The Digital Mailbag: Your Questions, Answered

Our digital society breeds short attention spans. Apps like Instagram and TikTok are making it increasingly difficult for people to focus and think critically. Hence, the sorry state of political discourse.

That’s why, in an era dominated by emojis and instant messaging, I’m grateful to receive well-crafted emails from readers.

Indeed, some of you have found clever ways of hunting me down. My preferred vehicle for getting feedback is my company’s official inbox:

Let’s see what’s on your minds; I’ve chosen a representative sample of questions. (I’ve edited the following questions for clarity and concision, but I’ve done so with a light touch.)

“The inflation readings for February came in hotter-than-expected, for both the consumer price index (CPI) and producer price index (PPI). Should I be worried that inflation is resurgent, or is the data a temporary blip?” — James L.

Inflation worries are valid, especially given the recent uptick in both CPI and PPI. However, it’s essential to consider the underlying factors driving price increases.

The pandemic was a “black swan” and its economic ramifications defied the theories you’ll find in textbooks. Post-COVID inflation data contain a lot of “noise” and anomalies that don’t necessarily presage entrenched trends.

One thing is clear: As supply chains mend and various industries regain supply-and-demand equilibrium, inflation has sharply fallen and the long-term trajectory remains downward. That said, diversifying your investment portfolio can also help mitigate the impact of inflationary pressures.

Two asset classes you should consider as hedges are gold and cryptocurrency, as I explain in greater detail below.

“Wall Street is going crazy over artificial intelligence (AI). Tech stocks and the broader stock market are riding the AI wave. Of course, AI is a significant and very real trend, but shouldn’t I be wary of the frenzy? Aren’t we seeing some Fear of Missing Out that will lead to a stock market correction?” — Alan M.

The excitement surrounding AI is warranted; it’s no mere fad. AI is a revolutionary technological advancement.

However, my “Spidey sense” started to tingle this week when I saw the top executives of AI-related companies, e.g. chipmaker Nvidia (NSDQ: NVDA), treated like rock stars on CNBC. Fawning interviews of CEOs conducted by James Cramer are contrarian indicators.

While AI-driven companies can offer significant growth opportunities, valuations may become detached from fundamentals during periods of excessive enthusiasm. As an investor, it’s crucial to conduct thorough research and focus on the long-term viability of the specific businesses you’re investing in. And yes, as tech sector valuations get frothy, I wouldn’t be surprised to see a pullback.

“As the Federal Reserve pauses its interest rate tightening cycle and gets ready to cut rates this year, which sectors are the most appealing? Shouldn’t I rotate into sectors that benefit from falling rates?” — Karen C.

With the Fed signaling a shift toward a more accommodative monetary policy, certain sectors stand to benefit. Historically, sectors such as technology, consumer discretionary, industrials, and real estate have performed well during periods of falling interest rates.

You should rotate toward value plays that benefit from economic growth. Lower borrowing costs can stimulate consumer spending and business investment, driving earnings growth for companies in these sectors. However, as always, it’s essential to consider individual company fundamentals.

“Where do you expect gold prices to go in 2024? Shouldn’t the yellow metal prosper in 2024?” — Richard K.

Gold has long been considered a hedge against inflation and geopolitical uncertainty, making it an attractive asset right now.

Gold prices have been soaring. As of this writing, gold hovers at an all-time high of $2,231 per ounce. The consensus of analysts is that gold will reach at least $2,300/oz in the second half of 2024.

As an investor, it’s essential to consider gold as part of a diversified portfolio rather than relying solely on its hedging properties. The traditional yardstick is for an allocation of about 5%-10% in either gold mining stocks, exchange-traded funds (ETFs), or physical bullion itself.

“Cryptocurrency has been on a tear, although in recent days assets such as Bitcoin have pulled back. Are you bullish over crypto in 2024 and if so, why?” — George T.

In addition to their enormous growth potential, cryptocurrencies also serve as a diversification tool and hedge against traditional financial systems’ shortcomings.

However, cryptocurrency markets have experienced significant volatility, with assets like Bitcoin (BTC) witnessing both rapid gains and sharp pullbacks.

The long-term potential of blockchain technology and cryptocurrencies is amply proven, but investors should approach this asset class with caution. Regulatory uncertainties, security risks, and speculative fervor can contribute to extreme price fluctuations.

If considering crypto investments, it’s essential to conduct thorough research and due diligence. The good news is, the experts at Investing Daily have done the homework for you.

Want to tap crypto’s massive money-making opportunities, but with mitigated risk? Start receiving our FREE e-letter, Crypto Investing Daily. Click here now.

John Persinos is the editorial director of Investing Daily.

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This article previously appeared on Investing Daily.