Alboran Energy Strategy Consutlatns

Inflation

  • Energy Musings, July 30, 2023

    Energy Musings contains articles and analyses dealing with important issues and developments within the energy industry, including historical perspective, with potentially significant implications for executives planning their companies’ future.

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    July 30, 2023

    Climate To Be Stock Market Theme Of The Decade?

    Stocks move up and down based on investor optimism or pessimism about the economy and the earnings power of companies. But investment performance may be impacted by other considerations reflected in decade-long investment themes. From the Go-Go era to gold to Japan, Inc. and the dot.com boom and bust, every decade has had a theme that drove the performance of select stocks or assets. The current decade’s theme may be climate but not climate change. Climate is a ‘big tent’ concept yielding numerous investment opportunities. The reason for the theme may surprise you. READ MORE

    Climate To Be Stock Market Theme Of The Decade?

    Legendary stock market investor, Warren Buffett believes in long-term investing. He has said, “If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.” That certainly isn’t the mantra of day traders or momentum investors. It isn’t the investment style of most active portfolio managers. In Buffett’s case, he often owns a stock for decades, and in some cases even buys the entire company to add to his Berkshire Hathaway conglomerate.

    If you focus on long-term investing, your portfolio will experience ups and downs as the stock market oscillates through periods of optimism and pessimism about the future of the world’s economy and its impact on company earnings. Stock prices reflect the mood of investors and the earnings power of companies. But other factors impact share prices such as investment themes that drive investors to favor certain types of companies at any point in time.

    We recently listened to a professional wealth manager interview the founder and managing editor of an independent global macro research and trading advisory firm with a focus on major investment themes. During the podcast, he was asked about what investment theme investors should be focused on now. Before answering the question, the strategist reviewed the history of investment themes. His narration covered almost all our investment career. We found his history of decade investment themes insightful as it characterized what was popular at the time and made money for investors until the theme stopped working. Often, investors fail to realize a theme has ended and another has begun, which is what costs them money.

    Exhibit 1. How Stocks, Bonds, And Inflation Performed By Decade

    Source: wealthmeta.com

    Let’s look at the investment themes the strategist identified. To make the review parallel our career, we will begin with the 1960s, a decade the strategist didn’t mention. To understand the theme of the 1960s, we must first understand the 1950s. That market was an extension of the post-World War II boom driven by rapid economic growth as the U.S. transitioned from a war footing to one capitalizing on the many inventions of the late 1930s and during the war, rapidly growing young populations, and rising incomes and improving lifestyles. The public’s inability to spend on goods, cars, appliances, and homes during the 1930s and 1940s led to a buildup of savings which fueled the 1950s economy. But investing during that decade was heavily influenced by the conservative approach of Americans who had lived through the Depression and WW II.

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  • Energy Musings, April 28, 2023

    Energy Musings contains articles and analyses dealing with important issues and developments within the energy industry, including historical perspective, with potentially significant implications for executives planning their companies’ future.

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    April 28, 2023

    Bananas, Kumquats, and Today’s Inflation Problem

    Many investors believe inflation is on the run and soon will return to pre-pandemic lows. There is a history of head fakes about inflation that needs to be examined. READ MORE

    Bananas, Kumquats, and Today’s Inflation Problem

    Cornell University economist Alfred Kahn, President Jimmy Carter’s advisor on inflation and chair of the Council on Wage and Price Controls, was famous for talking about recessions and depressions as necessary to win the battle with the raging inflation of the 1970s.  He was chastised for using such scary language – remember we were not far removed from the Great Depression.  Kahn switched to calling them bananas until a banana company took offense and he changed to kumquats.  Who knew what a kumquat was?

    Politicians in Washington hate talking about recessions, let alone depressions.  But if inflation does not retreat to the Federal Reserve’s 2% target rate, people will continue suffering.  The good news: the March Consumer Price Index (CPI) for all items posted an increase of 5.0%, the smallest monthly rise since May 2021.  Energy falling 6.4% helped, with gasoline falling 17.4%, although electricity rose 10.2%.  Fortunately, the latter counts less in the index than the former.

    In the 1970s when the CPI was rising by 15%, Arthur Burns, chair of the Federal Reserve, asked his economists to develop an index that was less politically sensitive.  They came up with Core CPI which strips out the volatile food and energy components.  In March, however, Core CPI increased by 5.6%, largely attributed to an 8.2% increase in housing that represented over 60% of the total increase.  So much for getting rid of the volatile categories.  Compared to expectations, the March CPI was slightly better while Core CPI was slightly worse.  Good news or bad?

    On the bad side, since March 2021, the CPI has increased by 14.0% driven by food prices climbing 18.0% and energy soaring 23.6%.  Without those categories, Core CPI was 12.4% higher – better but not by much.  For consumers, food and fuel claim significant shares of people’s budgets but so do housing, autos, and health care expenses.  Inflation hurts, no matter who you are.

    Despite Main Street’s suffering, Wall Street cheered the CPI report.  Investment managers and CNBC talking heads rejoiced at the lower rate declaring the “end of inflation!”  They called the CPI’s steady decline since peaking at 9.1% last June a victory.  For them, the CPI is heading directly to the Federal Reserve’s 2% inflation target.  The stock market will soar.  Break out the champagne!

    At What Cost?

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  • Energy Musings, March 7, 2023

    Energy Musings contains articles and analyses dealing with important issues and developments within the energy industry, including historical perspective, with potentially significant implications for executives planning their companies’ future.

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    March 7, 2023

    Bringing Down Inflation Will Be Harder And Take Longer

    Inflation continues to run hot, forcing the Federal Reserve to continue boosting interest rates. A deteriorating federal government spending/revenue outlook, coupled with soaring costs to build new Jones Act transportation vessels, means more inflation is being embedded in the economy. READ MORE

    Offshore Wind Development Confronts Multiple Challenges

    The Biden administration’s showcase climate change effort is running into challenges including Native Americans demanding a “fair share.” Whale strandings are dismissed, but everyone says the issue needs more research. Why the dismissal? Toeing the policy line? READ MORE

    Tough February For Energy, But Fundamentals Remain Solid

    Energy finished in last place in the S&P sector ranking for February for only the second time since January 2022 and since the industry recovery began in the fall of 2021. March is better. READ MORE

    EV Enthusiast Comes To Grips With Range Anxiety

    Another long road trip by an EV enthusiast documents what it takes to manage charging. The conclusions about charging network inadequacies remain consistent with other reports. READ MORE

    Bringing Down Inflation Will Be Harder And Take Longer

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  • Energy Musings, November 15, 2022

    Energy Musings contains articles and analyses dealing with important issues and developments within the energy industry, including historical perspective, with potentially significant implications for executives planning their companies’ future. While published every two weeks, events and travel may alter that schedule. I welcome your comments and observations. Allen Brooks

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    November 15, 2022

    Age Of Inflation: More Unseen Challenges For The New Normal

    Despite the CPI easing, we still see more inflation and interest rate problems ahead. READ MORE

    New York Times Climate Skeptic Has Change Of Heart

    He wonders if the pandemic’s arrival is more reflective of possible climate problems. READ MORE

    COP27 Struggles For Relevance In Energy-Challenged World

    In an energy crisis, security of supply is trumping political concern over climate change. READ MORE

    October’s Stock Market Harvest Was Very Good For Energy

    Energy has had an outstanding 2022 and October’s performance was a record. READ MORE

    Random Energy Topics And Our Thoughts

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