Market Recap


Weekly Recap


The September correction rolls on, with most of the pain, at least so far, in the stretched momentum/growth type names. The Snowflake IPO this week was a hit (for the founders and employees, or if you could get it pre-market), but it also drew attention to the valuations in certain sectors.


The major economic/market related news of the week was the Fed announcement on Wednesday. This meeting garnered a lot of attention because it was the first one since the Fed said they would start their new ‘average inflation targeting’ program. The hope was we’d learn more about what it really meant.


Not so much. They said they expect to keep rates on hold until “inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.” Ok then. Some time? They didn’t flesh that out. For what it’s worth, they don’t think they will hike rates until after 2023. So, we have that going for us.


The red line in the chart below shows the Fed’s new projections. This is the first time the FOMC published the 2023 dots and those show that the median Committee participant expects no hikes through 2023. Note that the white line shows their estimates this time last year.



This implies that the Fed doesn’t think inflation will hit their 2% goal by the end of 2023. The market thinks similarly. The chart below shows forward inflation expectations five years out for the following five years. Even this isn’t at 2%.



The market is coming around to the idea that the Fed can’t create inflation no matter how low rates are. If anything, low rates today are pulling forward demand from future years, meaning low rates = anemic future growth. As we have said before, the inflation picture is all about fiscal policy now.


Peak Oil (demand?)


Back in the mid-2000’s all you had to do to sound smart about the global economy was say ‘peak oil’. We aren’t making it anymore + China is using an enormous amount of it = we are going to run out of the stuff.


Fast forward fifteen years or so and we have done a complete 180. This week energy giant BP wrapped up its three-day investor event in which it said the relentless growth of oil demand is over. They are the first big oil company to say the era of oil-demand growth is over.


To quote Bloomberg:


‘Oil consumption may never return to levels seen before the coronavirus crisis took hold, BP said in a report on Monday. Even its most bullish scenario sees demand no better than “broadly flat” for the next two decades as the energy transition shifts the world away from fossil fuels.  BP is making a profound break from orthodoxy. From the bosses of corporate energy giants to ministers from OPEC states, senior figures from the industry have insisted that oil consumption will see decades of growth. Time and again, they have described it as the only commodity that can satisfy the demands of an increasing global population and expanding middle class.


The U.K. giant is describing a different future, where oil’s supremacy is challenged, and ultimately fades. That explains why BP has taken the boldest steps so far among peers to align its business with the goals of the Paris climate accord. Just six months after taking the top job, Chief Executive Officer Bernard Looney said in August he’d shrink oil and gas output by 40% over the next decade and spend as much as $5 billion a year building one of the world’s largest renewable-power businesses.’


Here’s the key chart from the presentation.



If they are right it is going to stink being an oil producer in 2050. Along the same lines, The Economist’s main story dealt with energy in the twenty-first Century. To quote from their latest report:


‘But what it might mean to be an energy superpower is changing, thanks to three linked global shifts. First, fears about fossil-fuel scarcity have given way to an acknowledgment of their abundance. Not least because of what has been achieved in America, the energy industry now knows that it will be lack of demand, not lack of supply, which will cause production of oil, coal and, later, gas to dwindle.


This is because of the second shift: an acknowledgment by most countries that, for the sake of the climate, reliance on fossil fuels needs to come to an end. And that leads to the third shift: electrification. Fossil fuels provide heat that is mostly used to move things, be they vehicles or electric generators. Solar panels and wind turbines provide energy as electricity straight off. Maximising their emissions-free benefits means processes and devices that now rely on combustion must in future use currents and batteries instead. The bp analysis argues that in a world going all out for decarbonisation the share of energy used in the form of electricity would rise from about a fifth in 2018 to just over half in 2050.’


Time will tell. But the cynic in us must point out that Economist covers are great contrary indicators. This week’s cover is as follows:



Over the last twenty years The Economist has had two covers that talked about oil. The first was on March 6th, 1999 when they talked about an oil glut and referenced $5 crude prices. The other was on October 25th, 2003 when the gist of the argument was that the computer age would supplant the oil age. In the chart below the price of oil is overlaid.



So, we probably shouldn’t run out and short crude on this latest cover, but do wonder if the third time is a charm.


Charts We Found Interesting


1. Half the population in the U.S. isn’t keen on getting a COVID vaccine.



2. However, people are getting more comfortable flying.



3. We are seeing the largest number of IPO-doubles since the tech bubble



4. If it feels like there is a financial crisis somewhere most years, it’s because there is.



5. True correlation or data mining? Will the election outcome be determined by infection and death trends? Only 46 days until we find out.



6. You mean to tell me I can cycle for up to two hours in unhealthy air (AQI >150) and still get some fitness benefit? Ummmm……I’m not sure it’s worth the risk…but…



7. ….52% of 18-29-year-olds are living with their parents today. That seems about right….and the reason I’m considering two-hour rides in unhealthy air for the foreseeable future.




Have a good weekend.



Published by Gemmer Asset Management LLC The material presented (including all charts, graphs and statistics) is based on current public information that we consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. The material is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal recommendation or take into account the particular investment objective, financial situations, or needs of individual clients. Clients should consider whether any advice or recommendation in this material is suitable for their particular circumstances and, if appropriate, see professional advice, including tax advice. The price and value of investments referred to in this material and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or prices of, or income derive from, certain investments. No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of Gemmer Asset Management LLC (GAM). Any mutual fund performance presented in this material are used to illustrate opportunities within a diversified portfolio and do not represent the only mutual funds used in actual client portfolios. Any allocation models or statistics in this material are subject to change. GAM may change the funds utilized and/or the percentage weightings due to various circumstances. Please contact GAM, your advisor or financial representative for current inflation on allocation, account minimums and fees. Any major market indexes that are presented are unmanaged indexes or index-based mutual funds commonly used to measure the performance of the US and global stock/bond markets. These indexes have not necessarily been selected to represent an appropriate benchmark for the investment or model portfolio performance, but rather is disclosed to allow for comparison to that of well known, widely recognized indexes. The volatility of all indexes may be materially different from that of client portfolios. This material is presented for informational purposes. We maintain a list of all recommendations made in our allocation models for at least the previous 12 months. If you would like a complete listing of previous and current recommendations, please contact our office.