Brave New World - Edition 16

Junk Bond Spreads spike to Pre-Covid levels

• Last spike of Junk/High yield bonds over G-Sec was seen in Jan’08/Aug’11/Oct’15; which was a phase of rampant price damage in equities globally,lasting for a few weeks to months. However, this was also mostly the last phase of sell-off where people throw-in their towel
• 1- year rolling returns on all Equity funds globally has reached -13.5%. In the last decade, the returns have bottomed in the -10% to -13% range, other than 2000-2002 and 2008-09. Hence, it will be critical to see if sell-off halts here or extends into a bear market

Will Gold be at the center of new payment currency?

• One trend that is common across many nations: gold as a percentage of reserves has risen consistently since Q3 of 2018.
• Gold’s value has stagnated over the past 1-2 years as bitcoin and equities had taken the spotlight with an increasing fait money.
• As Bitcoin joins Bonds and Equities towards the downward journey, will value return back to real assets?

Agriculture: Will climate goals affect the farm production?

• The government of the Netherlands wants to impose new climate goals of reducing nitrogen output by 2030. In order to meet these goals, farmerswill have to downsize their businesses or shut down.
• In Norway several large food producers implemented massive price increases on food. For example the price of Pepsi Max went up by over 30%
• We are already looking at a worldwide food crisis as a result of skyrocketing fertiliser prices and the war in Ukraine (as Russia and Ukraine are major grain exporters, and that is now coming to a standstill).
• We will likely see even more expensive food next year, and unfortunately probably famines in some parts of the world. (Source: Peter Sweden)

US ‘Strategic Petroleum reserve’ hits nearly 40 year low

• In order to curb the oil price and thereby inflationary pressures; the U.S released a large part of their ‘Oil Strategic Reserve’ stock thereby taking this near to 40 year lows.
• On the flipside, the western economies are shutting down gas pipelines, taxing oil companies thereby disincentivizing any additional supply
• All eyes are now on Biden’s visit to Saudi Arabia in mid-July and if Saudi agrees to pump more to stabilize supply markets.

The US Is Depleting Its Strategic Petroleum Reserve Faster Than It Looks

• What could happen here – Biden returns with a promise from Saudi to pump more oil; which cools off prices and thereby inflation prints; gives Fed some leeway to pause tightening.
• However, ensuing months show that Saudi & Opec + production do not rise as much; which may again send oil prices back to prior highs.

Investor sentiments hitting historic lows

• BofA’s sentiment indicator hit ‘0’ in June’22 indicating extreme ‘bearishness’.
• Other instances where this hit zero were Aug’2002, Jul’2008, September’2011, September 2015 and March’2020.
• While not all of these dates were definite bottoms; but, these typically represents a buyer’s more than a seller’s market from a 6-12 months perspective.
• Also, US investor sentiment readings are at extreme bearishness, last seen during depths of Great financial crises

Team

Management

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