- Ford’s multibillion-dollar bet on “insourced” batteries
- No gold watches for Fed presidents
- China on the brink: Evergrande update
- A supply-chain squeeze update (fruits and veggies)
- Zach Scheidt on navigating Dems’ ETF tax proposal
- Who says there’s no such thing as a free lunch?
Ford Motor Co. intends to open two new U.S. assembly plants… for the first time in decades.
The company projects an $11 billion investment to build out its EV manufacturing capabilities, including factories in Tennessee and Kentucky. This is in addition to Ford’s $950 million investment in Dearborn’s Rouge Complex to build the all-electric 2022 F-150 Lightning.
Ford F-150 Lightning: “Battery on wheels,” says Wired.
An article at the Detroit Free Press adds: “Two battery plants will be built in Glendale, Kentucky. A battery plant and truck assembly plant will be built in Stanton, Tennessee. It all pencils out to 5,000 jobs in Kentucky and 5,800 jobs in Tennessee.
“The investment includes $7 billion from Ford and about $4.4 billion from its joint venture with battery partner SK Innovation of South Korea.
“Bringing the battery supply chain to the U.S. insulates Ford from being held hostage by battery shortages the way the industry has been kneecapped by the global semiconductor chip shortage,” says the Free Press.
We emphasize: “Where batteries are made, and where they’re shipped, will be key to automakers’ strength in coming years,” the article claims. “Companies in the U.S. want a secure, local supply chain.
“The move amounts to a major bet on electric cars as the company and other traditional automakers try to compete with EV leader Tesla Inc.” And Ford’s an EV force to be reckoned with. In terms of battery range — which is kind of everything for consumers — Ford’s Mustang Mach-E is a very close second to Tesla’s most popular model…
Ford CEO Jim Farley notes: “We already have sold out of our first generation of electric vehicles and we’re dealing with [a] capacity issue now.
“This is a really important strategic bet to insource… key components,” says Farley. “It won’t be the last.” And as the Free Press concludes: “[Ford] is positioned to truly compete in the all-electric arena.”
Of course, our science-and-technology authority Ray Blanco is enthusiastic about all that’s happening in the EV space — particularly advancements in battery technology. In fact, something Ray calls “B.E.S.S. batteries” should hand ground-floor investors an extraordinary wealth-building opportunity.
“Sell-off” is the name of the game at the market today with the three major U.S. indexes all in the red.
As a percentage of market cap, the tech-heavy Nasdaq is the biggest loser — down 2.6% to 14,580. Next up (or down)? The S&P 500’s sunk almost 2% to 4,360 while the Big Board is down 1.5% — or 500 points — to 34,375.
Turning to commodities, a barrel of WTI is selling for $74.67 — down about 1%. And precious metals are getting battered today: Gold’s down to a 1½-month low of $1,739.40 per ounce and silver’s down almost 1% to $22.50.
In sympathy with the rest of the market, flagship crypto Bitcoin is down 3.6% to $41,535.
Aaaand… it’s worth mentioning Treasury Secretary Janet Yellen says the drop-dead date for Treasury default is Oct. 18. We’ll have more on the debt ceiling debacle tomorrow; in the meantime, since we’re already talking about former Fed bigwigs…
Fed presidents Rosengren and Kaplan are retiring early from their posts at the Boston and Dallas Federal Reserve banks.
Mr. Rosengren is retiring — effective Thursday — for “health reasons.” (We were going to say something snarky about spending more time with his family too, but The Wall Street Journal says Rosengren’s “qualified for a kidney transplant.” So we’ll go easy.)
On the other hand, Dallas Fed president Robert Kaplan who “is resigning effective Oct. 8., acknowledged in a statement released by the bank that his stock trading distracted from the Federal Reserve’s work.”
Recall both Fed presidents were in the hot seat over hinky “multimillion-dollar share purchases that generated the ‘appearance’ of conflicts of interest,” says an article at Business Insider.
Admittedly, Mr. Kaplan was under greater scrutiny because throughout 2020, he was a voting member of the Fed’s Federal Open Market Committee and had access to after-hours, market-moving information. Hmm…
Which brings us to Fed chair Jerome Powell, who finds himself embroiled in the Fed presidents’ scandal and the “ethics review” it prompted.
CNBC notes: “Powell held between $1.25–2.5 million of municipal bonds. They were just a small portion of his total reported assets.” (According to the website Celebrity Net Worth, the Fed chair has a net worth of $50 million.)
“While the bonds were purchased before 2019, they were held while the Fed last year bought more than $5 billion in munis, including one from the state of Illinois purchased by his family trust in 2016.” A family trust over which Mr. Powell has control, by the way.
Powell’s four-year Fed term comes to an end in February 2022. For now, he’s the odds-on favorite for reappointment, but the odds have definitely fallen the last couple days.
[Fun fact: Regional Fed presidents’ tenures end at age 65; Rosengren and Kaplan are both 64 years old, meaning they were close to retirement anyway. At the Federal Reserve bank, there’s no such rule: Jay Powell is 68 years old.]
“Wall Street’s sounding an ‘all clear’ signal on Evergrande,” says our macro expert Jim Rickards. “They’re wrong.”
We’ve been following the dumbfounding fall of the Chinese property developer since the beginning of September, including Beijing’s response: to bail out… or to bail out.
Recently? “Evergrande agreed to settle interest payments on a domestic bond [last] Wednesday,” says Reuters, “while the Chinese central bank injected cash into the banking system, temporarily soothing fears of imminent contagion from the debt-laden property developer.”
“This is Wall Street… at its finest,” Jim says, “assuring investors that things are under control while the smart money runs for the hills.”
The Wall Street Journal communicates “something closer to the truth,” says Jim, reporting: “Chinese authorities are asking local governments to prepare for the potential downfall of China Evergrande Group… signaling a reluctance to bail out the debt-saddled property developer while bracing for any economic and social fallout from the company’s travails.
“Local governments have been ordered to assemble groups of accountants and legal experts to… talk to local state-owned and private property developers to prepare to take over local real estate projects and set up law-enforcement teams to monitor public anger … a euphemism for protests,” the article says.
“Evergrande, return our hard-earned money,” protesters chant.
Jim’s take? “The government plan is not a serious effort to truncate a financial crisis,” he says. “It seems designed more to suppress social unrest and perhaps arrest ‘troublemakers.’ Western analysts don’t understand this dynamic…
“The Communist Party of China does not care if Chinese oligarchs or investors… lose money. That suits them fine. They’re Communists.” (Emphasis ours… heh.)
“[Their] crisis management plan is the worst possible playbook,” Jim says. “Any response to a financial crisis has to be centralized so that decisions about how to deploy limited resources can be made rapidly.” Instead, Beijing is leaving Evergrande fallout to “local governments.”
“This unprecedented combination of a financial crisis and Communist indifference could result in full-blown contagion that would not be confined to China and could emerge as a crisis in the U.S. and Europe within a few months,” Jim says.
“The damage will not be confined to Evergrande. It will spread quickly to counterparties of Evergrande, including other developers and banks.”
To wit, he notes this head scratcher: Evergrande — at the behest of Beijing — is paying back creditors “with deeds to real estate that no one wants,” Jim says. “This is another fiasco in the making because those investors will dump that unwanted real estate, which will [further] collapse the property market.”
Jim gets the final word: “The Chinese are… ignoring the fact that their entire property and financial system is on the verge of a world-historic crack-up,” he says. “If you still own Chinese stocks, it’s not too late to get out.”
A supply-chain squeeze update: The nationwide shortage of truckers we’ve mentioned now and then continues to make life challenging for produce farmers.
The U.S. Department of Agriculture is out with its monthly “Fruit and Vegetable Truck Rate Report” — granular data describing the availability of refrigerated trucks in 19 regions of the country that generate much of our produce.
At this time, availability is rated “adequate” in only seven regions — two Mexican border crossings as well as much of California.
“Slight shortages” of refrigerated trucks are reported in three more regions, and outright “shortages” are reported in nine — affecting large swaths of the East Coast, Midwest and Northwest.
Expect shortages and, in turn, higher prices for produce.
We’ve been following the ETF tax proposal that’s part of the Senate’s budget bill, including a follow-up last week. So what will everyday investors do if this proposal becomes law? And how can you benefit regardless?
Here’s our retirement specialist Zach Scheidt again: “If this proposal pans out, we will see a shift away from ETF investing. Instead, more investors will start buying individual stocks.
“This entire process has already been made easier (and cheaper) now that Robinhood and other brokerages offer commission-free trading and let you buy fractional shares of stock.
“Instead of sticking with an ETF that constantly kicks off tax liabilities,” he says, “more investors will avoid short-term tax bills by holding shares of quality companies for extended periods of time.
“That’s great news for you and me! And it’s really the way that free markets were designed to operate anyway…
“If investors decide to buy shares of stock because they want to be a part-owner in that company for a long period of time, it will change the way Wall Street works,” says Zach.
“More importantly, it will change the way individual stocks are priced. No longer will a company get more access to capital just because its stock represents a certain percent of the S&P 500 Index.
“Instead, stock prices will be more closely tied to a company’s earnings prospects, because investors will buy individual shares instead of just investing in the market.
“Higher stock prices for well-run companies will give the best firms better access to funds needed to expand their business,” Zach says. “And poorly run companies will have lower stock prices.
“This will cause management teams to…
- “make better decisions for their investors
- use capital more efficiently for better returns for smart investors like you and me
- ultimately lead to a better economy.
“And if you haven’t yet started on your investment journey, now is a great time to learn to pick great stocks to hold for long-term gains,” says Zach. (For the record, Zach favors stocks that offer great dividends in thriving sectors. More on that to come.)
“As Washington looks for new ways to tax investors, money is already moving to stocks of high-quality companies,” he notes. “You can invest in these stocks today and participate in the gains as the market reacts to these new proposals.
“I’ll keep you posted on new developments with this proposal and on the best stocks for growing and protecting your wealth,” Zach concludes.
[A 5 Min. Forecast Deep Cut] In early 2018, we reported a funeral home’s unique approach to promoting funeral pre-planning: Free pizza!
Now look what arrived in my mailbox yesterday…
Puts a new spin on “Have it your way,” right? For my “final wishes”: a cheeseburger in paradise, please.
We’ll catch up tomorrow. Take care!
The 5 Min. Forecast