Commodity & Infrastructure Insights

Part 1 of a two-part look at what could create upside surprises for midstream energy infrastructure. The downside is well understood and was experienced in full force quite recently. On March 18, 2020 the Alerian MLP Index (AMZIX) closed down 67% for the year. The broad-based American Energy Independence Index (AEITR) was marginally better at down 63%. There’s no plausible downside scenario that can beat that for a live ammunition drill. Within 19 months the two indices had rebounded 220% and 264% respectively.

The media referred to the Fed’s “hawkish pivot” following Wednesday’s revised dot plot and faster taper. More accurate is that chair Jay Powell confirmed that the FOMC was following the market’s earlier revisions to the rate outlook. Eurodollar futures traders and the Fed are once more synchronized over the next couple of years in looking for the Fed Funds rate to reach around 1.5%. Forecasts diverge beyond that, with fixed income traders comfortable that rates will peak, whereas FOMC members expect continued increases. When it comes to forecasting even their own actions, history shows the Fed has much to be humble about.

The media referred to the Fed’s “hawkish pivot” following Wednesday’s revised dot plot and faster taper. More accurate is that chair Jay Powell confirmed that the FOMC was following the market’s earlier revisions to the rate outlook. Eurodollar futures traders and the Fed are once more synchronized over the next couple of years in looking for the Fed Funds rate to reach around 1.5%. Forecasts diverge beyond that, with fixed income traders comfortable that rates will peak, whereas FOMC members expect continued increases. When it comes to forecasting even their own actions, history shows the Fed has much to be humble about.

Since launching our ambitious series on commodities, we have spent a significant amount of time on energy. That's with good reason: according to the latest reading of the U.S. Consumer Price Index that has markets jittery and the Federal Reserve dreaming of interest rates, energy prices are up 33 percent, compared to 6.8 percent for all goods. But if energy prices have spiked suddenly, hiding in plain sight of the global inflation story are food prices, which have steadily increased since May 2020, when pandemic-related economic shutdowns started impacting agricultural supply chains.

Last week an investor asked us what he should do with his bond portfolio. We began publishing a monthly newsletter in January 2010 and over the years it evolved to the now twice-weekly blog. The poor outlook for bonds has been a regular topic almost from the beginning. Through descriptions such as “returnless risk” and “pigmy yields” we have sought to convince investors what a losing proposition they face in fixed income. The partners of SL Advisors have not personally held any bonds since the firm was founded in 2009.

Today, hydrogen is largely used for industrial purposes, either in oil refining or the production of ammonia fertilizers. (If you didn't read our missive on fertilizers, click here). But hydrogen has a lot more potential than that. Hydrogen can also be used as a fuel. It can be transported via pipelines or ships, just like liquified natural gas.

Last week Fed chair Jay Powell pivoted away from “transitory”, and adopted a tone more in keeping with the market’s newly revised interest rate forecast. As a result, today’s yield curve is far away from the September FOMC projections, even though they’ll be revised at this month’s meeting.

Last week Fed chair Jay Powell pivoted away from “transitory”, and adopted a tone more in keeping with the market’s newly revised interest rate forecast. As a result, today’s yield curve is far away from the September FOMC projections, even though they’ll be revised at this month’s meeting.