Mr. Powell Drains the Punch Bowl - Your Money December 16th 2022

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It has been another odd week on Wall Street. With inflation stats coming in lower than anticipated, it looks like the Fed may finally have a handle on tapping the brakes on the economy. We note US import prices fell 0.6% plus another 0.4% the month prior. If the data continues to weaken over the coming days and weeks, maybe just maybe the Fed will become even more dovish with its next rate hike in February. By that I mean, a ¼ point hike versus the half point we got on Wednesday and the 0.75% hike the time before that.

On the other hand, Jay Powell all but stated on Wednesday, he is not very concerned with stock prices at the moment. His job is to fight inflation and maintain stable currency. Full employment in the economy on the other hand will likely be the sacrificial lamb. Unfortunately, we also think he will follow in the footsteps of his predecessors and his actions will indeed result in a recession. We therefore remain somewhat cautious in our asset allocations.

If we look at this week’s success stories, energy rebounded as OPEC stands pat on its pricing strategies, leading to several rising energy stocks. If you have some spare time, we recommend you browse through their latest outlook which forecasts demand and supply to 2045

Granted, OPEC benefits from rising energy prices but like any oligopoly, they must balance supply with demand otherwise they risk crashing prices for their product. If you dig into the report, you will see that they base their forecasts on global populations reaching 9.5 billion by 2045 and guess what? 96% of that will come from non-OECD countries. Furthermore, they calculate global GDP will rise from $133 Trillion in 2017 to $270 Trillion in 2045 with China and India accounting for 37% of the increase. And while that will imply a 0.5% per annum increase in oil demand over the next 24 years, renewables will see a 7.1% per annum increase (See page 6 of the opec report).

BC and Alberta won’t need to worry too much as they also forecast a drop in thermal coal offset by a similar increase in natural gas. Mind you to benefit from it, we need additional pipelines to export it. Otherwise, opportunities will be lost, and potential customers will go to other parts of the world for cheap supply. Still between a couple of BC pipelines and the forever Site C dam project, we like Finning in Canada and Caterpillar in the US.

Thematically it tells us that even with the possibility of a short-term recession in North America, we have a secular bull market in not just hydrocarbons but also wind, solar and hydro.

We also read that the US Government passed another mega Defense Bill this week, but we are reticent to buy specific defense stocks. However, we continue to follow the SPDR Industrial Sector ETF which has high weightings in Raytheon, Honeywell, Lockheed Martin and Boeing.

Lastly, as we wind down 2022, I cannot help but remember reaching into an overpacked medicine cabinet this morning and the 5th covid shots we got in the last month that healthcare stocks should be a safe place to hide while tech stocks continue to slide.

Happy trading and stay safe.

Steve Bokor and the Ocean Wealth Team.

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Steve Bokor

Steve Bokor

Portfolio Manager