Friday, May 17^th, 2024

Shipping Security “FEARS” Threaten Global Economy

Due to the deteriorating security situation in the RED SEA, Danish shipping giant MAERSK is expecting an industry-wide LOSS in freight capacity on routes from eastern ASIA to EUROPE of up to 20% in the second quarter.

This sort of development tends to get ignored by the mainstream business press BUT it certainly gets my attention. Is this unexpected international crisis a “BLACK SWAN”??? Not quite, BUT it’s “GRAVELY” SERIOUS!!!

Here’s why this ostensibly obscure news item is very important to investors.

MAERSK released the estimates on May 6^th, 2024, citing guerrilla attacks by IRANIAN backed HOUTHI militants on merchant shipping in the strategically “VITAL” RED SEA.

HOUTHI militants say their attacks are designed to support the PALESTINIAN militant group HAMAS by making it harder for cargo ships to reach ISRAEL.

The MAERSK report states:

“The knock-on effects of the situation have included bottlenecks and vessel bunching, as well as delays and equipment and capacity shortages. We estimate an industry wide capacity loss of 15-20% on the Far East to North Europe and Mediterranean market during Q2.”

In the past several months, attacks on vessels in the RED SEA area have REDUCED traffic through the SUEZ CANAL, the shortest maritime route between ASIA and EUROPE.

Up to about 23% of maritime-traded goods between non-neighboring countries pass through the RED SEA, more specifically its “CHOKEPOINTS” BAB-EL-MANDEB and the SUES CANAL (see chart below)

Oceangoing freight transport is the lifeblood of international commerce, facilitating the movement of goods across continents. A sharp reduction in oceangoing freight activity tends to hurt the global economy and by extension equity markets.

An estimated 80% of goods traded globally are transported via sea routes. The biggest “CHOKEPOINTS” of global trade (by weight) are centered around CHINA’s shipping flows due to the country’s export prowess.

Large container ships transport everything from raw materials to finished goods, supplying manufacturing plants, retail stores, and consumers globally. Companies rely heavily on efficient maritime transport networks to ensure timely delivery of inputs and products.

A significant reduction in oceangoing freight activity disrupts supply chains, leading to delays in production and delivery. This ”DISRUPTION” can cascade across various sectors, impacting industries ranging from manufacturing and retail to agriculture and technology. Ultimately, it affects the availability of goods, increases costs, and disrupts market equilibrium.

Reduced freight capacity means longer lead times, increased transportation costs, potential shortages of critical goods, and…yes, higher inflation. This, in turn, affects profitability and shareholder value, generating stock market volatility.

One immediate effect of reduced oceangoing freight activity is increased shipping costs. As supply becomes constrained and demand remains constant or increases, freight rates tend to RISE. Higher shipping costs translate into increased prices for goods, ultimately contributing to inflationary pressures within economies.

Reduced trade volumes also hinder economic growth, leading to reduced corporate earnings, lower business investments, and increased unemployment.

This “CONFLUENCE” of trends also is pushing up commodities prices. Geopolitical tensions, supply chain disruptions, and environmental challenges have all contributed to a squeeze on the availability of key commodities. From the closure of mines to trade embargoes to war and natural disasters, the specter of scarcity looms large, driving prices ever HIGHER…

PEACE & BLESSINGS

Kenneth Reaves, Ph.D.

Thursday, May 16^th, 2024

Get “P.A.I.D.” From This ENERGY “CRISIS”

A recent WALL STREET JOURNAL article discussed the challenges facing the U.S. ELECTRICAL GRID. The problems facing the ENERGY INFRASTRUCTURE SYSTEM provide opportunities for YOU, ME, WE the ATWWI FAMILY. It’s time to think “OUTSIDE THE BOX” concerning solutions for potential “POWER SHORTAGES”.

U.S. power consumption has been relatively flat for the last 20 years. Conservation measures and efficiencies have offset energy consumption from the GROWTH IN POPULATION and the use of ELECTRONIC DEVICES. That status quo is about to CHANGE!!!

Two (2) major factors will “DRAMATICALLY” INCREASE electrical power needs in the coming years.

Underway is a massive “RESHORING” of industrial manufacturing capacity. Manufacturers realize they must produce products in their primary market, the U.S. The CHIPS and Science Act of 2022 has provided billions of dollars in financial assistance to chip manufacturers developing new production facilities in the U.S.

The explosion in the development and use of ARTIFICIAL INTELLIGENCE (AI) means that AI providers must build “MASSIVE” DATA CENTERS to house the AI COMPUTING CHIPS and SERVERS.

That creates a “HUGE” opportunity for ATWWI FAMILY members “HUNGRY” for GROWTH and INCOME…

Here are some data points from the WSJ article:

• “Georgia Power recently increased 17-fold its winter power demand forecast by 2031, citing growth in new industries such as EV and battery factories.”

• “Chip factories and data centers can consume 100 times more power than a typical industrial business.”

• “Electricity demand to power data centers is projected to increase by 13% to 15% compounded annually through 2030. Yet a shortage of power is already delaying new data centers by two to six years.”

In recent years, PUBLIC UTILITIES have focused on shutting down FOSSIL FUEL POWER plants and replacing them with RENEWABLE ENERGY sources. The UTILITIES have not worked to INCREASE the amounts of power they produce. “INCENTIVES” for RENEWABLE ENERGY make it financially “INFEASIBLE” to restart COAL and other FOSSIL FUEL power plants.

Companies with large industrial operations or data centers are taking matters concerning their power needs into their own hands.

For YOU, ME, WE the ATWWI FAMILY, this trend means “OPPORTUNITIES”. First, NATURAL GAS is a widely available and cheap fuel for power production. NATURAL GAS producers such as Antero Resources Corp. (AR) and EQT Corp. (EQT) should see INCREASED demand and HIGHER prices for the NATURAL GAS they produce.

NUCLEAR SMALL MODULAR REACTORS (SMRs) are a possible solution. HOWEVER, these SMRs are still in the “DEVELOPMENT” phase, with NO reactors currently in operation.

NOTE: Stocks of SMR developers should be viewed as highly “SPECULATIVE”.

PEACE & BLESSINGS

Kenneth Reaves, Ph.D.

Wednesday, May 15^th, 2024

A “CLEVER” WAY To Get “P.A.I.D.” From “ENERGY”

Many people do NOT believe “CLIMATE CHANGE”…

Research performed by OurWorldinData.org. shows that the planet’s average temperatures have indeed RISEN by a little more than 1 degree Celsius since the 1940s.

That is a little less than 2 degrees Fahrenheit…

While some find that number alarming, I find it remarkable that that is all it is given the number of automobiles society has added, the growth of the global animal breeders to provide quality food to a rising global middle class, and the continued spread of energy-gobbling technology.

There is also evidence that the ice pack is shrinking as are some glacier fields.

There is little evidence that this is not cyclical.

Keep in mind that we only have a few hundred years of observed weather data, and society has done a “HORRIBLE” job of interpreting it.

When I was in my teens, scientists told us that a combination of something called “ORBITAL FORCING” and the aerosol propellant in my DROID was going to cause another ice age.

Roll-on deodorant was the 1970s’ equivalent of metal straws when it comes to being environmentally cool.

The WASHINGTON POST had kicked off the decade with an early headline warning that “COLDER WINTERS HELD DAWN OF NEW ICE AGE”.

As late as 1991, CARL SAGAN and other noted scientists suggested that KUWAIT oil fires may trigger an ice age.

Have global temperatures risen since 1940???

YES...

Does it appear to be correlated with increased use of carbon fuel???

Yes…

Is “CORRELATION”…”CAUSATION” in this case OR, is it part of a weather cycle we do not OVERSTAND/UNDERSTAND???

I do not know...

Here is what we do know about ENERGY, CARBON FUELS and, RENEWABLE ENERGY regardless of climate concerns.

ENERGY demand is going to INCREASE thanks to population growth and increasing global prosperity. The demand for technology is just going to be “GASOLINE ON THE FIRE”!!!

Society need more of ALL types of ENERGY to meet that demand starting right now or maybe even a week ago.

If COAL and WOOD are not to be burned to meet the current demand, CRUDE OIL and NATURAL GAS must be part of the solution.

Regardless of climate concerns, the development of renewable and nuclear sources of energy for a host of reasons must continue, including efficiency, energy security, national security, and environmental concerns.

As investors, YOU, ME, WE the ATWWI FAMILY MUST recognize that politicians (aka: POLITRICKIANS) will “BUY” votes by pouring money into renewable energy. As we have seen in the developed world over the past few years, politicians (aka: POLITRICKIANS) will attempt to support renewables even when it makes no economic sense/cents.

Some European governments wrecked their economy by trying to go 100% renewable, and a significant portion of voters thanked them for doing so.

The smart move is to invest in ALL forms of ENERGY and the INFRASTRUCTURE required to get that ENERGY from the generation source to the end user.

Picking the sides here and ignoring either fossil fuel producers and infrastructure or renewable focus companies and assets would be “FOOLISH”.

This is about getting “P.A.I.D”!!!

As RICHARD RAINWATER, a wildly successful investor who got his start with the (in)famous Bass brothers in Texas in the 1970s, once opined, “…most people invest, and they worry about markets blowing up. Getting rich is achieved by finding what has blown up and then investing”.

Right now, for a host of different reasons, it would take all day to explore NATURAL GAS and RENEWABLE ENERGY, which are both “INCREDIBLY” cheap.

RENEWABLE ENERGY will be the fastest-growing ENERGY source for the next half century and then be the “DOMINANT” source until NUCLEAR FUSION is achieved and harnessed.

Deep-pocketed, well-financed companies are going to make a fortune and pay out a massive DIVIDEND from that CASH. You can buy some of these RENEWABLE ENERGY market leaders today with DIVIDENDS ranging from 5 to 12%, and that payout is just going to INCREASE over time.

NATURAL GAS companies and the MIDSTREAM INFRASTRUCTURE companies that support the industry are trading at “DEPRESSED” valuations today. Thanks to a milder winter and stepped-up production, there is an EXCESS of SUPPLY, but the long-term outlook is not just “BULLISH” but ridiculously bullish, bordering on ludicrously “BULLISH”.

Many NATURAL GAS companies and asset collections are paying “HUGH” cash DIVIDENDS and buying back stock at bargain prices. Fortunes will be made from these price levels.

Is climate change real???

Yes, Climate has been changing since time began.

Is it an “EXISTENTIAL” threat???

Nobody knows…

Will society keep using fossil fuels???

The answer is “YES” unless society wants to lower the standard of living for every man, woman, child, and cuddly little household pet on the planet.

Should society keep spending on renewable energy sources???

For more reasons than I can list here, “YES”.

What should YOU, ME, WE the ATWWI FAMILY do now???

Perform our ATWWI “DRILL DOWN” on INCOME-PRODUCING ENERGY companies of ALL types for monetization candidates. 

PEACE & BLESSINGS

Kenneth Reaves, Ph.D.

Tuesday, May 14^th, 2024

Monitor The “WALL OF WORRY” and Get “P.A.I.D.” From CONSUMER STAPLES

The “WALL OF WORRY” is HEALTHY for a “BULL” market...

It means not every investor has shown up to the party yet… AND it means that prices will likely go HIGHER after a “PULLBACK” happens.

We are seeing this play out in one U.S. sector right now. It's in a strong uptrend. YET, people don't want anything to do with it.

They are worried that some new “BOOGEYMAN” is going to knock it off its course. That usually means HIGHER prices are on the way...

If the “WALL OF WORRY” is a new idea to you, it's simple. It comes from an old WALL STREET saying... "STOCKS CLIMB THE WALL OF WORRY”

In short, “FEAR” in the thick of a “BULL” run is “HEALTHY”. PEOPLE will try to find reasons for why the current rally will NOT last.

Every bump in the road feels like the next crash to them. So we get SHORT-TERM dips in the market when investor “FEAR” jumps. BUT, the “CRASH” people are waiting on does not show... and the “BULL” run continues.

This is happening right now in CONSUMER STAPLES stocks. First, let's look at just how “FEARFUL” investors are of this space.

We can see it through the CONSUMER STAPLES SELECT SECTOR SPDR FUND (XLP). Thanks to the fund's structure, it can CREATE or LIQUIDATE shares on investor demand.

The share count goes up when demand for XLP INCREASES. It FALLS when people get “FEARFUL” or lose interest. That makes it a great gauge of investor sentiment.

Right now, XLP's OUTSTANDING SHARES are near their LOWEST LEVEL since 2022 (see below)...

Investors have been “SELLING” XLP since late May 2023. OUTSTANDING SHARES are DOWN 23% over that period.

This is where things get interesting...

The fund bottomed in October (2023). BUT, OUTSTANDING SHARES are still DOWN 18%. At the same time, XLP is UP 17% from its late 2023 LOW… AND, it's in a strong UPWARD trend.

The 200-day MOVING AVERAGE (200-DMA) for XLP proves it. This MOVING AVERAGE is how we gauge LONG TERM trends in a stock or sector.

The MOVING AVERAGE is the trend. So if the 200-DMA is RISING, we know the trend is UP. We also like to see when a sector is trading above its RISING trend line. That is an indication that we are in a strong “BULL” run.

XLP checks both of those boxes today...

XLP's trend line started inching higher in March (2024)… AND it's still RISING today, despite XLP facing its first pullback of 2024. The stock FELL 4% in the first half of April (2024)… AND it has yet to regain all of that DECREASE.

Now, we could still see the fund DECREASE more before the next leg HIGHER. BUT with sentiment so “BEARISH” on CONSUMER STAPLES, and a strong trend based on the 200-DMA, it likely will NOT last long.

In short, the “WALL OF WORRY” is good for this “BOOM”...AND, it means HIGHER prices are likely – both throughout the market and in this sector.

PEACE & BLESSINGS

Kenneth Reaves, Ph.D.

Monday, May 13^th, 2024

How to Use the "Best Six Months" Strategy To Get “P.A.I.D.”

Sell in May and go away and come back on St. Leger’s Day.

Most ATWWI FAMILY MEMBERS have probably heard that investing “ADAGE”. Or at least the first half of it. The question today is, is it still relevant???

The saying is centuries old..AND, for those who are unfamiliar, St. LEGER DAY Day is the date of a classic horse race in ENGLAND that’s run every September.

LONDON bankers and merchants would “SELL” their shares BEFORE summer arrived and retire to the country. In late September (after the big race), they would return to the city and engage the stock market.

The analog in modern times is WALL STREET TRADERS “TRIMMING” their positions in late May BEFORE heading to the Hamptons (or better, the Jersey Shore) for the summer.

Over the years this saying has held up well enough…

In the 72 years from 1950 to 2022, the AVERAGE GAIN in the DOW from November 1 through the end of April has been 7.3%. That plummets to 0.8% for the May 1 to October 31 period.

That may not seem too dramatic of a difference, but if you COMPOUND that over seven (7) decades it’s massive!!!

Investing $10,000 in 1950 in the S&P 500 in just the May-October months would have resulted in a NET GAIN of $3,300 by 2022.

Investing the same amount in 1950 in just the November-April timeframe would have brought you about $977,000!!!

The “BEST SIX MONTHS” strategy continues to be “EYE-POPPING”!!!

So, indeed, why not cull some “RISK” from your portfolio in May BEFORE summer “DOLDRUMS”, LOW VOLUMES and “UNINSPIRED” TRADING take hold…

AND, then return to a “RISK-ON” position when autumn breezes begin to blow, and the leaves start to turn.

NOTE: Here, in the U.S. this trading idea has also come to be known as the “HOLLOWEEN STRATEGY” – that is, start buying stocks again when you see JACK-O-LATERNS.

Such “SEASONAL” trading patterns have faded a bit, of course, due to cultural shifts and technology.

Few investors take the whole summer off these days… AND, you no longer need to be at a desk in downtown Manhattan to “BUY” and “SELL” stocks. Today, most people can trade on their mobile phones.

As a result, while April remains very kind to investors, July has switched from “BEARISH” to “BULLISH” over the last two (2) decades.

Still, markets have continued to STAGNATE or ”SUFFER” in May, June, August and, September.

It’s clear that last year (2023) was somewhat “TYPICAL”…

The market peaked in late July and then dropped by more than 10% through the end of October. It turned up again just as it became time to put out HALLOWEEN decorations.

So “SELL IN MAY” still holds some “WISDOM” for YOU, ME, WE the ATWWI FAMILY. Certainly June, August and September look like good months for investors to keep their money out of equities… AND, HALLOWEEN remains an excellent opportunity to collect both “CANDY” and “NEW SHARES/OPTIONS.

What About LONG TERM ATWWI Investors???
If you’re in the market for the LONG TERM – as most smart investors are (unless they are very near retirement) – “SEASONAL” patterns mean a lot less.

With so many “TRANSFORMATIVE” technologies – from ARTIFICIAL INTELLIGENCE (AI) and ROBOTICS to GENOMICS and EDGE COMPUTING – now surfacing in the economy and the stock market, YOU, ME, WE the ATWWI FAMILY will want to be invested and stay invested in “MEGATREND” companies that provide or employ them.

An “INTELLIGENT” strategy is to reexamine our portfolios in early May, “SELL” some of the positions that haven’t worked out as we anticipated/expected and put that money to use in assets that provide better PROFITS/YIELDS. For example, the three-month TREASURY right now yields 5.4%.

Better yet, put those funds into stocks associated with the “MEGATRENDS” I detailed above. I have been identifying these “MEGATREND” companies all year long.

Those stocks are good for the long run and will weather any “SEASONAL” trading patterns.

PEACE & BLESSINGS

Kenneth Reaves, Ph.D.