Economy

Oil prices have started to recede but that could just be temporary as reserves flooding isn’t a permanent solution. While demand destruction is possible if oil remains elevated near $130 a barrel, international countries are feeling the pain. Developing economies in Latin America, Southeast Asia, and Africa are being pushed to the limits with energy cost burdens. That effect could trickle into the US. Latin America is already experiencing demand destruction. If oil prices climb and stay above $100 a barrel, energy costs could burden Americans and lead to a recession, but given the security on other energy fronts—unlike in Europe—the US is in a better position to weather the storm.


Finsum: Demand destruction driving a recession is unlikely in the US alone, but if international markets are hit heavily, globalization could cause trickle effects in America.

Many investors have moved off of REITs and they are trading well below their 200-day moving averages. This makes them a value proposition, particularly as volatility starts to rise. Uncertainty particularly around Ukraine and Russia is fueling volatility but its uncorrelated with REIT volatility which gives it a huge risk advantage on top of it all they are more robust to inflation. Two great REITs to consider with great value at the moment are Alexandria Real Estate Equities and Crown Castle International. These REITs have healthcare and telecom exposures respectively which are in a particularly attractive position as healthcare spending is a higher portion of budgets and 5G is exploding.


Finsum: It’s easy to see that alternatives should be seeing inflows given the volatility in traditional equity and bond markets.

Inflation and interest rate risks are two of the most prominent risks in the economy, and they are the reason so many are fleeing traditional fixed income. One place many investors are turning is to annuities, but how does interest rate risk affect annuities? For fixed annuities appreciating rates mean investors can get a better payout with the same premium and generally expand the offerings. For variable annuities, it's trickier as they are more tied to equity markets. If the Fed hikes too aggressively and markets respond adversely this could hurt variable rate products but if the stock market stays steady they won’t be under much pressure. As an income value proposition generally they both perform better than bonds in raising rates because higher yields (inflation and interest rates both moving) suppress bond prices directly.


FINSUM: Annuities have a lot of value in rising rates environments as an income product especially compared to government securities and CDs. 

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