The chart above shows West Texas Intermediate Oil prices last year. WTI began last year at $47.09 per barrel. WTI ended last year (as of Dec 20) at $79.11. The change in oil prices represents a 68% increase. To make another 68% increase in oil prices in 2022, oil prices would have to rise to about $133/barrel. This seems very unlikely. RBC Capital analysts predicts the price to be between $79 and $86.
Oil prices were very low coming out of 2020 due to the pandemic shutting down travel. But now, moving into 2022, oil prices are quite high relative to prices from 2017 to 2019 which averaged about $60/barrel. Here is the 5-year lookback on the price of oil:
The quick rise in oil prices shows up in the inflationary data driving the headline inflation rates reported on the news to alarmingly high levels. But with this rise unlikely to repeat itself in 2022, inflation rates are very likely to come back down.
This is an example of how inflation can self-adjust. Many commodities have had similar runs up in 2021 and are now very unlikely to repeat their inflationary upward pressure, even if they maintain or slightly gain from their current high prices.
One interesting idea for the government to help spur the economy out of the Covid era, is to consider some supply side stimulus. Rather than just a relief plan like the PPP from 2020, the idea would be any plan that actually helped corporations get workers back so supply can catch back up with demand. We admit this doesn’t seem likely since government never seems much in a mood to help corporations these days. But return-to work bonuses and worker retention bonuses could really help.
Here at the end of 2021, we’re getting hit with a triple whammy. Just when the reopening was supposed to happen (again), the Omicron variant is shutting down countries and restricting travel. Based on the app, OpenTable, reservations at restaurants have sagged once again. And with the economy taking another (perhaps less severe) gut punch from Covid, the Federal Reserve is providing the left-hook to the economic jaw by speeding up the removal of stimulus and rushing to raise rates in 2022. Perhaps, the knock-out punch, much of the Congressional stimulus is now dead. While many with an eye on the longer term may cheer the death of the Build Back Better potentially pork-barrel spending spree, even wasting money is economically stimulative. Not a very nice setup for going into the new year. But fear not! It’s not as bad as it looks. Corporations are adapting.
Our short answer opinion is, YES, there will be a re-opening. People who love to go on cruises are still planning to go. And virtually everyone wants to travel again. But people are getting used to Covid waves and may begin to recognize that as Omicron peaks, consumers might flock to travel – quicker than ever – before the next Covid wave.
If you invested in the RCP real estate opportunity, you have already received an email from Alter Domus. Inside the statement they sent you, you should notice that it says “RCP”. This statement is distinct from any other potential WSEF/BigDiv statement you might ALSO receive. So, you might be receiving multiple monthly statements from Alter Domus. Check your SPAM and JUNK folders and be sure you are getting these statements.
Statements for RCP (just like Vero) will come out monthly and probably not change much for the first 2 years. After the first two years, we expect some investments in the RCP fund to mature and pay-out which will DECREASE the value of the fund, but will pay out the capital on that project plus the profit. Eventually, after all properties in the RCP fund have matured and paid-out, the fund will be worth nothing, but you will have received all pay-outs.
These RCP pay-outs will be collected in the WSEF/BigDiv SidePocket, then Alter Domus can distribute them back to your TD account. Pay-outs will be distributed as they arrive, not waiting until the end of this multi-year project. The annual K-1 tax forms will come from WSEF/BigDiv via Alter Domus and the Warren Financial CPA.
POLITICS:
So, other than the $1T infrastructure bill, it now appears that the additional $3T spending in the BBB bill is dead.
Perhaps Congress can revive some of that spending in a new, more targeted bill, but the $3T bill is officially dead.
With stimulus now gone, and the Fed talking about tapering and raising rates in 2022, the outlook doesn’t seem very bright.
In fact, the chance for a Roaring 20’s type boom seems fairly low. And with Omicron raging throughout the world, travel may be slow to get going in 2022.
INFLATION:
This particular bout of inflation has been supply side driven. When boiled down, current inflation is just too many consumer dollars trying to purchase too few supplier goods – so prices rise. Suppliers have been hit with manufacturing slow-downs and shut-downs causing their output to dwindle while consumers have been given cash to spend.
When consumers can’t travel due to Covid, they sometimes decide to spend more money on products (cars, houses, washing machines, etc) rather than travel and restaurant services.
ULTRA-LOW INTEREST RATES
When rates are set ultra-low, investors tend to move from lower risk investments up to higher risk investments seeking to get a better return, such as from treasury bonds to corporate bonds, and from corporate bonds to stocks. Yet when rates are rising, that process reverses itself. At least, that’s the conventional wisdom.
