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Please Watch My New YouTube Video: How Long Before Climate Change Forces the Fed to Rethink Inflation?
Today’s topic is How Long Before Climate Change Forces the Fed to Rethink Inflation? In Jerome Powell’s most recent report to the House and Senate, he made it clear that interest rates would be raised higher than previous expectations and that 50 basis points weren’t off the table for the March 22 meeting. The CME’s Fed tool, which tracks how the market believes the Fed will move rates, was showing a 50/50 split of 25 and 50 basis points on March 7. The week before that, the odds of a 50 basis point hike were only at 24%. We can see the market is coming around to the idea of maintaining higher interest rate hikes. How does this relate to climate change? Well, another data point is coming out on Friday; the jobs report. The big blow-out in January jobs is directly related to climate change. January had about 200,000 additional jobs created due to the fact that it was warmer than usual for the month. Those actual numbers were seasonally adjusted with past trends of colder Januaries, when jobs had been lost due to the colder weather, leading to very questionable final numbers. The Fed’s division of inflation into an “all prices” number and a core rate is also becoming questionable. The Fed often focuses on the core rate, which leaves out food and energy price increases, but those are two categories that are likely to be central to the way that warming temperatures change the global economy. At some point, the Fed will have to figure out how it will handle those two categories of prices, and how climate change will lead to a new calculation of the neutral interest rate.
Special Report: 5 steps for 5 months–your first three moves for NOW
This is going to take me a while to get all five steps posted. The market situation is very complicated right now and the appropriate solutions are very specific. I’m going to start with the short-term moves you need to be making NOW and then gradually extend my recommendations to cover the entire next five months. I’ve now posted Steps #1, #2, and #3
First Quantum Minerals reaches copper deal in Panama; stock gains 3.86% Wednesday a.m.
First Quantum Minerals (FQVLF) has reached an agreement on a new concession contract with Panama’s government over its huge Cobre Panama copper mine. The agreeent, assuming tht a final signing goes ahead, would end a months-long dispute that has halted ore processing and export shipments. The Cobre Panama mine accounted, before the dispute, for 1.5% of global copper production.
ADP payroll report comes in hot; is that bad news for Friday’s February job report?
Private payrolls increased by 242,000 in February, according to the ADP National Employment Report. Economists surveyed by the Wall Street Journal had been looking for the economy to add 205,000 jobs in the month. The February increase was well above the revised January total of 119,000 new jobs. While the jobs report issued by the Bureau of Labor Statistics doesn’t always track closely to the ADP report, the stronger-than-expected new job total in today’s data certainly suggests that Friday’s official government report could also come in hotter than expected. Right now economists are looking for the economy to add 225,00 jobs in February according to the official data.
Stocks retreat on Fed chair Powell’s “higher and faster” testimony on interest rates
As the day wore on, the stock market decided that it liked Federal Reserve Chair Jerome Powell’s Senate testimony less and less. The Standard & Poor’s 500 was down just 0.72% at 11 a.m. New York time. The index closed down 1.53% for the day.
This negative sentiment from consumers isn’t good news on recession worries
According to Fannie Mae’s latest survey of consumer sentiment, less than one-third expect their personal financial situation to get better over the next year. That’s the lowest positive percentage in a series that goes back more than a decade. This isn’t good news for anyone worried about a recession in 2023 or 2024.
Please Watch My New YouTube Video: Trend of the Week Utilities Are Struggling as Inflation Surges
This week’s Trend of the Week video is Utilities are Struggling as Inflation Surges. As utilities start to update their grid infrastructure to support renewable energy sources, utility companies have filed for rate increases. Those rate increases have to be approved by state government regulators, and they’ve recently gotten some pushback, specifically from utility commissions in the Midwest, including Wisconsin, Minnesota, and Michigan. As an example, in Michigan, DTE applied for a $388 million rate increase and the utility got approval for just $31 million. Utility commissions are arguing that they can’t approve rate increases when consumers are already facing soaring utility bills. Investors have expected utilities to be a place to hide in this market, with projected growth and higher revenue, but due to this kind of resistance from regulators, you can’t count on utilities to revenue and income to fuel dividend increases at the same rate as in recent years. I suggest picking utilities one by one, as opposed to ETFs in order to stay away from some of those companies that do business in less accommodating states. You can find specific utility stocks in my Dividend Portfolio available on JubakPicks.com and JubakAM.com.
VIX “Fear Index” drops back to 18–time to put on an options play on the volatile months ahead
The CBOE S&P 500 Volatility Index (VIX) has dropped back near 18–the index was at 18.50 as of noon New York time on Monday, March 6–despite what looks like a month or two of potential volatility ahead. So, as of this morning, I’m buying Call Options on the VIX for May 17 with a strike price of 23 (at a cost of $197 a contract) and on the June 23 contract with a strike price of 23 (at a cost of $254 a contract) for my Volatility Portfolio.
China sets consumer-driven 5% growth goal, trade figures show China already on the rebound
On Sunday at the National People’s Congress Premier Li Keqiang announced an “around 5%” target for China’s economic growth in 2023. That was slightly less aggressive than the “above 5%” that investors had hoped for. The policies surrounding the goal went relatively light on the traditional engine of infrastructure spending and focused instead on consumer-led growth.
Saturday Night Quarterback (on a Sunday) says, For the week ahead expect…
I expect that in the coming week, the financial markets will be dominated by fears that the February jobs report, to be issued by the Bureau of Labor Statistics Friday morning before the market opens, will repeat January’s huge blowout when the official data showed the economy adding a whopping 517,000 jobs. Nothing in that January number to suggest that the U.S. economy was slowing down or that the Federal Reserve should stop raising interest rates to fight inflation
A similar blowout report for February would, probably, convince investors and traders that the Fed will raise interest rates by at least 25 basis points at its March 22 meeting. And that the U.S. central bank will continue to raise interest rates in May and June.
Lithium Americas begins construction on Thacker Pass lithium mine
Lithium Americas (LAC) isn’t letting any grass grow under its feet. Just a day after the 9th U.S. Circuit Court of Appeals refused a request for an emergency injunction that would have blocked construction at the Thacker Pass, Nevada, the proposed site of what could become the largest North American source of lithium, the company announced that it had begun construction of the massive strip mine.
From California confirmation that nuclear power–and uranium producer Cameco–has more life thanks to global warming
When I added Cameco (CCJ), the big Canadian uranium producer, to my Jubak Picks Portfolio on February 22, 2023, I argued that plans by China and India to burn more coal, despite a potentially catastrophic increase in global temperatures, meant that the world would have to put plans to phase out nuclear power on hold. And that a world desperate to avoid the worst climate outcomes would lead to a revived nuclear power industry–and higher uranium sales for Cameco. Now California has provided a roadmap for exactly how and why this will happen.
Treasury market passes 4% milestone for a day; what’s next?
Yesterday, March 2, yields on all Treasury maturities closed above 4%. Today, that 4% level hasn’t held across all maturities with the 10-year Treasury yield dropping back to 3.96%, down 9 basis points, as of 3:00 p.m. But I think yesterday’s surge to a 4% yield for all maturities marks a milestone in this market–and the upward march of interest rates as the Federal Reserve shows signs of raising rates higher and longer.
Russia’s budget deficit to rise to 3.5% of GDP in 2023, above the official forecast
The European rating company Scope, roughly the equivalent of Moody’s or Fitch Ratings in the United States, has warned that Russia’s budget deficit may rise to 3.5% of GDP in 2023. That’s significantly above the government’s forecast of a deficit of 2% for 2023. In gross 2022, the official shortfall came in at 2.3%.
Please Watch My New YouTube Video: Quick Pick Li-cycle Holdings
Today’s Quick Pick is Li-Cycle Holdings (NYSE: LICY). Li-Cycle is in the start-up stage of building a hub and spoke system to recycle lithium batteries. As more electric vehicles enter the market, companies that can recycle the lithium from their batteries has drawn a lot of investment dollars, both because fulfilling the green potential of electric vehicles requires closing the battery loop and because recycling provides a supply increasingly expensive of battery materials such as lithium, cobalt, and nickel. And there are new incentives in the field because the Inflation Reduction Act included money for loans/funding for recycling companies. Most of the new entrants are private. One of the few publicly traded battery recycling companies is Li-Cycle. Li-Cycle started as a SPAC, a formerly popular way to take a company, but now the market is largely shunning SPAC companies out of fear that they will run out of capital before they hit breakeven. However, Li-Cycle just announced it had received conditional approval for a $375 million loan from the Department of Energy, allowing it, by my calculations, Â to finish their Rochester hub. The hub recovers marketable lithium, cobalt, and nickel from the black mass that the company collects from batteries. Once the hub is completed, it will go from a cash drain on the balance sheet to a generator of cash. This is a risky stock. The shares are down 57% since I added them to my Milliennial Portfolio on November 15, 2021 but they are up 21% for 2023 to date as of March 2. This one is for the strong of stomach willing to take a risk and hold on to it through dips as the company starts to generate revenue and earnings.
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