Another day, another unconstitutional action by the administration
and an update from LPL financial
Today is going to be a short one. I didn’t expect to make a post today but I’ve seen a couple things that warrant our attention. First up is the Biden administration’s lame attempt at buying votes. Buying votes is nothing new. It is as American as apple pie and baseball. The latest attempt, however, leaves much to be desired.
The Biden administration has unilaterally forgiven a portion of student debt. This has been a pet project of Liz Warren for a long time. She has maneuvered herself into Biden’s ear and is pushing all her socialistic claptrap policies. Like most of Warren’s proposals that the White House has attempted to put into motion, this is also unconstitutional. Even octogenarian Nancy Pelosi knows that the President of the United States does not have the power for debt forgiveness.
However, this move by Biden may not make it to the court system to get overturned. Mish did a great write-up about the details which can be found here. Something that Mish brought up was, who is going to have standing to sue over this? As an American taxpayer, getting screwed over by bad policy is not grounds for litigation. It is hard to see how or where a lawsuit will come from to prevent this from moving forward. This move has two interesting aspects.
The first is, who did they really buy votes from? Most likely chardonnay sipping, purple haired, gender studies graduates who are already voting for team blue. Who this is really going to irk are those who got real degrees, that paid their student debt off, and have real jobs. Those that voted blue that fit in category two might not be as anxious to get to the polls this fall. This does not seem like a very good strategy at even a cursory glance.
Point two is, who is actually going to pay for this? Most likely the administration is trying to force the Fed into monetizing the roughly $705 Billion in nonsense. The Fed has been on a tear recently by raising interest rates and reducing their balance sheet. It has caused chaos in Europe and has forced a sense of austerity on the US government. In the past, the Fed was the lender of first resort to the US government. If they don’t pick up the tab on this one, interest rates on government debt will rise, possibly dramatically.
This brings us to some interesting questions. Just how serious is the Fed about QT? Would Jerome Powell be willing to shirk his responsibility as a buyer of US treasuries? How long can that last? What is the Fed’s tolerance level for higher government debt yields? What is the government’s tolerance? Could this be the end of the spendthrift ways of politics?
I’ll believe that last one when I see it.
Also running across my newsreader this morning was an article from LPL Financial. You can read the whole thing for yourself here. In it they have “5 reasons to consider buying energy”. I find this interesting because LPL is not exactly a trend-setter. I follow them simply to see what kind of articles the general investing public might be consuming and what direction the herd is moving in.
To have the herd pivot to energy stocks is going to be wild. LPL has done a good job outlining the reasons that an investment opportunity should be pursued.
“In general, some of the best investment opportunities come when the following conditions hold: 1) the market is pricing in a pessimistic outlook in the form of lower valuations, 2) earnings estimates are being revised higher and growth is accelerating, and 3) technical analysis indicators suggest an impending rebound.”
They also “dig a little deeper” with their 5 reasons to buy energy.
Improving fundamental outlook
Technical analysis picture
Strong earnings momentum
Valuations still reflecting pessimism
Follow Warren Buffett (I told you there weren’t trendsetters…)
“So there are our five reasons to consider adding energy exposure. We believe the odds favor the sector going higher in the coming months. The energy markets are tight and getting tighter, while valuations look attractive and profits are on the upswing. Finally, being on the same side of a trade as Warren Buffett probably isn’t a bad thing!”
They touch on the capex cycle, ESG, and the political environment that has caused the outlook for these energy companies to be compelling. These are the themes I’ve been outlining as well. Valuation pessimism is an important factor, for me, when analyzing a company. I see this when P/E and P/B values are low, especially for entire industries (like we recently saw with shipping). What will truly be wild is the price action once the herd moves in this direction. It will be a stampede. This has me motivated to looking at long-term option contracts for oil and oil companies. Hopefully I’ll have some time to explore these kinds of opportunities over the next few days.
Actually it will irk the people who didn't go to university and don't have any student debt because he isn't forgiving the debt, he's covering it, and if the people who truly went to university aren't covering it, then the people who didn't go are.
So its very regressive in nature and not the kind of bill that the democrat supposed view of the world should support, its a direct sub to their own supporters as you say.