Inflation: What to Expect in the Short, Medium and Long Term

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There are so many factors that go into inflation, that the Fed itself has come out and said they often don’t totally understand what drives it. A lot of the factors are reflexive with self-correcting mechanisms and self-reinforcing mechanisms so it’s complicated to predict inflation prints. Rates and inflation are reflexive. What happens with one drives the other, and then it goes back in the other direction. There’s a lot of room for one of those things to move and change the other.

That being said, my expectation is that inflation for this cycle peaks in the next one to three months. We were surprised in May by the 8.6% CPI, and there are reasons to think inflation will be a little bit higher for the next month or two, but after that, there are a lot of forces that are going to bring both headline and core inflation down in the medium term.  However, longer term, inflation may not return to the historical trendline of 2 to 3% per annum, where it has been for several decades.

Core inflation bounced up to six and a half percent this year and that bounce was many standard deviations from the trendline and off the map in terms of most of our investing lifetimes. Let’s look at the components.

The blue bar represents core services inflation. Historically that’s the stable part and the bulk of inflation. What’s interesting is even if you took out the green bar, which is energy, the yellow bar, which is food, and the orange bar, which is goods, and left just services, inflation is still running at over 3%. Services alone, if everything else were zero, would still be running higher than the Fed’s target.

In other words, inflation is not due to a single component. It is comprised of upward ticks in energy, goods, food, and services. All are higher than their historical averages, even the ones that are relatively sticky. Indeed, all components have turned inflationary.

How did we get here? The huge economic stimulus following the Covid pandemic encouraged people to go online and shop. Yet many businesses shut down, causing supply chain constraints, which in turn drove shortages and higher prices for scarce goods, services, and labor.

The good news is that there are many reasons inflation can fall in the next six to 12 months.

  • Fiscal policy has turned restrictive. Government outlays have been curtailed and are perhaps 20% lower this year than at the peak of Covid spending.
  • Monetary tightening. The Fed is backing off its quantitative easing and reduced purchases of Treasuries while hiking the Fed funds rate.
  • Commodities prices are softening. Demand is slowing in China and elsewhere.
  • A strong US Dollar. This gives the US greater purchasing power to buy foreign goods without importing inflation.
  • Declining consumer confidence. The July Conference Board’s index (CONCCONF) decreased for a third month to 95.7 from a downwardly revised 98.4 reading in June.
  • Auto production is increasing and used vehicle prices are moderating. The Manheim Index, which tracks the used car market sales volume, was negative for the first time in a long time in June and again in the first half of July from the previous periods.
  • Supply chains normalizing. The huge queues of ships in the ports of Long Beach and Los Angeles waiting to be unloaded have now dissipated.

All these things argue for inflation coming down in the medium term and they certainly represent strong headwinds to inflation continuing to rise. However, it should be noted that while there are a lot of reasons to hope that inflation moderates, certainly the surprises over the past year have all been on the wrong side and new surprises could alter our outlook.

The market will continue to debate where inflation is headed, but there is reasonable confidence (70% likelihood in our view) that in the next month or two there will still be high inflation prints.

In the subsequent two to twelve months, we believe there is a 40 to 50% likelihood that inflation will moderate, and rates will climb slowly or hold.

There are, however, potential longer-term drivers of higher inflation that will be different post-Covid, although it remains to be seen how things shake out in 2023 and 2024.

Longer-Term Drivers of Potentially Higher Inflation

  • Covid has encouraged de-globalization, onshoring, and shortening of supply chains. Long supply chains have hurt a lot of companies’ businesses. Relying on China when it shut down or the constraints in the ports when there was a shortage of labor to unload containers led many to want to shorten supply chains and onshore, with more of their production closer to home.
  • Lower workforce participation is inflationary and causes businesses to boost wages to attract talent. A lot of people have dropped out of the labor force and there has also been a lot of early retirement. The lower labor force participation is below what the Fed expected, and what there has been historically This has also led to more labor bargaining power. Let’s wait and see how long that persists. If a recession brings unemployment back to 5 to 6%, bargaining power for labor probably decreases, but for now, workers are in the driver’s seat.
  • Technology is not adding as much to productivity The productivity leaps experienced through the development of electricity and the internet have not been replicated as of late. Technology advancements such as AI and big data helped to generate some improvement in productivity, but the history of the last decade shows per unit productivity in the US is not on a good trend. New social media technology such as Facebook, Instagram, and TikTok doesn’t add to overall productivity and in fact, probably decreases a worker’s efficiency and output.
  • The energy transition and the trend toward addressing ESG concerns are costly. Why does the world burn oil, coal, and natural gas? The answer is because, on a per-unit-of-energy produced basis, fossil fuels are the most cost-effective. The free market–absent activist investors–would generate electrical energy as cost-effectively as possible. As we make a political shift around the world, certainly in Europe, to reduce our carbon footprint, a zero-carbon path is definitionally going to be inflationary to energy prices. If producing energy from wind were more economical than oil, then that would be the primary source of energy right now.

All those reasons argue for a level of inflation that would be higher than it was in the past and that causes an interesting dynamic with inflation volatility. My prediction is that higher inflation prevails for the next few months, then it surprisingly falls for the next several months after, then perhaps climbs again before finally settling into a 3 to 4% range longer-term.

 

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Pictet Asset Management: Earnings Maths Does Not Add Up

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Luca Paolini, Pictet Asset Management

Slowing economic growth, surging inflation, tighter monetary policy and heightened geopolitical risks have all taken their toll on financial markets. However, we believe most risky asset classes have yet to fully price in a recession – a scenario which to us looks increasingly likely.

Although world stocks’ 12-month price/earnings ratios have declined by more than 30 per cent since September 2020, consensus forecasts for corporate earnings remain remarkably optimistic (at 11 per cent this year and close to 8 per cent over the next two), starkly at odds with underlying economic conditions. We expect those projections to be revised sharply lower. History shows that when a recession hits, corporate profits fall by as much as 25 per cent – a drop that looks all the more likely given that company earnings are currently running at record levels.

We therefore remain underweight on equities, waiting for either a stabilisation in earnings revisions and economic momentum or, indeed, a confirmation of a sharper than anticipated disinflation before considering an upgrade. We have an overweight in cash, which we are ready to deploy when conditions improve, and a neutral allocation to bonds.

Our business cycle indicators show a growing chasm between business and consumer sentiment surveys and hard data. While the former are deteriorating sharply, the latter have so far remained relatively strong, likely supported by excess savings among households and pricing power of corporations.

Such resilience may not last, as we are already starting to see in the US, where tightening financial conditions are beginning to bite. We downgrade our US macro-economic score to negative and cut our 2022 GDP growth forecast to a near-consensus 2.2 per cent (from 3.0 per cent previously).

The silver lining for the US economy is growing evidence suggesting inflation may be about to peak.

The situation appears bleaker for the euro zone. Here, our leading economic indicator is now below pre-pandemic levels. Momentum continues to deteriorate, dragged down by Germany, while price pressures are still accelerating. The European Central Bank is clearly some distance behind the curve in fighting inflation compared to the US Federal Reserve, which last month raised interest rates by an additional 75 basis points.

Emerging Asia is one of the few economic bright spots, supported by a recovery in China – an economy with the tail wind of reopening as well as the headroom, means and motivation to stimulate growth. Although this must be balanced against the ongoing problems in China’s property market, we believe the backdrop is broadly positive for Chinese equities.

Our liquidity indicators suggest riskier asset classes could continue to struggle. Across most major economies, central bank interest rate hikes and quantitative tightening measures are leading to a contraction in excess liquidity. In all, over the past quarter, the world’s five major central banks have removed USD1.8 trillion of liquidity.

While the Fed has now raised policy rates to neutral territory and has indicated that the future course of action would be guided by incoming data, markets have taken a dovish interpretation of the central bank’s stance. Indeed, current market pricing has the Fed funds rates peaking in December this year, a full 50 basis points below the Fed’s own estimate. Although we do not rule out the possibility of a Fed pause, we caution that this is far from a certainty at this point.

Our analysis of valuations shows stocks are approaching fair value the market’s sharpest peak-to-trough market fall in decades: our models indicate that equities are trading close to the mid-point of their historical valuation range (based on a range of measures from price multiples to the equity risk premium).

Bonds, meanwhile, remain relatively cheap, despite the recent rally. Some of the best value, however, is found in the riskier parts of the market, such as emerging debt and credit.

Technical indicators indicate that sentiment is now neutral across all major equity and bond markets. However, equities are still subject to negative scores both in terms of market trends and seasonal factors (with summer historically a problematic period for stocks).

 

 

 

Opinion written by Luca Paolini, Pictet Asset Management’s Chief Strategist.

Discover Pictet Asset Management’s macro and asset allocation views.

 

 

Information, opinions, and estimates contained in this document reflect a judgment at the original date of publication and are subject to risks and uncertainties that could cause actual results to differ materially from those presented herein.

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The information and data presented in this document are not to be considered as an offer or sollicitation to buy, sell or subscribe to any securities or financial instruments or services.

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PIMCO Hires Richard Clarida as Managing Director and Global Economic Advisor

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Photo courtesyRichard H. Clarida began a four-year term as vice chairman of the Board of Governors of the Federal Reserve System in September 2018 and took office as a Board member to fill an unexpired term ending January 31, 2022. He resigned on January 14, 2022. FED.

PIMCO announces that Richard Clarida, former Vice Chairman of the Board of Governors of the Federal Reserve System, will rejoin to the firm as Managing Director and Global Economic Advisor, a role similar to the one he held during his previous 12 years at PIMCO.

He will join in October and be based in PIMCO’s New York office.

Joachim Fels, Managing Director and currently PIMCO’s Global Economic Advisor, will retire from PIMCO at the end of the year after a long and illustrious career spanning almost four decades as an economist.

“PIMCO has been extremely fortunate to have these two giants in the field of economics contribute to our global macroeconomic views for nearly two decades, helping the firm frame a rapidly changing world so we can make the best investment decisions for our clients,” said Dan Ivascyn, PIMCO’s Group Chief Investment Officer. “Rich’s work as architect of PIMCO’s New Neutral thesis in 2014, how lower interest rates for longer would impact valuations in fixed income markets, is just one example of the invaluable insights he has provided to PIMCO clients for many years. He rejoins at another inflection point for markets and we look forward to his insights and guidance on emerging trends.”

Mr. Clarida will advise PIMCO’s Investment Committee on macroeconomic trends and events. In his previous tenure at PIMCO from 2006-2018, Mr. Clarida served in a similar role as Global Strategic Advisor and played a key role in formulating PIMCO’s global macroeconomics analysis.

He will be supported by PIMCO’s team of economists and macroeconomic research experts in the Americas, Asia-Pacific and Europe, and will work closely with PIMCO’s four key regional portfolio management committee – the Americas Portfolio Committee (AmPC), European Portfolio Committee (EPC), Asia-Pacific Portfolio Committee (APC) and Emerging Markets Portfolio Committee (EMPC).

Prior to returning to PIMCO, Mr. Clarida was the former Vice Chairman of the Board of Governors of the Federal Reserve System, and he is currently the C. Lowell Harriss Professor of Economics and International Affairs at Columbia University.

Mr. Clarida also served as chief economic advisor to two U.S. Treasury Secretaries when he was the former Assistant Secretary of the Treasury for Economic Policy.

On the other hand, Mr. Fels, who joined PIMCO in 2015, is retiring from PIMCO at the end of 2022. He has provided invaluable leadership of global macroeconomic analysis for PIMCO’s Investment Committee, the broader firm and commentary for clients around the world. As a leader of PIMCO’s annual Secular Forum, Mr. Fels helped establish macroeconomic guardrails on how the firm approached investing over a three to five year period.

 

How to Overhaul the Tried-and-Tested Investment Portfolio When Inflation Soars

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The tried and tested 60/40 formula for buy-and-hold investment portfolios got off to its worst start since World War II.

The 60/40 portfolio — split between the S&P 500 Index of stocks (60%) and 10-year U.S. Treasury bonds (40%) — fell about 20% in the first half of 2022, the biggest decline on record for the start of a year, according to Goldman Sachs Research. Such ‘balanced’ portfolios, meant to blend the higher risk of stocks with the relative safety of government bonds, often have different formulations, such as a mix of corporate credit or international stocks. But virtually all of them had one of their worst starts to a year ever, according to Christian Mueller-Glissmann, head of asset allocation research within portfolio strategy at Goldman Sachs.

Almost all assets were in a precarious position at the start of the year, as valuations for stocks and bonds were hovering around their highest levels in a century, Mueller-Glissmann says. Decades of tame inflation allowed central banks to drive interest rates ever lower to try to smooth out the business cycle, which in turn pushed assets from stocks to house prices higher. In fact, in the decade before the COVID-19 crisis, a simple U.S. 60/40 portfolio delivered three-times its long-run average for risk-adjusted returns.

And then 2022 hit. As consumer prices and wages accelerated, central banks like the Federal Reserve scrambled to reverse their policies. That resulted in one of the biggest ever jumps in real yields (bonds yields minus the rate of inflation).

As policy makers try to contain skyrocketing inflation, stock investors are increasingly concerned that those efforts will slow growth, potentially tipping large economies like the U.S. into recession. Indeed, investor concerns have recently shifted from inflation to recession concerns as soaring inflation expectations have fallen, but it might be too early to fade inflation risks, at least in the medium-term, says Mueller-Glissmann.

“In contrast to the last cycle, you’ve had a mix of growth and inflation conditions that are quite unfriendly,” Mueller-Glissmann says. Rising inflation weighs on bonds, as does monetary policy tightening (when central banks increase interest rates). This also means weaker growth, meanwhile, which is a headwind for equities, and equity valuations suffer from rising rates as well. “That is a backdrop that’s very bad for 60/40 portfolios, irrespective of valuations,” he said.

That means there’s less diversification potential between equities and bonds, as they have been more positively correlated this year — in fact this has been more often the case than not historically.

The outlook for the 60/40, however, might not improve right away, as long as inflation is percolating up and central bank tightening weighs on growth. “I don’t think it’s dead, because the current environment won’t last forever, but it’s certainly ill-suited for that type of backdrop,” Mueller-Glissmann says. “In an environment where you have both growth risk and inflation risks, like stagflation, 60/40 portfolios are vulnerable and to some extent incomplete. You want to diversify more broadly to asset classes that can do better in that environment.”

Real assets could be more important in a cycle where inflation is higher than the world has been used to over the past two or three decades. Things like residential real estate can generate profits that exceed inflation. Precious metals and even fine art and classic cars can help protect purchasing power when consumer and commodity prices are climbing quickly.

A portfolio with a slice of real assets, like gold and real estate, performed even better than the 60/40 over the long run. In that case the optimal strategic asset allocation since World War II was closer to one-third equity, one-third bonds and one-third real assets, Mueller-Glissmann says.

Investors have picked up on this shift. Instead of a tech startup that might not produce a profit until many years from now, investors are favoring companies that can already produce earnings and dividends. Warehouses have been a popular investment as e-commerce accelerates. Demand for companies that make battery storage has grown amid an increasing focus on renewable energy infrastructure.

But as recession risks rise, some real assets have also become more volatile in recent months. Nobel prize winning economist Harry Markowitz is credited with saying that diversification is the only free lunch in finance. Mueller-Glissmann says that principle applies to investing in real assets as well. They tend to be heterogeneous, with different risks.

“You want to have a bit of diversification within real assets as well,” Mueller-Glissmann says. Goldman Sachs Research has run the numbers and found that a roughly equal weight (about 25% in each) between real estate, infrastructure, gold and a broad commodity index has led to the best risk-adjusted performance in periods of high inflation. Allocations to Treasury Inflation-Protected Securities (TIPS), which were created in the late 1990s and are a more defensive real asset, can help lower cyclical risk while providing inflation protection.

Going forward, active portfolio management, allocations to alternative assets — such as private equity but may also include hedge funds — and new strategies for mitigating risk, like option hedges, are going to be more important in multi-asset investing, Mueller-Glissmann said.

“I would disagree that diversification is the only free lunch in finance,” he added. “But certainly it remains a core investment principle for any investor.”

 

Florida’s Governor Announces Initiatives “to Protect Floridians from ESG Financial Fraud”

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By Funds Society, Miami

Florida’s Governor Ron DeSantis announced legislative proposals and administrative actions “to protect Floridians” from the ESG movement, according the Florida administration web site.

“The leveraging of corporate power to impose an ideological agenda on society represents an alarming trend,” said Governor Ron DeSantis. “From Wall Street banks to massive asset managers and big tech companies, we have seen the corporate elite use their economic power to impose policies on the country that they could not achieve at the ballot box. Through the actions I announced today, we are protecting Floridians from woke capital and asserting the authority of our constitutional system over ideological corporate power.”

Governor DeSantis’ proposed legislation for the 2023 Legislative Session will prohibit big banks, credit card companies and money transmitters from discriminating against customers for their religious, political, or social beliefs; prohibit State Board of Administration (SBA) fund managers from considering ESG factors when investing the state’s money and Require SBA fund managers to only consider maximizing the return on investment on behalf of Florida’s retirees.

“The proposed legislation will amend Florida’s Deceptive and Unfair Trade Practices statute to prohibit discriminatory practices by large financial institutions based on ESG social credit score metrics. This “ESG score” is a framework created to force companies to meet ESG standards and arbitrarily includes metrics based on political affiliation, religious beliefs, certain industry engagement, and ESG benchmarks. Violations will be considered deceptive, and unfair trade practices will be punished according to the law”, the press release said.

At the next State Board of Administration meeting, Governor DeSantis will propose an update to the fiduciary duties of the State Board of Administration investment fund managers and investment advisors to clearly define the factors fiduciaries are to consider in investment decisions. Environmental, social, or corporate governance factors will not be included in the state of Florida’s investment management practices, the text added.

“Governor DeSantis will work with likeminded states to leverage the investment power of state pension funds through shareholder advocacy to ensure corporations are focused on maximizing shareholder value, rather than the proliferation of woke ideology”, concluded the statement.

Citi and Insigneo Complete Sale of Citi’s International Personal Bank Business in Puerto Rico and Uruguay

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By Funds Society, Miami

Citi and Insigneo closed the transaction under which the Miami-based independent broker-dealer and Registered Investment Advisor (RIA) acquired Puerto Rico-based broker-dealer Citi International Financial Services, LLC (CIFS) and Citi Asesores de Inversion Uruguay S.A. (Citi Asesores), an investment advisory firm in the country’s free-trade zone.

The transaction has received regulatory approval.

 

With the acquisition of CIFS and Citi Asesores, Insigneo will now exceed $17B in client assets and serve over 400 investment professionals. The acquired entities will continue to operate independently under the Insigneo brand.

“We’re prepared for a seamless transition of the businesses we are acquiring, and we welcome all incoming employees, investment professionals and their clients, to Insigneo’s growing independent platform,” added Raul Henriquez, Insigneo’s Chairman and CEO

Citi maintains all existing bank deposit relationships with wealth clients moving to Insigneo, which offers a broad spectrum of investment products and wealth management capabilities, according the firm information.

“Citi will continue to serve institutional clients through its Puerto Rico and Uruguay branches, as it has done so for the past 104 and 107 years; respectively. The U.S. Consumer Wealth team and the bank remain deeply committed to Latin America, where Citi has operated for more than a century and built an unmatched network across 20 countries. Citi’s U.S. Consumer Wealth business will continue to serve clients using the Citigroup Global Markets Inc. broker dealer”, the press release says. 

“The closing of the deal allows Citi to simplify its U.S. Consumer Wealth Management business model, focused on providing leading wealth management solutions through Citi Global Markets Inc. broker-dealer and investment advisor, while strengthening our banking relationships with our existing clients in Uruguay, Puerto Rico, and throughout Latin America.  In addition, it provides us an opportunity to expand banking services over time with Insigneo’s growing client base,” said Scott Schroeder, head of U.S. International Personal Bank at Citi.

The transaction is the latest in a series of ongoing strategic moves and acquisitions as Insigneo continues to execute on its business model, which received a boost with the recent $100M financing commitment by global investment firms Bain Capital Credit and J.C. Flowers & Co.


 

 

Secular Outlook 2022: Asset Class Return Forecasts for the Next Five Years

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SecularOutlook_AlessandroGottardo_hero_2022_1600x900_0

Dividing a portfolio’s investments more or less evenly between developed market stocks and bonds has proved a rewarding strategy over the past few decades. The annualised return investors have secured by pursuing this approach has been in the high single digits – gains that have come courtesy of steady economic growth, an almost continuous fall in interest rates and inflation, and relatively calm financial market conditions.

Yet our forecasts covering the next five years indicate investors will need to plot a different course to achieve a similar result. This will involve allocating less capital to the developed world, increasing holdings of emerging market assets, and investing far more in alternatives, particularly commodities and gold.

Pictet AM

A key finding from our research is that returns from equity markets will fall victim to an unfavourable shift in the business cycle. The global economy is approaching the end of its post-Covid expansionary phase. Tighter financial conditions, a peak in US jobs growth and large output gaps all point to a recession this year or next. This has significant investment implications. There is a considerable difference between making an allocation to stocks in the lead-up to a slump and doing the same once recovery begins to take root. And that’s true even for those who invest over long time horizons.

Our analysis of the past 100 years shows that an initial investment in developed market stocks after the end of a recession delivers a price return of 10 per cent a year for the following five years; investing before a recession, as would be the case today, has by comparison typically delivered only a 4 per cent annualised return – a shortfall of some 6 per cent per year.

A key finding from our research is that returns from equity markets will fall victim to an unfavourable shift in the business cycle. The global economy is approaching the end of its post-Covid expansionary phase. Tighter financial conditions, a peak in US jobs growth and large output gaps all point to a recession this year or next. This has significant investment implications. There is a considerable difference between making an allocation to stocks in the lead-up to a slump and doing the same once recovery begins to take root. And that’s true even for those who invest over long time horizons.

Our analysis of the past 100 years shows that an initial investment in developed market stocks after the end of a recession delivers a price return of 10 per cent a year for the following five years; investing before a recession, as would be the case today, has by comparison typically delivered only a 4 per cent annualised return – a shortfall of some 6 per cent per year.

Another obstacle for developed equity markets is a looming squeeze on corporate profit margins. With wages and raw materials prices rising, more stringent regulations adding to the costs of doing business and the prospect of a rise in corporate taxation, margins can be expected to fall by a cumulative 10 per cent over the next five years.

But it is not only developed market stocks that will struggle to match their past performance. Developed government bonds will also labour to deliver what investors require of them over the next five years. Such securities have traditionally served as an anchor for a diversified portfolio – a crucial source of income and capital protection during periods of economic uncertainty.

Yet outside the US – where initial valuations for government and investment grade bonds are becoming more attractive thanks to this year’s spike in yields – returns from developed market fixed income will fall below inflation over the next five years.

To make up for the lacklustre returns and income on offer from the developed world, investors will have to strike a delicate balance. On the one hand, our analysis indicates that, on average, portfolios will require higher allocations to stocks and bonds from emerging markets, as well as commodities – riskier investments that offer higher prospective returns. On the other, it would be prudent to accompany this dialling up of risk with a higher allocation to assets that do not move in lockstep with mainstream stocks and bond markets, such as liquid alternatives, gold and private assets.

Within emerging markets, Chinese stocks look particularly attractive while emerging market bonds’ income-generating potential should grow, enhanced by what we believe will be a steady appreciation in developing world currencies.

Among alternatives, non-energy commodities look especially appealing; their returns should be in excess of inflation over the next half a decade.

Our analysis also shows real estate and private equity both outperforming developed market equities over our five-year forecast horizon. Allocations to gold and infrastructure, meanwhile, make sense at this juncture as a means to diversify risk and protect portfolios against the possibility of stubbornly high – or volatile – inflation.

Investors can remain faithful to the traditional balanced portfolio of mainstream bonds and stocks but, in doing so, accept a lower return and potentially higher volatility.

The next five years, then, present investors with a conundrum. They can remain faithful to the traditional balanced portfolio of mainstream bonds and stocks but, in doing so, accept a lower return and potentially higher volatility. Or they can take a less familiar path and allocate more of the capital to alternative assets. Our analysis suggests, the second option is the wiser course.

 

Opinion written by Luca Paolini, Pictet Asset Management’s Chief Strategist, and Arun Sai, Senior Multi Asset Strategist.

 

Download the full investment outlook to read more on this subject.

 

 

Information, opinions, and estimates contained in this document reflect a judgment at the original date of publication and are subject to risks and uncertainties that could cause actual results to differ materially from those presented herein.

Important notes

This material is for distribution to professional investors only. However, it is not intended for distribution to any person or entity who is a citizen or resident of any locality, state, country or other jurisdiction where such distribution, publication, or use would be contrary to law or regulation.

The information and data presented in this document are not to be considered as an offer or sollicitation to buy, sell or subscribe to any securities or financial instruments or services.

Information used in the preparation of this document is based upon sources believed to be reliable, but no representation or warranty is given as to the accuracy or completeness of those sources. Any opinion, estimate or forecast may be changed at any time without prior warning.  Investors should read the prospectus or offering memorandum before investing in any Pictet managed funds. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future.  Past performance is not a guide to future performance.  The value of investments and the income from them can fall as well as rise and is not guaranteed.  You may not get back the amount originally invested.

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U.S. Energy Sector Poised to Regain Dominance

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Captura de Pantalla 2022-04-26 a la(s) 10
Pixabay CC0 Public Domain. ..

Russia’s invasion of Ukraine has triggered plans by many oil and natural gas importing countries to curtail Russian imports and transition to what may be perceived as more reliable, less unsavory sources of supply, while accelerating their transitions to green energy – opening the door for the U.S. to re-emerge as the world’s dominant oil and gas provider, according to Preqin.

Reducing dependency on Russian energy will be onerous, particularly for Europe, which imports about 30% of its natural gas and 25% of its oil from Russia. So far, the U.S. and some EU countries have curtailed imports of Russian crude oil and if more countries follow suit, there will be strains in the global markets to adjust to accommodate a reconfiguration of the 5 million Bbl/d (barrels per day) of waterborne exports from Russia. Indeed, Russia’s oil tanker exports are being offered at a significant discount of roughly $30/Bbl to Brent, indicating that new buyers aren’t fully absorbing demand lost in the boycott.

Recent releases from the U.S. Strategic Petroleum Reserve (SPR) (30 million Bbl) and from international partners (30 million Bbl) provide minimal relief. Potential deals – if they could even be reached – with Iran (1 million to 1.5 million Bbl/d) and Venezuela (less than 1 million Bbl/d) would still not be enough to fill the void. If anything, the recently announced historic SPR release (1 million Bbl/d for six months) suggests that these deals are unlikely to be completed soon and emergency responses are needed to meet demand.

The war in Ukraine comes at a particularly vulnerable time of tight inventory and a low backlog of oil wells, with little room for disruption. According to the U.S. Energy Information Agency, prior to Russian sanctions, OPEC+ excess capacity stood at only 3%-3.5%, or roughly 3-3.5 Bbl/d, down from about 8% to 9% in 2002. However, from recent discussions with energy officials in the Middle East, true spare capacity could be even lower at just 2.5%.

We believe OPEC+ will likely stick to its current plan and not increase output further, despite higher oil prices. This is because if the cartel decided to bring more volumes online, the investment community might react to the prospect of little-to-no spare capacity by sending oil prices even higher. Moreover, Russia is joint chair of OPEC+, leaving it unclear whether it will be able to fulfill its share of the cartel’s production.

The U.S shale industry – which produces both crude oil and natural gas – is well-positioned to increase production in the lower 48 states, but it will take time. During the last few years, energy producers curbed spending on new wells, following two mini U.S. shale boom and bust cycles, the latest causing roughly $55 billion of defaults. Responding to shareholder demands for strong investment returns, producers pivoted from a focus on production growth (“drill baby drill”) to one of capital discipline – maintaining modest leverage metrics and consistent cash returns on volume growth of just 0% to 5%.

As a result, exploration and production (E&P) operators face shortages in oil rigs (utilization is approaching 90%), frac fleets (which are completely sold out), and labor. E&P executives have indicated they could deploy more capital and maintain high profitability levels – thanks to improvements in drilling and completion technology – but estimate it will take them up to 12 months to increase current production volumes. In our view, the U.S. Shale “3.0 model” (e.g., spending within cash flow) of reliable production volumes and consistent cash returns could make U.S. energy attractive to countries overseas over the medium- to long-term.

Along with growth in U.S. shale production, Preqin expect recent geopolitical events and consequent rise in oil and gas prices to accelerate investments in green energy. As green energy becomes a larger component of the overall global supply, traditional U.S. oil and gas will likely remain a dependable baseload power source in the overall market.

Sculptor Jo Endoro to Present His Art at AM House Art Gallery in Miami

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golden_mask
The Golden Mask - Jo Endoro. ..

After his ateliers in Pietrasanta (Italy) and Casa de Campo (Dominican Republic), sculptor Jo Endoro is ready to land in the USA. The inauguration of AM House art gallery (257 Giralda Ave, Coral Gables) is scheduled for April 30th, 2022.

For the Italian artist, who has been active in Europe, South America, and the USA, this is an important recognition, since his works will now be exhibited together with those of the caliber of Pablo Picasso, Salvador Dalí and Fernando Botero.

Jo Endoro was born as a sculptor, inspired by Canova’s neoclassical forms, reinterpreted using innovative techniques.

His works in marble and bronze are the offspring of a timeless gaze, capable of going beyond the noise of an exhausted present due to the persistence of appearing. “Being is timeless and Jo Endoro chases it” was written about the artist by Italian writer Francesco Mazza.

“I have always had an attraction for forms, for architectural forms, for everything that has a particular shape, starting with Greece, continuing with ancient Rome, and following with the Classicism of the 1700s. My whole vision derives from sculpture, which in my opinion is the greatest form of art because marble does not forgive any mistakes, it requires constant work with the material and absolute rigor in the realization. This concept can then be transferred to other disciplines” said Jo Endoro.

About the artist

Born as a sculptor, Jo Endoro has always been inspired by the neoclassical forms, that he reinterprets by using modern and cutting-edge techniques, using mainly in marble and bronze. Over the years spent in the Dominican Republic, he also devoted himself to painting, depicting the last famous classical and neoclassical sculptures of European art on recycled wood panels from the heart of the rainforest, through the use of mixed techniques.

Snowden Lane Partners Adds $350 Million Advisor Team

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. Pexels

Snowden Lane Partners announced that Andrew Randak has joined the firm as Senior Partner and Managing Director, alongside his colleagues, Nicole Boutmy de Katzmann and Kristian Sedeño, both of whom joined as Managing Director and Partner.

Together, they form The Mile Creek Global Group, based in Snowden Lane’s New York, Coral Gables and New Haven offices and overseeing $350 million in client assets.

Randak is a CFA and boasts nearly 30 years of industry experience. He provides sophisticated and unbiased advice to successful businesspeople, their families and their companies. Like Boutmy de Katzmann and Sedeño, he specializes in helping clients throughout Europe, North and South America manage wealth and tackle complex, cross-border issues.

Similarly, Boutmy de Katzmann advises families in Europe, Latin America and the United States, with expertise in multigenerational wealth planning, investments, philanthropy and gifting. Sedeño is a CPA and has also provided wealth management and private banking services to domestic and international families for over a decade.

“We were excited when Andrew, Nicole and Kristian expressed interest in joining the firm and are pleased to officially welcome them to the team,” said Greg Franks, Snowden Lane’s Managing Partner, President & COO.

“We have the utmost respect for Fieldpoint Private, as they have done outstanding work in our industry. We are fortunate to have The Mile Creek Global Group come on board and I’m looking forward to witnessing the big impact they will undoubtedly have at Snowden Lane,” he adds.

Prior to Snowden Lane, Randak and Boutmy de Katzmann each served as Managing Directors and Senior Advisors at Fieldpoint Private, while Sedeño worked as Vice President and Associate Advisor.

Randak began his career in private banking at The Chase Manhattan Bank. He spent two of his six years in Chase’s Santiago, Chile offices, where he managed the firm’s private client lending platform. In 2000, he joined Brown Brothers Harriman & Co. where he was responsible for wealth management and trust clients in South America. He moved to Fieldpoint Private in 2015 with a mandate to grow the firm’s wealth advisory and private banking business outside the United States.

Sedeño is a Certified Public Accountant and worked at PricewaterhouseCoopers (PwC) from 2009 to 2011. Following that, he joined Brown Brothers Harriman as an Associate, working with ultra-high net worth families in South America. Together with Randak, he joined Fieldpoint Private in 2015 to help build the firm’s global presence.

Boutmy de Katzmann’s career in global banking started at Republic National Bank of New York. With Republic, she served as an international private banker in Montevideo, Milan, London and New York. A few years after HSBC acquired Republic in 2000, Republic’s former senior executive team invited her to join them in forming a new firm, NuVerse Advisors, where she remained for over a decade. After NuVerse, she was a Senior Director in Oppenheimer & Company’s Private Client division for over three years.

Snowden Lane has 122 total employees, 69 of whom are financial advisors, across 12 offices around the country: Pasadena and San Diego, CA; New Haven, CT; Coral Gables, FL; Chicago, IL; Pittsburgh, PA; Baltimore, Salisbury and Bethesda, MD; San Antonio, TX; Buffalo, NY, as well as its New York City headquarters.