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4.24.2019 - Free Investment Newsletter Bookmark

Intentions
 
Over the course of the past two weeks, the news hasn’t been kind to the tree huggers. Now, before anyone goes off on me about being an environmental Nazi, please. Use your head. Few people talk as much as I do about God’s magnificent earth, and the sights and creatures on it.
 
The wife and I enjoy long hikes through the parks and bike rides to the beach. We love nature. Our yard is a bird feeding haven. Just last week we marveled at the sight of some 30+ deer emerging from the treeline to enjoy an evening much on the acres of grass at the park.

 
But just because we love clean air and water, and nature in all its splendor, that doesn’t mean every good intention ends up being a real solution to a problem. For instance, just this week we got the following headline out of the Brussels Times:
 
Electric vehicles emit more CO2 than diesel ones, German study shows
When CO2 emissions linked to the production of batteries and the German energy mix - in which coal still plays an important role - are taken into consideration, electric vehicles emit 11% to 28% more than their diesel counterparts, according to the study, presented on Wednesday at the Ifo Institute in Munich.
 
Mining and processing the lithium, cobalt and manganese used for batteries consume a great deal of energy. A Tesla Model 3 battery, for example, represents between 11 and 15 tonnes of CO2. Given a lifetime of 10 years and an annual travel distance of 15,000 kilometres, this translates into 73 to 98 grams of CO2 per kilometre, scientists Christoph Buchal, Hans-Dieter Karl and Hans-Werner Sinn noted in their study.
 
The CO2 given off to produce the electricity that powers such vehicles also needs to be factored in, they say.
 
When all these factors are considered, each Tesla emits 156 to 180 grams of CO2 per kilometre, which is more than a comparable diesel vehicle produced by the German company Mercedes, for example.
 
OOPS. The intention is certainly well placed, as it would seem that a vehicle that emits NOTHING out the tailpipe would be considerably healthier than a stinky old diesel engine. But the truth of the matter is that to “get” that electric vehicle, you have to emit tons of carbon.
 
Now let me be clear. I don’t for a second believe that CO2 in the atmosphere is a problem. There’s been periods in our history when CO2 was considerably higher, and yet temps were considerably lower. I know that you can line up thousands of so called scientists that say I’m fulla crap and it is definitely CO2 that’s warming the planet. I know that.
 
But I can also line up thousands of scientists that will tell you that the World trade towers fell from airplanes hitting them. If you believe that, then I’m sure you’ll swallow the CO2 hoax also.

Likewise, I can get many hundreds of scientists that will tell you CO2 isn’t the problem, it’s the sun and always has been. Unfortunately, when those scientists publish their papers, they’re scorned, their research money is pulled and they’re tar and feathered. It doesn’t follow the globalists agenda, so most remain quiet.
 
But let’s not stop at CO2. Let’s consider the mining aspect of creating these batteries. First off, have you ever seen a true mining operation? I’m not talking about seeing something on TV, I’m asking if you’ve ever stood on the rim of a large scale mining operation? I have, and let me tell you something, it’s ugly.
 
You’ve got millions of gallons of waste water, often so toxic that birds landing in it, simply die. You usually have horrible impacts on the wildlife of the area, and wetlands turn to toxic swamps. So, it’s not just the silly CO2 that effects our planet as we try and mine these new materials for our vehicle batteries, it’s the damage to the landscape we have to factor in.
 
I’ve probably written a dozen times about how much I adore solar energy. “free” energy from the sun is almost a utopia. But I also know the downside. Just like in building batteries to store the energy, you need to mine the materials to manufacture the panels. Mining in just about every form is problematic. It’s a terrible conundrum. Free energy is there for the taking, but harnessing it causes damage to the earth. How sad.
 
We all want to do our part to keep the planet healthy. We come up with ideas and schemes that on the surface sound wonderful. But then like so many things, when you dive into the research, you find it isn’t all that wonderful after all. Consider the following, which is from Vice Magazine, probably the most left leaning group you could conjure up:
 
There’s a war on single-use plastic happening right now and single-use plastic is being painted as the devil. PEI was the first province to announce a ban on plastic shopping bags and Newfoundland and Labrador recently announced it will be following suit. But a rush to purchase cotton bags to replace those plastic retail bags might be a mistake.
 
Reusable cotton bags seem like a fine substitution and they are-if you reuse them consistently for at least 11.5 years. According to a Danish study, anything less than that won’t offset the fact that manufacturing these types of bags creates 606 times as much water pollution as making a plastic bag.
A UK government study echoes the fact that cotton and canvas tote bags have the biggest carbon footprint because they require more resources to produce and distribute.
 
Yes you read that right. To benefit the “planet” you’d need to use your cotton shopping bag for 11 years, to offset the pollution from making it. So, now we have an issue. No one wants to see single use plastic bags floating around in our oceans, that’s disgusting and literally killing wildlife. But the research shows that cotton and canvas bags hurt us in more ways that the plastic bags. What do we do with that?
 
Then you have things like Uber and Lyft. Both were touted as reducing carbon footprints. This was to be accomplished by reducing the amount of car ownership and car rentals. But the science tends to show that 1) more and more people are abandoning mass transit for the ride services, 2) a lot of Uber/Lyft drivers sit and idle their cars, or roam around empty, waiting on their next hail. Added together, we see the these two have most probably INCREASED the amount of emissions, instead of diminishing them.
 
Then we have the issue of recycling. For years, we’d separate our plastics, metals and paper goods, and eventually ship them off to China to get repurposed into consumable goods. Well, last year China cut their imports of recycle goods and it’s causing huge problems in towns across the nation. The following from the Atlantic:

Waste-management companies across the country are telling towns, cities, and counties that there is no longer a market for their recycling. These municipalities have two choices: pay much higher rates to get rid of recycling, or throw it all away.
 
Most are choosing the latter.

 “We are doing our best to be environmentally responsible, but we can’t afford it,” said Judie Milner, the city manager of Franklin, New Hampshire. Since 2010, Franklin has offered curbside recycling and encouraged residents to put paper, metal, and plastic in their green bins. When the program launched, Franklin could break even on recycling by selling it for $6 a ton. Now, Milner told me, the transfer station is charging the town $125 a ton to recycle, or $68 a ton to incinerate. One-fifth of Franklin’s residents live below the poverty line, and the city government didn’t want to ask them to pay more to recycle, so all those carefully sorted bottles and cans are being burned. Milner hates knowing that Franklin is releasing toxins into the environment, but there’s not much she can do. “Plastic is just not one of the things we have a market for,” she said.
 
Keeping the planet healthy is a whole lot harder than most imagine. We’ve been told to recycle, to shy away from plastic bags, go green and use cotton bags, drive electric vehicles, etc. Yet as you see, it all “sounds good in theory” but comes up short in reality.
 
Some say the answer is to consume less. Well, that might be true, but we’ve created our entire economic system on consumption. If we all ate less, drove less, and consumed less, we’d probably be a much healthier planet. But who’s going to do it? That’s the problem. It all sounds good, but it’s awful hard to do.
This is a problem we all face, it isn’t going away and answers are rare. I don’t have them either. I simply try my best not to waste anything. I detest waste, and while my efforts won’t keep the planet safe, it at least helps ease my mind.
 
The Market:
 
For quite a few weeks, my theory has been that we’ll get to the all-time highs, squeak through them, run some, and then see a prolonged market fade. Well, on Tuesday that theory got closer to coming true.
 
On Tuesday, the S&P and the NASDAQ put in new “closing” highs. That simply means that they closed the session higher than they’ve ever closed before. But it doesn’t mean that we set all-time new highs. See, to do that, we would have had to exceed the 2940 level set intra-day back in September.
 
With earnings coming at us fast and furious, the flavor in the market is that “bad earnings” aren’t really that bad and good earnings are really incredible. If you make the numbers, you soar. If you miss, you dip for a bit and then they rush in and send you higher. In other words, the push is on to send companies higher, good earnings or not.
 
Of course that’s not true in every situation, but take Boeing for example. Because of their airliner crashes, the quarter was down 21%. They’ve ended their buy back program. Their revenues lacked. Yet moments after releasing all that, they were up smartly.
 
All in all, after the December “crash” so many analysts lowered their earnings numbers for companies, that now “most” of them are beating the lowered expectations. I suggest that they’re going to use this as momentum to push the market up to all time new highs.
 
They didn’t pull it off today, as the DOW ended the day down 59 and the S&P slid 6, but that’s NOTHING in the scheme of things. When you’re dealing with a 27000 point market, 59 points is a rounding error. A pause day. Less than a quarter of one percent.
 
On Tuesday we heard from over 140 companies, and today was another 235. We get 220 more tomorrow. Friday things slow down and then next week we get 135,272,305,308 and 56. As you can see, it’s “earnings central” now.
 
My guess is that they use this influx of earnings as the reason ( Or excuse) to push the market up and over the old highs, which very well could create a mini “melt up” for a while.
 
While most might roll their eyes when I say this, the market’s number one job is to reward Wall street, while taking your money. Yes there’s times when the average retail investor can do well, but when Mr. Market has had enough of them, he lashes out. Think the tech wreck of 2000. Think the melt down of 2008/09.
 
There’s still some amount of people that have doubted this rally so much that they’re not “in” the market. If we punch through the highs and start running, the “FOMO” or fear of missing out, will once again drag these folks in. And just about the time they’ve all gone in, the market will probably yank the rug. It’s what it does.
 
With so many companies releasing, and the very real effect of “sector sympathy” it could be wisest to simply use the ETF’s to play in here. The SPY for the S&P, or the DIA’s for the DOW. No matter what any individual company does, if the “averages” are going higher, those two have to go higher with it.
 
I’m still leaning long, holding the SPY and QQQ’s ( the NASDAQ) They’ve done well for me, and I think there’s more to come. But this isn’t “set it and forget it” stuff. The rug pull will come, they always come. Timing it is tough, especially when you have a market friendly Fed and hundreds of billions in buy backs. But Mr. Market will not be denied. At some point it will swallow people up.
 
Until it happens, your best bet is to lean into it and get what you can. It’s what we’re doing and it’s working. Good luck.

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