The Weather & Your Portfolio

The Weather & Your Portfolio

The Weather & Your Portfolio

The world of finance, is a lot like the world of medicine: An infinite number of variables, countless areas of expertise, and immeasurable opinions from both professional and novice sources.  With the recent barrage of hurricanes leaving 16.5 million Americans without power, this issue of The Samra Report focuses on the weather and your portfolio. Concentrating on energy infrastructure, wind and the price of natural gas, and how the seasons impact retail sales.

In 2015 Gen. Keith Alexander, former director of the NSA warned; the United States energy infrastructure was prone to terrorist attacks.  Fast-forward a couple of years, and this premonition has become a reality.  Although Gen. Alexander had warned of jihadist attacks against energy infrastructure, in 2017, these attacks have come in the form of cyberattacks, and natural disasters.  Highlighting the United States reliance on susceptible technology.  With the recent barrage of hurricanes leaving over 16 million Americans without power, it is time the United States considers alternative sources, and infrastructure immune to such attacks.  At Samra Wealth Management, we believe consumers will follow the lead set by large US corporations such as Google and Amazon, in harvesting solar energy.  With advancements in home batteries priced for early adopters, as the technology advances and is priced for the mainstream market, dependence on utility companies, and mass energy infrastructure will fall.  These ideas may seem far-fetched; however, the United States lags behind Europe, Australia and Japan in installed solar power capacity in Watts per capita.  More recently India and China have laid claim to the top 5 largest solar power plants in the world.  As the United States plays catch-up, we believe the US energy market, with the help of state and government subsidiaries, is in the midst of a transformation, with less dependence on utility companies.

 

With parts of Florida, Louisiana, and Texas still underwater, the memories of those waiting hours to refuel their vehicles, unable to leave, is still fresh, as the majority of combustion engine vehicles will be permanently damaged, and need of replacement.  Owners of Tesla vehicles were sent an upgrade, allowing increased driving range.  The recent devastation caused by Hurricanes Irma and Harvey, are likely to impact the United States political system.  No matter how fast government agencies such as FEMA respond, for those in the areas worst affected, the recovery period will last longer than the media coverage.  Regardless of the current administrations effectiveness, we believe Republican lawmakers are likely to see backlash from the areas affected for years to come.

Meteorologist and investors alike, may take into consideration many factors when placing trades, however, the average investor lacks a fundamental understanding of the variables that can affect the markets.  First, it is important to understand that when referring to the ‘market’, most investors are referring to the S&P 500, a benchmark of “500 stocks seen as a leading indicator of U.S. equities and a reflection of the performance of the large cap universe, made up of companies selected by economists.” However, there are many other markets, for instance: commodities, international markets, and the bond markets.  As a matter of fact, the U.S. bond market is roughly double the size of the domestic equity market, with almost $40 trillion of bonds, compared to only $20 trillion of stocks.  It can therefore be surprising to investors to hear there are more variables effecting the financial markets then most investors are aware, and although there is no crystal ball for predicting financial risk and returns, using a research based investment philosophy can highlight areas of opportunity.  For example, bad weather from Southern California to Texas, causes wind turbines to create more electricity from wind, scaling back the demand for natural gas, pushing down prices.  Longer winters create increased demand for winter clothing, increasing earnings of retailers, however, have an adverse effect on local travel, decreasing the demand for oil, pushing down prices of WTI, correlating to a decrease in the value of oil producers.  

Although Florida, Texas and Louisiana will rebuild, it is our belief the rebuild will not mirror the infrastructure prior to the 2017 hurricane season.  We expect less dependency on the energy grid, utilizing a combination of solar harvesting via panels, and storage through home battery packs.  With 1 million vehicles expected to be totaled, up to 500,000 in Houston alone, we expect both used car businesses such as CarMax, and auto manufacturers such as Ford to benefit from vehicle replacements.  As Texans have a higher car ownership rate than the national average, we expect to see negative correlation for auto insurers.  With an expected total loss of up to $250 Billion, rebuilding the damaged areas will create much needed jobs, and increase GDP.

 

 

 

 

References

Amadeo, K. (2017). What the S&P 500 Tells You About America's Health. [online] The Balance. Available at: https://www.thebalance.com/what-is-the-sandp-500-3305888 [Accessed 29 Sep. 2017].

Bloomberg.com. (2017). GC1 Commodity Quote - Generic 1st 'GC' Future. [online] Available at: https://www.bloomberg.com/quote/GC1:COM [Accessed 6 Sep. 2017].

Donnelly, G. (2017). Hurricane Irma and Harvey Damage Includes 1 Million Cars. [online] Fortune.com. Available at: http://fortune.com/2017/09/20/hurricane-irma-harvey-damaged-cars/ [Accessed 26 Sep. 2017].

Eia.gov. (2017). Factors Affecting Natural Gas Prices - Energy Explained, Your Guide To Understanding Energy - Energy Information Administration. [online] Available at: https://www.eia.gov/energyexplained/index.cfm?page=natural_gas_factors_affecting_prices [Accessed 26 Sep. 2017].

Evans-Pritchard, A. (2017). NSA veteran chief fears crippling cyber-attack on Western energy infrastructure. [online] Telegraph.co.uk. Available at: http://www.telegraph.co.uk/news/worldnews/northamerica/usa/11563746/NSA-veteran-chief-fears-crippling-cyber-attack-on-Western-energy-infrastructure.html [Accessed 6 Sep. 2017].

expertsure.com. (2017). Global Solar Installed Capacity Per Capita [INFOGRAPHIC]. [online] Available at: https://www.expertsure.com/uk/home/global-solar-installed-capacity-per-capita/ [Accessed 2 Sep. 2017].

Gervis, R. (2017). Harvey victims in Texas still recovering as focus shifts to Irma and Florida. [online] USA TODAY. Available at: https://www.usatoday.com/story/news/2017/09/13/harvey-victims-texas-still-recovering-focus-shifts-irma-and-florida/660069001/ [Accessed 28 Sep. 2017].

Longman, N. (2017). Top 10 solar-producing countries | Renewable Energy | Energy Digital. [online] Energydigital.com. Available at: http://www.energydigital.com/renewable-energy/top-10-solar-producing-countries [Accessed 28 Sep. 2017].

Onlinemasters.ohio.edu. (2017). Differences Between an Equity Market and Bond Market | Ohio University. [online] Available at: http://onlinemasters.ohio.edu/differences-between-an-equity-market-and-bond-market/ [Accessed 28 Sep. 2017].

Samenow, J. (2017). 16 million people without power and 142-mph winds: Hurricane Irma, by the numbers. [online] Washington Post. Available at: https://www.washingtonpost.com/news/capital-weather-gang/wp/2017/09/12/16-million-power-outages-and-142-mph-winds-hurricane-irma-by-the-numbers/?utm_term=.c2459ab2ad58 [Accessed 9 Sep. 2017].

Samra, I. (2017). Modern Portfolio Theory & your Portfolio. [online] SAMRA Wealth Management. Available at: http://www.samrawealthmanagement.com/market-commentary/2017/7/1/modern-portfolio-theory-your-portfolio [Accessed 10 Sep. 2017].

Solarinsure.com. (2017). Top 5 Largest Solar Power Plants of the World | SolarInsure. [online] Available at: https://www.solarinsure.com/largest-solar-power-plants [Accessed 2 Sep. 2017].

 

 

 

All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed.  All economic and performance data is historical and not indicative of future results.  All views/opinions expressed herein are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC. The information and material contained herein is of a general nature and is intended for educational purposes only.  This does not constitute a recommendation or a solicitation or offer of the purchase or sale of securities. Before investing or using any strategy, individuals should consult with their tax, legal, or financial advisor

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