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Outside the Box: Americans’ love affair with pickup trucks might be derailing their retirement plans

The Wall Street Journal recently shared the story of a couple who is struggling because the pandemic has upended their jobs and income. To make matters worse, they’re dealing with a massive amount of consumer debt.

The article says:

“The Denton, Texas, couple pay $4,400 a month on their mortgage, four car loans and leases, and student debt, Ms. Scott-White said. Minimum required monthly credit-card payments total about $700. The debt was manageable pre-pandemic, she said.

“She deferred lease payments on her Infiniti QX60 for three months and started paying again with unemployment benefits. Her husband traded in his Ford F-150 in August for a lower-cost car and reduced his original monthly payment of $820 by about $100, and his income covers the $2,100 mortgage.” (Emphasis added.)

The Ford F, -1.99%  F-150 payment stuck out to me for a couple of reasons. Maybe it’s because I live in Michigan, but I see Ford trucks all over the roads. And a monthly outlay of $820 is quite high for a car payment, especially when you consider this family has credit card debt and three other car loans or leases.

After doing some digging, it’s no surprise I see so many Ford F-Series trucks on the road. It’s been the best-selling vehicle in the United States for 39 straight years. (And it looks like 2020 will make it 40 in a row.)

In fact, the top three vehicles in the U.S. over the past seven years are pickup trucks:

That’s more than 13.2 million new pickups sold from 2013-2019, and these are only the most popular models.

I’m sure there are people in certain professions who need a truck, but I’m not sure how so many millions of people afford the payments on them.

If you get all of the bells and whistles such as four-wheel drive, extended cab and such, these trucks can run anywhere from $50,000 to $70,000.

Truck poor

For a 60-month loan at 4%, that’s a monthly payment in the $800-$1,300 range, depending on your down payment. And these numbers don’t include extras like gas or insurance. That’s a lot of money for a truck if you’re not regularly using it on the job.

I understand why it can be hard to save more for many families.

Some people simply don’t make enough money. Others are bogged down with student loans. And then there are those who have seen their careers or businesses upended by the 2009 financial crisis and 2020 pandemic.

But there are certainly people out there who spend far more than they should on their vehicle(s), and it is inhibiting their ability to get ahead financially. Adam Ozimek, an economist at Upwork, shared similar thoughts on Twitter:

Ozimek’s hurdle rate for buying a $40,000 car are a touch higher than mine, but the point remains that there are plenty of people driving expensive cars who don’t have enough savings elsewhere.

Spending priorities

I know I shouldn’t judge other people’s spending habits, but I’m constantly looking at decked-out trucks and SUVs on the road and thinking to myself, “I wonder if that person maxes out their 401(k)?” Or: “Do they have an emergency fund set up because you can’t spend that Land Rover in a pinch?”

The difference between the monthly payment on a $45,000 vehicle and a $20,000 vehicle is basically enough to max out your individual retirement account (IRA) in a given year. The difference between a new $70,000 truck and a $20,000 used model would be enough to fund nearly 60% of the way toward maxing out your 401(k). And a new vehicle depreciates the minute you drive it off the lot while your retirement savings grow over the long term.

Driving an inexpensive car is one of the biggest levers people can pull to free themselves up financially to save more.

It’s also true that the good feelings you get from buying a more expensive vehicle are fleeting. Researchers from the University of Michigan studied drivers of a BMW BMW, -2.60%, Honda HMC, -0.04%  Accord and Ford Escort.

During a short trip such as a test drive, people reported more positive feelings for a luxury brand like a BMW. This is because you’re hyper-aware about all of the features that come in a more expensive ride during that initial drive.

The happiness factor

But once people began taking the cars for longer trips, those feelings all but evaporated. The correlation of positive feelings to the price of the car was essentially zero. Once you get behind the wheel enough times, the novelty wears off and it becomes more about traffic, other drivers on the road and getting from point A to point B.

I’m not saying people can’t have nice things. I don’t want to be that personal-finance scold who constantly tells people all of the things they can’t spend money on.

But if you’re struggling financially, your vehicle is the perfect place to find some wiggle room since a more expensive car or truck isn’t going to make you any happier.

Ben Carlson is the author of the investing blog “A Wealth of Common Sense,” where this was first published. It is reprinted with permission. Follow him on Twitter @awealthofcs.

The Tell: Stock fund outflows reach nearly two-year high as selloff intensifies

Where is the money going?

Adem Altan/Agence France-Presse/Getty Images

U.S equity mutual funds and exchange-traded funds last week saw their biggest weekly outflows in nearly two years last week amid a month-long market swoon.

Stock funds saw outflows of $26.87 billion in the week ending Sept. 23, according to BofA. That was the largest since the market tumble of December 2018.

September has been a roller-coaster ride for fund flows: in the prior week, funds took in $22.67 billion, the largest weekly haul since March 2019.

It’s been a rough month for stocks, with major benchmarks on track Friday for their fourth straight weekly loss and headed for their first monthly declines since March. The S&P 500 SPX, +0.35% was on track for a weekly loss of more than 2% and remains down more than 7% so far this month after hitting an all-time high on Sept. 2. The Dow Jones Industrial Average DJIA, +0.21% is down more than 3% this week and was on track for a nearly 6% monthly fall.

This past week, high-yield bond funds reported a $4.94 billion outflow, the biggest since March, while flows into investment-grade bond funds slowed to $5.63 billion, from $7.05 billion the week before. In the year to date, high-yield funds overall have gained 11.7%, while high yield ETFs are up 26.6%. The Federal Reserve has been using ETFs to help steady markets in the aftermath of the coronavirus-induced panic of March.

Money-market funds picked up $1.33 billion in the September 23 week, after seeing outflows of $51.37 in the prior week, “due in part to large corporate tax payments on September 15,” BofA explained.

Market Extra: Why stock-market investors are starting to freak out about the 2020 election

Less than a month and a half from the 2020 presidential elections and investors are starting to get panicky about the race for the White House and what that presidential contest means for already rocky markets in the coming weeks.

However, it isn’t the outcome that appears to be causing trepidation on Wall Street: Investors can position for a win by Democratic challenger oe Biden or a second term for President Donald Trump.

It is the growing sense that results of the election won’t be decided on Nov. 3; and on top of that that, it is the possibility that even if a winner can be identified in the race between former Vice President Joe Biden and incumbent President Donald Trump, a transition won’t be a smooth one.

“It’s a real fear—and one that, in many respects, I share,” wrote Brad McMillan, chief investment officer for Commonwealth Financial Network in a Wednesday note.

“The fear is that if we get a disputed election, it could lead to disruption and possibly even violence. If so, we could well see markets take a significant hit,” McMillan wrote.

Art Hogan, National Securities chief market strategist, told MarketWatch on Thursday that he was primarily fielding questions around election volatility from clients. “That’s the No. 1 question we get right now,” the strategist said. “How will the election affect the market and the economy?”

“It is natural to have a great deal of trepidation heading into November,” Hogan said. “This is a unique situation insomuch as the pandemic is likely to produce a lot more mail-in votes and it is more difficult to get your arms around what will happen.”

Late Wednesday, Trump may amplified anxieties on Wall Street by implying that he may not peacefully relinquish power to Biden, should the Democrat prevail in the coming election. “Well, we’re going to have to see what happens,” he told reporters at news briefing at the White House on Wednesday when asked if he would commit to a peaceful transition of power.

Read: Historian who has accurately called every election since 1984 says Biden will beat Trump in 2020 race

Trump has claimed that mail-in ballots, which will become a central feature of this election due to the efforts to reduce the spread of the COVID-19 pandemic by limiting in-person voting, could undermine the election outcome.

The 45th president appeared to urge states to dispense with mail-in votes in favor of Americans physically going to polling stations. Get rid of “the ballots and you’ll have a very…there won’t be a transfer, frankly. There’ll be a continuation,” Trump said. “The mail-in ballots are out of control.”

“Investors continue to ask me if they should get out of the market to ‘sit out this election,’ wrote Brian Levitt, Invesco’s global market strategist, in a Wednesday research note.

Levitt tells investors to resist the impulse to cash in their chips ahead of this election. However, the fear of seismic swings in the market is palpable. That’s particularly, after September has delivered on its promise as the worst month for stocks and October, the second-worst month, looms large.

A lack of additional stimulus for those out-of-work Americans, hit hardest by the coronavirus outbreak, a lack of clarity on what more the Federal Reserve will do to help calm investor jitters and a feeling that the market enjoyed too brisk a run-up in the aftermath of the worst of the pandemic-induced selling is part of the cocktail contributing to the current unease, experts say.

The S&P 500 index SPX, +0.34% has climbed nearly 45% since hitting a bear-market low in late March, but the broad-market index is currently attempting to avoid a jaunt into correction territory, commonly defined as a drop of at least 10% from a recent peak. The Nasdaq Composite COMP, +0.84%, which already stumbled into correction earlier this month, has climbed 55% since its March lows and the Dow Jones Industrial Average DJIA, +0.19% has advanced by about 44% since that time.

Concerns about outsize volatility related to the election prompted Interactive Brokers to demand that its clients put up more money in making leveraged bets on financial securities heading into November.

“Elevated option implied volatilities indicate that the markets will be confronting elevated volatility both before and after the November 2020 election,” the brokerage wrote in a note to clients.

Related: Contrarians bet against election volatility, arguing market swings likely to be less extreme than feared

Charlie McElligott, a popular equity derivative strategist at Nomura, who has called a number of recent volatility shocks in the market, said that some traders see the election as a “generational” opportunity, setting up the derivatives market for some make-or-break trades.

“This also likely means that some brave [volatility] traders will try to take advantage as a perceived ‘generational’ opportunity to sell this POST- NOV election ‘richness’ (Dec / Jan) — could be a career ‘maker or breaker,’” he wrote in a recent report.

He said trading around the election holds the potential for some to see “monster returns if the event were to pass and all that crash is puked back into the ether…or conversely be turned to dust into a God-forbid realization of chaos, with civil disorder, dual claims to the throne etc.,”

DJ Peterson, the president of Longview Global Advisors, an Los Angeles-based geopolitical consulting firm, outlined for MarketWatch a number of potential risk scenarios that he’s looking at tied to the election.

  • Voting results delayed past 48 hours (72 max)
  • Trump claims the vote counting process and/or certified results are rigged, fraudulent
  • Left-and right groups converge on election offices, police caught in between
  • Left and right groups clash in the streets of Washington
  • Trump calls out the military to restore order or protect the White House
  • Use of military is viewed as defending Trump, military is politicized

Peterson described the above as “primary risk factors.” and he sees these as the highest risk scenarios in which the election is too close to call and is bogged down in recounts a la 2000.

Indeed, the 2000 presidential election wasn’t decided until mid-December as lawyers and surrogates for Democrat Al Gore and Republican George W. Bush engaged in a battle over Florida recounts that made everyone an expert on butterfly ballots and the varieties of chad produced when voters punch ballots.

MarketWatch’s William Watts reports that the S&P 500 tumbled more than 8% between the Nov. 7 election in 2000 and the Dec. 15, when the winner was finally decided (see attached chart):

Twenty years later, Hogan says that this time it will be “impossible to know what the final results will be and what combination of Congress and White House will look like.”

Hogan agrees with the notion that investors should say invested in this market but advocates rebalancing as a good method, in which investors sell some their biggest winners, like megacap technology shares, and reposition in some of the more beaten up categories like banks or other cyclicals.

“I’m not going to tackle you at the door” if you want to sell some but “I favor rebalancing,” Hogan said.

He also notes that the election itself takes a back seat to the overall economic recovery from the pandemic and treatments and remedies for the pandemic are still going to be a key driver.

Outside the Box: Disappointed by Tesla’s Battery Day? The electric-car maker has been winning by playing the long game

At this week’s so-called Battery Day, Tesla CEO Elon Musk made the bold assertion that the company would be able to deliver a $25,000 electric car. He also said it would likely take three years to get there.

The speculation around electric vehicles (EVs) comes with an inherent risk. Tesla TSLA, +4.28%  is the most established EV manufacturer, but plenty of traders live to short-sell Tesla shares, betting on their decline. In the past week, we have seen other promising EV makers including Nikola NKLA, +4.45%  and Workhorse WKHS, +12.42%  face immense pressure from “shorts” despite what looked just days before as a steady ascent.

Read:Tesla’s Battery Day was ‘long on vision and boldness,’ short on here-and-now

Tesla’s ride to prosperity has been both exciting and erratic. The eccentric Musk is prone to saying controversial and sometimes unpredictable things. Before its famous split, the stock touched over $2,000, and while momentum seemed to be driving it, pundits and analysts struggled to defend a valuation that far exceeded the world’s most established automotive brands, from General Motors GM, +0.04%  to BMW BMW, -2.35%.

But Tesla, unlike its more ordinary automotive rivals, isn’t valued or looked upon as a car company. Tesla is a tech company that makes vehicles based on the most cutting-edge technology. On days like Battery Day, where a three-year vision is shared, as is the case with any of the Big Tech companies, many scrutinize the company’s claims and goals, and the road it will take to reach them. This is how the boldest of tech companies operate: By setting big goals and endeavoring to deliver exponential gains to those who invested in their vision.

Bold visionaries

Apple AAPL, +1.77%, Nvidia NVDA, +1.38%, Qualcomm QCOM, +0.95%, Amazon AMZN, +0.61%  and Microsoft MSFT, +1.02%  all come to mind.

Apple constantly went against the grain. Most notably, its closed ecosystem was always a point of contention. The “Think Different” company built a platform that was extremely sticky for its users, but that didn’t work with any standard operating system. The company focused on building products that customers loved to use. Then it built ecosystems for music and apps. Now this is expanding into health care, gaming, TV and more. Many thought Apple would struggle to grow a meaningful streaming and services business, but in the span of a few years, the company has shown success moving in that direction

Qualcomm has constantly faced regulatory pressure for playing in the intellectual-property (IP) and chip-making business. The company is arguably the most important contributor to 5G, and its technology is featured in pretty much every mobile device on the planet, either as part of the system itself, or its patents as part of another chip makers’ system. This business model requires investing in R&D years ahead of new standards and risking big dollars to reap the rewards of being on the front edge of new standards. Regulatory scrutiny has held back the company’s stock price at times, but the business’ stability as a critical component to the world’s connectivity standards makes it robust.

Nvidia’s recent $40 billion acquisition announcement of Arm will follow a similar suit for IP and chip making under the same roof. Moreover, Nvidia’s longer-term vision puts the company at the forefront of artificial intelligence (AI), which will be one of the biggest tech booms and investment areas over the next decade.

Microsoft went bold after appointing Satya Nadella, which saw the company go all in on cloud computing. This meant disrupting its steady, but antiquated, licensing business and building an almost entirely new stack and business model in almost every facet of the company. Short term, the risks were big and there was a lot of uncertainty for the company in the long term. Clearly, thinking long was the right strategy as the company’s market cap has, at its peak, more than tripled in the time since Nadella took over six years ago.

Amazon made two big bets on the long term that paid off. First, that shoppers would move to do almost all types of purchasing online, and, second, and the one that I parallel more to Tesla, the bet on building a platform business around delivering cloud services. The idea of taking its excess computing capacity and monetizing it was without question opportunistic, but becoming the world’s largest public cloud provider was done with intention, with the big picture in mind. Amazon bet on the fact that just as many people were turning to online for shopping, businesses would likewise need to turn to cloud to scale their business and fuel digital transformation. It was a long bet, and one that many investors probably didn’t understand at the time, but now represents over 60% of Amazon’s quarterly profit.

Big Tech parallels

Tesla’s strategy parallels much closer with the Big Tech platform companies that have delivered huge gains and customer loyalty by playing the long game. Electric vehicles and sophisticated autonomous vehicles powered by robust computing power are the future. While the $25,000 Tesla may be a few years away, the company’s long vision is to deliver Tesla’s fully electric, highly intelligent automobiles at a price that truly makes electric vehicles at scale a reality. And a strategy much more akin to Microsoft, Apple, Amazon, Nvidia and Qualcomm than anything else.

For investors, this should provide a bit of comfort despite knowing that in the short run Tesla could face continued volatility as there will always be those who want to bet against it. However, I believe the company is on the right track, and if it can deliver its entry level model in the next 36 months, there may be only one direction for the company from there, and that will be up.

Disclosure: The author has a stock investment in Tesla.

Daniel Newman is the principal analyst at Futurum Research, which provides or has provided research, analysis, advising or consulting to Qualcomm, Nvidia, Intel, Samsung, ARM, and dozens of companies in the technology industry. Follow him on Twitter @danielnewmanUV.

Bond Report: Treasury yields remain lower after mixed data on durable-goods orders

Treasury yields ticked lower Friday following a mixed reading on August durable goods orders, but remain stuck in a sideways market as investors focus on the path of the COVID-19 pandemic and prospects for another round of stimulus out of Washington.

What are Treasurys doing?

The yield on the 10-year Treasury note TMUBMUSD10Y, 0.657% fell 0.7 basis point to 0.658%, while the 2-year Treasury note yield TMUBMUSD02Y, 0.117% was 1. basis points lower at 0.117%. The 30-year Treasury bond yield TMUBMUSD30Y, 1.397% was little changed at 1.397%. Yields move in the opposite direction of bond prices.

What’s driving the market?

August durable-goods orders rose 0.4% in August, compared with an average forecast for a 1.9% rise, according to a MarketWatch survey of economists. Core capital-goods orders, however, were stronger than expected, rising 1.8% versus expectations for a 1% increase.

The benchmark 10-year yield has been stuck in a tight trading range since early August.

Concerns about rising COVID-19 cases in the U.S. and Europe have continued to rise, with a lack another round of stimulus out of Washington adding to worries about the economic outlook. Fears of a contested U.S. presidential election have also contributed to investor jitters, helping underpin demand for haven assets like Treasurys.

House Democrats on Thursday were preparing a $2.4 trillion aid package that includes a number of items seen having bipartisan support, including direct payments to households, the Paycheck Protection Program, a revival of a federal add-on to state unemployment benefits, as well as a renewal of aid to airlines and money to help restaurants stay open. But analysts said a path to an agreement on a spending program remained uncertain.

What are analysts saying?

“Ahead of the data, Treasuries were modestly bid and the curve incrementally flatter — the decided theme of late,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets.

“From here, focus will be on the movements in risk assets as the weekend quickly approaches. The mixed data has left the market agnostic. We’re open to headline risk this afternoon — either political, stimulus, of pandemic related — another theme of sorts ,” he said, in a note.

Outside the Box: What are the rules for inheriting an HSA?

Q: I have read a few of your articles on inheriting IRAs and I know many of those rules also apply to Roth IRAs but do they apply to HSAs too? Do my beneficiaries get 10 years with those?

— Rick

A.: Rick,

Health Savings Accounts can be fantastic planning tools. They are the only accounts that provide you with a tax deduction for contributions, no taxes on earnings, and tax-free access at any age — if used for qualified medical expenses. However, they are not all that tax friendly when inherited by a nonspouse.

Unlike IRAs, Roth IRAs, and other retirement accounts, Health Savings Accounts (HSA) do not allow for a stretch nor do they give your heirs 10 years to distribute the assets in the account after you die. An HSA has a distinct set of rules applicable when the owner dies. What happens to the funds depends on the designated beneficiary.

If your beneficiary is your spouse, the account becomes their HSA. The transfer of ownership is completed free of probate. For the year in which you die, a contribution can be made based upon your eligibility. Beginning in the year after you die, your surviving spouse’s ability to contribute to the account is determined by their eligibility for that year.

If your beneficiary is a person but not your spouse, the account will be changed to a taxable account in the name of that beneficiary and the full value becomes taxable to your beneficiary in the year of your death. This transfer is completed free of probate. The amount taxable to a nonspouse beneficiary other than the estate is reduced by any qualified medical expenses for the decedent that are paid by the beneficiary within one year after the date of death.

If the beneficiary is your estate or there is no beneficiary designated at the time of your death, the account will be changed to a taxable account in the name of your estate. The full value becomes taxable income on Form 1041, your final tax return. This new account would be included in the probate estate and be paid to whomever that process deems to receive it.

If the beneficiary is a trust, the account will be changed to a taxable account in the name of the trust and the full value becomes taxable income to the trust. This transfer is completed free of probate.

If the beneficiary is a charity, the account will be paid to the charity free of tax. This transfer is completed free of probate.

Due to eligibility limitations and the contribution limitations, most HSAs are not very large so inheriting one as a nonspouse may not push the beneficiary into a high tax bracket. Still, given the potential for taxability of the assets in the HSA upon the owner’s death, some planning is in order.

If you are married, make sure your spouse is named beneficiary. Whether married or not, most people will be better off paying for qualified medical expenses out of the HSA over other types of accounts during their lifetime. Though HSAs are not eligible to make direct donations to charity as can be done from IRAs, HSAs are one of the more attractive types of accounts in one’s estate to leave to charity.

If you have a question for Dan, please email him with ‘MarketWatch Q&A’ on the subject line.

Dan Moisand is a financial planner with Moisand Fitzgerald Tamayo. His comments are for informational purposes only and are not a substitute for personalized advice. Consult your adviser about what is best for you. Some questions are edited for brevity.

Project Syndicate: Climate change has now reached a tipping point among global investors

The COVID-19 pandemic is sharpening financial markets’ understanding of the need to address looming threats including climate change.

This will likely be the year when investors and financiers decide to mainstream climate-transition analysis in their portfolios. Policymakers must recognize that markets are moving far faster than they are on this critical front.

[Climate] standards have been adopted voluntarily by more than 1,000 companies — including most global financial institutions — and thus are becoming the default norm.

This year, we have witnessed the biggest shock to the oil and gas market in 70 years. By the end of July, traditional oil and gas shares in the S&P 500 US:SPX  had fallen by 45%, Royal Dutch Shell AR:RDS  had cut its dividend for the first time since World War II, and BP US:BP  had written off $17.5 billion from the value of its assets. At the same time, clean-energy stocks had risen by just over 20%, roughly the same as the tech sector.

Read:After underperforming the stock market for years, alternative energy is red hot

Disruption as incentive for change

Disruption is a powerful incentive for investors and companies to reallocate capital. The sharp decline in energy prices has accelerated concerns about worthless “stranded assets” on companies’ books. A theoretical possibility has become a plausible scenario. Financiers are re-appraising their portfolios and weighing up the risks associated with a climate transition. So far, the key concern has been that green policies will work only if investors re-price the cost of capital for different firms.

There has also been significant progress on data and measurement, which is necessary for turning corporate climate talk into action and mobilizing capital at scale. Investors, lenders, and insurers have hitherto lacked a clear view of how companies will fare as the planet warms, regulations evolve, new technologies emerge, and consumer behavior shifts. Without this information, financial markets cannot price climate-related risks and opportunities effectively. Simply put, if you can’t measure it, you can’t risk-manage it.

The Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), which was spearheaded in 2015 by Mark Carney, then the governor of the Bank of England (BOE), has been producing workable standards. Today, TCFD standards have been adopted voluntarily by more than 1,000 companies — including most global financial institutions — and thus are becoming the default norm.

In fact, we have probably reached the tipping point beyond which TCFD standards will win the day. Even though there has yet to be any regulatory push, a growing number of asset owners and their managers are pressing companies to report on these standards. The $400 billion Canada Pension Plan Investment Board is merely the latest giant institution to tie its investments to both TCFD and Sustainability Accounting Standards Board standards. And the activist investor Chris Hohn has declared that his fund will press asset owners to fire fund managers who do not insist on climate transparency.

Another encouraging development is that competing standard-setting bodies, anxious that they will miss out on becoming the source of industry benchmarks, are starting to collaborate. As more jurisdictions move to codify new standards, those that do not risk becoming irrelevant. Similarly, the top data-analytics firms and index providers are buying or building capabilities to help investors fashion more climate-aware portfolios along the same general standards. As the cacophony of competing standards subsides, more financial-market participants will follow.

But data alone is no panacea. Measuring and assessing long-term trends and the interactions between climate science, public policy, economics, and financial markets is a complex undertaking. In a world of interconnected global supply chains and intersecting legal, regulatory, and operating environments, it is not easy for market participants to make sense of the potential impact of climate change and the strategic responses to it.

Central bank stress tests

That is why central banks are introducing stress tests, a crucial tool for ensuring proper risk management, resilience, and transparency in the financial system. Already, 15 central banks have rolled out climate stress tests not just for banks, but also for insurers and, in some jurisdictions, pension funds.

To create a solid foundation for this process, the Central Banks and Supervisors Network for Greening the Financial System has worked with climate scientists and investors to devise three probable climate-policy scenarios. The idea is to determine whether firms are “transition ready” for a lower-carbon economy. Such tests should help to bring climate risks closer to the center of financial decision-making. But it is important to remember that central banks’ remit is limited to economic and financial resilience. They will only ever be able to offer a partial response to the broader climate challenge.

Policymakers and regulators must catch up to where markets are heading by supporting the effort to develop common “decision useful” standards. As I argued last year in the BOE’s Future of Finance report, the best solution would be to apply the TCFD framework across all financial accounts. That said, policymakers must maintain flexibility and humility to avoid hard-coding obsolete standards or creating a mountain of red tape.

Equally important will be public policies that drive a smooth climate transition, such as those proposed in the European Green Deal. So far, few governments have been willing to stick their necks out by implementing a carbon tax. Yet behind the scenes, most investors and financiers already acknowledge that such a tax would accelerate the shift to a low-carbon economy. According to Refinitiv, a carbon price of $75 per ton would cost global business around $4 trillion. As my colleague, UBS chair Axel Weber, points out, that would profoundly change incentives, possibly giving rise to a large tradable-emissions market.

Finally, to move not billions but trillions of dollars in the right direction, we need what Carney has called “50 shades of green.” No single financing model or investment position will suffice. Portfolio exclusion, engagement, and impact investing all have their uses as well as their own challenges. The most important objective is to mobilize capital, which means avoiding a set of purist rules that would overly limit the possibilities for proper portfolio diversification.

Warren Buffett’s hypothetical advice to an investor seeking to profit from the nascent car industry in 1900 — “short the horse” — is worth considering today, argues investor Ewen Cameron Watt. Successful investment is often as much about avoiding losers as picking winners. Markets are pivoting, and policymakers should take note.

This article was published with the permission of Project Syndicate.

Huw van Steenis, a former senior adviser to Bank of England Gov. Mark Carney, is chair of sustainable finance at UBS, and a member of the World Economic Forum’s Global Future Council on the Monetary and Financial System.

London Markets: William Hill surges on deal talk as London stocks struggle against weak global stock direction

William Hill officially opens first-ever sports book within a U.S. sports complex at Capital One Arena in Washington, D.C., on August 3, 2020.

Paul Morigi/Getty Images

London stocks were largely in the red on Friday, outside of the betting sector, where shares of William Hill surged on the smaller FTSE 250 index on speculation of a buyout deal.

Buyout firm Apollo Global Management has spoken to William Hill about a potential acquisition, Bloomberg News reported, citing sources. Shares of the betting firm surged 34% on Friday, helping to push the FTSE 250 into the green with a 0.4% rise. That is on a day that the FTSE 100 was down 0.4%. The index has lost 3.3% so far this week.

A spokesperson from Apollo declined to comment, while William Hill said in a statement that it has received two separate proposals from Ceasars Entertainment and Apollo Management regarding cash offers.

Last month, William Hill was included in a multiyear deal with cable sports channel ESPN. The company will become its odds supplier across platforms, as it gets ready to capitalize on the U.S. sports boom. On the heels of that deal, Jefferies analyst said the stock looked cheap. Shares have gained 13% so far this year.

Across the larger index, mining and bank stocks were weaker, along with airlines as the U.K. has announced stricter measures this week to combat rising coronavirus cases. U.K. Chancellor Rishi Sunak unveiled an emergency jobs program on Thursday as part of a wider ‘winter economy plan’ to stave off mass unemployment.

Elsewhere, analysts at Jefferies came up with a shortlist of companies to own when a vaccine comes and those that will fare less well, with several U.K. names listed. Companies to own included cinema owner Cineworld CINE, +6.14% and temporary-power generator Aggreko AGK, +0.33%. Those shares are down 80% and more than 50%, respectively, year to date.

As for the underperformers, retailer B&M European Retail Vale BME, +0.86% and pizza chain Domino’s DOM, +1.38% stand out as those that might not.

Outside the Box: After underperforming the stock market for years, alternative energy is red hot

Clean-energy stocks and exchange-traded funds are on a tear this year, sharply outperforming the broader market and traditional fossil-fuel investments.

The clean-tech ETFs with the most powerful year-to-date rallies include Invesco Solar ETF TAN, +0.17%, up 81% through Thursday; First Trust NASDAQ Clean Edge Green Energy Index Fund QCLN, +0.96%, up 58%; and iShares Global Clean Energy ETF ICLN, -0.25%, up 41%. Compare that to SPDR S&P 500 ETF Trust SPY, -0.25%, which is up 1.99%, and the Technology Select Sector SPDR Fund XLK, -0.33%, up 23%.

The promise of clean tech — creating energy from renewable resources — has lured investors to the space before, only to get burned. After years of underperformance is now different or are buyers once again flying too close to the sun?

Energy-market watchers say what makes today different than 10 years ago, when interest in clean tech also was hot, is that these power sources are now economically viable as subsidies fall away.

Peter McNally, global lead for industrials, materials and energy at research firm Third Bridge, says aggressive investment by utilities in renewable energy has lowered the cost of clean tech and showed it was viable at scale. Just as utilities invested in natural gas 20 years ago at the expense of coal, they are now doing the same with alternative energy.

“Clean-tech businesses are starting to stand on their own, and I think they got a big boost from the utilities,” he says.

Data from the U.S. Energy Information Administration, the statistical arm of the U.S. Department of Energy, shows as of 2019, 18% of the U.S.’s electricity generation came from alternative energy, versus 10% in 2009.

Some of the big oil majors like BP BP, -0.97% BP, +0.21%  are taking alternative energy seriously, McNally says, pointing to BP’s announcement that it will allow oil production to decrease by 40% over the next decade while investing $5 billion by 2030 in clean tech.

“I am less cynical about the whole thing than I had been in the past (because of) big oil,” McNally says.

In 2019, 18% of the U.S.’s electricity generation came from alternative energy.

Another difference between now and then is clean tech is rallying as crude-oil flounders, says Jason Bloom, director of global macro ETF strategy at money manager Invesco.

Until a few years ago, alternative-energy prices were significantly higher than fossil-fuel prices. Users would seek alternatives when fossil-fuel prices rallied, switching back when prices fell. While the cheapest fossil-fuel generation still beats out clean-tech energy, in some areas of abundant sun and wind, unsubsidized new-generation wind and solar prices are competitive at utility scale as clean-tech prices plummeted over the years, Bloom says.

Over the past 10 years, the cost of solar panels has plunged 82%, while onshore wind costs have skidded 39% and the cost of offshore wind has fallen 29%, according to the International Renewable Energy Agency.

Solar names are leading this year’s rally, says Angelo Zino, senior industry analyst at CFRA, a research firm. He attributes some of it to investor interest in Tesla’s TSLA, +3.01% electric vehicles and the ripple effect on other industries, plus increasing interest in environmental, social and governance investing. There may also be some investor bets that Joe Biden will win the White House in November and increase initiatives around clean energy, specifically solar.

The First Trust NASDAQ Clean Edge Green Energy Index Fund has Tesla as its second-biggest holding, while the Invesco Solar ETF and iShares Global Clean Energy ETF have SunRun RUN, +4.99%  as their No. 3 and No. 1 holding, respectively, according to their websites.

Biden’s platform has ambitious targets to increase renewable energy production, including establishing national goals of 100% clean energy by 2035. “You’ve got the potential with him at the helm to really accelerate a ton of the initiatives and long-term objectives of clean energy,” Zino says.

Because clean tech is a young space, investors need to brace for volatility. If a Biden presidency doesn’t occur, Zino expects the valuation of these stocks to fall back because Donald Trump won’t make renewable energy a priority.

Read:The West burns, coastlines are threatened, and Trump and Biden are too quiet on climate change, say analysts

For now, there are some limits to how much of power generation can come from renewables even at utility scale. Battery technology needs to improve so utilities can tap more stored electricity when the sun isn’t shining or the wind isn’t blowing. “They’re figuring ways to make it more reliable, but it’s not 100%,” Third Bridge’s McNally says.

But even if the U.S. slows in renewables adoption, clean tech is a global business. Europe and China are pushing ahead on adoption, which supports the industry as a whole. For example, Germany gets nearly half of its energy from renewables, according to Clean Energy Wire, citing Germany’s energy industry association.

McNally says the strength in clean-tech energy is more than just investor money inflating valuations, pointing utility NextEra Energy NEE, -0.10%, the world’s largest generator of renewable energy from wind and solar power.

“The utilities themselves have made this part of their portfolio, and they are required to keep the lights on,” he says. “They’re investing real money in all kinds of ways to generate and distribute power to customers.”

Now read:Warren Buffett-backed largest U.S. solar project approved as nation’s renewable use on track to pass coal

Also:Here are two stocks that stand to benefit from California’s electric-vehicle push

Debbie Carlson is a MarketWatch columnist. Follow her on Twitter @DebbieCarlson1.

Economic Report: New home sales surge to highest level since before the Great Recession

The numbers: Sales of new single-family homes in August exceeded an annual rate of 1 million for the first time since 2006, as buyers were forced into the market for newly-constructed properties thanks to the dearth of home listings.

New home sales occurred at a seasonally-adjusted, annual rate of 1.011 million, the Census Bureau reported Thursday. That represents a 4.8% increase from an upwardly-revised pace of 965,000 homes in July. Compared with last year, new home sales are up 43%.

Economists polled by MarketWatch had expected home sales to drop to median pace of 900,000.

What happened: Not all parts of the country saw an uptick in sales despite the historically high rate nationally. New home sales fell 21.4% in the Midwest and 1.7% in the West. Comparatively, the South saw the biggest increase in sales with a 13.4% jump, while sales volumes rose by 5% in the Northeast.

The median sales price in July was $312,800, down from July’s median price. The inventory of new homes fell to just 282,000, representing a 3.3-month supply at the current pace of sales. That’s down from a 4-month supply in July. A 6-month supply is considered the benchmark for a balanced market.

The big picture: The burgeoning interest in newly-constructed homes largely stems from the lack of existing-homes for sale. While existing-home sales have also occurred at a fast pace, the inventory of homes left on the market is fast dwindling.

Sellers have been reluctant to list their properties despite that. A new report from found that nearly 400,000 fewer homes have been listed for sale since the start of the pandemic compared with a year ago.

Meanwhile, record-low mortgage rates continue to awaken demand among buyers, as evidenced by mortgage application data from the Mortgage Bankers Association. While this data is volatile, the trend line suggests that there will continue to be strong momentum in home sales, according to High Frequency Economics chief U.S. economist Rubeela Farooqi.

Home prices could become a barrier for the real-estate market though. The combination of low supply, low interest rates and high demand has sent prices skyward — and some buyers could eventually find themselves priced out of the market.

What they’re saying: “Already, more new homes have sold in 2020 than did in all of 2019,” said Danielle Hale, chief economist at “With the number of existing homes for sale down consistently and considerably from a year ago, new homes are an important segment of opportunity for home shoppers.”

Market reaction: The Dow Jones Industrial Average DJIA, -0.24%   remained flat, while the S&P 500 SPX, -0.22%   rose slightly in Thursday morning trading. Shares of home-building firms PulteGroup PHM, -0.96%   , LGI Homes LGIH, -0.70%   , and Lennar Corp. LEN, -0.55%   all increased.