Maybe it’s just me, but I have always been told that most things happen out of fear and greed, and my experience in the electric utility industry is that more often than not, fear is the basis for most utility actions … perhaps rightfully so given how bad public opinion can hurt when you fail to live up to expectations.
So, it was a bit of a surprise to me that Wall Street monitors these in the markets as an index. Read it for yourself. Then, consider where this index is right now … up against the greed limit … it can’t get much higher. I wonder if we could track the mood in the utility industry the same way? I think we can certainly all agree it is not pegged against this limit by any stretch of the imagination.
Investors are driven by two emotions: fear and greed. Too much fear can sink stocks well below where they should be. When investors get greedy, they can bid up stock prices way too far.
So what emotion is driving the market now? CNN Money’s Fear & Greed index makes it clear.
We look at 7 indicators:
Stock Price Momentum: The S&P 500 (SPX) versus its 125-day moving average
Stock Price Strength: The number of stocks hitting 52-week highs and lows on the New York Stock Exchange
Stock Price Breadth: The volume of shares trading in stocks on the rise versus those declining.
Put and Call Options: The put/call ratio, which compares the trading volume of bullish call options relative to the trading volume of bearish put options
Junk Bond Demand: The spread between yields on investment grade bonds and junk bonds
Market Volatility: The VIX (VIX), which measures volatility
Safe Haven Demand: The difference in returns for stocks versus Treasuries
For each indicator, we look at how far they’ve veered from their average relative to how far they normally veer. We look at each on a scale from 0 – 100. The higher the reading, the greedier investors are being, and 50 is neutral.
Then we put all the indicators together – equally weighted – for a final index reading.
When the S&P 500 (SPX) plummeted to a three-year low on Sept. 17, 2008 – the height of the financial crisis — the Fear and Greed index sank to 12. The index gained some ground to 28 before stocks finally bottomed out on March 9, 2009 and the latest bull market began.
Most recently, in the first quarter of 2012, stocks staged their best run in decades, and the index showed pure greed.
My worst subject in high school and college was history. Perhaps it was the way it was taught … lots of dates and details that just seemed to be disjointed in my mind. Well, there was one that I did and still do remember … 1492 … the date given to Columbus discovering America, even though he really didn’t do that.
It was years later that I was informed that he was probably not the first to discover America. He was just the first to get credit for discovering it. Then, I was to learn that what he did was not so honorable to keep him in the book of great sailors like Magellan and others.
Now, the balance of the story has shifted so significantly that there is a serious movement to remove him from the history books with any degree of greatness. In fact, the mood right now is to condemn him for all the wrongs done, even though they were not wrong in that day and time.
It took a long time for the Catholic Church to apologize about how they treated Galileo. It took a long time for us to abolish slavery, or at least make it unlawful. What we seem to fail to do is to learn from history, so we are doomed to repeat it.
It always strikes me how blatantly commercial people can be when they forget Susan’s warning. If you go on the Amazon website for the Show device and watch the video you will see the caring part. But, they forget that in the actual use cases as customers live with the device.
I am sure you will see the news media stomp on Amazon for the potential invasion of privacy … it will not be pretty to watch.
As many of you know, I am the proud owner of a Tesla Model S and do appreciate all that Elon Musk did to promote the use of EVs. I have almost 40,000 miles on mine and it has gone from Boston to Miami several times.
As I watch the news and hear of all the other car companies getting on board with their EV strategies I am impressed at the impact Elon and others has made … until I got my monthly newsletter from them which unveils the sham that most of these companies have portrayed with their claims.
Claims of innovation around renewables over the past few years come to mind in like manner. The average American still has no idea how all these new energy sources are reshaping the power industry and what it is going to really cost to implement.
I do understand the reason utilities are now looking seriously and planning for demand charges in residential rates … I get it … but customers will not. And, unless we transform the customer’s understanding, this is likely to blow up in our faces as they start to realize that this is more about a cost recovery game than embracing energy technology.
Haven’t we learned anything from the challenges with demand charges in commercial and industrial rates? Do we think this kind of rate structure is going to fly with the low-income groups that are growing at staggering rates in our service territories across the country?
Insurance has a wonderful history in society. Those who can sustain financial loss take a payment from those who cannot in exchange for some level of coverage. The value creation here is substantial, especially when the likelihood of a claim is low. So, life insurance for young people tends to be inexpensive and the person or company writing the agreement will tend to make a lot of money. All this is of course a matter of how the dice rolls!
No wise person would want to sell insurance knowing full well that the claims will bankrupt them. That would be considered stupid, wouldn’t you think? In fact, can you imagine working for a company that did this repeatedly? You would certainly know that the day was coming when the roof would cave in.
Well, the recent situation in the Gulf is a case in point. We all heard that Houston floods routinely. That was no surprise. Yes, the amount of rain was more than we have seen in the past, but flood losses are almost routine there. So, what happens when flood insurance is subsidized based on making home ownership more affordable?
It seems we all have a lot to learn about public policy and how risks are priced into the markets … or not.
We are in a huge transition within the electricity pricing discussion. We are beginning to see risks in natural gas time based pricing as well. It seems we should be having a dialogue now before the storms hit.