June 23, 2024
Oil inventories going down
Did you notice suddenly rising prices at the gas station in the past few days?
After some ongoing weakness this spring, crude oil prices posed a two-week gaining streak and rose to the highest level in nearly two months.
Why? News would report that markets seem to be optimistic towards summer fuel consumption in the Northern Hemisphere. The two-week gains in crude oil prices represent a 7% increase for both Brent and WTI futures.
The reality is that there's an expected draw-down in oil inventories in the US, a short-term dynamic highlighted in our chart below (see that negative grey bar below pointed by our mouse). Such piece of data is what our autonomous investment software can pull and interpret to then make decisions and move our investment portfolio accordingly.
What's up with our portfolio performance
Wondering what's the update in the back-testing and fine-tuning of our portfolio performance ahead of launch? Thanks for asking!
We fine-tuned the software sensitivity to episodes of hyper-inflation and to market sentiment to steadily navigate harsh markets. We have also improved our ability to interpret key market data immediately after the official release.
Looking at back-tested performance since 31/12/2013 to date, our benchmark* has generated +76% performance, while Pantar.ai has done +201%. Yes, you read it well ?> almost 3x as fast.
And we buy the same things that define our markets of reference: a mix of equity and bond indices. The difference is that we know when is best to invest in specific assets, subject to where we are in the cycle.
* benchmark: 50% global stocks, 50% US and EU government bonds.
For the more technicals of you readers, we will soon share annual performance and volatility stats. For now, be aware that our annual portfolio volatility is 18%, Omega ratio 1.2, max drawdown -8%.
On rate cuts and politics
Key economies have started to diverge in their management of interest rates.
Last week the Swiss central bank made a second rate cut (first one done in March) as their inflation in May has lowered to 1.4% year-on-year (low!) also following the recent cut by the ECB.
You might be curious to know that Bancolombia has also cut rates (for the fifth time since December), in line with Sweden and the Czech Republic. In parallel, the Bank of Japan and Bank of Australia are expected to hike as their local inflation is rising.
Focusing on the two macro areas of interest for us (US and Europe as a whole), markets are expected to see n ECB hike not earlier than October (see chart below, first green triangle => as seen by our software) and November by the Fed.
What's very hard to read and predict, and therefore for the software to steer-to in the short term, is political noise. As humans, we need to be aware that any win in France by the Far Right parties in June (now talking about limiting the military control by the French President over their army) would probably push the ECB to cut rates earlier in case of any market turmoil.
Market impact
Why should we care about central banks and politics?
We care (only) if they move markets.
The news that central banks are not expected to cut anytime soon should make government bonds sell-off, or at least not compress. And we know that bonds have suffered big time since after Covid (see Bloomberg chart below)
But European and US govies have seen their yields move lower in the past month across maturities (second chart below). Why is that?
Some crippling uncertainty evident from European PMIs and in US soft job stats (via initial claims, see below) has scared investors in a week lacking direction.
But Treasury and European government bond yields are up at the time of writing the newsletter (end of the week to 28 June), probably because of the disappointing and dreadful presidential debate in the US, showing that whatever President will be elected we might be in trouble.
Cuts or hikes?
Yields up or down?
What a headache!
This is the usual headache that investors face: navigating in a sea of incongruent and moving news, with short-term indicators clashing with long term indicators.
Some investors react to short term news over-trading. Some others, like Warren buffet, just buy stocks and wait, which is a good strategy but not everyone has a 20-year time horizon and that patience.
What we do at Pantar.ai is filtering meaningful short-term noise, putting it in the context of where we are in the cycle. Our current UNDERWEIGHT position in bonds is split in between ultrashort positions insensitive to inflation expectations (paying high income) with a tiny new exposure to long dated bonds to hedge our portfolio from rising uncertainty.
Good luck!
Open AI revenues
Shifting gears and flipping page from markets to AI, we share here an insightful piece of research done by our friend and advisor Aris on Open AI revenues.
In fact, chatGPT is now everywhere but not many know how much money they are making.
Aris found out through various leaks that Open AI’s annualized revenues have grown from $36m in Dec’21, to $200m in Dec’22 and $3.4Bn in Jun’24, i.e a whopping 500%+ compound annual growth rate.
Not bad right?!
If you are interested about AI stuff, Aris' newsletter is one of the best in the market.
