Above the Fold

OECD Calling for Stubbornly High Inflation, but …  

One thing we’ve learned over our many years in this business is to remain steadfast with your approach, but flexible with your outlook. It’s dangerous to become too “one-sided” when it comes to a plethora of topics, and right now, inflation seems to be a sticky topic for a large number of consumers and investors. A recent forecast (made before the Omicron discovery) from the OECD (Organization for Economic Cooperation and Development) said that the increased inflation we are experiencing now is likely to be “sharper” and longer-lasting than expected. The report called for 4.4% consumer inflation in 2022, compared to previously forecast expectations for 3.1% it had made in September. The OECD also sees Eurozone inflation running higher than previously forecast at 2.7% next year.

Like any forecast, this one too is nuanced. If the Omicron variant does indeed prove to be a global scourge, subsequent shutdowns and reductions in consumer demand could ease inflation and potentially allow logistical backlogs to normalize. The OECD seems most concerned that consumers and businesses might “get accustomed” to higher inflation (wage increases and more permanent hikes in the cost of goods and services). But no one seems to be mentioning the fact that this anomaly, which theoretically “caged” consumers for an extended period, and then at the same time infused them with thousands of dollars, might just be a temporary bubble of sorts that could actually lead to price declines once all of the extra cash and pent-up supply of consumer cash is exhausted. Deflation could be further exacerbated if rates were to rise too far, too fast. 

Three Things 

1. Bond Market Shift View on Rate Increase – Given the latest Omicron threat, investors moved swiftly into government bonds, driving rates lower. Yields on the 10-year Treasury note dropped from 1.664% last Wednesday to roughly 1.45% yesterday. Federal-funds futures, which act as a sort of proxy for market rate expectations, also shifted lower last week, suggesting that investors see the Federal Reserve moving slower with rate increases. 
2. Twitter Takes a Big Step for Privacy, Copyrighted Material – Twitter Inc. recently announced that users will now be restricted from sharing private media, such as videos and photos, of another person without specific permission to do so. The move is seen as a major leap forward in protecting personal privacy and even human rights. Supporters hope to see similar measures spread across other social media platforms. Most media taken of large groups of people in public (like stadium events) will be exempt from the restriction. 
3. Renewable Energy Set to Break Records Amid Supply Issues – According to the latest Renewables Market Report by the IEA (International Energy Agency), renewable energy growth (wind, solar, biofuel, etc.) is on pace for a record year at 290 gigawatts in additional capacity. The sector is expected to make up 95% of new global energy capacity through 2026, but faces real challenges as supply constraints keep component prices higher than normal. In a separate report, Rystad Energy noted that large-scale solar projects may face delays or even cancellations due to logistical stress. 

Did You Know? 

Remember Enron?

Speaking of energy, it was on this day back in 2001 that Enron Corporation filed for Chapter 11 bankruptcy, triggering one of the largest corporate scandals in U.S. history. Prior to its demise, the company employed more than 21,000 people, collecting annual revenues of $111 billion. Enron was formed in Houston in 1985 with the merger of Houston Natural Gas and Internorth.