This 2nd Week of October 2022 Thoughts
Fed Fund Watch: the 10-Year Note was 3.7% last week and is 3.90% this week. We will be busy, during this ugly down time investing, and buying dividends. Cash in the bank.
The biggest news of the year is still StoneCastle for FICA. I’ve had several clients reach out to open an account. I’ve just opened my own account, and setting up the transfer request, so it will be smooth when we work on your FICA.
Recession watch: Summer 2023 or has it already started?
Solve for the next logical step…for the next thing. We won’t be sitting on our hands as we wait for the market to bottom…we will be setting up next year’s income. And the following year’s returns.
I hope you don’t get tired of my interest rate charts but looking at how high rates are today just makes me so happy. The red box and the red arrow show the last time rates were at this level: 2002! Let that sink in…and how much lost income you have had for almost 2 decades. I’ve shared the many reasons why this has happened so I won’t go over it again, but the short story is that when you go from 0% to 4% in less than 6 months, there are huge growing pains. What we are going through had to happen to get us back on track. And that is OK.
The black line is the 10 Year Bond, and the orange “stair-steps” are the Fed Fund increases / decreases. Look at 2007…when we were heading into the worst recession since 1930 and interest were cut to 0%. Except for that brief time in 2017…rates have been 0% all this time. Nada. Your low-risk money just sat there, earning almost nothing. I think back to all the conversations we had about why you had so much cash…and you now see…cash was the place to be.
Over the coming months we’ll be adding to your bonds to capitalize on the low prices and the higher yields, but with today’s inflation numbers coming in so high…we won’t add a lot to your stocks. See the Ethos Impact Preference reports for the Skye Stock Capsule Portfolio….what we will eventually invest in.
This week Exxon Mobile signed its first commercial deal to store carbon dioxide emissions underground through a process called carbon capture and sequestration. Partnering with fertilizer company CF Industries and pipeline operator EnLink Midstream, they will capture, transport, and store 2 million tons of carbon emissions per year. Exxon says the project will remove as much carbon from the air as replacing 700,000 gasoline-powered vehicles with electric ones.
Carbon capture and storage got a big boost from the energy and tax bill passed by Congress in August, which increased tax credits for the projects by 70%. If it hits its goals, the Exxon project could qualify for up to $170 million in subsidies per year and the new law is likely to expand the industry significantly. Carbon capture has been around for years and critics say that the projects rarely reach their goals and waste taxpayer money that could be spent on more-reliable technologies. Why does this matter to you? 😊 The carbon captured from the CF Industries plant will be piped away from the facility and down into rock formations owned by Exxon that the company says will keep the carbon secure indefinitely. Carbon-capture facilities in operation as of last year captured about 40 million tons of carbon and while this is a start, the International Energy Agency says capacity would need to grow to 1.6 billion by 2030 to reach a net-zero goal by 2050. Excuse me if I grumble a bit…that Exxon has waited so long to do the right thing…until they got more subsidies from the government.
There are starting to be some “green shoots”…signs of spring. Here are two major investors who think the worst global bond rout in decades is creating a buying opportunity. Jeffrey Gundlach, chief investment officer at Doubleline Capital, who says it has been a long time since he has been a bond buyer and while it is a bold call...sooner or later the bottom will be in. Prashant Newnaha, an interest rate strategist at TD Securities in Singapore, also says that his forecast is still for a 4.75-5% Fed Funds target and that it is time to be prepared for the bottom to be in. Why does it matter to you? 😊 This has been a pretty brutal year, so please know I’m not down-playing how unpleasant it has been. It can’t end fast enough for both of us, but know, your 2023 income will make it worth what we have gone through.
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