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

June 17, 2022June 24th, 2022

Feature Image

1. Inventories rising…

Target, Walmart and other retailers’ shares have slumped recently after reporting rising inventory levels. Many retailers experienced tremendous one-off growth as a result of COVID lockdowns. They should have taken the profits and run. Instead, they upped their production, optimistic that the super growth would continue… Now that consumers have diverted their spending to travel and experiences, retail revenues are down, costs are up, and warehouses are full…

Source: Commerce Department, The Daily Shot

2. European Debt Crisis #2 averted?

Talk of rising interest rates sent European government bond markets into a spin last week. The 10-year government bond yields of highly indebted EU members like Greece and Italy spiked to their highest levels since 2014… While tight-belted EU member states like Germany are eager to stamp out inflation, higher interest rates could spell disaster for less disciplined states. At a 5% interest rate, Greece’s annual interest repayments would amount to 10% of GDP… The European Central Bank (ECB) flew to the rescue on Thursday. At an emergency meeting, the ECB announced it would buy struggling government bonds to put downward pressure on borrowing costs.

Source: Firetrail, Bloomberg

3. Chaos strikes Australia’s electricity market…

Severe supply constraints are causing chaos in the Australian electricity market this week. To make matters worse, the supply shortage is occurring when electricity demand is high due to a cold snap… Over the long term, wholesale electricity prices are typically ~$70 / MWh. This week, prices spiked to a staggering $15,100 / MWh! The high prices led to a $300 price cap being enforced and finally the regulators took control of power stations. A $300 price is not profitable for power producers. However, the regulator has promised they will be refunded their cost to generate plus a small margin.

Source: Firetrail, AEMO

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

For historic TMD’s please contact Pinnacle client service Phone 1300 010 311 or Email service@pinnacleinvestment.com

This communication is for general information only. It is not intended as a securities recommendation or statement of opinion intended to influence a person or persons in making a decision in relation to investment. It has been prepared without taking account of any person’s objectives, financial situation or needs. Any persons relying on this information should obtain professional advice before doing so. Past performance is for illustrative purposes only and is not indicative of future performance.

Whilst Firetrail, PFSL and Pinnacle believe the information contained in this communication is reliable, no warranty is given as to its accuracy, reliability or completeness and persons relying on this information do so at their own risk. Subject to any liability which cannot be excluded under the relevant laws, Firetrail, PFSL and Pinnacle disclaim all liability to any person relying on the information contained in this communication in respect of any loss or damage (including consequential loss or damage), however caused, which may be suffered or arise directly or indirectly in respect of such information. This disclaimer extends to any entity that may distribute this communication.

Any opinions and forecasts reflect the judgment and assumptions of Firetrail and its representatives on the basis of information available as at the date of publication and may later change without notice. Any projections contained in this presentation are estimates only and may not be realised in the future.

Unauthorised use, copying, distribution, replication, posting, transmitting, publication, display, or reproduction in whole or in part of the information contained in this communication is prohibited without obtaining prior written permission from Firetrail. Pinnacle and its associates may have interests in financial products and may receive fees from companies referred to during this communication.

This may contain the trade names or trademarks of various third parties, and if so, any such use is solely for illustrative purposes only. All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with, endorsement by, or association of any kind between them and Firetrail.