Videos
Please Watch My New YouTube Video: The Fed Is Now On Message–Ask Why
Today I posted my two-hundred-and-eleventh YouTube video: The Fed Is Now On Message–Ask Why Today’s topic: The Fed is Now On Message, Ask Why. Last week I spoke about how confusing the Fed’s messaging had been recently, but this week, everybody has been on the same page. St. Louis Fed President, James Bullard, a fairly aggressive inflation fighter, suggested we need to take the Fed rate up to 5-7%, a hike from the current 3.75-4%. Loretta Mester, President of the Fed in Cleveland, agreed that the Fed isn’t near a pivot and John Williams, President of the New York Fed, came out with a detailed statement saying that more work is needed on inflation and unemployment may need to rise to 4.5-5% by the end of 2023. While Williams didn’t use the word, “recession,” it’s clear that you don’t reach those unemployment numbers without hitting a recession. So, why are these formerly out-of-sync Fed presidents suddenly aligned on message? The Fed is data-driven, and Fed members got new inflation and jobs numbers recently before the public release Thursday and Friday. Could be that these new data points have driven the Fed to the conclusion that we shouldn’t expect a pivot any time soon. Or maybe it’s just that the Fed goes into its quiet period soon before the December 14 meeting.
Please Watch My New YouTube Video: Quick Pick Palo Alto Networks
Today I posted my two-hundred-and-tenth YouTube video: Quick Pick Defiance Palo Alto Networks. This week’s Quick Pick is Palo Alto Networks (NASDAQ: PANW), the cyber security software platform company. During this bear market, it’s not surprising to see some stocks down nearly 50% and trading at 30% to40% discounts, but Palo Alto has managed to drop only 8% for 2022 and is trading at a relatively slight 15% discount to fair value, according to Morningstar. While Palo Alto has had its severe dips, it recently bounced back up after announcing very solid earnings. In the quarter sales were up 25% year over year and annual recurring revenue (from SAAS subscriptions) was up 67% and billings were up 27%. Palo Alto covers a lot of areas of cybersecurity, making it a more attractive alternative for enterprise corporations looking to consolidate their security software and move to a one-stop shop that can cover more aspects of their security needs. I’m reluctant to buy anything in this continuing bear market, but would suggest looking at this stock in February 2023 or so, especially if it dips again. Palo Alto Networks is a member of my long-term 50 Stocks Portfolio on my two investing sites. The stock is up 108% since I initiated that position on January 21, 2020. The stock is also a member of my Millenial Portfolio on my subscription site JubakAM.com. That position is ahead 41% since May 21, 2021
Please Watch My New YouTube Video: Is the Fed Confusing or Just Confused?
Today I posted my two-hundred-and-ninth YouTube video: Is the Fed Confusing or Just Confused? Today’s topic: Is The Fed Confusing, or Just Confused? First, Mary Daly, president of the San Francisco Fed came out with a very mixed message about the Fed’s December 14 meeting. The market seems to have decided that the Fed will raise rates by just 50 basis points, she said, but that it’s still too early to decide and a 75 basis-points increase is still on the table. But, she then added, the Fed is worried about overcorrecting and causing a recession. Then, Loretta Mester, president of the Cleveland Fed, announced that she is open to slowing the rate of the rate hikes, but was unclear on what “slowing” would actually mean. I think the key to market direction after the December meeting is the Dot Plot Summary of Economic Projections. The last time the Fed released a Dot Plot was September and it’s already wildly out of date. The September projected inflation rate for 2023 was 2.6-3.5% and 5.3-5.7% for 2022. Both projections will likely be revised higher in December. Inflation isn’t coming down as fast as the Fed thought in September, but it is coming down. Big question for the financial markets, though: Is it coming down enough? Rate hikes of 50 or 75 basis points are on the table but does the Fed now think it can stop raising the rates? My conclusion is that the Fed sounds confusing because the Fed is actually confused.
Please Watch My New YouTube Video: Quick Pick NiSource
Today I posted my two-hundred-and-eighth YouTube video: Quick Pick NiSource. This week’s Quick Pick is NiSource (NYSE: NI). If you saw my last Trend of the Week video, you know that I believe the dip in utilities represents a good buying opportunity as utilities make the transition away from coal and natural gas with an eye toward the future of electricity. Investors have already started “rewarding” some utility stocks, like Eversource Energy (NYSE: ES) and NextEra Energy (NYSE: NEE), because they see these utilities starting that transition. Which means, of course, that these stocks have been bid up on that recognition. Eversource is rated by Morningstar as 6% overvalued and NextEra, which owns Florida Power & Light, is rated at fair value by Morningstar. The utility I’m looking at is NiSource, which largely services Indiana and Ohio—not generally considered bastions of cutting-edge green energy technologies. But! Goods going from coast to coast necessarily travel through those states, and as trucking companies make the transition to electric, the utility companies that service those areas will need to provide the power. NiSource is at the beginning stages of its own transition away from coal and toward renewable sources. The stock currently trades at a 20% discount, according to Morningstar, with a 3.65% dividend, higher than both Eversource and NextEra. NiSource says they’re expecting 6-8% annual earnings growth over the next 10 years and they’ve started investing in renewables in Indiana and Ohio. I think this is a stock that will start to get recognized as committing to the energy transition and I’ll be adding it to my dividend portfolio.
Please Watch My New YouTube Video: Trend of the Week Time for Utilities?
Today I posted my two-hundred-and-seventh YouTube video. This week’s Trend of the Week: Time for Utilities? I think it is. Looking at Utilities Select Sector SPDR Fund (XLU), you can see the recent dip in utilities, which means yields are up. On top of that, I think utilities are a good long-term investment opportunity. Utilities make their returns by spending capital and putting those projects into their rate base so that regulators allow utilities to hike prices to earn a market return on that invested capital. Utility National Grid recently came out with a study predicting that by 2030, electrifying a typical highway gas station to handle just passenger EVs, will require the same amount of power that is needed for a pro sports stadium-well above the electrical supply they’re currently getting. In 2035 the demand growth looks even more dramatic after the study adds in demand from larger electric trucks. Then each highway gas station/truck stop will need as much electricity as a small town. And this demand won’t be averaged over the course of a day. There will be a need for spikes of power, as cars and trucks quickly recharge their batteries. Currently, we’re building electric cars faster than we are building the necessary infrastructure to charge them. Because of that, we’re going to see a lot of capital put into new infrastructure by utility companies. Which means a larger rate base and higher revenue for utilities.
Please Watch My New YouTube Video: 10% More to This Rally?
Today I posted my two-hundred-and-sixth YouTube video. Today’s topic: 10% More to this Rally? The S&P rose above 4,000 Tuesday morning leading investors and analysts to forecast this rally climbing about 10% higher. Looking at a chart of the S&P 500 for a full year shows a clear bear market trend. Each high is lower than the previous high and the market has never seriously threatened to take out the December 2021 high. The current rally might be able to match the August peak of 4280 since investors are trying to take advantage of the rally before the year ends. But I don’t expect gains to stick. Looking forward, I still see high interest rates and a slowing economy and the Fed is unlikely to pivot away from its interest rate increases as investors hope. If you want to take advantage of the rally, by all means, go for it! Just remember, a 10% gain isn’t enough of a gain to justify betting the house.
Please Watch My New YouTube Video: Trend of the Week U.S . Oil Production not Rising as Expected
Today I posted my two-hundred-and-fifth YouTube video. This week’s Trend of the Week: U.S. Oil Production is Not Rising as Expected. Oil prices have averaged $100 per barrel over 2022–a figure that would normally lead oil companies to expand production and capital spending, but it hasn’t this time. According to the Energy Information Administration, U.S. oil production is only up about 3% from December 2021. Projections had the U.S. at 12 million barrels a day by the end of this year, but we’re currently only at 9.77 million barrels a day. Why is the production not going up? Oil shale fields deplete faster than traditional fields and we may have reached peak production in some of these oil shale basins. The best properties may have been exhausted and we’re now seeing companies move to their more inferior properties. The drilling and fracking may be happening at a steady pace, but we’re not getting as much out of the wells and properties currently being drilled. Companies that had a stock of drilled, but uncompleted have now worked through those “spare” wells and don’t have the motivation to drill new ones as Wall Street and investors would prefer high dividends instead of capital spent on a commodity that has an unclear future. The two oil companies I would look at are Pioneer Natural Resources Company (NYSE: PXD) and ConocoPhillips (COP) because of their mix of resources.
Please Watch My New YouTube Video: Quick Pick BUD
Today I posted my two-hundred-and-fourth YouTube video. This week’s Quick Pick is Anheuser-Busch Inbev (NYSE: BUD). Beer is a good counter-cyclical consumer good because demand for beer doesn’t really go down during a recession. Anheuser-Busch is a conglomeration of beer companies, including Anheuser-Busch and Miller, as well as brands across Europe and a near-monopoly in Latin America–where they look to be getting a lot of good growth. Ambev SA (NYSE: ABEV) is the Brazil beer company (where Anheuser-Busch owns a majority stake) that trades at less than 3 with more volatility. Morningstar rates Brazilian Ambev as 7% undervalued while Anheuser-Busch (BUD) is about 42% undervalued. In this environment, I’ll be adding BUD to my portfolio, since it’s trading at a higher discount with a more global reach.
Please Watch My New YouTube Video: Capital Cycles and Recession
Today I posted my two-hundred-and-third YouTube video. Today’s topic: Capital Cycles and Recession–they are not the same thing. When we talk about a recession, we’re largely talking about a consumer demand recession. Separately, there is a recessionary part of the normal capital cycle. We’re coming out of a long period of “cheap money,” where companies have easily borrowed and have had a lot of cash to invest. During this period of time, some companies have gotten sloppy and overextended their capital into investments they’re now realizing may not provide the best ROIC. Wall Street has responded to these decisions, resulting in lower capital coming from stocks. This is especially evident in the tech sector. Meta Platforms (NASDAQ: META) saw stocks plunge from 137 on October 25, to 96 on November 7, and Amazon (NASDAQ: AMZN) went from 120 on October 25 to 90 on November 7. Expect a shift in capital investments as companies begin layoffs, close warehouses, and move their money to things like AWS (in Amazon’s case) with a greater guarantee of return. Look at companies that have learned this lesson previously, like Microsoft (NASDAQ: MSFT), and have a responsible plan for capital, like Cummins (NYSE: CMI). Cummins is not in the tech sector, of course, but they are a great example of having a smart, near-future plan for capital investments.
Please Watch My New YouTube Video: Mud Season Looms in the Ukraine War
Today I posted my two-hundred-and-second YouTube video. This week’s Trend of the Week: Mud Season in Ukraine. During World War II, the western powers were hoping for a tough mud season to slow down the war and make it harder for Germans to race into Poland. Instead, a historically dry mud season led to German Panzers easily rolling deeper and deeper into Poland. In Ukraine, we can expect mud season to start to affect the war relatively soon-it’ll likely not slow the violence (it might even get worse), but lines will be stuck in place as travel through the mud will become treacherous and tanks and troops will be relegated to roads. Since the recent escalation of the war, Russia has announced its grain deal with Ukraine to get grain out of the country was off and then on–and think off again is a real possibility after the deal expires on November 19. All this means more uncertainty and higher prices in the grain market. I think you’ll see ETFs like Teucrium Wheat Fund (NYSEARCA: WEAT) and Teucrium Corn Fund (NYSEARCA: CORN) rise as prices for grain go up. These two ETFs are a way to hedge the rising costs of grain and volatility in stock prices.
Please Watch My New YouTube Video: Quick Pick Brazil
Today I posted my two-hundred-and-first YouTube video: Quick Pick Brazil ETF EWZ. This week’s Quick Pick is Brazil, iShares MSCI Brazil ETF (NYSEARCA: EWZ). While the election in Brazil isn’t totally over with an actual concession speech, it’s clear Luiz Inacio Lula da Silva has defeated President Jair Bolsonaro, making Bolsonaro the first Brazilian President ever to not win a second term. Bolsonaro has yet to concede to Lula and his followers are still engaged in massive protests against the outcome. Even if Bolsonaro never concedes, a good measurement of how the post-election violence is trend is the number of roadblocks by Bolsonaro supporters throughout the country. The current count is 192 roadblocks cleared, 271 still up – but the Supreme Court has imposed fines to put pressure on the police to remove the roadblocks. As the roadblocks go down and Bolsonaro supporters gradually retreat from violence, Brazilian stocks will go up as Lula steps into the presidency. The iShares MSCI Brazil ETF currently is paying a hefty dividend of 11% 12% and you get a lot of exposure to Petrobras and Brazilian consumer stocks. I especially like that consumer exposure since I think Lula will invest in the consumer sector.
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