GDP Expectation / Unfunded Recession Fears? / Commodities

Good Morning Ladies and Gentlemen

„I did not need the special equipment. I’m a natural, natural shooter.„

Turkish shooter Yusuf Dikec, Olympics, Paris 2024

GDP Expectation

The Atlanta Fed’s forecast for the third quarter of 2024 (GDPNow) is 2.9%. A nowcast value of 2.9% means an increase of 0.4 percentage points compared to the previous week. The forecast has not shown any recessionary tendency so far. One could discuss an incipient US recession if the forecast falls into the 1% range. At the moment, things are moving in the other direction.
(Slide 1 (atlantafed.org))

Unfounded Recession Fears?

Strong petrol and car sales boosted the unexpected increase in US retail sales in July, surpassing market expectations. Additionally, a surprising decrease in initial jobless claims eased recent economic concerns among investors. Statements by US Federal Reserve representative Alberto Musalem (President of the Federal Reserve Bank of St. Louis) also suggested an ever-stronger perceived possibility of a turnaround in interest rates in September. Next to the good results from US giants Cisco and Walmart, it seems recession fears in the U.S. faded as quickly as they appeared two weeks ago, while hopes of lower base rates were presumed.

Commodities

As I suggested last week, commodities usually only outperform during perceived times of an economic upswing or a specific crisis. It’s always the same: people tend to feel inclined to call the macro environment with simple models or sophisticated models and still get it mostly wrong. The factors influencing the macro environment are diverse and multidimensional and change dynamically and often in different directions. How can anyone accurately predict the right direction in such an initial situation? That’s why I believe making investment decisions solely based on macro analysis is highly unsuitable. Not everyone will agree, but I seriously doubt purely macro-based investment strategies. At Incrementum, we prefer working with several specific scenarios and showing that if certain events occur, it may create one or the other investment opportunity rather than predicting one macro future.

What do I like in the Commodity Field?

Currently, I like crude oil, oil service companies, and electricity. Still, I avoid iron ore because I want to see an economic pickup in China or massively lower entry levels for the stocks on my radar. I am not investing in soft commodities due to my lack of expertise. And above all, I like companies that produce cash flows and are willing to share them with their investors. Cash flows are fantastic, no cash flows, no investment! Why crude oil? Because some great companies are producing massive cashflows, the U.S. Energy Information Administration (EIA) reports that current US oil production is at 13.2 million barrels per day, a level that has been consistent for several weeks. US inventories are nearing historically low levels. The August low in WTI Crude could be a significant low for the next few months, mainly because there is typically a seasonal rise in oil prices into October. After that, anything may happen, especially if winter is warmer than expected.

Ladies and Gentlemen

As always, please share your opinion with me, but please do not forget (instead of hitting the reply button) to send your messages to smk@incrementum.li

Many thanks, indeed!

I wish you an excellent start to the day and the weekend!

Yours truly,

Stefan M. Kremeth
CEO & Head of Wealth Management
Incrementum AG – we love managing assets

Tel.: +423 237 26 60
Cell: +41 79 303 48 39
Im alten Riet 153
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li