housing market challenges and inflation, which are all causing new uncertainty in the Canadian and global economy," said Karen Weaver, President and Chief Executive Officer. "In a rising interest rate environment, our business has various levers that are positive for managing net mortgage interest including the one year term of our uninsured residential mortgages and the floating rates on our construction portfolio.  We remain focused on achieving solid margins in our core mortgage and lending business and, where possible, rebalancing within our risk appetite, to higher yielding construction products for affordable housing which are in demand in supply constrained urban markets."

Highlights

  • Corporate assets totalled $2.32 billion at June 30, 2022, a net increase of $157 million (7%) from December 31, 2021 driven mainly by growth in our major assets:

    • Uninsured residential mortgages totalled $871 million at June 30, 2022, a net increase of $88 million (11%) from December 31, 2021.  Uninsured residential mortgage originations totalled $248 million year to date 2022, a decrease of $4 million (2%) from the same period in 2021.  We are actively rebalancing to a lower proportion of uninsured residential mortgage originations given the current competitive landscape and tighter net mortgage interest.

    • Construction and commercial mortgages totalled $854 million at June 30, 2022, a net increase of $77 million (10%) from December 31, 2021.  Construction and commercial mortgage originations totalled $294 million year to date 2022, a decrease of $73 million (20%) from the same period in 2021.  We will look to rebalance through the remainder of this year and next year, if possible, to a higher proportion of construction and commercial loans that fit within our risk appetite and capital requirements.

    • Non-marketable securities totalled $84 million at June 30, 2022, an increase of $19 million (29%) from December 31, 2021 with $42 million of remaining capital advances expected to fund over the next five years. 

    • Marketable securities totalled $57 million at June 30, 2022, a net decrease of $6 million (9%) from December 31, 2021 comprised of $7 million of REIT purchases net of $4 million of REIT sales and $9 million of net realized and unrealized fair value losses. 

  • Securitized mortgages totalled $1.70 billion at June 30, 2022, a net increase of $116 million (7%) from December 31, 2021 primarily due to continued originations and securitization volumes:

    • Insured residential mortgage originations totalled $373 million year to date 2022, a decrease of $3 million (1%) from the same period in 2021.  This includes $97 million of insured residential mortgage commitments originated and sold compared to $9 million in 2021.  Insured residential mortgage securitizations totalled $258 million year to date 2022, a decrease of $145 million (36%) from the same period in 2021.  We use various channels in the insured residential mortgage market, in the context of market conditions and net contributions over the life of the mortgages, in order to support our core business. 

Financial Update

  • Net corporate mortgage spread income1 increased by $3.6 million for Q2 2022 from Q2 2021 and increased $7.3 million for year to date 2022 from 2021 due to a higher average corporate mortgage portfolio balance partially offset by a reduction in the spread of corporate mortgages over term deposit interest and expenses.  For Q2 2022, the decrease in the spread of corporate mortgages over term deposit interest and expenses from Q2 2021 was attributable to (i) the decline in our average mortgage rate primarily due to continued market competition and our portfolio mix with fewer land development loans; and (ii) higher term deposit rates due to dislocation from the Russian/Ukraine conflict and actual and expected Bank of Canada rate increases.  For year to date 2022, the decrease in the spread of corporate mortgages over term deposit interest and expenses from year to date 2021 was attributable to (i) the decline in average mortgage rates similar to the quarter; and (ii) the decline in term deposit rates during 2021 and as the higher rate term deposits mature, the average term deposit rate of the outstanding average term deposit balance had declined.

  • Net securitized mortgage spread income1 decreased by $0.4 million for Q2 2022 from Q2 2021 and decreased $0.6 million for the year to date 2022 over the same period in 2021 mainly due to a decrease in the spread of securitized mortgages over liabilities partially offset by a higher average securitized mortgage portfolio balance from originations of insured residential mortgages.  We have seen spreads decline on securitizations mainly as a result of a decline in the spread of Government of Canada bond yields versus our mortgage rates. Government of Canada bond yields have risen significantly in 2022 as we have entered a rising interest rate environment.

  • Allowance for credit losses on our corporate mortgage portfolio totalled $5.8 million at June 30, 2022, a net decrease of $0.9 million from December 31, 2021.  The decrease is mainly due to improved economic forecasts when compared to the outlook and pessimism relating to the COVID-19 wave during late December 2021. Partially offsetting this was growth in our portfolio.

  • Equity income from MCAP Commercial LP ("MCAP") totalled $6.3 million in Q2 2022, a decrease of $0.6 million (8%) from $6.9 million in Q2 2021, and totalled $11.5 million for year to date 2022, a decrease of $2.1 million (15%) from $13.6 million year to date 2021. The decrease in both the quarter and year to date was primarily due to lower net interest income on securitized mortgages resulting from lower securitization spreads, lower mortgage origination fees due to tighter mortgage spreads versus securitization spreads, and higher operating costs related to the acquisition of Paradigm Quest Inc. in Q3 2021.  This was partially offset by higher servicing and administration revenue resulting from higher assets under management and higher financial instrument (hedge) gains.  

  • In Q2 2022, we recorded a $9.9 million net unrealized loss on securities compared to a $6.5 million net unrealized gain on securities in Q2 2021. Year to date net realized and unrealized loss on securities of $8.7 million for 2022 compared to a year to date net unrealized gain on securities of $10.4 million for 2021.  We began to see more recent declines in REIT prices from current geopolitical conflicts and a rising interest rate environment compared to optimism in 2021 around vaccine roll-outs.  In Q1 2022, one REIT in our portfolio had a mandatory corporate action resulting in privatization and as such we recognized a $1.8 million realized loss.   

Credit Quality

  • Impaired corporate mortgage ratio1 was 0.01% at June 30, 2022 compared to 0.03% at March 31, 2022 and 0.05% at December 31, 2021.  

  • Impaired total mortgage ratio1 was 0.02% at June 30, 2022 compared to 0.02% at March 31, 2022 and 0.03% at December 31, 2021. 

  • Arrears total mortgage ratio1 was 0.36% at June 30, 2022 compared to 0.40% at March 31, 2022 and 0.46% at December 31, 2021.     
      
  • Average loan to value ratio ("LTV") of our uninsured single family portfolio based on an industry index of current real estate values was 58.1% at June 30, 2022 compared to 55.5% at March 31, 2022 and 60.3% at December 31, 2021.

Capital

  • In 2021, we filed a Prospectus Supplement to our Base Shelf prospectus establishing an at-the-market equity program ("ATM Program") to issue up to $30 million common shares to the public from time to time over a 2 year period at the market prices prevailing at the time of sale. The volume and timing of distributions under the ATM Program will be determined at our sole discretion. During Q2 2022, we sold 211,700 common shares at a weighted average price of $17.89 for gross proceeds of $3.8 million and net proceeds of $3.6 million including $0.1 million of commission paid to our agent and $0.1 million of other share issuance costs under the ATM Program.  Year to date 2022, we sold 236,000 common shares at a weighted average price of $17.88 for gross proceeds of $4.2 million and net proceeds of $4.0 million including $0.1 million of commission paid to our agent and $0.1 million of other share issuance costs under the ATM Program.

  • We issued $28.8 million in new common shares on March 31, 2022 from our 2022 first quarter special stock dividend to shareholders.

  • We issued $2.0 million in new common shares in Q2 2022 (Q2 2021 - $1.6 million) and $5.4 million year to date 2022 ($4.4 million - year to date 2021) through the Dividend Reinvestment Plan ("DRIP").  The DRIP participation rate for the 2022 second quarter dividend was 17% (2022 first quarter - 17%; 2021 second quarter - 17%).  The DRIP is a program that has historically provided MCAN with a reliable source of new capital and existing shareholders an opportunity to acquire additional shares at a discount to market value. 

  • Income tax assets to capital ratio3 was 5.53 at June 30, 2022 compared to 5.53 at March 31, 2022 and 5.29 at December 31, 2021.

  • Common Equity Tier 1 ("CET 1") and Tier 1 Capital to risk-weighted assets ratios2 were 18.82% at June 30, 2022 compared to 19.32% at March 31, 2022 and 20.26% at December 31, 2021. Total Capital to risk-weighted assets ratio2 was 19.09% at June 30, 2022 compared to 19.57% at March 31, 2022 and 20.54% at December 31, 2021. 

  • Leverage ratio2 was 8.82% at June 30, 2022 compared to 8.96% at March 31, 2022 and 9.41% at December 31, 2021.

1 Considered to be a non-GAAP and other financial measure. For further details, refer to the "Non-GAAP and Other Financial Measures" section of this new release.  Non-GAAP and other financial measures and ratios used in this document are not defined terms under IFRS and, therefore, may not be comparable to similar terms used by other issuers.

2 These measures have been calculated in accordance with OSFI's Leverage Requirements and Capital Adequacy Requirements guidelines.  Effective March 31, 2020, the total capital ratio reflects the inclusion of stage 1 and stage 2 allowances on the Company's mortgage portfolio in Tier 2 capital. In accordance with OSFI's transitional arrangements for capital treatment of ECL issued March 27, 2020, a portion of stage 1 and stage 2 allowances that would otherwise be included in Tier 2 capital are included in CET 1 capital. The adjustment to CET 1 capital will be measured each quarter as the increase, if any, in stage 1 and stage 2 allowances compared to the corresponding allowances at December 31, 2019. The increase, if any, is subject to a scaling factor that will decrease over time and was 70% in fiscal 2020, 50% in fiscal 2021 and is set at 25% in fiscal 2022.

3 Tax balances are calculated in accordance with the Tax Act.

Further Information

Complete copies of the Company's 2022 Second Quarter Report will be filed on the System for Electronic Document Analysis and Retrieval ("SEDAR") at www.sedar.com and on the Company's website at www.mcanfinancial.com.

For our Outlook, refer to the "Outlook" section of the 2022 Second Quarter Report.

MCAN is a public company listed on the Toronto Stock Exchange under the symbol MKP and is a reporting issuer in all provinces and territories in Canada.  MCAN also qualifies as a mortgage investment corporation ("MIC") under the Income Tax Act (Canada) (the "Tax Act"). 

The Company's primary objective is to generate a reliable stream of income by investing in a diversified portfolio of Canadian mortgages, including residential, residential construction, non-residential construction and commercial loans, as well as other types of securities, loans and real estate investments. MCAN employs leverage by issuing term deposits that are eligible for Canada Deposit Insurance Corporation deposit insurance that are sourced through a network of independent financial agents. We manage our capital and asset balances based on the regulations and limits of both the Tax Act and the Office of the Superintendent of Financial Institutions Canada ("OSFI").

As a MIC, we are entitled to deduct the dividends that we pay to shareholders from our taxable income.  Regular dividends are treated as interest income to shareholders for income tax purposes.  We are also able to pay capital gains dividends, which would be treated as capital gains to shareholders for income tax purposes. Dividends paid to foreign investors may be subject to withholding taxes.  To meet the MIC criteria, 67% of our non-consolidated assets measured on a tax basis are required to be held in cash or cash equivalents and residential mortgages.

Our MCAN Home division operates through MCAN's wholly owned subsidiary, XMC Mortgage Corporation, which has legally changed its name effective April 1, 2022, to MCAN Home Mortgage Corporation. 

For how to enroll in the DRIP, please refer to the Management Information Circular dated March 11, 2022 or visit our website at www.mcanfinancial.com.  Under the DRIP, dividends paid to shareholders are automatically reinvested in common shares issued out of treasury at the weighted average trading price for the five days preceding such issue less a discount of 2%.

Non-GAAP and Other Financial Measures

This news release references a number of non-GAAP and other financial measures and ratios to assess our performance such as return on average shareholders' equity, net corporate mortgage spread income, net securitized mortgage spread income, impaired corporate mortgage ratio, impaired total mortgage ratio, and arrears total mortgage ratio.  These measures are not calculated in accordance with International Financial Reporting Standards ("IFRS"), are not defined by IFRS and do not have standardized meanings that would ensure consistency and comparability between companies using these measures.  These metrics are considered to be non-GAAP and other financial measures and are incorporated by reference and defined in the "Non-GAAP and Other Financial Measures" section of our 2022 Second Quarter MD&A available on SEDAR at www.sedar.com. Below are reconciliations for our non-GAAP financial measures included in this news release using the most directly comparable IFRS financial measures.

Net Corporate Mortgage Spread Income 
Non-GAAP financial measure that is an indicator of net interest profitability of income-earning assets less cost of funding for our corporate mortgage portfolio.  It is calculated as the difference between corporate mortgage interest and term deposit interest and expenses. 

(in thousands)

Q2

Q2

Change

YTD

YTD

Change

For the Periods Ended June 30

2022

2021

($)

2022

2021

($)

Mortgage interest - corporate assets

$     22,815

$     16,543


$     43,323

$     32,315


Term deposit interest and expenses

10,185

7,472


18,703

15,028


Net Corporate Mortgage Spread Income

$     12,630

$       9,071

$       3,559

$     24,620

$     17,287

$       7,333

Net Securitized Mortgage Spread Income
Non-GAAP financial measure that is an indicator of net interest profitability of income-earning securitization assets less cost of securitization liabilities for our securitized mortgage portfolio.  It is calculated as the difference between securitized mortgage interest and interest on financial liabilities from securitization. 

(in thousands)

Q2

Q2

Change

YTD

YTD

Change

For the Periods Ended June 30

2022

2021

($)

2022

2021

($)

Mortgage interest - securitized assets

$       7,598

$       7,266


$     14,855

$     13,898


Interest on financial liabilities from securitization

5,633

4,913


10,882

9,339


Net Securitized Mortgage Spread Income

$       1,965

$       2,353

$         (388)

$       3,973

$       4,559

$         (586)

A Caution About Forward-looking Information and Statements

This news release contains forward-looking information within the meaning of applicable Canadian securities laws.  All information contained in this news release, other than statements of current and historical fact, is forward-looking information. All of the forward-looking information in this news release is qualified by this cautionary note. Often, but not always, forward-looking information can be identified by the use of words such as "may," "believe," "will," "anticipate," "expect," "planned," "estimate," "project," "future," and variations of these or similar words or other expressions that are predictions of, or indicate, future events and trends and that do not relate to historical matters. Forward-looking information in this news release includes, among others, statements and assumptions with respect to:

  • the current business environment, economic environment and outlook;
  • the impact of global health pandemics on the Canadian economy and globally, including COVID-19; 
  • possible or assumed future results;
  • our ability to create shareholder value;
  • our business goals and strategy;
  • the potential impact of new regulations and changes to existing regulations;
  • the stability of home prices;
  • the effect of challenging conditions on us;
  • the performance of our investments;
  • factors affecting our competitive position within the housing lending market;
  • international trade and geopolitical uncertainties and their impact on the Canadian economy, including the Russia/Ukraine conflict;
  • sufficiency of our access to capital resources;
  • the timing and effect of interest rate changes on our cash flows; and
  • the declaration and payment of dividends.

Forward-looking information is not, and cannot be, a guarantee of future results or events. Forward-looking information reflects management's current beliefs and is based on information currently available to management. Forward-looking information is based on, among other things, opinions, assumptions, estimates and analyses that, while considered reasonable by us at the date the forward-looking information is provided, inherently are subject to significant risks, uncertainties, contingencies and other factors that may cause actual results and events to be materially different from those expressed or implied by the forward-looking information.

The material factors or assumptions that we identified and were applied by us in drawing conclusions or making forecasts or projections set out in the forward-looking information, include, but are not limited to:

  • our ability to successfully implement and realize on our business goals and strategy;
  • government regulation of our business and the cost to us of such regulation, including the impact of government actions related to COVID-19; 
  • the economic and social impact, management, duration and potential worsening of the impact of COVID-19 or any other future pandemic;
  • factors and assumptions regarding interest rates, including the effect of Bank of Canada actions already taken;
  • the effect of supply chains issues;
  • the effect of inflation;
  • housing sales and residential mortgage borrowing activities;
  • the effect of household debt service levels;
  • the effect of competition;
  • systems failure or cyber and security breaches;
  • the availability of funding and capital to meet our requirements;
  • investor appetite for securitization products;
  • the value of mortgage originations;
  • the expected spread between interest earned on mortgage portfolios and interest paid on deposits;
  • the relative uncertainty and volatility of real estate markets;
  • acceptance of our products in the marketplace;
  • the stage of the real estate cycle and the maturity phase of the mortgage market;
  • impact on housing demand from changing population demographics and immigration patterns;
  • our ability to forecast future changes to borrower credit and credit scores, loan to value ratios and other forward-looking factors used in assessing expected credit losses and rates of default;
  • availability of key personnel;
  • our operating cost structure;
  • the current tax regime; and
  • operations within, and market conditions relating to, our equity and other investments.

The COVID-19 pandemic, external conflicts such as the Russia/Ukraine conflict and post-pandemic government and Bank of Canada actions taken, have resulted in uncertainty relating to the Company's internal expectations, estimates, projections, assumptions and beliefs, including with respect to the Canadian economy, employment conditions, interest rates, supply chain issues, inflation, levels of housing activity and household debt service levels. There can be no assurance that such expectations, estimates, projections, assumptions and beliefs will continue to be valid.  The impact the COVID-19 pandemic or any further variants or outbreaks, including measures to prevent their spread and related government actions adopted in response thereto, will have on our business continues to be uncertain and difficult to predict.

Reliance should not be placed on forward-looking information because it involves known and unknown risks, uncertainties and other factors, which may cause actual results to differ materially from anticipated future results expressed or implied by such forward-looking information. Factors that could cause actual results to differ materially from those set forth in the forward-looking information include, but are not limited to, the risks and uncertainties referred to in our Annual Information Form for the year ended December 31, 2021, our MD&A and our other public filings with the applicable Canadian regulatory authorities.

Subject to applicable securities law requirements, we undertake no obligation to publicly update or revise any forward-looking information after the date of this news release whether as a result of new information, future events or otherwise or to explain any material difference between subsequent actual events and any forward-looking information.  However, any further disclosures made on related subjects in subsequent reports should be consulted.

SOURCE MCAN Mortgage Corporation

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Economics

Singapore holds lead position in Omdia Fiber Development Index

Singapore holds lead position in Omdia Fiber Development Index
PR Newswire
LONDON, Oct. 5, 2022

LONDON, Oct. 5, 2022 /PRNewswire/ — Singapore has again emerged as leader in Omdia’s Global Fiber Development 2022 Index, with maximum scores in seven …

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Singapore holds lead position in Omdia Fiber Development Index

PR Newswire

LONDON, Oct. 5, 2022 /PRNewswire/ -- Singapore has again emerged as leader in Omdia's Global Fiber Development 2022 Index, with maximum scores in seven of the nine metrics. It is closely followed by South Korea, China, the UAE, Qatar, and Japan. All territories in the leading cluster benefit from strong national broadband plans with ambitious targets around ultra-high-speed services.

Historically, several otherwise highly developed broadband territories that rank lower in the fiber index tended to suffer from less clear or ambitious national plans, providing weaker incentives for operators to invest. However, due in part to the COVID-19 crisis demonstrating how important broadband networks are, governments are now strengthening their broadband targets and increasing their focus and investments in fiber-based infrastructure.

Research Director Michael Philpott said: "Fiber investment is an essential metric for government institutions and other stakeholders to track. As a broadband-access technology, optical fiber provides an optimized, highly sustainable, and future-proof quality service. This superior level of quality is essential for the development of future digital services and applications across all verticals.

"With increased efficiency stimulating greater innovation, high-speed broadband has been proven to drive not just consumer satisfaction but national economic indicators such as GDP and productivity. Only by maximizing investment in next-generation access can countries optimize their growth potential, and fiber-optic technology is key to that investment."

Omdia's Fiber Development Index tracks and benchmarks fiber a broad set of fiber investment metrics across 88 countries, including:

  • Fiber to the premises coverage
  • Fiber to the household penetration
  • Fiber to the business penetration
  • Mobile cell site fiber penetration
  • Advanced WDM technology investment

Based on Omdia's analysis of Ookla Speedtest data, the Index also quantifies the overall broadband quality of experience improvements driven by that investment, namely:

  • Median download speed
  • Median upload speed
  • Median latency
  • Median jitter

Michael Philpott and a team of Omdia analysts will be presenting and debating a wide range of upcoming telecoms issues and trends at Network X between 18-20 October 2022. Register for a media pass or request a virtual briefing here.

ABOUT OMDIA

Omdia, part of Informa Tech, is a technology research and advisory group. Our deep knowledge of tech markets combined with our actionable insights empower organizations to make smart growth decisions.

Media Contact
Fasiha Khan / T: +44 7503 666806 / E: fasiha.khan@omdia.com
Visit www.omdia.com

 

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SOURCE Omdia

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Government

Three Infrastructure Investments to Buy as War and Inflation Rage

Three infrastructure investments to buy as war and inflation rage offer ways to overcome ongoing economic risks in pursuit of precious profits. The three…

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Three infrastructure investments to buy as war and inflation rage offer ways to overcome ongoing economic risks in pursuit of precious profits.

The three infrastructure investments to buy as war rains terror and destruction, inflation rampages and the Fed raises rates feature companies that appear well-positioned to succeed amid market mayhem. Stocks have advanced in the past couple of trading days, but the economic and geopolitical risks still leave many prognosticators warning that a new 2022 market bottom may yet lie ahead.

One of the three infrastructure investments to buy showcases a company whose unmanned drones have proven their value in Ukraine as the nation’s outnumbered defenders recently have begun to push back a Russian invasion of more than 120,000 troops that began Feb. 26. Another company on the list of three infrastructure investments to buy includes a producer of solar panels that could help alleviate a war-related energy shortfall in Europe due to Russia cutting its supply of gas to nations opposing its attack of Ukraine.   

Three Infrastructure Investments to Buy Look to Evade Financial Fallout

“Stocks have been beset with no shortage of problems in recent weeks,” wrote Mark Skousen, PhD, to subscribers of his weekly Home Run Trader advisory service. “The primary negative, of course, is that the Federal Reserve is determined to slow the economy, reduce demand, and thereby bring down inflation.”

Mark Skousen, Forecasts & Strategies chief and Ben Franklin scion, meets Paul Dykewicz.

However, too much tightening, too fast, risks pushing the United States into a recession, continued Skousen, an economist who uses his analysis of inflation, interest rates and monetary policy in recommending stocks and options to buy. Economic statistics are showing a slowdown in the economy, if not a recession, he added.

“Even though real gross domestic product (GDP) is slightly negative, second-quarter gross output (GO) — which measures total spending in the economy — grew by 1.7% in real terms,” Skousen stated. “GO includes the supply chain, which is still catching up from the lockdown-induced shortages.”

Three Infrastructure Investments to Buy Face ‘Super-Strong’ Dollar

Additional concerns include a “super-strong dollar,” sliding consumer confidence and a cooling residential real estate market, Skousen counseled.

Investors can consider an exchange-traded fund that offers broad exposure to companies providing automation infrastructure, said Bob Carlson, a pension fund manager who also leads the Retirement Watch investment newsletter.

Bob Carlson, investment guru of Retirement Watch, talks to Paul Dykewicz.

Carlson suggested Robo Global Robotics and Automation (ROBO), a fund that seeks to follow an index that is concentrated in robotics-related or automation-oriented companies. The fund had decent performance until 2022 when it plunged. The fund became caught in the downdraft that befell technology and industrial companies.

Both sectors have done poorly as interest rates rose in 2022, Carlson commented. The fund is down nearly 40% in 2022, while its three-year return is just shy of an annualized 6%.

The fund owns 81 stocks and has 17% of the fund in the 10 largest positions. ROBO’s top holdings recently consisted of Cognex (NASDAQ: CGNX), Intuitive Surgical (NASDAQ: ISRG) and IPG Photonics (NASDAQ: IPGP).

Chart courtesy of www.stockcharts.com

Three Infrastructure Investments to Buy Buoyed by Unmanned Drone Stock

“Additive manufacturing technologies are at an inflection point in their ability to solve challenges faced by manufacturing companies, particularly with recent labor shortages and supply chain disruptions,” according to Chicago-based investment firm William Blair & Co. “Historically, additive manufacturing applications have been limited by productivity capabilities and lack of industrial strength materials.”

Executives of AeroVironment, Inc., (NASDAQ: AVAV), an Arlington, Virginia-based maker of unmanned drones and other multi-domain robotic systems, recently gave a presentation to William Blair analysts about how software from its Plank and Progeny acquisitions provided a key competitive advantage. Indeed, the success of AeroVironment’s “kamikaze drones” in Ukraine may extend into Asia.

AeroVironment officials compared the Ukraine War-related Switchblade media coverage to “100 SuperBowl ads worth of press.” Before the war, AeroVironment was not even authorized to export the Switchblade.

“It was used in the Middle East for over a decade, but it was viewed as a niche offering,” William Blair analysts wrote. “Ukraine is providing a testing ground that proves the Switchblade 300 is incredibly valuable. Now it has U.S. State Department permission to sell to more than 20 countries. In mid-September, it was reported that Japan is evaluating purchasing several hundred kamikaze drones and is evaluating AeroVironment’s Switchblade.”

A recent Switchblade 600 contract for Ukraine valued at $2.2 million may be a tipping point. On Sept. 15, almost six months after an initial report that a contract was in the works, it came to fruition.

While Javelin, Stinger and TOW traditional missile systems have a three-mile maximum range, the Switchblade 600 has a 20-mile top range with similar effects. The Switchblade 600 has the same size warhead and can be launched without a visual lock on the target, William Blair analysts wrote in a recent research note.

AeroVironment Stands out Among Three Infrastructure Investments to Buy

William Blair rated AeroVironment to “outperform” the market and indicated it appears to be the favorite to win the Army $1 billion/10-year FTUAS program, but an executive at the robotics company estimated that the U.S. Navy addressable market may be larger than the potential market for the Army. Software from Planck, acquired by AeroVironment, enables the JUMP-20 military battlefield drone to perform vision-based autonomous landings onto moving platforms, such as maritime vessels.

The JUMP-20 is a vertical takeoff and landing (VTOL), fixed-wing unmanned aircraft used to provide advanced multi-sensor intelligence, surveillance and reconnaissance (ISR) services. AeroVironment’s systems “flourished” during Navy IMX 2022 exercises earlier this year, according to William Blair. 

Regarded as the largest unmanned exercises in the world, IMX 2022 showed how AeroVironment’s LEAP software received feeds from manned aircraft, unmanned aircraft, manned vessels and unmanned vessels. At IMX 2022, AeroVironment’s LEAP software was not supposed to be the hub, but when other software “was not executing.” AeroVironment’s LEAP software assumed the hub role on an ad hoc basis.

“We expect AeroVironment’s success at IMX 2022 to lead to contracts for its JUMP-20, Puma and Switchblade aircraft down the road,” the William Blair analysts wrote.

Chart courtesy of www.stockcharts.com

Three Infrastructure Investments to Buy Include Standex International 

Standex International Corporation (NYSE: SXI), a multinational manufacturer of food service equipment, engravings, engineering technologies, electronics and hydraulics headquartered in Salem, New Hampshire, has many growth paths ahead of it. Rated by William Blair to “outperform” the market, Standex International could materially accelerate organic growth to 10% or more during the next two to three years, excluding its commercial solar panel production volumes for an innovative Gr3n joint venture with Italy’s Enel (OTCMKTS: ENLAY).

That partnership with a multinational manufacturer and distributor of electricity and gas has gained importance due to the suspected sabotage of both under water pipelines of the Nord Stream 1 from Russia to Western Europe, along with one line of Nord Stream 2. Seismologists in Denmark and Sweden suggest that sizeable explosions on the order of 100 kilograms of TNT occurred in both incidents.

With Russia’s President Vladimir Putin facing unexpected battlefield setbacks more than six months after he ordered a Feb. 26 invasion of neighboring Ukraine that the former KGB agent euphemistically called a “special military operation,” the pipeline sabotage seems targeted to hurt European nations as winter nears. Since Putin ordered troops into Ukraine in February, Russia has cut supplies of natural gas to Europe to heat homes, generate electricity and fuel factories.

European Leaders Complain of ‘Energy Blackmail’ by Putin

European leaders have accused Putin of using “energy blackmail” to weaken their support for Ukraine as the country seeks to repel Russia’s aggression.

Without presenting any evidence, Russian officials are attempting to blame the United States for the apparent sabotage, even though the affected nations are among America’s closest allies. President Biden countered the accusations were the latest in a continuing Russian campaign of “disinformation and lies.”

Biden also described the explosions of the Nordstream pipelines as acts of “sabotage” and discussed sending divers to examine the pipelines to find evidence that could be brought to light. Russia’s audacious move to “annex” Ukrainian territory in a Putin-led ceremony last Friday, Sept. 30, was declared illegal by Ukraine, the United Nations, the United States and many other Western allies who said it violated Ukrainian and international law.

Solar Panel Design Aids One of Three Infrastructure Investments to Buy

Standex further plans to benefit from significantly higher research and development (R&D) investments for new product development to “materially increase organic sales growth,” William Blair opined. New product launches are expected across all five of Standex’s businesses in fiscal 2023, including high growth end-markets such as renewable energy, electric vehicles, human health, commercialization of space and sustainable products.

Standex’s Gr3n joint venture could attain full commercialization by mid-decade, potentially becoming Standex’s sixth business segment. The result could boost Standex’s “organic sales growth” to the low teens in the next three to five years, the William Blair analysts wrote.

The joint venture has developed and tested a prototype for a highly innovative, extremely efficient and 100% recyclable new solar panel design that is 30-35% more efficient and weighs 38% less than traditional glass solar panels. With interest in solar panels rising as the European Union (EU) scrambles to replace the 40% of its energy previously sourced from Russia, Standex is expanding electronics’ production capacity in Germany, China and India, the investment firm reported. 

“If the new recyclable, highly efficient solar panel can be cost-effectively produced, it could become the largest new product in Standex’s history,” according to the William Blair analysts.

Chart courtesy of www.stockcharts.com

U.S. CDC Halts Its Country-by-Country Travel Notices

The U.S. Centers for Disease Control and Prevention (CDC) dropped its country-by-country COVID-19 travel health notices on Monday, Oct. 3. Those warnings began early in the pandemic as COVID-19 cases and deaths climbed.

COVID risks affect supply and demand for infrastructure stocks, but not as much as cyclical companies whose share prices can soar when economic conditions are favorable but fall fast when inflation, a potential recession and Fed interest rate hikes imperil stock prospects. Savvy investors monitor COVID-19 outbreaks and lockdowns to forecast how certain stocks and sectors, such as infrastructure, are affected.

Another encouraging sign occurred when Canada announced on Sept. 26 that it would remove all remaining COVID-19 entry restrictions, such as testing, quarantine and isolation requirements. That development could boost trade and tourism between that country and the United States.

China’s strict zero-tolerance COVID policy continues to be controversial and recently sparked a rare protest in its technology hub of Shenzhen, social media video showed. The dissent came after government officials ordered a sudden lockdown due to 10 new infections on Sept. 27 in the city of more than 18 million people. Officials ordered residents in three districts there to stay home.

China has locked down more than 70 cities fully or partially to preserve its zero-tolerance policy of COVID. However, 27 people were killed and 20 more were injured when a quarantine bus overturned on a mountain road on Sept. 20.

U.S. COVID-19 deaths ticked up by nearly 4,000, up about 1,000 compared to roughly 3,000 the previous week. Cases in the country totaled 96,481,081, as of early Oct. 5, while deaths jumped to 1,060,408, according to Johns Hopkins University. America stands out dubiously as the nation with the most COVID-19 deaths and cases.

Worldwide COVID-19 deaths in the past week rose by more than 11,000, up about 2,000 from the prior week. The number of deaths totaled 6,550,203, as of Oct. 5, according to Johns Hopkins. Global COVID-19 cases reached 619,211,562.

Roughly 79.5% of the U.S. population, or 264,112,767, have received at least one dose of a COVID-19 vaccine, as of Oct. 5, the CDC reported. Fully vaccinated people total 225,284,115, or 67.9%, of the U.S. population, according to the CDC. The United States also has given at least one COVID-19 booster vaccine to almost 110 million people.

The three infrastructure investments to buy can be repurchased at reduced prices after a rough 2022 market wide. Despite high inflation, Russia’s continuing war in Ukraine and recession risk after 0.75% rate hikes by the Fed in June, July and Sept. 21, the three infrastructure investments to buy offer some insulation compared to cyclical stocks with government budgets less economically sensitive than the private sector. 

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street JournalInvestor’s Business DailyUSA Today, the Journal of Commerce, Seeking Alpha, Guru Focus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of                                  StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The book is great as a gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many othersCall 202-677-4457 for multiple-book pricing.

The post Three Infrastructure Investments to Buy as War and Inflation Rage appeared first on Stock Investor.

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Nearly Half Of Americans Making Six-Figures Living Paycheck To Paycheck

Nearly Half Of Americans Making Six-Figures Living Paycheck To Paycheck

Roughly 60% of Americans say they’re living paycheck to paycheck -…

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Nearly Half Of Americans Making Six-Figures Living Paycheck To Paycheck

Roughly 60% of Americans say they're living paycheck to paycheck - a figure which hasn't budged much overall from last year's 55% despite inflation hitting 40-year highs, according to a recent LendingClub report.

Even people earning six figures are feeling the strain, with 45% reporting living paycheck to paycheck vs. 38% last year, CNBC reports.

"More consumers living paycheck to paycheck indicates that many are continuing to lose their financial stability," said LendingClub financial health officer, Anuj Nayar.

The consumer price index, which measures the average change in prices for consumer goods and services, rose a higher-than-expected 8.3% in August, driven by increases in food, shelter and medical care costs.

Although real average hourly earnings also rose a seasonally adjusted 0.2% for the month, they remained down 2.8% from a year ago, which means those paychecks don’t stretch as far as they used to. -CNBC

Meanwhile, Bank of America found that 71% of workers say their income isn't keeping pace with inflation - resulting in a five-year low in terms of financial security.

"It is no secret that prices have been increasing for everyday Americans — not only in the goods and services they purchase but also in the interest rates they’re paying to fund their lives," said Nayar, who noted that people are relying more on credit cards and carry a higher monthly balance, making them financially vulnerable. "This can have detrimental consequences for someone who pays the minimum amount on their credit cards every month."

According to an Aug. 30 report from the Federal Reserve Bank of New York, credit card balances increased by $46 billion from last year, becoming the second-biggest source of overall debt last quarter.

And as Bloomberg noted last month, more US consumers are saddled with credit card debt for longer periods of time. According to a recent survey by CreditCards.com, 60% of credit card debtors have been holding this type of debt for at least a year, up 50% from a year ago, while those holding debt for over two years is up 40%, from 32%, according to the online credit card marketplace.

And while total credit-card balances remain slightly lower than pre-pandemic levels, inflation and rising interest rates are taking a toll on the already-stretched finances of US households.

About a quarter of respondents said day-to-day expenses are the primary reason why they carry a balance. Almost half cite an emergency or unexpected expense, including medical bills and home or car repair.

The Federal Reserve is likely to raise interest rates for the fifth time this year next week. Credit-card rates are typically directly tied to the Fed Funds rate, and their increase along with a softening economy may lead to higher delinquencies. 

Total consumer debt rose $23.8 billion in July to a record $4.64 trillion, according to data from the Federal Reserve. -Bloomberg

The Fed's figures include credit card and auto debt, as well as student loans, but does not factor in mortgage debt.

Tyler Durden Tue, 10/04/2022 - 20:25

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