Towerpoint Wealth No Comments

Will EVs Rise Mean Combustion’s Demise? 08.27.2021

Big Oil. A somewhat-pejorative name used to describe the world’s six largest publicly traded oil and gas companies:


BPChevronExxonMobilRoyal Dutch ShellTotalEnergies, and ConocoPhillips.

BP, Chevron, ExxonMobil, Royal Dutch Shell, TotalEnergies, and ConocoPhillips

These “supermajors” are facing intense challenges, specifically to their oil reserves and production. Pressure to cut back traditional upstream spending and redirect capital into renewable energy projects is intense, which we believe will drive oil supply down and oil prices higher.

Renewable svs Oil and Gas

Oil production growth outside of OPEC+ has been extremely difficult to achieve, and recent ESG pressures have exacerbated these problems. In what the New York Times dubbed a “stunning defeat” for ExxonMobil, and a huge win for ESG proponents, activist investor Engine No. 1 secured three new directors (out of 12 total) to ExxonMobil’s board of directors, with a specific mandate to reduce the company’s carbon footprint by curtailing capital investments into its upstream oil and gas businesses. At about the same time, a Dutch court ruled that Royal Dutch Shell must cut its CO2 output by 45% by 2030 to align company policy with the Paris Climate Accord.

What will happen when the other supermajors are also forced comply with mounting ESG and governmental pressures and reduce upstream spending? We believe non-OPEC production will continue to decline, further paving the way towards increased capital expenditures for renewable energy projects. Rystad Energy analysis forecasts renewable energy projects to set a new record in 2021 ($243 billion), narrowing the gap with oil and gas spending (projected to be relatively flat at $311 billion).

These facts all align with the multi-step strategy that President Biden announced just earlier this month: By 2030, half of all new vehicles sold in the US should be electric. And while this goal is a bit loftier than the EV sales projections found below, the transition from oil to electric is obviously no longer a trend, but instead a full-blown movement.

Electric Vehicle Stocks

Underscoring this movement was the pledge made by executives from the three largest US auto companies: 40 to 50% of their new car sales would be electric by the end of the decade. Understanding that gas-powered vehicles are the single biggest source of greenhouse gases in the US (producing more than 25% of our total emissions), a rapid shift from combustion engines to EVs continues to aggressively take place. Need further confirmation?

The question certainly remains: Will consumers buy them?

At Towerpoint Wealth, we recognize there are obstacles: higher sticker prices, the lack of widespread charging stations (needed for longer-distance drivers), stress to the country’s power grid (if every American drove an EV today, the US could end up using about 25% more electricity than it does today), and pressure from labor unions (EVs have 30-40% fewer moving parts, and require fewer workers to assemble) are all headwinds to this movement. However, we also believe it is just a matter of time before combustion-engine vehicles take their place next to rotary phones, VCRs, and the folding maps.

rotary phones, VCRs, and the folding maps

What’s Happening at TPW?

Three generations of Eschleman men!

Our President, Joseph Eschleman, attended the Philadelphia Phillies / Tampa Bay Rays game on Wednesday evening at Citizens Bank Park in Philly, with his father Eric and his 11-year-old son, Henry.

The Phils blew the game in the ninth inning, but all three Eschlemans had a great time together!

President, Joseph Eschleman, attended the Philadelphia Phillies his father Eric and his 11-year-old son, Henry

In an effort to maximize our productivity as a firm, we were early to adopt Salesforce as our customer relationship management (CRM) software.

Salesforce forms the backbone of our operations, allowing us to efficiently administer and manage all of our interactions with clients, colleagues, prospects, and friends.

A huge thank you to Ryan O’ConnellDynasty Financial Partners’ CRM specialist (in the photo, “sandwiched” between Michelle Venezia and Lori Heppner after lunch yesterday) for being on site this week to assist with a Salesforce instance upgrade, helping us to stay ahead of the curve and better interface and communicate with each of our clients!

Ryan O'Connell Dynasty Financial Partners Michelle Venezia Lori Heppner

Illustrations/Graphs of the Week

Have you heard that federal capital gains taxes may soon be increasing?

Although the final details of President Biden’s American Families Plan to potentially increase capital gains taxes (to pay for some portion of the various US Congressional domestic priorities such as education and child care) are not yet specified, they are likely to influence securities prices and financial market conditions.

Oddly, the chart below depicts the price return of the S&P 500 index six months before and six months after capital gains taxes were increased.

By far (and we feel, surprisingly), the six months BEFORE capital gains taxes are increased represent the periods of most risk to equity prices.

Capital Gains Tax Stocks


Trending Today

As the 24/7 news cycle churns, twists, and turns, there have been a number of trending and notable events that have occurred over the past few weeks:

As always, we sincerely value our relationships and partnerships with each of you, as well as your trust and confidence in us here at Towerpoint Wealth. We encourage you to reach out to us at any time (916-405-9140, info@towerpointwealth.com) with any questions, concerns, or needs you may have. The world continues to be an extremely unsettled and complicated place, and we are here to help you properly plan for and make sense of it.

– Joseph, Jonathan, Steve, Lori, Nathan, and Michelle

Click here to Download
http://towerpointwealth.com/wp-content/uploads/2021/09/Will_EVs_Rise_Mean_Combustions_Demise.pdf
Towerpoint Wealth No Comments

“Will the Big Blue Wave Leave You Money to Save?”

It seems ridiculous in times like these to write a newsletter about finances and money, but we feel it is our responsibility at Towerpoint Wealth to do so, even if only to provide some respite from politics to our growing family of readers and Trending Today subscribers. We have heard from a few clients that, for a number of good reasons, you already feel like this: 

And while we understand that it has been a tumultuous week, let’s not be too quick to throw in the towel on 2021!


2020 ended with a record close for both the the S&P 500 (3,756.07, representing a +16.3% price gain for the year) and the Dow Jones Industrial Average (30,606.48, representing a +7.2% price gain for the year). So far in 2021, equity prices have continued their upward trend, even with concerns including:

  1. The economic implications of the Democratic wins in both Georgia Senate runoff elections and the tumultuous events in our nation’s capital on January 6th
  2. The likely trajectory of a resurgent third coronavirus wave
  3. Expectations of additional public health-driven economic restrictions and/or lockdowns
  4. A deflation of the currently high levels of investor optimism
  5. Growing levels of speculative activity in some quarters of the market (high volumes of options trading, a robust IPO calendar, and the popularity of cryptocurrencies)  
  6. An interval of market consolidation following such an annus mirabilis as investors have experienced over the past 12 months in the financial markets.

While recognizing the cogency and reality of these concerns, at Towerpoint Wealth we have maintained an essentially constructive view of equity prices, based upon the following factors:

  • Continuing monetary stimulus from the Federal Reserve, with ultra-low policy interest rates and $120 billion per month in “Quantitative Easing” money printing, augmented by significant growth in the M-2 money supply, which tends to produce a stimulative environment for consumer prices, GDP, and financial assets (as shown below, over the past year, the U.S. M-2 money supply has increased at +25.2%, the highest rate of growth in four decades!);

Although we believe stock valuations are elevated and investor optimism is high, equity prices were well aware of and already somewhat discounting the possibility of the outcome of the Georgia Senatorial runoff elections tilting Democratic. Additionally, after a possible short-term pullback/correction, the stock market can continue to move higher, with extra caution and care called for, and perhaps even with some cash raised that can stand ready to be invested on a disciplined basis during a market retrenchment.

Implications of the Georgia Senatorial Elections

In our opinion, assuming no defections from party lines, a Democrat-controlled Senate appears likely to produce:

  1. Higher Taxes: Tax increases may not necessarily materialize to the degree that markets may have feared earlier, given that the Senate is likely to feature essentially a 50-50 Democratic-Republican tie — with Vice President-elect Kamala Harris in a position to cast a tie-breaking vote in favor of the Democrats, and with Senator Joseph Manchin III (D, WV) and/or others possibly voting to weaken or reject the tax increases. With some delays and/or dilutions, higher corporate, payroll, income, capital gains, and estate taxes may eventually be on the horizon for many taxpayers (the proposed levies in the Democratic platform amount to $4 trillion, with something in the neighborhood of half that amount deemed likely to be passed). The essential tie in political power in Congress may limit the extent of any changes in tax policy, and an important consideration to be kept in mind is the effective date of any tax increases, including the possible likelihood of retroactivity to January 1st, 2021. 
  2. More Spending: With proposed spending increases amounting to $7 trillion stretched out over a decade, the new Administration favors entitlement expansion, healthcare, climate, and green infrastructure initiatives (to accelerate the use of clean energy in the power sector, building construction, and transit); hiking the minimum hourly wage to $15 (which could support household incomes and augment growth in consumption); housing; education; and infrastructure. President-elect Biden has several times expressed support for drug price reforms. 
  3. Increased Regulation: Through job appointments, executive action, and legislation where feasible, the Biden administration may favor increased restraints on the financial sector and some portions of the healthcare sector, with continued antitrust and market dominance scrutiny applied toward mega-cap technology and social media companies. Statements by President-elect Biden have indicated that his administration might limit pipeline approvals and curtail drilling activity on federal lands.
  4. Spotlight on Relations with the Judiciary: Although we deem such actions unlikely, President-elect Biden may possibly favor certain proposals from within his party to attempt to curtail the Supreme Court’s authority over specific laws by attempting to: (i) impose term limits; (ii) expand the size of the Court; or (iii) through legislative action, divest the Court of its authority over contentious social issues (referred to in academic circles as “jurisdiction stripping”). Any proposed limitation of the Supreme Court’s own powers will very likely spark intense and determined pushback via lawsuits by the Supreme Court as well as by battling parties on either side of the issues involved. 

“Blue Wave” Affected Sectors

Democratic control of the White House, the House of Representatives, and (even if by the narrowest of margins) the Senate (a so-called “blue wave”) could be deemed favorable to large managed-care organizations, renewable energy firms, and the ESG space (companies reflecting and/or supporting Environmental, Social, and Governance initiatives and ideals). Other perceived sectoral beneficiaries of a “blue wave” include, among others: the weakening of the U.S. dollar versus foreign currencies; tax-exempt state and local government municipal bonds; high-yield bonds, small-cap stocks; construction and engineering, manufacturing, materials, industrial machinery, and related firms focusing on the U.S. transportation, maritime, and aviation infrastructure; renewable energy (including wind farms, solar projects, and high-voltage direct current transmission facilities); healthcare equipment and supplies; and cannabis-related companies.

Sectors perceived to be less favorably affected by a slim-margin “blue wave” include: large firms that benefited from the 2017 corporate tax cuts; large-cap pharmaceutical stocks; content liability-protected social network companies (currently shielded by Section 230 of the 1996 Communications Decency Act); dominant technology antitrust targets; the oil and gas sector; tobacco companies; aerospace and defense firms; health insurance companies; student loan servicing companies, asset managers, credit rating firms, and stock exchange operators; precious metals and precious metals mining shares; and labor-intensive enterprises sensitive to minimum wage increases (e.g., retail and grocery companies, restaurant and fast food chains, for-hire ride-sharing companies, and courier and package delivery firms).

What’s Happening at TPW?

Our Director of Research and Analytics, Nathan Billigmeier, and Partner, Wealth Advisor, Jonathan LaTurner, slipped away yesterday to play a round of golf at the #1 public golf course in America, Pebble Beach Golf Links!

Our President, Joseph Eschleman, found a good (albeit chilly) lockdown activity to do with his family last week, watching The Croods: A New Age at the West Wind Drive-In in Sacramento!

TPW Service Highlight – Client Family and Culture

In addition to providing them with the economic peace of mind that comes with the suite of comprehensive wealth management services we provide, as “family members” Towerpoint Wealth clients have also come to expect us to host regular, fun, and unique client appreciation and education events, which we happily deliver on. If you aren’t currently a client, here is what you have been missing out on (!):

Chart of the Week

As mentioned above, the news yesterday of the Democrats taking control of the Senate led investors to believe that the government will boost fiscal stimulus, which would in theory boost consumption and economic growth, and in turn, inflation.

The chart below compares the relative performance of stocks that benefit from inflation (blue) vs. those that benefit from deflation (black).

Trending Today

In addition to history making and money making, a number of trending and notable events have occurred over the past few weeks:

As always, we sincerely value our relationships and partnerships with you, as well as your trust and confidence in us here at Towerpoint Wealth. We encourage you to reach out to us at any time (916-405-9140, info@towerpointwealth.com) with any questions, concerns, or needs you may have. The world continues to be an extremely complicated place, and we are here to help you properly plan for and make sense of it.

– Joseph, Jonathan, Steve, Lori, Nathan, Matt, and Michelle

Towerpoint Wealth No Comments

No Outcome? No Surprise. No Problem!

We expected it to be this way, right? Historically, the market has always gotten a bit crazy both before, and after, the election:

Since Election Day on Tuesday, the S&P 500 has rallied 4%, and has enjoyed its best start to the month of November ever, up 7.4% in four days.

At Towerpoint Wealth, we believe there are a few reasons for this big jump:

  1. While investors do expect a fiscal stimulus package out of Washington D.C. in the near future, perhaps before January, the size of a deal reached in a divided Congress is likely to be much smaller than it would be under a Democratic-controlled Congress. However, sometimes bad news equals good news on Wall Street, and this had led investors to believe that more pressure will be on the U.S. Federal Reserve (“the Fed”) to pump more funds into the financial system, theoretically supporting stock prices. Just yesterday, Fed Chair Jerome Powell said more stimulus is “absolutely essential” to economic recovery.
  2. Assuming Republicans hold the Senate, the likelihood of significant increases in both regulations and income taxes is significantly decreased.
  3. Interest rate and inflation expectations have recently dropped:
         Interest Rates       
Inflation

Additionally, as the Chart of the Week towards the bottom of this newsletter indicates, gridlock has historically been good for the equity markets. And while ballots are still being tallied, and Arizona, Georgia, Nevada, and Pennsylvania remaining in focus, it does appear that Joe Biden is on the brink of victory, and that we are much closer to having a clear winner, possibly by tomorrow or Sunday. The betting markets on the Presidency sure seem to agree:

There are many reasons for us here at Towerpoint Wealth to be paying close attention to events out of our control, but no reason to be reactionary to any of them. In addition to the recent interest rate and inflation-expectation adjustments, some of the other post-election, split-Congress items bearing scrutiny include:

  1. Renewed weakness in the financial sector
  2. Growth stocks outperforming value stocks
  3. Industrial and materials sector stocks lagging
  4. The volatility of the U.S. dollar
  5. Strengthening emerging market stocks
  6. Continued strengthening of technology sector stocks
  7. Potential weakness in tax-free municipal bond prices
  8. Weakness in healthcare sector stocks
  9. Weakness in renewable energy stocks


All of these moving parts and variables can make it tempting to consider second-guessing your investment strategy and philosophy. The constant struggle between the desire for growth and protection is natural, and the goal of managing a well-diversified portfolio is to be prepared for any market environment or political change.


Ultimately, when we put aside all of those “uncontrollables,” we keep the following graph in focus (hopefully the trend is an obvious one):

What’s Happening at TPW?

The Towerpoint Wealth family enjoyed an afternoon of teambuilding and camaraderie on the Sacramento river earlier this week, taking a quick voyage on the Sacramento Brew Boat up and back to the iconic Virgin Sturgeon restaurant for lunch.

While on their adventure, they also helped our newest family member and wealth advisor, Matt Regan, celebrate his birthday!

TPW Service Highlight – Morningstar Portfolio “Instant X-Ray”

Often enough, clients ask us what stocks they have exposure to within the various mutual funds and exchange traded funds (ETFs) that comprise their portfolio. We now have a sophisticated tool available to us that not only does a deep-dive in evaluating your specific asset allocation and sector weightings, but also the actual individual underlying holdings you have exposure to.

Think you are properly diversified? There is only one way to find out for sure – ask us to run a Morningstar portfolio Instant X-Ray report, and we will dissect your portfolio to uncover concentrated positions, areas of unexpected overlap, and provide detailed insights into your portfolio’s diversification, illuminating what is truly driving your portfolio’s risk and performance.

Chart of the Week

The odds right now seem to favor a Biden presidency, a Republican Senate, and a Democrat House. The chart below, from LPL Financial Research, shows how a split Congress has been historically good for the stock market.

As always, we sincerely value our relationships and partnerships with each of you, as well as your trust and confidence in us here at Towerpoint Wealth. We encourage you to reach out to us at any time (916-405-9140, info@towerpointwealth.com) with any questions, concerns, or needs you may have. The world continues to be an extremely complicated place, and we are here to help you properly plan for and make sense of it.

CLICK Here To Download Towerpoint Wealth PDFs

– Steve, Jonathan, Lori, Joseph, Raquel, Nathan, and Matt

Towerpoint Wealth Our Team Sacramento Wealth