Comment of the Day
Video commentary for July 18th 2022
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: Euro rally ebbs, stocks reverse earlier advances, Treasury yields compress, commodities rebound led by oil and gas. Recession risk continues to rise.
The Colorado River Compact
This article form Pennsylvania State University may be of interest to subscribers. Here is a section:
Of course, the specification of an absolute amount of water to each of the states and Mexico has raised a few serious problems that remain contentious. First, the river is over-allocated. The 1920’s – coincidentally the time that the Compact was negotiated was an anomalously wet period with annual flows as high as ~20 million acre-feet (Figures17-18). In contrast, the long-term mean discharge of the river is about 15 million acre-feet, yet 16.5 million are allocated. Furthermore, the river flow is highly variable and based on historical data and tree ring reconstructions, it seems that decades-long dry periods with flows less than 13-14 million acre-feet may be common. Second, climate projections indicate that the region will become drier in the long-term, and some have suggested that we have already entered an era of steadily declining river flows along the Colorado. Fourth, improved understanding and renewed interest in the environmental impact of decades of dramatically reduced flow have spurred new pressures to allocate some discharge for the natural system. Finally, demand is likely to increase as populations in the region continue to grow, further stressing the already over-allocated river (Figure 18).
My view - This article from Ceres may also be of interest. Here is a section:
Agriculture uses approximately 80% of the Colorado River’s water, using it to irrigate 15% of the nation’s farmland, and produce 90% of the winter vegetables. Wheat, corn, berries, and fresh produce are likely to be particularly strained by supply rationing to manage water-stress, as well as the crops, including alfalfa and hay, used by farmers to feed cattle. A recent study found that the largest consumer of river water in the Western U.S. is irrigation for cattle-feed crops.
Wall Street Set for New ETF Gold Rush as Single-Stock Era Begins
This article from Bloomberg may be of interest to subscribers. Here is a section:
A new ETF-for-everything era may have just begun on Wall Street, swelling an industry that already boasts nearly 3,000 products and $6.2 trillion in assets.
The booming world of exchange-traded funds is about to get even more crowded after the very first single-equity ETFs launched Thursday -- despite a torrent of regulatory warnings over their risks while retail investors are still reeling from the crash in speculative trades from crypto to meme stocks.
The eight products from AXS Investments look like the start of a coming invasion of amped-up strategies that will seek to enhance or invert the performance of volatile companies, including Tesla Inc (NASDAQ:TSLA)., Nvidia Corp. and PayPal Holdings Inc (NASDAQ:PYPL).
Another proposed lineup from Toroso Investments offers to layer on a bullish options strategy in order to boost returns. All told, at least 85 more such ETFs are currently planned, according to filings tracked by Bloomberg, covering some 37 companies.
That’s just the start. With a never-ending fee war taking costs on index-tracking ETFs to rock-bottom levels, the arrival of single-stock products opens up a lucrative avenue for issuers, with leveraged or inverse trades tracking major companies up for grabs.
All told, the Securities and Exchange Commission may have inadvertently put new investing tools in the hands of day traders at a dangerous time with recession risk sparking bear markets.
My view - The rational investor is going to question the wisdom of setting up single stock ETFs. After all can’t you simply buy the share? The reason for setting up single stock ETFs for shares like Nvidia and Tesla is because their options are expensive. Options sell in minimum sizes of 10 contracts for retail traders. If the underlying has a lower nominal value, the options will be cheaper to buy for smaller investors.
Email of the day on REITs and homebuilders
What you were saying about the huge migration to Texas makes me wonder if this isn't the right time to buy home builders who are active in that area? Or REITs? What about NXRT, an old favourite of mine which has now come right done (fortunately I got out)? It specialises in refurbishing multi-family properties in the sunbelt. Is it too early to buy again do you think?
My view - Thank for this question which may be of interest to the Collective. A realtor friend of mine shared his rationale. If a buyer is worried about interest rates rising, then buy now before they go higher. If they are worried about rates falling buy now because that will inflate prices and you can always refinance. I think it is safe to say a realtor will always have a convincing rationale to buy