After A Tough Year, Odey Asset Management Finishes 2021 On A HighFor much of the past years, Crispin Odey has actually been waiting for inflation to rear its unsightly head. The fund manager has actually been positioned to make the most of increasing costs in his flagship hedge fund, the Odey European Fund, and has actually been trying to alert his financiers about the threats of inflation through his yearly Read MoreHistorically Negative Combination
Complicating things is a rise in inflation that is most likely to persist through these waves as decades of simple money policy, of lower labor share of wealth/income and now the worldwide interruptions connected with the virus will push costs up. That implies that we will require to manage through a duration of lower development and greater inflation. Historically that is a very unfavorable combination for possession rates.
The peak of the first wave appeared in the 3rd quarter financial statements database update that was simply completed. The frequency of rising sales growth and increasing gross revenue margins was lower in the duration and it is those frequency numbers that typically mark the development peak.
Increasing Inflation And Interest Rates
The only method to safeguard our properties from the unfavorable affect of increasing inflation and interest rates is to own speeding up companies. Just increasing growth will supply defense against rising interest rates. The rebound from the infection depressed levels last year has most companies tape-recording acceleration qualities.
Just recently, the most significant rebound was the energy group where sales growth dropped to -50% (at the most virus depressed period) however has actually given that recovered to 44% in the current upgrade; with a whopping 88% of energy companies achieving an improvement.
Oil & & Gas Cycles
There are a number of cycles in our information record however in a normal oil and gas cycle we would begin to see an acceleration in capital investment as business respond to greater oil rates with larger exploration and advancement costs. Effectively carried out new jobs would replace fading production somewhere else and add to provide development.
Recent evidence suggests the opposite is occurring in the oil and gas market. Capital expenditures continue to fall relative to sales. Oil costs continue to advance, production is fading but not being replaced and supply growth is slowing.
Energy Demand Continues To Grow
The world is not going to decrease energy use. There is tremendous resistance to higher oil prices and lower fuel-cost subsidies as we have seen in social discontent repeated recently. Newest example in Kazakhstan.
Higher energy expenses and carbon taxes will sustain high inflation. The existing yield on long term bonds is 2% producing an after inflation (real) negative return of -5%!
Back In 1979.
The last time (1979) inflation was acting in this pattern, long treasury bonds yielded 12% for a genuine return of 5%. The price of long treasury bonds would fall by over 80% if Bond yields were to increase to 12% now. This is an approaching retirement catastrophe.
The only way to defend our assets from the negative affect of increasing inflation and interest rates is to own speeding up companies. Just rising growth will provide defense versus rising interest rates.
Otos displays increasing sales growth and increasing profit margins as a MoneyTree with a green world, a dark trunk, and a golden pot. As business report their monetary declarations in coming weeks, be scrupulous around the growth qualities of your portfolio business.
Whatever Quantitative Tools you choose to use, your portfolio of business must have increasing development qualities (MoneyTree with a green globe, dark trunk and hourglass shaped golden pot).
The existing Otos Total Market Index portfolio MoneyTree below has high and rising sales growth, increasing earnings margins and high operating/financial utilize.
Select Active Portfolio Management and validate that your portfolio attributes are, put simply, growing!
SEC Filings Of Annual Reports
This is the last update of the 3rd quarter financial statement upgrade with the Securities and Exchange Commission (SEC) but soon updates from the 4th quarter year-end period will start. A lot of companies will soon to be reporting their annual duration ended December. The reporting deadline for annual financial declarations is later so it will be early March before we see a complete macro photo (stay tuned).
All the very best in 2022 and take care!
Pleased New Year investors and buddies! What an amazing new year it is most likely to be. Like a bolder dropped in a pond, the infection produced a huge implosion of corporate development in 2020 and an unprecedented surge of development in 2021. Extending the ripple-in-a-pond metaphor we may anticipate that these waves will lessen in magnitude and after that settle. But when and how rough will the waves remain in 2022? And which sector( s) will potentially be causing it.
Updated on Jan 17, 2022, 3:53 pm
Like a bolder dropped in a pond, the virus produced a substantial implosion of business development in 2020 and an unprecedented surge of growth in 2021. That means that we will need to manage through a period of lower growth and higher inflation. Just increasing growth will offer defense versus increasing interest rates. Oil rates continue to advance, production is fading however not being replaced and supply development is slowing.
Only rising development will provide defense against rising interest rates.