There has been a lot off bearishness on oil lately, including from this publication. However, in one of the few bullish pieces recently, Citi has said it expects oil to rise. The banks says that supply disruptions in Nigeria are set to persist, and that oil prices around $40 are set to spur demand. The article goes into some nitty gritty arguments regarding supply, calling the projected increase in Libyan output a “headfake”. It also says other supply may fall or be disrupted as well. Citi summarized its view this way, saying “Oil prices for the remainder of second-half 2016 have a number of hurdles to overcome, most notably the tempered outlook for refinery runs as a result of weak margins, which will further weigh on prompt crude demand and the sizeable excess of oil in storage … But oil at $40 a barrel is likely to spur investor, commercial and physical demand”.
FINSUM: This was one of the most bearish “bull” statements ever. We do not actually take this as much of a long-term positive.
Barron’s has published a new article telling investors how they can profit from the coming jump in inflation. S&P has said that it sees inflation rising next year after falling until the middle of 2017. The forecast is based on the tight correlation between commodity prices and inflation. If you believe the argument, which Barron’s says carries a lot of weight, then you can buy inflation hedges in a number of ways. TIPS, for instance, or Treasury Inflation-Protected Securities, could be a profitable bond purchase if inflation starts to rise, and you can get exposure to these via ETFs. Gold is another obvious way to protect against inflation, and a gold ETF may be a good choice. Investing directly in commodities is another way to do it, and unsurprisingly, these can be accessed via ETFs like the iShares S&P GSCI Commodity-Indexed Trust.
FINSUM: If fiscal stimulus happens, we definitely think inflation will once again become an issue, which means getting into these asset classes now could prove very lucrative in the long-term.
No matter who wins this election, one thing seems certain—there is going to be a war on inequality. The masses on both sides of the political divide are furious about the growing gap between rich and poor, and either candidate is likely to put new policies in place that will attempt to lower the divide. This Bloomberg article tells investors where to put their money when the battle against inequality starts. The piece is based on research by Bank of America, and goes through three scenarios: a redistributive policy shift, a protectionist policy shift, or a Keynesian policy shift. Bank of America advises exactly where to put your assets in each scenario, such as in TIPS for redistributive or Keynesian shifts, or long government bonds in the protectionist scenario.
FINSUM: This is a very insightful and clear article about where to put your money in three likely scenarios. A must read for any investor.
The market has literally been holding its breath for news of further stimulus in Japan, and today they got it. The country’s prime minister, Shinzo Abe, has announced a move away from austerity and towards a looser fiscal system with the introduction of a $45 bn fiscal stimulus package. The package will build on the original tenants of Abenomics, and give more money to pensioners and more funding to complete a key train line in the country. One analyst cited in the piece seemed disappointed by the announcement, saying it would only add very little to growth. The market was disappointed recently when the country failed to expand the size of its monetary stimulus.
FINSUM: This is not the major package that everyone has been hoping for.
Source: Financial Times
America’s GDP nosedived in the second quarter, with the news arriving just as many were gearing up their expectations for a near term Fed rate hike. The economy expanded at only 1.2% in the second quarter, way below expectations of 2.6% growth. Consumer spending gains were offset by nervous businesses which did not invest as much. Inventory drawdowns were also a lag on the economy. The weak figures are actually still an acceleration from the first quarter, which saw 0.8% growth. The US has now failed to achieve 2% growth for three straight quarters.
FINSUM: This seems very likely to be a strongly negative sign for the Fed. We think a September hike is now off the table.
Source: Financial Times
There has been an increasing amount of hope that the next great investment catalyst might be fiscal stimulus from the world’s governments. With the world submerged by ultra-loose monetary policy, yet still not growing, many are hoping governments may finally undertake fiscal stimulus to expand the economy. However, new comments from Deutsche Bank show why even that won’t save the economy. The bank says the reason why is that political issues will keep fiscal stimulus from being enacted in the most key areas of the economy, which will mean that the resulting economic effects from any measures undertaken are likely to be modest. Europe would benefit most from such measures, but given the political climate there, it seems all but impossible.
FINSUM: Politics are very fractious across the US and Europe right now, so it is hard to imagine any big, sweeping, effective measures being undertaken.