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  1. Home
  2. / Investing

A Failure to Recognize the Obvious Truths

Prices for everything are rising and it's a vicious, vicious circle. Here's where to invest now.
By JIM COLLINS
Nov 18, 2021 | 11:00 AM EST
Stocks quotes in this article: AAPL, MSFT, GM, TSLA, RIVN, TBT, XOM, SPH

It is the Golden Age of... something. I just cannot remember a period when things just made me SMH, as the kids would say, so often. I think my neck muscles are sore from so much head shaking.

It's just the failure to recognize the obvious truths, and seemingly from all corners. Yesterday, for instance, I read the farcical letter from the White House signed by President Biden to Lina Khan, the chairperson of the FTC. In between a basic misunderstanding of the process of making motor fuels - where is this vast reserve of unrefined gasoline that whoever wrote this letter for Biden refers to in the letter? Cleveland? - the letter is just littered with obfuscation and half-truths.

The letter concludes with a wail that oil companies are paying billions of dollars in dividends and will have buyback programs through 2022. You know who else does that? Your beloved woke companies Apple (AAPL) and Microsoft (MSFT) . As they should.

But it's just this tired 1970s-style anti-corporate rhetoric emanating from The Swamp when everyone I know trades stocks on his or her phone. The 1970s should be a good reference point for these people, though, since we are in a period of inflation not seen since then.

The Biden Administration's misguided policies - killing Keystone XL and halting drilling permits on federal lands in New Mexico  - New Mexico was not one of the 12 states covered by Monday's injunction in Louisiana v. Biden, which essentially negated federal drilling bans - are aided and abetted by start level policies by his acolytes, including Gavin Newsom in California. Kern County, California produces a lot of crude, and it is almost impossible there to get a new drilling permit to produce more.

And then, oh, man I am on a roll now, we get Biden's Energy Secretary Jennifer Granholm inexplicably laughing and calling Bloomberg reporter Tom Keene's very prescient question about the ability to produce more crude domestically "hilarious."

What is wrong with these people? California gas prices hit an all-time high this week at an average of $4.71 per gallon, and AAA figures show an epidemic of higher gasoline prices across the USA, just as the major driving holiday of Thanksgiving approaches.

But Biden wants to do spin-outs in GM's (GM) Hummer EV. Elon Musk (TSLA) , and now Rivian's (RIVN) RJ Scaringe, are laughing all the way to the bank at this Administration's bizarre policies. But as gasoline prices rise, you know what else is rising? That's right, prices for electricity. The stuff you need to charge your Model 3 or R1T.

I look at the data from my home state, as reported by NYSERDA, which unfortunately is slightly delayed. Looking at the data from the first eight months of 2021, we can derive an average cost per kwH of 19.1c, a 6.1% increase over the same period in 2020.

Bam! That's inflation!

Interestingly, NYSERDA's data show that the same period in 2020 produced a 1.4% increase over 2019, to 18.0c/kwH despite COVID - New York City was not a fun place to be when the pandemic first broke - and it's just another verse to the same song.

Prices for everything are rising and it is a vicious, vicious circle. Raw materials prices rise, led by energy, which means finished goods producers have to raise their prices to maintain margins which means everyone has to increase wages because no one wants to work his or her way into poverty. Those higher wages lead to increases in raw materials prices, which lead to higher finished goods prices, which then lead to even higher wages.

This is the inflationary spiral in real life. It is ugly and it impacts lower-income folks much more than higher-income folks, so it acts as a regressive tax.

The last time this happened we had the cigar-chomping, Paul Volcker as Fed Chair. Shock treatment. Double-digit interest rates, and darn it if it didn't work and work quickly enough to get Reagan re-elected in 1984 by winning 49 states.

Today? Oy vey. Powell. Yellen. As I like to say on my frequent business trips to Brazil, chorando muito. I am crying. A lot.

So, how to play this? Any U.S. Treasury instrument is absolute garbage here. I still love the iShares short Treasury ETF (TBT) . Jerome and Janet and their global cronies have created a world where bond yields no longer reflect the real world rate of inflation. So you have got to buy a high-yielding securities that aren't bonds because bonds prices are based on the rigged Treasury market

Exxon (XOM) , with its 5.5% yield after the dividend was recently bumped by a penny? Yes, please. Suburban Propane (SPH) , with an 8.6% yield that I highlighted in my RM column last Friday? Indeed. Energy is where the yields live and we live in a world where XOM yields twice as much as Exxon bonds. I can't explain it... I just work here.

Make sure you are overweight energy equities and LPs in your portfolio now. If you want to think about those positions as a hedges against your speculative bets in TSLA and RIVN, then so be it. That's a smart way to invest in a world - at least our corner of it -w here smartness is in very short supply.

(Apple and Microsoft are holdings in the Action Alerts PLUS member club. Want to be alerted before AAP buys or sells these stocks? Learn more now.)

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At the time of publication, Jim Collins' firm owned XOM and has TSLA puts.

TAGS: Investing | Markets | Politics | Stocks | Trading | Energy

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