Three things that got the team talking this week - Firetrail Investments

Weekly insights from the Trail

Three things that got the team talking this week

January 14, 2022

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1. Transitory INFLATION…

The US CPI print dominated headlines this week. Inflation was up 7% y/y hitting a 39 year high! But back in 1982 the circumstances were very different.

Quick history lesson: While inflation right now is rising, back then it was falling after peaking at 14.8% in 1980, when Jimmy Carter was still president and the Iranian revolution had pushed up oil prices. Newly installed Federal Reserve Chairman Paul Volcker had set out to crush inflation by raising interest rates dramatically, causing a recession in 1980. As rates reached 19% (!!!) in 1981, a much deeper recession began. By the summer of 1982, both inflation and interest rates were falling sharply…

Fast forward to today and Bond markets are currently pricing in 3.5 rates hikes for 2022, and an 89% chance of a March hike. The US 10-year breached 1.8% earlier in January, representing a post-pandemic high.

The challenge has been set for the Fed to bring inflation under control without short circuiting the business cycle. If inflation does not moderate, this will trigger faster Fed hikes increasing the risk of another policy-driven recession.

2. Energy shift?…

This week the IEA (International energy agency) released their 2021 coal demand and 2024 projections. It was interesting to note coal demand was the highest on record in 2021. And despite developed markets in decline, India and China are set to grow.

3. Flights vs Cases…

Despite increased flight cancellations as staff became close contacts/get COVID, flights out of Sydney and Melbourne picked up strongly over the Christmas holiday period. Comments from Delta at their 4Q21 result this week provide some light to the end of the Omicron tunnel. CEO Ed Bastian said that bookings looked “really robust”…and that “the worst of Omicron is behind us”. “Delta’s operation has stabilized over the last week and returned to pre-holiday performance”.

Source: Macquarie

Source: SMH (14/1/22)

Chart of the Week

Google showing just how long our attention spans were through 2021!

Source: Google and EAP

Disclaimer

This article is prepared by Firetrail Investments Pty Limited (‘Firetrail’) (ABN 98 622 377 913, AFSL 516821) as the investment manager of the Firetrail Australian High Conviction Fund (ARSN 624 136 045), the Firetrail Absolute Return Fund (ARSN 624 135 879), the Firetrail Australian Small Companies Fund (ARSN 638 792 113) and the Firetrail S3 Global Opportunities Fund (ARSN 653 717 625) (‘the Funds’). Pinnacle Fund Services Limited ('PFSL') (ABN 29 082 494 362, AFSL 238371) is the product issuer of the Fund. PFSL is not licensed to provide financial product advice. PFSL is a wholly-owned subsidiary of the Pinnacle Investment Management Group Limited (‘Pinnacle’) (ABN 22 100 325 184). The Product Disclosure Statement (‘PDS’) and Target Market Determination (‘TMD’) of the relevant Fund are available via the links below. Any potential investor should consider the PDS and TMD before deciding whether to acquire, or continue to hold units in, the Fund.

Links to the Product Disclosure Statement: WHT3810AU, WHT5134AU, WHT3093AU, WHT7794AU

Links to the Target Market Determination: WHT3810AU, WHT5134AU, WHT3093AU, WHT7794AU

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