This 2nd Week of September 2022's Thoughts
Updated: Oct 7, 2022
Fed Fund Watch:
10-Year Yield: 3.25% last week, 3.40% this week. Time to buy bonds?
Rate Watch: Schwab Value Advantage 7 Day-Yield: 2.21%. Yields will move up as rates move higher.
How long will it take? Fed rate increases take 9-12 months to show up in the economy: this is a process that can’t be fixed in 1 or 2 quarters. Recession watch: Summer 2023?
Fund Focus: I’m reviewing Blue Horizon Alternative Energy: watch this video: Blue Horizon BNE
The Water Crisis: the Myths & Facts Investors Should Know
Who hasn’t seen the pictures of the Hoover Dam, half empty? What can we do? It is estimated that $1.8 billion will be invested in water infrastructure in 2022 and that number is growing by 10% a year. Analyst Deane Dray, known as “Dr. Water”, has created a primer for water investing because in the 1990s, there was no water playbook. Dray tells us to focus on technology leaders—such as Xylem, a company that can diagnose water leaks remotely and to avoid the “water-lite” stocks: generic pipes, pumps, and valves. Here are 3 of his water myths:
Myth #1: Water is the Next Oil - Equal access to all the clean water will take a long time. While there are many substitutes for oil: natural gas, wind, solar, nuclear power, etc., there is absolutely no substitute for water. The only question is how much it will cost.
Myth #2: Water Falls From the Sky and Should be Free - “Water costs significantly more in most developed countries than it does in the U.S.” says Dray; “The average U.S. water bill is less than an average cellphone bill and is four times lower than water bills in Denmark.” As he helps us prepare for higher water costs, Dray reminds us that we need to pay more attention to conservation as when something doesn’t cost very much, it is easy to be wasteful. As you go through your day, be more aware of your water usage.
Myth #3: The World Is Running Out of Water - Dray says the Earth has as much water as it did 2 billion years ago: less than 1% of all water on earth. While fresh water supplies can be depleted, it is really a regional problem. Most of the water the Saudis use is from desalinization—the process of taking the salt out of ocean water. While 97% of the water on the Earth is saltwater, desalinated water costs 20 - 40 times what wholesale water now costs for U.S. residential customers. Now, think about what golf courses, agriculture, and real estate developments in areas where water is already scarce, use. We can’t ignore this issue. Desalination requires a lot of energy as while salt dissolves very easily in water, forming strong chemical bonds, those bonds are difficult to break. Creating the energy that is needed; using the technology needed to desalinate water; and disposing of the salt left over are all expensive. Reality: desalinating water is costly and this cost will be passed on to users. In CA one solution is filtering sewage. Other options? Fake grass…miniature golf…fake meat. With Ethos Impact Preference, if we limit your impact areas to 4, we can better customize your portfolio. If water is high on your list, we can use a fund devoted to water technology. If not, we’ll use a more diversified fund. You may have already taken it, but take it again, focusing on your four most important issues:
I get more questions about how bonds work than why stocks are down and the chart below tells all. Here are my thoughts, in no particular order:
1. The size of the “tick” up or down is the actual Fed rate increase or decrease on that day.
2. When there are big changes in the Fed Fund rate it is because the Fed thinks drastic measures are needed.
3. Notice that during some Fed Fund cycles, it is often a stair-step sort of thing: usually .25% every month.
4. Look back to 2008…when interest rates headed to the basement…and you earned 0% for 12 years.
5. Your investment income for the last 12 years has been paltry: it now is moving to more normal levels. 😊
6. Now, the drum roll please: because interest rates and bond prices move in opposite directions, every time rates go UP…your bond funds go down.
7. Expect to see bond prices continue to go down until the Fed is done raising rates. We will be locking in higher rates all along the way.
Why does this matter to you? 😊Know this cycle…this pain…is what we have to go through to return to normal investment dividends. It will be worth it when your dividends are higher and bonds recover some of their losses. Note: If you want a long wordy version of this graph, see the link on the first page for Ray Dalio’s treatise on inflation and rates.
Registered Investment Advisors (RIAs) are fee-only fiduciaries: at Sustainable Advisors Alliance, LLC we do not earn stock commissions or mutual fund transaction fees. Ever. This is not the case for stock brokerage firms as they can earn fees, trailers and / or commissions…or a combination of any of these. How right does this decision for SAA to be a fiduciary and go fee only, feel, today? 😊When I was Money Matters I was a Fiduciary, regulated by the State of Oklahoma. Same thing, when I launched Skye Advisors: once again I under Finra’s oversight. It was a natural, for the 6 of us, to be fiduciary-fee-only advisors when we founded SAA, LLC. The audits we’ll have over the coming years will help assure our clients we know the rules, and are held to the highest standards to do our duty.
Required Disclosures: Always read the fine print! This content reflects the opinions of Julie Skye and is subject to change without notice. This content is for informational and entertainment purposes, and it is not a recommendation regarding the purchase or sale of any security. There is no guarantee that any statements, opinions, or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Securities investing involves risk, including the potential for loss of principal. There is no assurance any investment plan or strategy will be successful.
Julie is an Investment Advisor Representative of Sustainable Advisors Alliance, LLC (SAA, LLC): Advisory services are provided by SAA, LLC.
Registration with the SEC does not imply a certain level of skill or training.