Rates up, utilities up? Its not supposed to work that way. XLU, IDU and UTH were all a little higher as were the individual names I am involved with.
What to make of demand for this group as rates move up? I could be wrong but I take that as a lack of confidence in growthier equities. The market does not necessarily need confidence but if my thought holds any water, this action might indicate the market is in control of weak holders. Conclusion? You may be tempted to add beta but don't go overboard.
Wikinvest Wire
2 comments:
The utilities are up because the bill working its way through congress will end a number antiquated utility laws. Laws were passed during the great depression that prohibit banks, energy and other companies from owning utilities. There were also laws that stiffle competition. Large, efficient utilities have not been allowed to expand into other regions. The repeal of these laws will lower utility rates and result in the take over of smaller less efficient companies. Warren Buffett has already gotten into the act.
One of the other big changes will be time of day rates. All consumers will get a break if they use electricity at off peak hours such as through-out the night. Given the opportunity to pay 5 cents during the night and 8 cents during the peak hours, many consumers and businesses will store electricity in batteries and fuel cells at the low rates and release it during the high rates. They will also avoid energy use activities durin the afternoon--reducing the peak capacity needed. Some businesses will make money by selling electricity at peak rates. Our dependency on foreign oil will be reduced as large 24/7 power plants use coal or nuclear fuel. Peak time plants use diesel fuel or gas. Big changes afoot!
In response to the original post by Roger, could the utility runup be part of the search for yield combined with the fact that there's a good story to spin with recent dividends increases?
As one who works in the energy industry, I appreciate the significance of the issues raised by Jack Miller. However, if and when Federal law changes, it will be years before any of the efficiencies impact business results. Just think of the time involved in getting the state PUCs and FERC to re-write their rules. Then comes the litigation.
In the meantime, the stock of a mundane utility like TE goes parabolic? This may be one occasion to sell on the news.
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