Delighted New Year friends and investors! What a fantastic new year it is most likely to be. Like a bolder dropped in a pond, the virus produced a big implosion of business growth in 2020 and an unmatched surge of growth in 2021.
After A Tough Year, Odey Asset Management Finishes 2021 On A HighFor much of the previous decade, Crispin Odey has been waiting on inflation to rear its ugly head. The fund supervisor has been positioned to benefit from increasing prices in his flagship hedge fund, the Odey European Fund, and has actually been attempting to warn his financiers about the threats of inflation through his annual Read MoreHistorically Negative Combination
Complicating things is a surge in inflation that is most likely to persist through these waves as years of simple cash policy, of lower labor share of wealth/income and now the worldwide disturbances related to the virus will push prices up. That implies that we will require to manage through a period of lower growth and greater inflation. Historically that is a really negative combination for property prices.
The peak of the very first wave appeared in the 3rd quarter monetary declarations database upgrade that was just finished. The frequency of rising sales development and increasing gross revenue margins was lower in the period and it is those frequency numbers that typically mark the growth peak.
Increasing Inflation And Interest Rates
The only method to defend our properties from the negative affect of rising inflation and rates of interest is to own speeding up business. Just rising development will offer defense versus increasing rate of interest. The rebound from the virus depressed levels last year has most companies recording velocity attributes.
Recently, the greatest rebound was the energy group where sales development dropped to -50% (at the most virus depressed duration) however has because recuperated to 44% in the recent update; with a whopping 88% of energy companies accomplishing an improvement.
Oil & & Gas Cycles
There are numerous cycles in our information record however in a normal oil and gas cycle we would start to see an acceleration in capital investment as companies respond to higher oil costs with bigger exploration and development costs. Successfully executed new projects would change fading production in other places and add to supply development.
Recent proof suggests the opposite is occurring in the oil and gas industry. Capital expenditures continue to fall relative to sales. Oil prices continue to advance, production is fading however not being replaced and supply development is slowing.
Energy Demand Continues To Grow
The world is not willing to reduce energy usage. There is remarkable resistance to higher oil prices and lower fuel-cost aids as we have seen in social discontent duplicated in the last few years. The majority of current example in Kazakhstan.
Econ 101
From basic financial theory, we understand that the only way to decrease fossil fuel usage is through greater rates. Higher energy expenses and carbon taxes will sustain high inflation. The current increase has raised measured inflation by the fastest rate (7%) and to the greatest level because 1979 The present 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 behaving in this pattern, long treasury bonds yielded 12% for a real return of 5%. If Bond yields were to increase to 12% now, the cost of long treasury bonds would fall by over 80%. This is an impending retirement disaster.
The only method to safeguard our assets from the unfavorable affect of increasing inflation and interest rates is to own speeding up companies. Only rising development will provide defense versus rising interest rates.
Otos MoneyTree
Otos display screens increasing sales development and increasing profit margins as a MoneyTree with a green world, a dark trunk, and a golden pot. As business report their monetary statements in coming weeks, be scrupulous around the growth attributes of your portfolio companies.
Whatever Quantitative Tools you pick to use, your portfolio of companies need to have rising development qualities (MoneyTree with a green globe, dark trunk and hourglass shaped golden pot).
The present Otos Total Market Index portfolio MoneyTree below has high and rising sales growth, rising profit margins and high operating/financial leverage.
Pick Active Portfolio Management and verify that your portfolio attributes are, put simply, growing!
SEC Filings Of Annual Reports
This is the last upgrade of the 3rd quarter financial statement upgrade with the Securities and Exchange Commission (SEC) but soon updates from the 4th quarter year-end duration will begin. Most business will soon to be reporting their annual duration ended December. The reporting deadline for annual monetary declarations is later on so it will be early March prior to we see a full macro picture (stay tuned).
All the best in 2022 and take care!
Updated on Jan 17, 2022, 3:53 pm
Like a bolder dropped in a pond, the infection produced a big implosion of business growth in 2020 and an extraordinary explosion of development in 2021. That suggests that we will require to manage through a duration of lower development and higher inflation. Only rising growth will supply defense against increasing interest rates. Oil prices continue to advance, production is fading but not being changed and supply development is slowing.
Just rising development will supply defense versus increasing interest rates.
