The Weekender: Oil, REITs, Leveraged Loans & More
The Weekender: Oil, REITs, Leveraged Loans & More
We’ve got lots to unveil this month in the Substack and the Weekender is one of them! The Weekender is a summary of our research, interviews and podcasts from the week before and an outlook to the week ahead.
In this week’s edition:
OPEC’s surprise production cut
The risks leveraged loans present to the global economy
PDAC Mining Conference: 1x1 Series
Interview with Phil Bak of Armada ETF Advisors
TikTok under the congressional microscope
Canada’s population spike
OPEC Drops the Hammer: Surprise Million-Barrel Cut
OPEC delivered a much needed boost to the oil market - a surprise oil production cut of over 1 million barrels per day sent oil futures 8% higher (over $80/bbl) on Sunday night.
Saudi stated the cuts were a “precautionary measure aimed at supporting the stability of the oil market”. Russia will be extending its existing supply cuts and as a result by July there will be 1.6 million barrels a day less of crude on the market. The table below highlights the size of cuts by country.
Adherence to quota reductions has historically been a challenge for OPEC, RBC’s Helima Croft estimates the cuts would amount to about 700K b/d from the core OPEC group.
While the initial market reaction to the OPEC cuts is firmly bullish; it’s worth taking a look at this interesting analysis from Mercatus Energy Advisors:
Since April 1998, OPEC has announced 17 production cuts. About 40% of the time, prices fell in the month that followed. Nearly half of the time prices were lower in both the third and sixth month following an announcement. On average the average Brent price in the month following the announcement was $4.45/bbl lower than the month preceding the announcement, $5.59 lower in the third month following the announcement, and $2.55 lower in the sixth month following the announcement.
Canary, Meet Leveraged Loans
Grizzle strategist Chris Wood published an important article this week on the risks leveraged loans present to the global economy. These loans share the same four characteristics as mortgage backed securities before they blew up the global economy in 2008.
Exploding issuance
Opaque
Highly leveraged borrowers
Sensitive to rising interest rates
Pundits and analysts continue to refer to low credit spreads in high yield bonds as a sign all is well, but what we all should really be watching is signs of stress in the leveraged loan market which is already yielding 10% on average.
PDAC Mining Conference 2023: 1x1 Series
Grizzle had the pleasures of speaking with leaders in the mining industry at this year’s 2023 PDAC convention - one of the world’s largest mining conferences, to discuss the opportunities in gold, uranium and battery metals.
Click the link below for full access to podcast, which features a stellar line up including: David Smith CFO of Agnico Eagle, Earnest Cleave, CFO of Largo, John Ciampaglia, CEO of Sprott Asset Management, Mark Selby, CEO of Canada Nickel, and Robin Dunbar, CEO of Grid Metals.
iTunes: http://bit.ly/42U1kcj
Spotify: https://spoti.fi/3TPPyMd
In this week’s Twitter Spaces, Grizzle was joined by Phil Bak the CEO of Armada ETF advisors to discuss his outlook on the state of the US banking system, and how today’s current investment environment differs from the past.
He also discussed potential risks facing the Private REITs sector and what entrepreneurs need to know when it comes to starting a business. Click the link below full access to the recording via our podcast.
iTunes: https://apple.co/3ZBOzR0
Spotify: https://bit.ly/3G9it8a
TikTok Under the U.S. Congressional Microscope
TikTok CEO Shou Zi Chew met with Congress this week to address concerns that the chinese-owned video app is a national security threat. Lawmakers from both parties raised concerns that TikTok is being used as a direct tool of the communist Chinese government, stealing millions of Americans data.
The Biden administration has also pushed for TikTok’s Chinese owners to sell their stakes in the company as way to avoid a full-fledged ban, but the Beijing government has strongly opposed any forced sale.
Over 90 million Americans use TikTok and many investors are questioning how a full blown ban would impact other social media companies such as Meta and Alphabet. Grizzle’s Research and Quant Substack will have an in-depth analysis in the coming weeks - stay tuned!
Canada’s Population Spike
Canada’s population grew by 2.7% in 2022, the fastest expansion among advanced economies and on par with many African Nations, according to Bloomberg.
The country added a record 1,050,110 people in 2022 bringing the total population to 39,566,248. International migration accounted for over 90 percent of the growth according to Statistics Canada,
The record-breaking increase is a result of the Federal Government’s strategy to add roughly half a million new permanent residents to the country annually.
Canadian real estate data sleuth John Pasalis highlights the fact that immigration has placed significant upward pressure on rents, in Toronto both low-rise and condo rents are up over 50% since 2015.
