ESG | ESG | ESG Matters
thoughts as we finish this 4th week of May 2021
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Some assets are cheaper than they’re worth; others are the most unattractive that we’ve seen for a very long time. William Blair
I know I’ve been like a dog on a bone about inflation, and rising bond yields, over the last few months. It is just that important to you…the value of your portfolio and your dividend income you count on to provide your income after you retire.
“All you have to do is open up your eyes to see there is inflation pressure everywhere,” says Ed Yardeni, president of Yardeni Research. “We are in stimulus shock.” For evidence, he points to the 26% year-over-year increase in M2 money supply, the largest gain since 1943, as fiscal spending in response to the pandemic has topped $5 trillion. The Fed has shown no signs of slowing the $120 billion in monthly purchases of Treasuries and mortgage-backed bonds it began in response to the pandemic.
“It’s been a rocket shooting to the moon for the past eight months,” says Joe Procopio, a third-generation CEO of Massachusetts-based Procopio Cos. of prices overall, from lumber and steel to labor. He has canceled 20% of planned projects and halted 10% this year as the cost of constructing apartment buildings surged 20%. Returns on projects that haven’t gone bust have gone to about 15% from 25%.
Historically, it takes, on average, 18-months from the first Fed fund increase to start impacting real costs, so this actually is a fairly measured process once the FED begins increasing the Fed fund rate. I’d like to see 2021 close with at least one rate hike.
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Nebraska Furniture Mart Chairman Irv Blumkin says the price of one shipping container is up from $3,500 to $10,000 over the last six months. Yes, a shipping container…not what is IN the container: what is used to get goods to their destination and is then recycled or discarded. Suppliers are halting production and vendors have increased prices many times over the past three months as they pass on their increased costs to consumers. Think this is temporary?” Suppliers will tell you they are sold out for the rest of the year and all along the supply chain, there is muttering that; “it’s the highest level of inflation we’ve ever seen, except for in the ’70s.”
😲Why does this matter to you? The gap between reported price inflation and the experiences of businesses and consumers is a signal to investors that inflation is hotter than it looks. Implications of the disconnect are vast, affecting Social Security payments, tax-bracket adjustments, and economic growth calculations, in addition to investment returns, inflation expectations, and interest rates. The market doesn’t like uncertainty!
This from the Wall Street Journal this week: some of the world’s biggest companies and deepest-pocketed investors are lining up trillions to finance a shift away from fossil fuels. Assets focused on the environment reached almost $2 trillion globally in the first quarter, more than tripling in three years. This is real money.
😊😲Why does this matter to you? More than $5 billion worth of bonds and loans designed to fund green initiatives are now issued every day. The two biggest U.S. banks pledged $4 trillion in climate-oriented financing over the next decade. We’ve reached the tipping point: Dominion Energy, one the country’s biggest utilities, is planning to spend $26 billion or more on clean energy such as wind and solar in the next five years.