From budding trends to mature industries, Novem Group works hard to stay abreast of developing news. Here’s what caught our eyes this week:
A Hidden Bond-Market Problem
- Does a good job of laying out and quantifying what we already know- the fixed income market stinks and it makes investing even harder for investors to earn a reasonable return.
- Now, after the Fed’s unprecedented intervention in bond markets drove rates down even further in the pandemic, finding anything paying more than 5% has become difficult, except for investors willing to dip into the riskiest parts of the junk-bond market. While cheap borrowing costs have been a boon for corporate America, the same can’t be said for money managers that need to generate returns that match their long-term obligations.
- This problem is in all parts of the fixed market- including high yield… on a go-forward basis are investors being adequately compensated for the additional credit risk?
Copper – The Linchpin of Ancient and Modern Society We Need To Find A Lot More Of
- Copper is incredibly important for electronics. The rise of EVs/Hybrid cars and increased electrical grids in developing countries means that there is a secular growth story to copper demand. EVs need about 4x the amount of copper as a normal ICE-powered car.
- “Discussions of peak oil demand overlook the fact that without a surge in the use of copper and other key metals, the substitution of renewables for oil will not happen,” Goldman Sachs just wrote in a report.”
- Supply does not look poised to keep up
- “global mined copper production will drop from the current 20Mt to below 12Mt by 2034, resulting in a supply shortfall of 15Mt. By then, over 200 copper mines are expected to run out of ore, with not enough new mines in the pipeline to take their place.”
- A multi-year period of weak pricing has eliminated lots of exploration projects as companies looked to preserve cash flow. This is setting the stage for a bull-market.
The Velocity of Money & Inflation
- Despite the massive growth in the money supply (thank you Ben, Janet & Jerome) there has NOT been inflation because the velocity of money has dropped so much.
- I get why velocity drops with the COVID pandemic… but why did velocity peak in the late 90’s before starting a multi-decade downward trend? Honestly I have no idea and I have yet to come across any good research on the topic. Please pass along if you know anything.
