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March 15, 2022
Two weeks ago, I did something I haven’t done in two years: I went on vacation! The funny thing is that the ship we were on, the Norwegian Cruise Line Escape, just ran aground off the coast of the Dominican Republic on Monday afternoon. The picture below is from my iPhone in Puerta Plata just a mere two weeks ago. I recommend everyone go on vacation now and get away for a week or two from this crazy world we live in. Do it now, before the cruise industry gets back up to full speed. What a deal we had, as this ship that typically holds 4,200 passengers only had 1,800 passengers on board. They said there was about 1,500 crewmembers, and the service was impeccable. These deals aren’t going to last forever!
Did you notice the smoke coming out of the stack on the ship? Do you know that a large cruise ship can use up to 250 tons of fuel per day, which is around 80,000 gallons? So, this brings me to a question: how do we turn certain industries green? What about large construction equipment, planes, trains, cargo ships, and spacecraft? We all know the White House only talks about electric vehicles (EVs) in terms of automobiles, but why are all the auto manufacturers all in on EVs? If the last two weeks of geopolitical war and tension haven’t taught us a lesson about our energy independence, then we deserve what we get. Wake up folks.
Also, have you seen that Ford and General Motors are going to fix California’s power grid and brown outs by providing bidirectional charging with EVs? So, this is how it’s going to work: you charge your EV at night, and during the day when there is high usage you can use your EV to send the power back to California’s power grid. Are we nuts? Why don’t we just fix California’s power grid? Are we such a rich, arrogant country that we can waste money on new technologies to put a big band aid on California’s power grid? We have so many other issues that need our attention in this country, and, again, common sense is not so common. Anyway, like I said in the beginning, please go on vacation! Until next time.
Three Market Makers
We focus on three market drivers that lead to notable movements in the stock market: economic fundamentals, technical environment, and investor sentiment.
Our fundamental indicator follows 19 economic datapoints that track the underlying health of the US economy. From unemployment to homebuilding, changes in these economic datapoints tend to confirm recession or recovery after the technical and sentiment indicators have already reversed.
Dynamic Asset Level Investing, or D.A.L.I., is a technical indicator that compares each of the major asset classes, sectors, and sizes and styles against each other to discover emerging trends in the market. D.A.L.I. compares daily price action of each of these elements on a point-and-figure chart to illustrate momentum. The chart at the bottom of this page shows the current leadership in D.A.L.I.
Our sentiment indicator tracks how everyday investors currently feel towards the U.S. economy and the stock market. Between our own polling and professional surveys like the American Association of Individual Investors (AAII) Investment Sentiment Survey and Citigroup’s Panic/Euphoria Model, we track the two most dangerous emotions for investors: fear and greed.
Here is a breakdown of where each market driver currently sits:
U.S. inflation came in at 7.87%, the highest level since January 1982. With the Federal Reserve meeting today and tomorrow, expect the Fed’s first rate hike to be announced tomorrow. Most experts are anticipating a raise of 0.25% to the federal funds rate.
All three major indices (S&P 500, Nasdaq-100, and Dow Jones Industrial Average) have experienced a “death cross.” A death cross is when their 50-day moving average falls below their 200-day moving average. Despite its morbid name, returns have historically skewed positive following a death cross, as the market boasts positive returns one year after a death cross roughly two-thirds of the time (Fundstrat).
The University of Michigan consumer sentiment survey came in at 59.7, below February’s reading of 62.8. Those surveyed pointed to newfound fears regarding fuel prices and other inflation in the economy. In fact, the year-end expected inflation rate came in at its highest level since 1981.
This is a hypothetical example for illustrative purposes only.
The Case for Dollar-Cost Averaging
This is a hypothetical example for illustrative purposes only.
In this era of instant gratification, investors have become increasingly gambler-like in the pursuit of immediate rewards; this is why many people gambled on “meme” stocks like GameStop and AMC Entertainment last year and are now focusing on cryptocurrencies and non-fungible tokens, or NFTs. Investors especially lose patience with traditional investing during market drawdowns, like the one we are currently experiencing.
Unfortunately for many of these modern investors, there simply isn’t an immediate reward for saving for retirement. While a new TV or car can be enjoyed immediately, it can take decades for you to realize any semblance of a reward for your diligent 401(k) contributions. Maybe you don’t view retirement as a purchase in the same lens that you would view a new TV or car, yet that is exactly what you do when you participate in a 401(k) plan; you are investing money today to use as retirement income tomorrow. Thanks to dollar-cost averaging, you can strive to retire on your own terms by simply investing a little bit all the time.
Dollar-cost averaging involves investing a constant dollar amount consistently for an extended period. You may not realize it, but your 401(k) already employs the dollar-cost averaging strategy every pay period. Since the prices of the investments in your 401(k) fluctuate daily, your contributions buy a different number of shares each pay period based on the current price.
Dollar-cost averaging allows people to avoid the two most dangerous emotions of investing: fear and greed. When the stock market is down and investors become fearful, dollar-cost averaging automatically helps to avoid fear by buying a greater amount of shares at these lower prices. On the flip side, when the stock market is soaring and investors become greedy, dollar-cost averaging automatically buys less shares at these potential market peaks. In short, when you dollar-cost average, you avoid investing too much during market peaks and too little in market downturns, like the one we are currently experiencing.
We have included a table that helps to illustrate dollar-cost averaging in action. Note that in this example, even though the stock’s price was lower in December than it was in January, the account still had a positive return for the year due to dollar-cost averaging.
While investors can treat the market like Vegas and gamble away, investing a specific amount of money on a consistent basis into the stocks of quality companies or quality investment options in your 401(k) tends to be a more reliable strategy in the long run. The savings process can take decades, and a small deferral amount today may seem trivial, but dollar-cost averaging mixed with compound interest can help turn decades of small-but-consistent contributions into a significant nest egg at retirement.
Market indices
Year-to-date returns
Large Cap indices
S&P 500: -12.44%
Dow Jones Industrial Average: -9.34%
Nasdaq-100: -20.06%
Mid and Small Cap indices
S&P 400 (Mid Cap): -10.37%
S&P 600: (Small Cap): -9.42%
Russell 2000: -13.52%
International indices
MSCI EAFE Developed Index: -11.90%
MSCI Emerging Markets: -14.37%
MSCI ACWI ex-US: -11.84%
Economic sector indices
Basic Materials: -10.14%
Communication Services: -19.39%
Consumer Discretionary: -19.75%
Consumer Staples: -6.93%
Energy: 33.36%
Financials: -5.94%
Healthcare: -8.14%
Industrials: -7.41%
Real Estate: -12.37%
Technology: -18.96%
Utilities: -2.30%
Bidirectional Charging: Slow your roll
Recently, both Ford and GM announced that they will work with PG&E to test bidirectional charging of their electric vehicles, or EVs. Bidirectional charging simply refers to an EV’s ability to not only receive electricity from a public or home charging station, but also provide energy to the grid and the driver’s home. While bidirectional charging could be the latest innovation in EVs, we wanted to discuss both the potential benefits and current obstacles facing this technology.
Vehicle to Grid charging, or V2G, is a method in which an EV’s battery could be plugged into a public charger as a means to provide energy to the power grid. While V2G charging sounds simple, the full vision of V2G’s capabilities is much more ambitious. Advocates for V2G technology believe that EVs could assist the power grid in managing energy needs. When drivers plug in their EV for the workday, charging station software would communicate with the power grid to redirect energy to the areas that need it the most. Basically, advocates believe V2G would allow vehicles that are parked or idle to continuously assist the power grid with supplemental energy.
Vehicle to Home charging, or V2H, is also self-explanatory. While V2G provides energy to the broad power grid, V2H will provide energy directly to a driver’s home. With V2H charging, a home’s CT meter would be able to detect whenever the home begins to pull energy from the power grid and instead will pull an equal amount of energy from the plugged-in EV to offset the grid power. Also, in areas where natural disasters or blackouts are prevalent, an EV could act as a generator for a driver’s home to provide supplemental energy until the disaster is over.
For V2G to become plausible for society, there are plenty of obstacles that still need addressing. It goes without saying that V2G would require an amount of EVs that is currently not owned by the public. Also, V2G would require EV charging stations in the majority of public or employer parking lots; with the infrastructure bill providing only $7.5 billion towards the construction of EV charging stations, significantly higher future investment would be required to reach this goal.
For V2H, the issues are much more cost related. Each home using bidirectional charging would require a CT meter dedicated to the home EV bidirectional charging station, as the meter would regulate and manage the amount of energy drawn from the EV. Also, each EV owner would need a home EV bidirectional charging station installed, which requires professional installation on top of the cost of the actual charging station; for perspective, home bidirectional charging costs for the station and its installation are currently around $4,000. Finally, unless the drivers had charged their EV for free in public, there are still the costs of charging, regardless of whether the energy ends up being used by the EV or their home. While costs could potentially be saved in the future, EV owners would need to make a significant investment upfront to achieve V2H charging.
While Ford and GM exploring these innovative technologies is ambitious, there are still plenty of other issues that need to be addressed, such as the affordability and efficiency of EVs. Once EVs have become prevalent and charging stations are convenient and commonplace, then V2G and V2H can become the topic of discussion. For now, however, we want to make sure that society doesn’t put the cart before the horse when it comes to EVs and clean energy infrastructure.
Chairvolotti Financial, Inc. dba 401karat is a Registered Investment Advisor.
