Wobbles aside, it’s been a pretty impressive week for stocks thus far — 5%-plus gains across the board, which has sparked some market-bottom talk.
But big data is coming — Friday’s payrolls numbers and next week’s CPI — both important cogs in the Fed’s decision-making wheel and market direction. “We’re about to get an influx of data showing just how fractured the economy could be after a year of rate hikes,” Callie Cox, U.S. investment analyst at eToro, tells clients.
Asset manager Horizon Kinetics launched the Inflation Beneficiaries Exchange Traded Fund INFL in early 2021, when CPI was still below 2%. People thought they were “crazy” to be worrying about inflation, James Davolos, senior vice president and co-portfolio manager on the fund, told Real Vision in an interview that published Thursday.
Davolos said they see the prior 30 years as steeped in artificially low inflation, i.e. disinflation, due to an “era of abundance,” with the world now moving into an era of scarcity. In our call of the day, he offers three stock picks to ride out that regime of higher, stickier prices.
The first pick is Canadian-listed PrairieSky Royalty which invests and holds royalty interests in oil and natural gas properties in the country. As the manager explains, most energy related companies are very capital intensive, such as Exxon Mobil which spends big to explore and extract oil and gas.
“The reason why royalties are such an eloquent business model and not really properly appreciated in the market is that they remove a lot of that capital intensity because a royalty in its purest form is purely a revenue interest in the production of another oil company,” he said.
And while PrairieSky shares are up 44% year to date, Davolos said they are bullish because they see energy prices rising, with Canada “setting up for a very big rise in production for a variety of reasons,” and starting to produce more in-demand conventional oil such as the kind found in the North Sea. In the near term, lower U.S. and Canada rig counts combined with an expected China economic reopening in November will lead to big energy shortfalls.
His second idea is multinational food processing and commodities trading group Archer Daniels Midland which plays into the idea of higher food prices for longer, with more demand in countries such as China and India and struggles on the supply side as war-driven fertilizer shortages cause smaller crops in Western countries.
“So we think the earnings profit in the large global agribusinesses are actually going to be a lot stickier,” said Davolos.
His final idea is Brookfield Asset Management dually-listed in Canada and the U.S. He describes it as “a leading asset manager of real assets” — real estate, renewables, infrastructure, with a smaller leveraged buyout business as well as a credit business through the acquisition of Oaktree Capital Management. They’ve also been quietly building a reinsurance business, he added.
And a lot of these products, whether it be renewables or real estate, rents or tolls are often linked to a market-based measure “and the world is going to be starved for rising real yields as opposed to these fixed yields,” he said.
“What really differentiates them other than their long history, expertise and counter cyclical investments is that in addition to the asset manager, which is fees, they also have tens of billions of dollars of co-invested capital,” Davolos added.
The markets
Stocks DJIA SPX COMP are lower as trading begins, with bond yields edging higher, but the dollar once again on the rise. Oil prices ar flat, natural gas is up. Gold and silver are firmer and bitcoin is in the green, at just over $20,171.
One day ahead of nonfarm payrolls, weekly jobless claims come in slightly higher than expected at 219,000.
Atlanta Fed President Raphael Bostic said he thinks the central bank should pause with hikes after December. Thursday’s Fed speakers include Cleveland President Loretta Mester, who speaks twice, and Fed Gov. Lisa Cook, making her debut speech at the central bank.
Fitch cut its outlooks on the United Kingdom and the Bank of England to negative.
Source: here
