Newsletters - Past Issues

The coming diesel shortage is about to make things a lot worse UPDATE 12/3/2022

Runs on diesel as do ocean freighters and trains.

Freight costs are about to go way up

With the price of gasoline skyrocketing to unthinkable heights in the last year or so, the next shoe to drop is the price of diesel fuel. Or should I say the next price to rise.

Not that diesel hasn’t increased in price.

It has.

Today the national average for a gallon of diesel is $5.29. Last year about this time it was $3.64. But that could be just the beginning.

Bad things are happening in the world of diesel as far as its supply goes, and that equates to a possible increase in price and my guess is its going to be a nasty one.

There are many factors all coming together in the supply chain of diesel, and although you might not own a diesel car or truck yourself, you are nonetheless going to feel the pain.

It might not necessarily be at the pump, but prices will likely rise at just about every other store you go to. That’s because it is estimated that 95% of goods travel at some point by a boat, truck or train powered by diesel.

The war in Ukraine has certainly been pinching supplies as Russia is a major exporter of diesel and China will soon implement an export restriction on a variety of goods, diesel being one of them. Add in some shutdowns of diesel refineries both in the U.S. and Europe, and historic low inventories of the fuel worldwide, and it has all the makings of a severe inflationary spike in diesel over and above the bad inflation we are already seeing in other goods.

Estimated costs to the U.S. economy from spiking diesel prices exceed 100 billion.

Transportation fuel is the most common use for diesel which powers most trains, semi-trucks and yes, some automobiles, all using it in lieu of gasoline. A ton of it is used for ocean freighters.

Often called the dirty fuel as it is easier to refine than gasoline, it is most commonly used in in large engines and power plants which are the lifeblood of supply lines and power for almost everything we buy.

Making matters worse is a threatened workers strike deadline of December 5th from the railroad unions wanting improved health care and other compensation type demands. If the railroad strike comes to fruition, estimated costs are an astounding two billion dollars a day to the U.S. consumer. If you think supply lines are slow now, just wait and see what happens if the trains stop running.

Europe is preparing for what it knows is coming. Anticipating empty shelves due to fuel shortages, they are prepping for a possible run on cash (aka the banks) as people start to hoard both cash and goods. Many countries expect the same and are acting accordingly before supplies get critical.

More alarming is the fact that diesel is also widely used as heating fuel, mostly along the eastern seaboard, but also warming homes and businesses in a variety of regions worldwide. Should a cold winter be in store, things could get very ugly in many areas of the country and indeed, the world.

With supply chains already constrained due to a variety of reasons from the war, the CoVid shutdowns and a lack of available workers, a spike in the cost in the main fuel used for shipping will likely further stress retailers and consumers in obtaining goods in a timely manner. The result will be even higher prices and lack of availability on many items as shipping costs escalate.

With the Federal Reserve trying to tame inflation and consumers feeling its effect on their pocketbooks, a spike in diesel will further add to the cost of just about everything we buy. This will amplify inflationary pressures and worsen the scarcity of goods we are already facing and in process, make the Feds job of quelling inflation that much harder.

“Watching the markets so you don’t have to”

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(As mentioned please use the below disclaimer exactly) THANKS (Regulations)

This article expresses the opinion of Marc Cuniberti and is not meant as investment advice, or a recommendation to buy or sell any securities, nor represents the opinion of any bank, investment firm or RIA, nor this media outlet, its staff, members or underwriters. Mr. Cuniberti holds a B.A. in Economics with honors, 1979, and California Insurance License #0L34249. His website is moneymanagementradio.com, and was recently voted Best Financial Advisor in Nevada County. 530-559-1214.

Market update November 24th 2022

Last week saw glimmers of “green” hope as some stocks continued higher into the month.

Mid-week however gave in to some more selling as companies everywhere were revising estimates and reporting less than expected earnings for a variety of reasons.

Target reported close to half a billion was lost due to what it called “retail organized crime”.

No doubt new and puzzling legislation in variety of states taking a softer stance on theft may be to blame. Watching people running out of stores with armfuls of free stuff during protests in the last few years probably didn’t help, both in earnings nor by discouraging others not to try it.

So goes our world right now.

May you live in interesting times?

Unfortunately, I wouldn’t deem all things that are happening with the word interesting, but rather perhaps the word unfortunate would be more appropriate.

Another unfortunate event is the ongoing inflation we are all suffering through. A handful of statistics last week signaled a decrease in the velocity of inflation and in the nominal rate which goosed investors to buy some stocks.

I am of the opinion we are far from out of the woods however.

In fact, with the ongoing parade of company earnings reports stating rising costs as a major concern, inflation continues to devour balance sheets.

The talking heads on the popular news wires are putting on their happy faces, trying to squeeze out any little bit of good news from the otherwise dismal inflation data which continues to hammer stocks.

It’s quite stunning how far some stocks have fallen, including some of the most prevalent previous market darlings, some of which are the most well-known names in the markets.

Meanwhile the Dow Jones Industrial Average (DJIA) slowly creeps off its year lows. Amazingly, at the time of this writing, The DOW is only down 9% from its all-time high.

Makes you wonder right?

Damn, should have just bought the DOW!

Reverberations from the bankruptcy of crypto exchange FTX seem a bit muted to this analyst. It’s my guess a bunch of folks are hiding a bunch of bad stuff from the FTX implosion which will surface eventually.

I would bet there will be some surprising landmines (aka other companies) that will explode in the weeks to come due to the domino effect of the FTX blowup. A firm as large and as essential to crypto as FTX was, doesn’t implode and not put at risk many more entities that had dealings with them.

The FEDS may already be involved in clandestine bailout talks. Only time will tell.

No doubt a parade of sad stories from people who lost it all will float across the newswires as we progress along.

One wonders if everyone knows what “caveat emptor” means. For those of you who don’t, it means buyer beware, and you would have read that phrase many times here on Money Matters in the past year or so when it comes to crypto.

An interesting side note is although the markets have seen the worst year in decades as to the length and breadth of the decline, certain sectors have fared better than others.

Energy, healthcare and pharmaceuticals may show some yearly green, as well as a few stocks in the (surprisingly) retail sector. Energy and related industries far exceeded everything else however.

The Federal Reserve has raised interest rates four times in 2022 and they are expected to do it again at their next meeting in December. After that it’s a crapshoot as to what to expect. As always their decisions will be data dependent.

For now the financial world looks to the holiday season as an indication as to how the consumer is doing. With inflation boosting prices on just about everything, now doubt the purchasing figures will be up year over year again and the talking heads will look to spin that up to “the consumer is doing fine”.

I don’t know, are you doing fine?

The most accurate figure on holiday spending however would be the number of units sold instead of how much in total dollars was spent.

Higher inflation no doubt makes total spending higher and the high inflation we have been seeing will likely boost the overall total by a lot.

In actuality however, the truth will likely be a lot FEWER gifts were bought due to the higher price of each gift.

That makes a little more sense doesn’t it? But don’t look for that number on the news wires. You won’t see it.

“Watching the markets so you don’t have to”

(end)

(As mentioned please use the below disclaimer exactly) THANKS (Regulations)

Bitcoin exchange FTX blown to bits Update 11 12 2022

Like I have been saying

VAPOR

I- Bonds revisited Interest rates are about to change Update Oct 30 2022

100% safe US bonds
I-Bonds now yielding 9.6% APR

With the stock market in free fall, and most bonds (IOU’s from businesses and government entities) following suit, investors are looking for alternatives. Cash is safe, but holding cash in an inflationary environment will result in a loss of purchasing power.

But there is an investment that offers both inflation protection and the 100 % safety of U.S. government backing.

A Series I bonds, offered by the U.S. Treasury Department, are currently yielding 9.62%. The interest rate paid on these bonds increases as inflation rises, which is why the yield has skyrocketed.

An I bond earns interest two ways: a fixed rate and a variable rate. The variable rate is adjusted every six months. Note that your rate can also adjust downward or upwards if the underlying interest rates change. The bonds duration is 30 years, but an investor can cash them in at any time after the first 12 months.

In the first six months, you’ll get the prevailing interest rate at that time. Then your bond will adjust to whatever new rate is announced in October and adjust every six months thereafter.

If you need cash and turn in the bond before it’s at least five years old, you’ll pay a penalty of the last three months’ worth of interest, but if you do the math, it’s only a small portion of the total amount.

Interest on the bonds is also exempt from state and local taxes, but you will still have to pay federal taxes on any gains. There are also special tax considerations if you use the proceeds for higher education purposes.

To buy I bonds, you must be:

A U.S. citizen, even if you live abroad
A U.S. resident
A civilian employee of the U.S. government, regardless of where you live

Trusts and estates can also purchase I bonds in some cases, but corporations, partnerships and other organizations may not.

You need to set up a Treasury Direct account at Treasurydirect.gov., and have a taxpayer identification number (such as a Social Security number), a U.S. address, a checking or savings account, an email address and a web browser that supports 128-bit encryption.

Although children under age 18 cannot set up a TreasuryDirect account, a parent or other adult custodian may open an account for the minor which is then linked to their own.

Once you have an account, TreasuryDirect will email your account number, which you can then log in to your account. Select “BuyDirect” and then “Series I bonds”, then select the bank account to use and the date you’d like to make the purchase.

The limits per calendar year are:

$10,000 in electronic I bonds ($20,000 for married couples)
$5,000 in paper I bonds with your federal income tax refund

You can buy more every year and even set it up to automatically repeat the purchase each year.

You can read more about I bonds or open an account at Treasurydirect.gov.

At the current yield of 9.62%, and the Feds expected to raise rates at least few times in the coming months to curb inflation, an I bond or two might be just the ticket to help combat today’s rising inflation with the added feature of U.S. government backing.

“Watching the markets so you don’t have to”

This is not a recommendation to buy or sell any securities. This article expresses the opinion of Marc Cuniberti and may not reflect the opinions of this news media, its staff, members or underwriters, nor any bank, brokerage firm or RIA and is not meant as investment advice. Mr. Cuniberti holds a degree in Economics with honors, 1979, from SDSU. His phone number is (530)559 -1214.

Borrowing more to solve the problem? Oct 23 2022

Our debt just hit light speed !

Think we will hit anything?

Shall we borrow more to invest in the stock market ?

Investors often ask me if they should take out a loan, borrow a second mortgage or cash out an annuity or life insurance policy to invest in the stock market.

Since many advisors get paid on money under management and might encourage such a thing, I am of the opinion suggesting new borrowing to invest is unscrupulous behavior on the part of an advisor, with very few exceptions.

Since no one can forecast with any certainty market behavior, having the client take out new loans or cash out an annuity or life policy to invest in stocks may be exposing them to undue risks.

As for the annuity or life policy, one would have to look at the terms and conditions of the contracts. Perhaps in certain cases, cashing out an annuity or life policy might be prudent based on the contract terms, but doing so to put it in the market may not be in the client’s best interest and it could be said, is instead, in the interest of the advisor. That is because money coming from that liquidation, if put under management with the advisor, might boost the income to that advisor.

As sworn fiduciaries to steward client monies only in the best interest of the client, when I hear about such behavior, I take note of what advisor did it, and catalog that information for future reference. Quite simply, suggesting that a client go in debt to plow it into the market is, in my stern opinion, very bad advice.

The reason for this is that markets can indeed go up, making the debt a generator of profits over and above the original amount of the loan and its interest payments. But markets can also go down. And these ups and downs of the market can go a lot farther and last a lot longer than expected.

Imagine taking out a $100K loan, and investing it, and then the market falls hard and for an extended period of time, such as what we are witnessing now.

Since the legal disclaimer of investing includes the statement “you can lose money, including total loss of principal”, one has to consider the possibility he or she won’t make money, break even, or possibly even lose some or all of it, and subsequently be on the hook to pay back money they no longer have.

Not a pleasant thought.

There are probably some advisors and investors that would argue this thesis, and have encouraged such actions from their clients. I am of the opinion that one should run far and fast from the very suggestion of borrowing to invest and the person or firm who suggested it.

An arguable variation of this would be to decide whether to pay off a mortgage or instead stick it in the market. For reasons I can’t explain, my brain doesn’t so violent regurgitate this idea but I suppose it should. Guess I do have my biases.

I would have to think long and hard about the mortgage question, see what interest rate the client is paying on the mortgage, the term of the mortgage and the financial situation and risk tolerance of the investor and then move forward from there.

Having said all that, there is a situation, at least right now, that I might toss out my recommendation of nixing any loans, and suggesting investors take a look at the U.S. government I-BOND, of which I have written about a few times here in Money Matters.

Link: (https://www.theunion.com/news/business/marc-cuniberti-a-gift-from-the-us-government/)

With 100% principal guarantee and paying 9.6% APR at this moment in time, investors might consider looking at an I-BOND, comparing what it might pay against the borrowing costs to fund it.

In the terms of the I-Bond, interest rates paid can change, an early withdrawal penalty may apply, and there are a some restrictions, all of which should be well known before considering. I suggest using the link above to my previous article to review a brief summary of the I-BOND, then going a step farther and pay a visit Treasurydirect.gov for all the not-so-gory details.

That said, the restrictions versus the opportunities presented by the purchase of the I-BOND along with the government guarantee of principal may make it one of the very few instances where a debt encumbrance to finance an investment might be worth considering.

“Watching the markets so you don’t have to”

This article expresses the opinion of Marc Cuniberti and is not meant as investment advice, or a recommendation to buy or sell any securities, nor represents the opinion of any bank, investment firm or RIA, nor this media outlet, its staff, members or underwriters. Mr. Cuniberti holds a B.A. in Economics with honors, 1979, SDSU, and California Insurance License #0L34249. His website is moneymanagementradio.com, and was recently voted Best Financial Advisor in Nevada County. 530-559-1214

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