This 4th Week of March 2022 Thoughts
Investors now generally agree (71%) that climate risk is, in fact, investment risk; 79% also agree that the transition to a low-carbon economy is inevitable; and 86% say the transition will present new investment opportunities. Of note, clean energy was the top choice (73%) for investors who plan to increase allocations to infrastructure.
"Investors want to protect their portfolios from threats posed by more expensive prices for clean energy, disruptions to business activity, and other direct and indirect consequences of climate change," said Amy O'Brien, Global Head of Responsible Investing.
This Week’s Fund Profile: Attached, ACES Clean Energy ETF.
The future is clean energy.
“Low interest rates are a bit like beer goggles: everything looks attractive past a certain point of inebriation. Unfortunately, the effect can be reversed.”
This week’s quote is about when the good times end. It is very annoying to me that the financial news is preying on fear and using sensationalism to get you to watch the news and read their headlines. Fear always sells more copy than good news.
We have been talking about, and waiting for, this day FOR 10 YEARS. Interest rates have been close to 0% since the Fed bailed out the economy after the Great Recession of 2009. You have paid the price as money markets have earned 0% and bond have paid 1%-2%. It is time for normal yields to return.
Think of this like leaving the ICU: waking up and returning to more normal interest rates of 3%-5% will be like the pins and needles you feel when your foot has been asleep. Know this time will pass.
We will continue to buy bonds all the way up to the top…and by the time rates top, you will have a higher dividend income to fund your retirement. As we buy bonds at a discount: know they will increase when interest rates head lower.
What none of us knows is whether it will take 1 year, 2 years, or 3 years. At some point the FED will have raised interest rates enough to slow the economy and we will be facing the inevitable recession. When you artificially control anything…a forest or the economy, the backlash is fierce. Want to know more about how the bond market works? The attached Morningstar article is long and meaty, but you will understand bonds. Read on!
Part of this volatility is what you can expect when the kids run free in the trading room. Sheltering in place and high on trading aps like Robin Hood, investors who never saw a market go down are part of this sell-off frenzy. Home-bound-newbie-investors saw, for the first time, stocks go down and NOT bounce right back up. They sat tight at first but lost their nerve and began selling. Look at retail investors, the bottom section.
😊Why does this matter to you? Many factors have driven the market down in 2022: one is the reality that April 15th is looming, and the capital gains generated in 2021 are bills that must be paid. The pressure to pay tax bills is one reason there are more sellers than buyers. When buyers stop showing up, prices fall.
You might need to pull out your magnifying glass to see the dates on this bottom chart, the 20-Year-Treasury Bond, going back to 2003. What jumps out at me is that there is a long way to go for the TLT to go back down to where it was in 2003…when bond yields were a lot higher! We’ll be buying this TLT as rates rise!
😊 Why does this matter to you? War, inflation, rising interrest rates, slowing growth, pandemic. This is a tough time but it doesn’t unnerve me one bit: I cut my teeth on the Paul-Voker-Bond-Bear-Market of 1986-87. Today, that experience is worth gold. I’m very humbled to still be working with some of my first clients. How many advisors have been managing money for 36 years? Seeing bonds go down in value is not fun: I know this, but if you can see what comes next, it will be a lot easier to get through this time.