What we’re reading (6/18)
“Big Oil Takes a Beating, But Its Investors Are Riding High” (New York Times). “It has been a terrible several weeks for big oil companies like Exxon Mobil, Chevron and Royal Dutch Shell…Yet it has also been a glorious stretch for investors in energy, the best-performing sector in the stock market this year. Prices of energy companies and of oil and gas have been soaring. Much of those increases can be attributed to a surge in demand as the economy recovers from the coronavirus pandemic. But the prospect of long-term energy supply constraints, as companies are forced to respond to climate change, complicates matters enormously.”
“The Long-Term Forecast For U.S. Stock Returns” (Morningstar). “The new normal looks much like the old normal…[r]eal earnings growth during the 2000s was no higher than during the 1960s. To be sure, productivity has improved substantially over those 40 years, but those gains were already reflected in stocks’ performances. Corporate improvements come gradually. There’s no compelling reason to expect otherwise in the future. Which means that the Buffett formula would appear to remain valid. With the S&P 500 currently yielding 1.37%, the model gives an expected long-term stock return of 6.37%.”
“As Fed Wakes Sleeping Dollar, Jolted Bears May Bolster Gains” (Reuters). “A hawkish shift from the Federal Reserve has woken up a slumbering dollar, sending the U.S. currency to its highest level in months and stoking expectations that an unwind of bearish positions could fuel more gains.”
“Capital Gains: A Century-Old Tax Break Gets A Rush Of Attention” (Wall Street Journal). “The tax deferral on unsold assets boosts their growth and usually helps more than inflation hurts, according to tax specialists Len Burman of the Tax Policy Center and Kyle Pomerleau of the American Enterprise Institute.”
“Investors In Technology Need To Pay Attention To Corporate Governance” (The Economist). “The recession caused by covid-19 was a hammer-blow to many parts of the global economy. But a side-effect of the pandemic was to turbocharge Silicon Valley and its various offshoots, amplifying an already unprecedented bull run. All manner of sins, from questionable accounting to imperious executive behaviour, tend to be overlooked in good times. As Warren Buffett famously noted, only when the tide goes out can you see who has been swimming naked.”
