What if knowing more about oil and gas prices could offer you a strategic edge in your investments? Could keeping a close eye on energy giants like Chevron unlock new opportunities? Join us as we unravel the intricate dynamics of energy prices and the consequential ripples in the stock market. We dissect the challenges of the energy industry pre and post-pandemic, and speculate on the potential brain drain in Russia and its political implications. We'll talk about the bond rally, the deficit's fight for investment dollars, and why the Federal Reserve closely watches energy prices.
Have you ever wondered how global banking policies might influence your investment strategies? We explore the Bank of Japan's policy shift, how it's waking up to inflation and raising rates, and what that could mean for Japanese and US investors. We'll discuss why sectors such as communication services, utilities, healthcare, consumer staples, and PC stocks may benefit from declining interest rates. We also examine Chevron's performance, debunking Wall Street's pessimism and exploring why it might be a fruitful time to invest. Stay tuned to gain insights that could potentially reshape your perspective on energy prices and investments.
** For informational and educational purposes only, not intended as investment advice. Views and opinions are subject to change without notice.
For full disclosures, ADVs, and CRS Forms, please visit https://heroldlantern.com/disclosure **
To learn about becoming a Herold & Lantern Investments valued client, please visit https://heroldlantern.com/wealth-advisory-contact-form
Follow and Like Us on Youtube, Facebook, Twitter, and LinkedIn | @HeroldLantern
What if knowing more about oil and gas prices could offer you a strategic edge in your investments? Could keeping a close eye on energy giants like Chevron unlock new opportunities? Join us as we unravel the intricate dynamics of energy prices and the consequential ripples in the stock market. We dissect the challenges of the energy industry pre and post-pandemic, and speculate on the potential brain drain in Russia and its political implications. We'll talk about the bond rally, the deficit's fight for investment dollars, and why the Federal Reserve closely watches energy prices.
Have you ever wondered how global banking policies might influence your investment strategies? We explore the Bank of Japan's policy shift, how it's waking up to inflation and raising rates, and what that could mean for Japanese and US investors. We'll discuss why sectors such as communication services, utilities, healthcare, consumer staples, and PC stocks may benefit from declining interest rates. We also examine Chevron's performance, debunking Wall Street's pessimism and exploring why it might be a fruitful time to invest. Stay tuned to gain insights that could potentially reshape your perspective on energy prices and investments.
** For informational and educational purposes only, not intended as investment advice. Views and opinions are subject to change without notice.
For full disclosures, ADVs, and CRS Forms, please visit https://heroldlantern.com/disclosure **
To learn about becoming a Herold & Lantern Investments valued client, please visit https://heroldlantern.com/wealth-advisory-contact-form
Follow and Like Us on Youtube, Facebook, Twitter, and LinkedIn | @HeroldLantern
And now introducing Mr Keith Lanton.
Keith Lanton:Good morning. Today is Monday, November 6th, the first November call of the year, as we are in the first week of November here. November and December typically months via a better month for equity markets. Also, it's a time when many institutional investors dial back or take a step back as they don't want to risk losses, with bonuses being predicated on performance during the year. So oftentimes you won't see as much risk taking in November, which is typically the month that concludes the year for many bonus pools, so we'll see what impact that has.
Keith Lanton:Financial markets. This morning we have a lot to talk about. After last week's significant bond rally, which something that we talked a lot about was the bond market last Monday and how it was looking extremely attractive with rates at around 5%, barons had written a cover story that now is time to buy bonds and to reconsider asset allocations, and we got a very big rally for various reasons, which we'll discuss a little bit later this morning. Now, despite the fact that yields have come down 10-year treasury coming down from about 5% to about 452 on Friday, and this morning we're up near 460. I would argue that, while 5% may have been a level that was a little ahead of itself, we still have a lot of wood to chop and work to do in order to sustain lower interest rates here in the United States. We talked about the challenges, especially the deficit, and we also this morning are going to talk about one of the challenges I think that's not getting as much attention and that is the price of fossil fuels, specifically oil and gas, and how keeping an eye on oil and gas prices may be a very good barometer to assessing what may be happening with inflation. And we'll talk about why that may be the case, why oil and gas prices may be one of the keys to the Federal Reserve deciding on whether or not they're comfortable with inflation at 2.5% or 3%. And, of course, energy is an input into almost everything that the economy does, and if energy prices are elevated, then it is more challenging to get the general level of inflation lower. And what I'm going to do is share with you some thinking from individual whose thought process I think is good and share some of his insights. This is a gentleman who has a newsletter by Talali Katzinolson and he talks about his views on petrochemicals and why he is betting that energy prices, specifically oil and gas prices, are potentially moving higher and why that is potentially a challenge for price stabilization here in the US, especially when we have these large deficits, and the deficits are competing for dollars for investments, on top of the fact that inflation may not be as cool as we would like.
Keith Lanton:So low oil prices before the pandemic were already reducing investments in oil and gas businesses. The pandemic negatively affected oil prices and therefore, if you go back to 2020-2021, you already had an energy business that was investing less because the thought process was that the world was moving to more renewable energy wind, solar, thermal, etc. Therefore, energy companies were thinking to themselves why would we invest in more fossil fuel detection and fossil fuel mining if the future is not a fossil fuel future? Then what happened is, come 2020, we had the pandemic and we had oil prices get down to almost single digits for oil. If you were looking at the futures market, you had backwardedization and, in fact, you had energy prices in the futures market for about a day or two actually going negative, which got lots of attention. So all of that caused energy producers rationally to say, hey, this is not something. We want to preserve our cash. We want to give our cash back to our shareholders. We are going to invest less than our businesses and, of course, if you're investing less in finding oil and gas, well, the future is that you're going to have less oil and gas. And then, even if you are investing in oil and gas, well, you need very educated individuals to be petrochemical engineers in order to be the future leaders of the oil and gas industry.
Keith Lanton:As Ms Katznolson, I think, very rationally points out, if you're going to university today, being a petrochemical engineer is not seen in a particularly favorable light, he says, ranking somewhere between being a baby seal killer and a garbage man. Imagine, he says, a young man asking a father for his daughter's hand in marriage and being told your job causes climate change, and this is why enrollment in the petrochemical engineering programs, he says, has declined by 75%. Therefore, as older petrochemical engineers retire, there are fewer qualified people to replace them, and this does not bode well either for the long-term supply of petrochemicals. Also, we have oil production in Russia is likely to decline slowly over the long term. As a lot of knowledge. It has been a big brain drain as the Western companies have been leaving Russia after the invasion of Ukraine. Well, this is eventually going to cause things to break down and potential for the engineers there not to have the knowledge in order to replace what's breaking down. And obviously, russia is a major oil supplier and if they are producing less in the future, that is problematic for supply, despite the fact that's one of our goals and objectives. And, of course, we have the tensions in the Middle East. Even though Israel and the Palestinians not significant energy producers, nevertheless, the uncertainty and certainly the participation of iran and the implications of that carrying over into instability in terms of energy supplies, with both iran, saudi Arabia, all potentially affect the price of oil.
Keith Lanton:And if you think about the politics of it all, it actually goes on to say gets worse. Politicians love to vilify oil companies. When oil prices are low, they use oil companies as a punching bag to save. These are companies that are damaging the environment. They're no good. This is something that's not good for society. And then, when oil prices are high, politicians turn around and say, hey, let's tax those windfall profits that these guys are making, let's cap the upside on these companies, and what that does again is it further reinforces the mindset of the energy companies to invest less in the future. So we've got this situation where, investing less in the future, we have less knowledgeable students and future engineers. We have less supply because of the factors that are taking place in places like Russia. We've got geopolitical concerns. All of this adds up to the potential that oil prices aren't going to be going down potentially anytime soon. Oil companies need lots of capital because oil companies different than, let's say, tobacco companies which is another company that's vilified tobacco companies are not significantly investing in coming up with new smoke cigarettes. But oil companies need to get lots of fresh capital in order to invest in future projects. But what's happening today is the companies are taking that cash flow and paying higher dividends, doing stock buybacks, and we need those companies to be thinking about investing in the future if we want to have the future supply to keep prices in check.
Keith Lanton:And many of us who are critical of the energy industry for environmental reasons are somewhat hypocritical. Many of us are out there criticizing companies like Exxon for drilling, damaging the environment, but by the same token, we don't hesitate to get on a airplane over the weekend and go to a place that we want to travel to and go on vacation to. And many folks also maintain very large fleets of automobiles in their driveway with big gas guzzling vehicles not everybody, but many do driving very large vehicles that are guzzling lots of oil and gas. When we usually think of oil when it comes to powering our cars, and natural gas, we think about it when we're thinking about the cost to provide energy to heat our homes, and therefore the oil prices for cars are having an influence on the oil prices for our homes as well. And petrochemicals, as we know, are everywhere around us and without these petrochemicals, the world would be starving, literally and figuratively, for energy.
Keith Lanton:Yet we must think about the fact that if we are going to move the needle and start to utilize more electric vehicles, then these electrical vehicles are not yet ready to be powered by alternative energy solar, wind, etc. On a large scale. So what do we need to do in order to plug in those cars in our, in our garages? Well, we need to have oil and natural gas to provide the power for those vehicles. And even if we had all electric vehicles, it's quite a long time and quite a long roadway before electric vehicles that replace our domestic fleet of gasoline and diesel consumption vehicles.
Keith Lanton:Currently, there are about 180 million cars on the road today and we sell approximately. This is in the US. We sell approximately 15 million 15 million new cars per year. Even if electric vehicle sales increase, it will take a long time before a meaningful portion of those 180 million vehicles are electric vehicles. The fact that, the moment right, 1 million new vehicles on the road or electric vehicles out of that, 15 million cars stay on the road, for you know, 8, 9, 10 years going to be a long, long time before electric vehicles are even close to outnumbering traditional vehicles on the road. Therefore, it is very likely that demand for natural gas is going to increase for a long time, and this is going to further be a reason why we need to keep an eye on oil and gas prices, because transitioning to green sources of energy that are renewable Is not a matter is a marathon, not a sprint. We may wish it to be a sprint, but the technology is not there, the knowledge is not there, the customers desire to transition is not there. So Moving off of a fossil fuel future does not look like it is quite as close as many of us have thought it would be just a few years ago. So something To factor into one thinking when one thinks about investments and when one thinks about the income, investments, bond investments and inflation. So you can think about this, your equity portfolio. You can think about this, your bond portfolio. It all comes together into into one Macro woven picture of what the future here in the economy is going to look like, and this is going to be a challenge not just here in America but for the world for the next several decades.
Keith Lanton:I did talk about one specific energy company and that was Chevron. Over the weekend, symbol CVX suggesting that Chevron has been punished enough for earnings and they recently announced the ability to purchase a has and they are saying that now is a good time to buy Chevron stock. It is falling 17% so far this year, making it the worst performer by far among the half dozen Global super majors. This year X on mobile by comparison is falling about the 2% most of the drop in Chevron. So it stock prices occurred in the past few weeks after disappointing earnings that included the Surprise delay in the development of a key oil field in Kazakhstan. As well as Chevron $60 billion deal to buy it has an independent energy producer that fell to excited investors in some unit, even as a sign of weakness.
Keith Lanton:Baren suggesting that Wall Street is too negative on the company's prospects. While the situation is, chevron may take a few quarters to resolve. They say it looks well positioned for it is likely to be decades of strong demand for fossil fuels. We just discussed why that Maybe the case. Shares, which are now around $147 after hitting a 52 week low in the past week, baren says look attractive at 11 times 2023 earnings, 10 times estimates for next year. At the current price, the stock yields about 4.5%, based on the company's plan to boost the dividend by 8% in early 2020. For Mizzouho analysis analyst here a knit knit in the Kumar saying he's got a buy rating on the stock and a $215 price target. Alright.
Keith Lanton:So moving on to this morning and what the markets in futures look like, we have positive momentum carrying over from last week. Futures edging higher. Dow futures up about 15 points of very modest increase and some people just up about 6. Nasdaq futures about $20 over fair value and, as I mentioned, keeping an eye on oil oil this morning up a little over 1% or 90 cents a barrel. And we are seeing the bond market giving up some of the Significant gains that it enjoyed last week and we're seeing the 10 year treasury yield take up to 462, up about 6 basis points this morning. Elsewhere, south Korea's cost be index jump 5.7% after South Korea banned short selling until at least June of 2024, this help propel a significant rally in the Asian stocks of the, the Nikkei in Japan was up 2.4%, the Hang Sing in Hong Kong up 1.7. China Shanghai composite and India sensex were both up 9 tenths of 1%.
Keith Lanton:Europe not riding on the coattails of Asia. European markets this morning, down slightly, about 2 tenths of a percent across the board. Some news of significance this morning House Speaker Mike Johnson is moving ahead with a plan to extend government funding beyond November 17th, according to Bloomberg. Bloomberg also reporting that Atlanta Fed President Bostek, who is not a fomsc voter, says the Fed should wait and be patient with rates. Cnn reporting that the pro Palestine protests were held across the United States with tens of thousands of people. Protesters are calling for a ceasefire and an end to US military aid to Israel. Cnn also reporting that key Virginia State House and Senate elections tomorrow Could be a bellwether for 2024.
Keith Lanton:Speaking about 2024. New York Times reporting that Donald Trump is pulling ahead of President Biden in five of six key battleground states amid vast dissatisfaction with the economy. Bloomberg, very timely, reporting that the struggling electronic vehicle sales of automakers, rethinking investments. Again going back to the theme we just discussed with oil, gas and energy, president Biden Saying that he is going to advance his vision for world-class passenger travel here in the United States by rail and he's looking to deliver Billions of dollars a new funding to make that a reality. And back to oil and gas, cnbc reporting that Russia and Saudi Arabia have affirmed their commitment to oil production cuts. So again, I keep an eye on those energy prices. It's critically important to see if we can keep inflation in check and keep this bond market rally in tact. Of course, just one piece of Determinating factor in terms of bond prices individual companies in the news Tesla, up about four points this morning, reuters reporting that they are aiming to build a $25,000 European vehicle at a German plant.
Keith Lanton:Dish networks, the is H, missed revenues and had disappointing earnings, stocks down about 6%. Clorox, which had earnings last week and has been in the news due to a cyber attack and the stock had fallen significantly because of that, morning upgraded to neutral from sell at UBS and up about 1%. Berkshire Hathaway over the weekend posted its first quarterly loss in a year as the prices of apple and other stocks that owns fell but said improved results from insurance help boost operating profit to a record. Rising interest rates boosted yields in the third quarter on Berkshire is vast US Treasury bill holdings, while fewer car accidents in a quiet Atlantic hurricane season bolstered Geico's car insurer and reinsurance businesses. Berkshire dial back significantly on its stock repurchases as the stock was meaningfully higher last quarter, only repurchasing about $1.1 billion in its own stock. Berkshire was also a net seller of stocks in its portfolio 5.3 billion more stocks sold then it bought all at Berkshire in this quarter, which was a record quarter in terms of operating income paramount global.
Keith Lanton:Significant rally last week on earnings, but this morning downgraded to underperform from buy. At Bank of America it's down about the three and a half percent. General Motors announcing over the weekend plans to invest 13 billion in the US as part of its deal with UAW and KBW, upgrading Bank of America symbol BAC to market perform from underperform. Finally, elon Musk in the news once again Revealing his own artificial intelligence bot to challenge chat, the GBT, claiming the prototype is already superior to chat GBT 3.5 across several benchmarks. His artificial intelligence bot is dubbed the GROC. Grok is the first product of Musk's x AI company and is now in testing with a limited group of US users. Grock is being developed with data from Musk's x formerly Twitter and Therefore he says it is better informed on the latest developments than alternative bots with static data sets.
Keith Lanton:News this week, while earning season is winding, winding down here for a third quarter earnings, only 50 of the S&P 500 500 companies are scheduled to report this week. Large cap biofarmist stock, vertex, which Barron's discussed this week in their magazine, it is reporting earnings and bio in techs, also with earnings, the COVID make Vaccine maker that partners with Pfizer for that vaccine. Gilead, another pharmaceutical company, releasing earnings on Tuesday, followed by BioGen on Wednesday in AstraZeneca on Thursday. On Wednesday, walt Disney reporting fourth quarter fiscal 2023 results. Analysts are expecting the entertainment behemoth to earn 71 cents a share on 21.4 billion in sales. Finally, on Friday, university of Michigan releasing consumer sentiment index for November, looking for that to come in at 69.3, roughly even with October and well below historical averages.
Keith Lanton:So, speaking of markets, we talked a little bit about the significant bond market rally last week and that bond market rally propelled a very strong stock market rally. And this is after last week. Barron said buy bonds instead of crying about them, due to a confluence, fluence of factors. Long-term Treasury bonds saw their biggest rally last week since the headlong plunging yields in March of 2020. In particular, the benchmark Treasury yield ended Friday at 452, after Hitting 5% a couple of weeks earlier. The impact of lower yields rippled through other assets, notably stocks, as the major indices enjoyed their biggest weekly gains of the year, ranging from 5% for the Dow to 6.6% for the Nasdaq and the S&P 500, splitting the difference with a 5.8 5% advance all last week.
Keith Lanton:Thanks are doing chronological order to Janet Yellen, his Treasury sector, terry Jerome Powell, federal Reserve Chairman, and the Bureau of Labor Statistics. Each, in their own way, gave indications that the sharp rise and interest rates had peaked, thereby lifting asset prices along the spectrum. Week began with the Treasury outlining its quarterly borrowing plans that are still massive, conceemed somewhat fewer longer-term securities than market participants had feared. That set off a massive covering of short positions and Treasury bonds and futures. In fact, wall Street Journal reporting this morning that Hedge funds were positioned the most heavily of the entire year for yields to continue to climb. So when this data came in, indicating that the things were better for the bond market, it triggered a significant short covering rally, perhaps one of the reasons the market in bonds was so strong and perhaps one of the reasons we're seeing a little bit of an unwind this morning.
Keith Lanton:Federal Open Marked Committee last week also decided that to hold its key Fed funds target rated five and a quarter to five and a half percent, which surprised nobody. The panel's most recent summary of economic projections contained a median guess for the year-end Fed funds rate, suggesting one more quarter-point-point hike. But that was somewhat mitigated in the Q&A session where Chairman Powell hinted that the efficacy of those projections decays over the three-month spans and many surmising that. What Chairman Powell was saying in between the tea leaves was that at the moment that perhaps the Federal Reserve is on hiatus from further interest rate hikes. Then on Friday we got the employment data and that showed signs of a cooling labor market, suggesting to market bulls that there'll be no further Fed hikes. And we also got the fact that the non-farm payrolls increased by only $150,000 in October, short of the $180,000 rise estimated by economists and the two preceding months combined tally was revised down by $101,000. If you're looking for some gray lining to those very white clouds, it might be that perhaps those employment numbers were a little bit better than expected due to some of the UAW action United Auto Workers and the strikes, and that perhaps some of those folks who were not working may be returning to work and we'll see in the next employment report what effect the strikes did have on the employment report and the unemployment rate and whether or not we may see a little bit of an unwind, which was something that might concern the bond market.
Keith Lanton:Now we're very focused here in the United States and what our Federal Reserve is doing, but Barron's points out and I would argue that perhaps something that many US investors are overlooking is the influence of foreign central banks, and one foreign central bank that's really been lack of a better word irrelevant is the Bank of Japan. For almost three decades the Bank of Japan has held rates at or near zero or perhaps at times below zero. But the central bank in Japan is waking up. They're starting to see inflation in Japan. The central bank in Japan saying that recently that they had raised the rate that they were going to hold the 10-year treasury at in Japan from 0.1%. They raised it to 0.5% and they went to 1%, and now this past week they're saying 1% is just a guide and don't expect the BOJ to Bank of Japan to hold rates at 1% on their 10-year treasuries, meaning that interest rates in Japan may finally start to be rising. And this is because inflation is finally starting to come a real number in Japan, bank of Japan saying that they see inflation in 2024 at 2.8%.
Keith Lanton:Why is this so important to us here in the United States? Well, japan's ultra-low rates have pushed domestic capital abroad and polarized the carry trade of borrowing yen to buy US treasuries. So Japanese investors borrowing their currency, buying dollars, buying treasuries, and that has pressured the yen and raised the dollar. Currently, japanese investors are by far the largest foreign owners of treasuries. They hold 1.1 trillion as of August. That's about 40% more than the next biggest country holding our treasuries, which is China. And if the central bank in Japan were to signal that they are going to normalize policy, potentially hike rates, well, japanese investors, like banks and life insurance companies there, could start to dump treasuries to buy more attractive domestic bonds. Along with any winding down of the carry trade, this would send treasury yields higher and weigh on the dollar.
Keith Lanton:So if you're looking for things to look out for, there's another one to add to your list Now that we've seen the treasury yield here in the US. 5% perhaps a high water mark? Time will tell. But investors here in the US may want to start thinking about what to do with their cash now that they've built up significant positions in treasuries and money market accounts that are yielding 4% to 5.5%. And what's the next phase if interest rates are in fact, peaking in the short end? Barron talks about the fact that they say the cash is king, trade is ending and where you may want to invest in what sectors of the stock market may make sense now that we may be moving into a new phase of short-term interest rates.
Keith Lanton:Since the start of 2022, bank of America said in their private client group alone that $80 billion has flowed into short-term treasuries. That's just the Bank of America. People have rushed so much into cash-like investments that their portfolios, they say at Bank of America, have become bloated with them. Cash comprises about 13% of the average Bank of America private client portfolio right now. That's up from 10% in early 2022. Historically, cash is a share of investors' holdings that tended to decline when it gets this high. Equity allocations among Bank of America clients have dropped to about 58% of their portfolios from a recent peak of 66%. They rarely go below 56% because people already own tons of cash and less stock.
Keith Lanton:A reversal seems very possible. That is partly because of interest on cash pours in. Investors have to decide what to do with that money, forgetting about the corpus, the core of the investment in the treasury. Just the interest on the treasury has got to get invested somewhere. Given the fact that folks are now under-allocated to stocks and the fact that the treasury yields on the short end may be peaking, it is natural that some of these investors are going to start thinking to themselves where may I start to think about investing this money? Just last week, bank of America reported that the net movement into short-term treasury bills was $2 billion. That is the lowest level that they've seen in many weeks. They say that that number has been declining steadily over the past several weeks as investors seek out alternatives to short-term investments or cash-like investments.
Keith Lanton:So where do you go and rate Cuts might be on the table when short-term interest rates might decline. Well, Barron's took a look backwards and they suggest taking a look at areas like communication services think companies like AT&T Symbol T and Verizon Symbol VZ as well as healthcare utilities and consumer staples. These are sectors that tend to thrive when interest rates start to decline. For example, the average annualized gain for S&P 500 communication names from when the Fed makes its final increase of a cycle to its first cut is about 22%. That's a gain of about 1.8% per month. Utilities average an annualized gain of just under 20%, while healthcare and staples are around 15% gains there. Finally, I mentioned one other article and then I'm going to turn it over to Brad to give some more insight into the markets and what he's seen, especially in the bond market, as things have certainly been rocking and rolling.
Keith Lanton:And Barron suggests in their cover story to take a look at PC stocks. Now that sounds like something we'd be saying in the early 1990s, but Barron saying that PC stocks, specifically HP and Dell, are ready to take off again. And they say it's all about you guessed it artificial intelligence. And the thesis here is that artificial intelligence and the capabilities to process for artificial intelligence. Well, that technology later this year, beginning of next year, is coming to your PC and there's lots of reasons why you might want to keep that data on your PC, that artificial intelligence accumulation of data, as opposed to sending it out to the cloud. In fact, Apple, in their most recent introduction of their new Macs, has introduced a chip with artificial intelligence capabilities, and those capabilities are going to be embedded to a much greater extent into traditional PCs as well those made by HP and Dell and therefore this could lead to a upgrade cycle in personal computers.
Keith Lanton:And the valuation of these stocks right now is such that the risk reward in terms of choosing to invest in Dell and HP is, in their opinion, attractive. Hp, with more consumer exposure than Dell, trades for about eight times forward earnings less than one time 2024 estimated sales yields about 4%. Dell's, which sells PCs mostly for business and should get an AI boost for its server business, trades at 10 times 2024 earnings less than one time sales and offers a 2% yield. Barron says both are aggressively buying back stock and even without AI, they feel that the stocks look cheap. With that, good morning Brad.
Brad Harris:Good morning Keith, good morning everyone. Today, after getting an hour and an extra hour of sleep, is certainly the easiest day of the year to wake up, and especially when you're walking into good markets. When we talk about the tail wagging the dog, it's become obvious that the bomb market is the tail and the equity market is the dog. Two weeks ago, I and many other traders were in panic of when the bomb market would stabilize. Veterans and investors alike knew that it would stabilize at some point and we were certainly oversold. But how long would you have to wait for it to come back? And the wait is and was always painful. Bond investors look at the October statements were sick to their stomach, even though we all know that the point of bonds is to get your interest and if you're in quality bonds, get your money back at maturity. As usual, in these oversold conditions, the bomb market rally back 5% before you could even blink.
Brad Harris:I'm not saying anyone could have called the timing of the turn, but it goes show the timing is not always a great strategy. I prefer to always be a little bit engaged in the market, never all in, never all out In its post, because of the nature of their, the inefficiencies of that market were the most oversold product and Keith and I had been alluding to that for at least the last few weeks. The problem was that the spreads between the bids and offers were so enormous that I did not want to mention yet doing tax law swaps at that point. I'm not saying that we're on a one-way street for the direction of rates yet, with the fed still lurking. But now that there is some liquidity in the market I would strongly recommend anyone considering harvesting losses through tax swaps in municipals do them now.
Brad Harris:If you're swapping for lower coupon bonds, let's please discuss after tax yields in many instances, because these low coupon bonds with 2 and 3% coupons, as they get thrown away during the tax law season, their after tax yields are actually better than what you receive for current coupon bonds. So if you don't have immediate need for income or live off the income, please consider this dollar for dollar strategy. I always believe it doesn't hurt to put up a little extra money at these points of the market or accept a little bit of face amount of bonds to improve your coupon income regardless. Also, when doing tax swaps, if you're buying higher coupon bonds, make sure that you get the call protection. You don't want the bonds called away from you next year or to feed the purpose of having done the swap.
Brad Harris:As always, it is imperative to stay with high-grade bonds. My thought at this point is there's no need to be greedy. You get paid nicely in high-grade bonds anyway. At this point I don't want to discuss market direction after a major market rally last week, but I do believe it is time to consider tax loss harvesting in municipals, because there is some stability in our market at the moment, which we don't always have.
Keith Lanton:Thanks, thank you, Brad.
Alan Eppers:Thank you for listening to Mr Keith Lanton. This podcast is available on most platforms, including Apple Podcasts, Spotify and Pandora. For more information, please visit our
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