by Louis Navellier

August 25, 2020

California Fires Image

Lingering coronavirus concerns, the flight out of big cities, the ongoing protests, and California’s annual summer brownouts are all pointing to potentially low voter turnout for the upcoming November elections.

Riots have now gone on in Portland for nearly 90 straight nights. The national movement to defund the police is not inspiring voter confidence or confidence in reopening many city businesses, especially after the disturbing video last week of a couple in a pickup truck being beaten senseless on a Portland street. I have friends in Seattle, Portland, Los Angeles, Chicago, and New York City who are all complaining about the aftermath of the protests and looting, since many stores and restaurants there may never return.

Also, California’s war against natural gas power plants and aggressive shift to alternative energy solutions are now causing rolling blackouts that may persist through October. All these problems will not help local, progressive politicians, so it will be interesting to see if there will be voter pushback in November.

Over 15 years ago, California Governor Gray Davis was removed from office after the state did not have enough natural gas “peaker” power plants and after hydroelectric output from the Pacific Northwest plunged due to a drought. Complicating matters further, Governor Davis was trying to acquire the electric grids from multiple utilities via eminent domain. This grid mismanagement crisis is resurfacing now, during this summer as well, as California routinely shuts down its electricity service during fire season.

What is so disturbing this time around is that current California Governor Gavin Newsom admits that by shutting down big natural gas plants, the state was not prepared to shift to alternative energy sources despite the approval of a massive lithium battery storage facility in Moss Landing and anticipated approval for another battery storage facility in Morro Bay. An acute shortage of lithium batteries will delay the completion of both storage facilities, so California’s electric grid may remain strained for the next few years. Shockingly, Forbes reported last week that California’s electric output is now less than it was back in 2006 due to the closure of some big nuclear and natural gas power plants!

The latest fire season exploded last week due mostly to lightning storms. The fire season historically persists through October due to record heat from the Indian Summer in Northern California and the Santa Ana winds in Southern California, so rolling blackouts may persist through the November 3 election day.

While devastating for many Californians, this blackout could be great news for Enphase Energy (ENPH) as well as SolarEdge Technologies (SEDG), since both companies make the solar inverters that allow lithium Powerwalls and battery packs to provide uninterrupted electricity. Furthermore, both Audi (part of VW Group) and Tesla (TSLA) are expected to announce in the upcoming months how their electric vehicles can be adapted to act as battery backups to run the electricity for your home. This “reverse grid” solution is expected to be big news in the upcoming months, especially for Enphase Energy.

Navellier & Associates owns Enphase Energy (ENPH), and SolarEdge Technologies (SEDG) in managed accounts but does not own VW Group, or Tesla (TSLA).  Louis Navellier and his family own Enphase Energy (ENPH), and SolarEdge Technologies (SEDG) in personal accounts managed at Navellier & Associates but does not own VW Group, or Tesla (TSLA)  in personal accounts.

The Housing Market Resembles a “V” Shaped Recovery

The economic news last week was mostly positive. The best news is that the Commerce Department reported on Tuesday that new housing starts surged 22.6% in July to an annual pace of 1.496 million – the largest monthly increase since 2006. Building permits also rose 18.8% in July to a similar annual pace of 1.495 million. Both of these reports were big surprises, since economists were expecting housing starts and building permits to come in at an annual pace of 1.252 million and 1.33 million, respectively.

Rounding out a positive housing scenario, the National Association of Realtors announced on Friday that existing homes sales in July surged 24.7% to an annual rate of 5.86 million, which was substantially higher than the economists’ consensus estimate of 5.5 million. This represents the second consecutive month of record sales increases. In the past 12 months, existing home sales have risen 8.7%. The supply of existing homes for sale is now at only a 3.1-month supply at the current sales pace, which represents the lowest inventory ever in July, so home prices should continue to rise steadily in the upcoming months.

In other words, the housing industry is still in the midst of a V-shaped economic recovery, aided by record-low mortgage rates. Interestingly, multi-family housing starts surged 56.7% in July, while single family starts rose 8.2%, which means that builders are now trying to make more affordable homes.

There’s mixed news in the jobs market. The bad news is that the Labor Department announced Thursday that new claims for unemployment in the latest week unexpectedly rose to 1.11 million, up from 971,000 the previous week. This was a big disappointment, since economists were expecting 910,000 new claims. However, seasonal adjustments were largely responsible, since the actual new claims were only 891,510.

Some more positive news was that continuing unemployment claims declined by 636,000 to a new pandemic low of 14.84 million. Including eight state and federal assistance programs, a total of 28.06 million people are still receiving government assistance, down from 28.26 million in the previous week.

The Fed Pushes Rates Lower and Chides Congress for Their Inaction

The 20-year Treasury auction on Wednesday had a bid-to-cover ratio of 2.26, which was well down from previous auctions, but better than the disastrous 30-year Treasury bond auction in the previous week. As a result, Treasury yields meandered a bit lower despite a weak U.S. dollar and less enthusiastic overseas buying pressure. The Fed remains in control of the Treasury yield curve and there is no doubt that their $120 billion per month of quantitative easing likely helped them to “knock” yields a bit lower last week.

The Fed also released its latest Federal Open Market Committee (FOMC) minutes on Wednesday, and I must say that I was a bit surprised at how exasperated the Fed sounded when they seemed to call on Congress for help! Specifically, the FOMC minutes noted that there was a consensus on the need for more fiscal help from Congress, which went on recess without a deal for more rescue funding, even as critical elements, such as enhanced unemployment insurance, expired.

The FOMC minutes also “agreed that the ongoing public health crisis would weigh heavily on economic activity, employment, and inflation in the near term and was posing considerable risks to the economic outlook over the medium term.”  The FOMC minutes also discussed “outcome based” forward guidance, which was the only change from past minutes and indicative that the Fed will be monitoring economic data carefully in conjunction with citing specific inflation and unemployment targets.

Overall, I found the FOMC minutes to be depressing. Clearly, the Fed is frustrated with Congress.

All content above represents the opinion of Louis Navellier of Navellier & Associates, Inc.

Please see important disclosures below.

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Louis Navellier
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Louis Navellier is Founder, Chairman of the Board, Chief Investment Officer and Chief Compliance Officer of Navellier & Associates, Inc., located in Reno, Nevada. With decades of experience translating what had been purely academic techniques into real market applications, he believes that disciplined, quantitative analysis can select stocks that will significantly outperform the overall market. All content in this “A Look Ahead” section of Market Mail represents the opinion of Louis Navellier of Navellier & Associates, Inc.

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