Risk/Reward Vol. 347
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
Mr. Market was treading water in March. Both major indices ended the month within 75 basis points of where each began. The Trump rally has stalled as investors await the implementation and/or impact of The Donald's promises. He has acted on those that can be effected by executive order (e.g. regulations, energy, etc.) but those that require legislative action, like tax and health care reform, remain mired in Congress. Moreover, news on the economic front did little to inspire Mr. Market. Revisions to fourth quarter numbers reported this week did nothing to change the final 2016 growth in gross domestic product---an anemic 1.6%. How the President plans to reach GDP growth of 3-4% anytime soon is beyond me.
Anemic growth equates to low inflation which, in turn, justifies (at least in the minds of Fed officials) the Federal Reserve's continued dampening of interest rates. A report from the Bureau of Economic Analysis issued on Friday indicated that the core PCE Index (the Fed's favorite measure of inflation) rose 1.8% on an annualized basis in February. This is below the Fed's 2% target but is something to be monitored over the coming months. That said, Fed Vice Chair Stanley Fischer felt comfortable stating on CNBC that only two more interest rate increases this year seem appropriate. The yield on the all important (to me, at least) US Ten Year Treasury Bond ("10Year") traded in a tight range all week at or about 2.4%. As discussed in previous editions (Vol 34 www.riskrewardblog.blogspot.com) this is fine with me as I continue to harvest dividends each month.
In the portfolio that I personally manage, I am about 50% invested. I would like to deploy another 15-20%, but I am in no hurry. Although energy represents a small percentage of our current holdings, I remain fascinated by the sector. Several stories in the financial press this week reported how technology continues to reduce the cost of extracting domestic oil. If you have not done so, I suggest you read the story in Friday's Wall Street Journal entitled Fracking 2.0. It highlights EOG, the "Apple of the oil field." Its numbers are stunning. EOG produced the same amount of oil in 2016 as it did in 2014----at 1/3rd the cost! No wonder Saudi Arabia is shaking in its boots. I don't own EOG because of its tiny dividend, but I do own other companies/funds in the oil patch including HCLP, HEP and FPL. And speaking of energy, I initiated a position in Enviva Partners (EVA) the world's largest supplier of wood pellets to utilities. As a result of several environmental accords, utilities in Europe and Asia have pledged to use a higher percentage of bio-mass fuel in generating electricity. The easiest and cheapest form of bio-mass is wood pellets as supplied by EVA. Armed with several lucrative take-or-pay contracts, EVA has consistently met or exceeded its guidance. It currently is guiding an 8+% dividend this year which is right in my wheel house. If you are interested in EVA, I recommend that you read the transcript from its most recent analyst call. It's very impressive.
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