Market Pulse: 3 important investment topics
July 16, 2018
Here's a timely follow-up on three topics I've covered since 2013.
Energy: For years I've been bullish on energy, especially the big dividend payers. The industry's underinvestment (by trillions of dollars) in exploration and production worldwide will end the supply surplus, balance the market then set the stage for a shortage when demand inevitably tops supply (credit India and China).
OPEC knows that full well, which is why it raised its output, and so do U.S. companies revving up production in the Permian Basin even though oil there trades well below market prices due to a temporary lack of takeaway pipeline capacity. They know there is the potential for a spike toward $100 or even above it.
At some level, rising prices would not be good for the global economy nor for our own. Yes, energy companies would benefit until rising prices eventually undercut demand, but few others would in a slowing economy. I like pipeline companies Enbridge (ENB) and Kinder Morgan (KMI). Kinder alone moves 40 percent of all U.S. gas, Enbridge 30 percent. Both are well positioned with growth projects. BP Plc (BP) is still my top pick among the majors.
Fiduciary: The on-again, off-again fiduciary rule is off again. The U.S. Fifth Circuit Court of Appeals confirmed a March decision to strike down the rule. That means your advisor to an IRA or 401K doesn't have to act in your best interest. So if there are two competing investment securities, your advisor can choose the one that gives him the best reward.
I found it interesting that while many brokers call themselves "wealth managers," in court their lawyers said the rule shouldn't apply since they were "salespeople." Does your advisor act as a fiduciary? If not, find one.
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Interest Rates: Although nearly every analyst warns that interest rates will rise more than just a little, I've taken the other side. Yes, rates will rise, but not by much and it will take some time.
Investors now agree with my take. The yield on the 10-year Treasury is 2.86 percent. A few weeks ago, after the Fed's boost and talk of more increases ahead, it was 3.02 percent. That shows a lack of concern about rising rates.
Utility stocks, considered the most sensitive to anticipated interest-rate changes, have been rising (up 10 percent from its low before retreating this week). That wouldn't happen if investors thought rates would jump higher still.
David Vomund is an Incline Village-based fee-only money manager. Information is found at http://www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.