October 23, 2020

Let It Be

This week the indexes managed to eke out enough of loss to further work off the recent overbought conditions. Earnings had lot to do with it as analyst, true to form, overestimated results and the day trading Pindudes had a lot of fun in the aftermath. Curious though was the spat of economic stats that continued to show expansion of the economy in specific areas, including employment. Good news and a poor response suggest strong levels of uncertainty amongst the bevy of external events that have more meaning in an election year than ordinary times. As far as investment goes, I’m staying invested and patient for now as in the past banking on an outcome that presented political gridlock made my job a little easier, as anything that can buffer mischief also buffers uncertainty.


With the challenges facing the large cap tech companies, notably Alphabet (GOOGL) and Facebook (FB) the reaction from investors seemed static. In my opinion this was due to the underperformance the two stocks have experienced leading up to the talks and more logic entering the narrative suggesting any  possible breakup of these companies will likely create more independent value than what has currently been assumed. Areas of strength also showed up in the Financials that responded to new four-month highs in 10y and 30y Treasury yields, pointing to welcome income. Consumer stocks showed some liveliness as there are a handful of earnings to be reported over the next two weeks and the sector is considered strong enough to withstand the pandemic with specific industries such as housing and food distribution retail and the countless products bought every day on the internet. Overall, further stable price action should nurture some much need optimism.


The first big numbers of the week were the servicing and manufacturing production indexes which grew higher above the 50-level suggesting expansion even as the pandemic is expanding alongside. This was evident in the release of the monthly Leading Indicators Index that has remained positive over the last three months pointing to a sustained, but nonetheless slower recovery. Interesting to note the Federal Reserve Bank of Philly  releases their coincident index representing each of the 50s states, 39 of which increased in September while 8 decreased, both suggesting a lower probability of recession, but still subject to pandemic challenges. The growth in Existing Homes Sales continued in September, influenced by low mortgage rates and the migration from the cities to the suburbs and the office to the home. Lastly, new applications for employment benefits remained on a downward trend falling to their lowest since the closure of many businesses in March.

External Events

With the Presidential debate highlighting the differences regarding climate change and the current transition to renewables, I find it hard for any politician of any side to ignore that the pandemic has accelerated the move to renewables, as fast as has the younger investor have done the same. But the narrative, namely the one that likes to keep the debate contentious still fight over alternative , not solutions. In my opinion that ignores another fact, that turning off the lights isn’t preferable to finding a cheaper way to keep them on which is exactly what inspires transition. Companies that I’ve researched lately, beyond electric cars, surrounds those such as manufacture of steel and steel products Nucor (NEU) who recently transitioned one of their foundries from coal to solar and wind energy sources, with plans for the rest. Companies such as Kinder Morgan (KMI), an energy infrastructure company who dominates natural gas and liquified gas production and distribution, which produce lower carbon emissions than oil, have for nearly five years been heavily involved in the capture and storage of CO2. This, in addition to creating products such as process called CO2 flooding, originally used to help the extraction of oil has found another use that aids in the cleanup of oil and oil-based products. Further advances include using CO2 in the production of concrete, essential to infrastructure, as well as the production of steel. None will likely please utopian visionaries, but the changes are evidence, in my opinion , that the energy industry is listening, and if it’s because they’re feeling it in their pockets, then I say, let it be.

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