Today we lost nearly 40 S&P points supposedly based on the belief the Fed will soon be raising rates as the economy continues to pick up steam, especially the labor market. What I found interesting was the yield on the 10-30 year U.S. treasuries did not move much. I suppose the reason for that was it must be difficult for treasuries yields to rise when the stock market is tanking (individuals seeking safety in govt debt).
Many hold the view that the overriding reason equities have performed so well is because of record low interest rates and a very accommodating Fed. So it makes sense we would see a rather steep correction in stocks if this easy money scenario were to change, at least initially. But with that said, so much of the current recovery has been based on individuals reaping the benefits of large gains in both stock and bonds, not wage gains. So my observation is if stocks continue to tumble, it will certainly be a negative for the economy going forward, and I don't see how interest rates rise in that environment. Throw in Ukraine/Russia, Middle East and a weak European economy and it all becomes quite muddled especially when trying to recognize a trend.
The question becomes at what point can the economy, jobs, wages, housing market, withstand higher rates and lower stock prices? In a normal economic cycle controlled by the free market forces this would be plausible, but this is a market manipulated by the Central Banks worldwide. Nothing about today's market made sense. Certain sectors such as banks should of rose if this is about rising rates and a improving economy, but they fell? On the other hand, why didn't treasury prices rise sharply if there is concern about junk /mortgage/sovereign debt? So many conflicting cross currents creating a very difficult environment to invest in.
Just the luck of EXC investors...The U.S. is experiencing a very mild summer especially in the larger population locations pushing down electricity usage and the price of natgas which EXC competes with on the open market. So for the time being as the price of natgas goes so goes EXC. Throw in the concern of rising interest rates and the shorts are having their way EXC, manipulating the stock sharply down, off nearly 20% from it's recent highs.
But the reality is none of the above changes the outlook for the future exporting of LNGas from the U.S. to foreign countries who now pay close to 3 times our present price. This alone will eventually push ngas prices sharply higher in the future making EXC's nuclear generated electricity extremely profitable
Rising interest rates are a negative for regulated utilities but not merchant utilities. A stronger economy/higher interest rates means more power usage and higher prices which more than offsets higher borrowing costs.
Finally man-made global warming is a fact. In the not too distant future some form of carbon tax will have to become a reality to force consumers to change their ways. EXC will benefit greatly when this comes to fruition as a large percent of their electricity generation is carbon free.
There are lots of ways EXC shareholders can win, especially at today's price and dividend. Trading at 12 times forward earnings, a dividend yield of 4%. Good luck to all.
PFE stock pays a 3.5% dividend when the 30 year treasury is yielding only 3.23%. And sure the earnings will be flat probably the next 3 to 4 years as Generics eat into profits, big sellers go off patent. But even $2.25 EPS easily covers the dividend and gives PFE a reasonable PE of 13 in a market averaging 17. I am willing to wait at these levels, at this dividend yield, for PFE's R&D to finally start producing. Some would say that is a long shot considering PFE's incredibly poor record producing drugs of worth and I respond if these idiots swing enough times they eventually will make contact. So I am taking my seat, bag of popcorn in hand, to watch the PFE's boys and girls take their swings. Also demographics are working in the pharmaceutical industry favor as the baby boomers begin to suffer the many maladies of old age. Good luck to all!
The former PFE CEO elected by the Board of Directors was an attorney, a guy who sold chicken just prior to taking the PFE top spot (Jeff Kindler) now the idiot PFE Board has a bean counter leading the largest pharmaceutical company in the world. So no surprise PFE's incredibly inept drug research and development has been a pathetic joke the past decade, the laughingstock of the industry. What do Chicken Guys and Bean Counters do when they are in way over their heads, know nothing about developing profitable drugs? You overpay for other outfits drug portfolios! And that is exactly what PFE has done the past decade, coughing up over $200 billion to acquire other drug companies. Unfortunately even though PFE has paid over $200 billion to acquire the so-called strategic assets of others, PFE's market cap is only $186 billion today!!! So is anyone truly surprised PFE stock is down today after reporting another moribund qtr? MRK is up nicely on it's report! And it is all about their pipeline, drug portfolio.
My premise that EXC might be rebounding on the news China is converting one of it's larger coal burning power plants to ngas was misplaced. The plant is being converted to "synthetic" ngas, a process that uses coal as it's source which China has an abundant supply. The tradeoff would be much lower emissions of various coal particulates which is causing the dense lethal smog in Chinese cities in exchange for a huge increase in global warming gasses. The conversion of coal to sngas produces quite a bit more carbon emissions however than simply burning the coal itself for electricity. China is making that exchange willingly it appears since poisonous smog is much more visible and politically harmful than say the relatively invisible, yet more devastating, dumping of global warming gasses into the atmosphere. The LNG exporters were counting on China to become a huge market, but if China is willing to more than double their spewing of global warming gasses at the expense of the world population in the name of converting their coal deposits into synthetic fuel this could very well be a game changer. Under this scenario EXC's fortunes no longer rely on the price of ngas moving higher/the development of LNG exports, but on the harsh realities and consequences of man-made global warming and the subsequent carbon tax, which could take quite a bit longer to come to fruition. It seems only when our coastal cities are submerged, when drought and famine run rampant, our forests burned to the ground and devastated by bug infestation, cities abandoned for lack of water, crop failures the norm, will our despicable politicians finally act. By then it will be too late, for the carbon we produce today will take a over a century to cycle out. Just wait until the frozen tundras melt and release their huge carbon bounty and the acidic seas can no longer keep up and absorb the growing global warming gasses. It is going to get ugly!
This morning we got a downgrade from a small boiler room operation. EXC is susceptible to such manipulation especially in the low volume summer months and in a period when ngas inventory are temporarily building. But after the initial spike down EXC has rebounded to slightly positive. This price action on the downgrade (although a small boiler room operation) could very well indicate EXC has potentially reached a bottom in this recent, rather vicious correction. Possibly the reason for the morning reversal was the announcement Beijing is closing one of it's four largest coal burning power plants and converting it to ngas, the other 3 huge coal burning plants will follow suit by 2016. In the near future the U.S. will become a key supplier of LNGas to not only Europe but Asia where the price of the commodity is nearly 3 times the U.S. price. It will take time to build out the infrastructure necessary to make this happen but the process is well underway. The end result will be ngas prices will rise substantially here in our country creating quite the bonanza for EXC's nuclear fleet. The fundamentals are working against the EXC shorts and they will have to cover soon. I foresee a very nice spike in EXC stock price in the next six months back to $37 and beyond.
Unfortunately for EXC shareholders we have had a relatively mild summer and we are fast approaching the shoulder season, so I expect ngas inventories will continue to build going into the winter months keeping ngas prices low and EXC stock under pressure. Although we are heading into hurricane season and if a large cane enters the Gulf and shuts down production this equation could change quickly.
How low could EXC move in the short-term is anyone's guess but that doesn't change the very positive long/med term outlook for EXC stock. China just announced today they are closing one of their large coal burning power plants and converting to ngas. There is a huge sea change taking place in the world ngas market and soon the U.S. will be exporting their ngas bounty overseas where they pay nearly 3 times the U.S. price.
As more coal burning power plants are retired and the demand and price of ngas spikes higher EXC will benefit greatly. But it will take time for the U.S. to build the infrastructure necessary to become a large exporter of LNG but the process is well underway. In the meantime enjoy the 3.9% dividend, time is on your side.
Not to mention prevalent fraud and corruption throughout the company. GSK could very well fall below $45 in the coming months.
Although EXC has made a number of regulated utility purchases to reduce it's exposure to the wholesale electricity market it's fate still relies on the price of kilowatts moving higher which is directly dependent on the price of natgas and the retirement of coal burning power plants. The latter is a certainty as man-made global warming and it's consequences tightens it' grip on the world economy. The GOP can only protect the coal industry for so long. The price of natgas is a bit more tricky as production spikes due to fracking. The recent weakness of EXC is due to natgas falling below $3.80 MMBtu.
There are a number of reasons ngas will not remain at these low levels for long. Number one on the list is soon the United States will be exporting large amounts of liquified ngas overseas which will drastically change the supply/demand equation pushing prices much higher. Europe currently pays $10 bucks MMBtu and Asia will be willing to pay nearly the same price in the future as their cities are choked by the many poisons of burning coal.
Another wildcard that works in EXC's favor is eventually some form of a carbon tax will become a reality making EXC's carbon free, nuclear energy highly profitable. I foresee a tax on all global warming gasses, including methane, which will serve to push ngas prices even higher.
People can argue all they want about man-made global warming but the bottom line is this...The more global warming gasses humans pump into the atmosphere the warmer the planet becomes. End of story. Drastic measures will have to be taken to offset the severe consequences. This is where Nuclear becomes the base load provider, supplemented by wind and solar. I would not be surprised if EXC pulls in well over $5 EPS in the not too distant future. This sell-off is a buying opportunity. Time is on our side and you get paid a 3.9% dividend while you wait. The 30 year treasury currently yields 3.35%.
Republicans can deny the science of man-made global warming all they want to appease their base but it does not change the reality of a rapidly warming planet caused by the unprecedented release of global warming gasses (burning of fossil fuels). I suspect 15 years from now Nuclear will be the baseload provider of electricity in our country supplemented by wind and solar. Electric vehicles will dominate the road in 25 years. In this environment EXC thrives.
To move the public away from fossil fuels and to better represent the true costs of burning coal, oil, ngas, to our environment (drought, floods, wildfires, bug infestation, disease, rising sea levels, acidic oceans, water shortages, higher food prices et cetera) some form of carbon/methane tax will be imposed and it will be significant. The margins on nuclear generated electricity will soar making EXC a very valuable stock.
What is quite ironic up until this point it has been the oil and gas companies that have been heavily subsidized and nuclear penalized, even wind and solar has received significant subsidies (although some of those subsidies are now coming to an end). This present subsidy paradox should do a 180 in the near future as the dire reality of global warming ramps. We have already breached the critical 400 ppm carbon threshold. When things turn it will happen very quickly as the globe goes into panic emergency mode, with nuclear the only viable option.
It is quite costly and time consuming to build new nuclear plants hence the reason one has not been constructed in the U.S. for quite some time. This gives EXC an even larger advantage over other utilities with it's existing nuclear fleet which can be modified to produce even more energy at a relatively cheap price.
If this scenario plays out, which I believe to be quite plausible, EXC earns well over $6 bucks a share in the not too distant future. We shall see...
First Energy has large exposure to coal burning power plants so I would not purchase the stock, although the bonds are quite interesting.
Getting absolutely pummeled! Could this be the classic pump and dump?
Jobs report and bond market pointing towards stronger growth yet as I type EXC a merchant power supplier is down well over 3% today. One should not lump EXC in with the majority other utilities which are strongly sensitive to rising rates. Growth will translate into significantly higher power rates for EXC fleet of nuclear power plants, and add to that fact the inevitable carbon tax (whatever forms it takes) will serve to only increase profit margins for EXC's carbon free energy. Looking into the future nuclear will serve as the base load energy provider with wind and solar supplementing, replacing coal and nat gas. Nat Gas is way overhyped and in many respects a stronger contributor to global warming than coal (Methane trumps carbon). So I am using today's sell-off to add to my EXC position as it wrongly plunges with the utility index.
PFE's R&D has been the laughingstock of the industry for decades. Zero Accountability. Hence the reason PFE is forced to pay outrageous prices for other pharma's pipelines.
Sadly, Granny would be a significant improvement from the present inept PFE R&D.