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Juni 26, 2023
Since 2016, we have been pointing out the risk of rising inflation in our commentaries, and now that inflation is all over the press, we see it differently…bearing in mind that higher but peaking interest rates can also increase the value of the domestic currency compared to other currencies. This will tend to push down the prices of goods that companies import from abroad, which could also help to lower inflation.
No single historical episode is a perfect template for current events. But when looking for historical parallels, it is useful to concentrate on inflationary episodes that contained supply chain disruptions and a spike in consumer demand after a period of temporary suppression. The inflationary period after World War II is likely a better comparison for the current economic situation than the 1970s and suggests that inflation could quickly decline once supply chains are fully online and pent-up demand levels off.
“Inflation and interest rates tend to move in the same direction, because interest rates are the primary tool used by the U.S. central bank to manage inflation.” This is according to Investopedia: https://shorturl.at/kTU18
CPI since 1915, after a spike above 3.5%, inflation expectations over 5 years are currently back down at the desired level of 2%.
3MLIBOR since 1984, warnings abounded, but at first the monetary authorities downplayed the price increase as transitory. However, as inflation expectations began to rise “transitory” turned into “persistent” and the FED started an unprecedented cycle of rate hikes. Although the monetary institutions are arguing for further increases in rates and a long period of high inflation, we also see the possibility that the worst is over.
Starting next year, owners of electric vehicles made by General Motors and Ford will be able to charge their EVs at many of Tesla’s charging stations, the largest such network in the country.
Elon Musk visions driving humanity toward a better future—or at least that is what he and his admirers want us to believe. For the past two decades, supporters and news outlets have praised him for the bold narratives he has woven around Tesla and SpaceX, and by extension allowed him to evade scrutiny and become the world’s richest man. Any time Musk sends a tweet, you can check his replies to see the devotion of his millions of followers.
As part of their move, both Detroit-area automakers have decided to adopt Tesla’s EV charging connector, the plug that links an electric vehicle to a charging station. In 2025, GM and Ford say they will start installing ports in their new EVs that will be compatible with Tesla chargers. To use a CCS charger instead, you would need to have an adapter or find a charging station that can accommodate both technologies. Though other automakers will likely make the switch to Tesla’s system as well, for at least a few years, you would probably need that adapter.
With GM and Ford joining Tesla’s charging system, the rest of the auto industry may be forced follow suit. If so, it would provide a major victory to Tesla, which would be assured a new and guaranteed revenue stream for years to come.
Tesla’s connector was proprietary, in that you initially needed a license from Tesla to use it, while the other connectors were owned by a standards body. Early on, Tesla declared it would license its patents for “free,” but there were a few strings attached and almost nobody accepted the offer. That changed recently as Tesla declared its connector to be entirely open, and people can use it without the company’s permission. It renamed it the “NACS” or North American Charging Standard.
It is hard to predict future global growth- the statistic provided by IMF looks promising:
We believe that the past months have given companies the opportunity to raise prices, which will be reflected in corporate earnings, while consumer spending – as an interesting study by McKinsey shows, does not suffer. The outlook predicts that the roaring luxury good market, as for example in China, will grow by 25%. Key players include brands such as LMVH, Swatch, Kering, Hermes, Estée Lauder, with an overall market revenue of more than USD 400 billion.
Contrary to the predictions of some industry representatives, the rise of e-commerce has not made brick-and-mortar retail obsolete. In fact, in-store spending is recovering. It is interesting to learn that categories such as sports, pets and cosmetics have seen double-digit increases, but it is also significant, that out of home entertainment pre-COVID is showing a correction of -30%.
In the first half of the current year, financial markets were not particularly concerned about inflation and an economic slowdown.
Performance numbers were above 10% in equity markets and also positive for bond investors despite the ongoing increases in interest rates.
We, as always, follow a disciplined and structered approach for the various strategies.
The equity exposure has been partially hedged to defend the solid results of the first half of the year and to reduce the risk in case of a less prosperous second half.
On our portfolio assessment platform, all data is regularly updated so that various strategies can be modelled and compared: https://jacotpartners.shinyapps.io/jp_portfolio_assessment/
We remain at your disposal for additional information.
Your JACOT Partners Financial Services Ltd
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