Inflation & the Global Supply Chain Puzzle

What if inflation isn't just a thing of the past? Despite a recent period of low rates, inflation remains a pivotal factor for your financial portfolio. With influences ranging from geopolitical tensions to budget deficits, the landscape is far from predictable. Inflation's past and future might continue to impact bonds, equities, and commodities, making it more relevant than ever for investors to stay vigilant.

Disclosure:
The commentary provided during this podcast reflects the personal opinions, viewpoints and analyses of the participants providing such comments, and should not be regarded as a description of advisory services provided by USCF Investments or its affiliates or SummerHaven Investment Management or its affiliates or the performance returns of any fund managed by any such entities.

The views reflected in the commentary are subject to change at any time without notice. Nothing said during this podcast constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security.

Investments involve the risk of loss. Diversification does not eliminate the risk of experiencing investment loss. 

Commodity trading is highly speculative and involves a high degree of risk. Commodities and futures generally are volatile and are not suitable for all investors. 

Past performance is no guarantee of future results.

Maya Lowry and Katie Rooney are Registered Representatives of Alps Distributors, Inc.

The views and commentary provided by Kurt Nelson as the managing partner of SummerHaven Investment Management, LLC ("SummerHaven") and provided by any other principal of SummerHaven reflect their personal opinions, viewpoints and analyses and are not the views of USCF Investments, Inc. or its affiliates. Such views and commentary should not be regarded as investment advice or a description of advisory services provided by USCF Investments, Inc., SummerHaven Investment Management, LLC or their affiliates or the performance returns of any fund managed by any such entities.

ALPS Distributors, Inc. is not affiliated with USCF Investments or SummerHaven, member FINRA.

Thank you for listening!

Transcript

Katie Rooney (00:01.846)
Welcome to the Real Spiel with USCF Investments. I'm Katie Rooney.

Maya Lowry (00:06.178)
and I'm Maya Lowry.

Katie Rooney (00:07.988)
And today we're joined by Kurt Nelson, Chief Executive Officer of Summer Haven Index Management to get the Real Spiel on Inflation.

Maya Lowry (00:17.765)
Hey Kurt!

Kurt Nelson (00:18.992)
Hi Maya, great to see you and Katie again.

Maya Lowry (00:21.658)
Great to see you too. So Kurt, after years of thinking that inflation wasn't relevant anymore, supply chain disruptions caused by the pandemic snapped it right back into focus. But now inflation is at its three year low, interest rates are decreasing. Why should we care about inflation?

Kurt Nelson (00:43.022)
That's a great question, Maya. I mean, it does feel like we had a big scare, but it's over. I think that itself is sort of humbling because we did not predict that inflation was going to rise to 9%. And just in mid 2020, Jay Powell said, we're not even thinking about thinking about raising interest rates. And of course we had some, you know, very painful interest rate hikes to force inflation back down. And just as quickly as it rose, it turned around and came back down. I think that that was not predicted that it would go up, it was not predicted that it would go down so fast. So why worry about inflation? Well, because it's going to have such an impact on your portfolios, right? During that period when inflation was rising steeply, bonds and equities both significantly underperformed. During that period, commodities did very well. But we're coming out of a period that's abnormal, right? We've had interest rates close to zero for over a decade. Inflation was non-existent, even though we were doing tons of easing, you know, between legacy programs from the financial crisis of 2008, 2009, and then new stimulus put in place to help us come out of COVID. And I think inflation is still a real worry. And what's different now is that we're focused on our budget deficits. We're realizing how much money we've spent in the last 15 years. And interest rates are no longer zero. So that means borrowing costs are higher for everyone, including for the government, right? Our cost of servicing all this debt, all this new treasury issuance is now very expensive. So I think marginal changes in inflation are going to have big portfolio impacts in the next decade. So being aware of that inflation is something real, it's not gone away, and unexpected things could spark it to move higher.

Katie Rooney (02:41.302)
You brought up a really good point about supply chain disruptions that I'd like to try to talk about a little bit more. We've had a full year of disruptions from geopolitical conflicts to cyber attacks to port strikes and closings. How do all these events affect inflation and commodities?

Kurt Nelson (03:01.584)
Sure. I think that what we saw during COVID was, you know, just this sort of, again, non-forecasted, know, unforecast event, one of those unknown unknowns. No one had, you know, a global pandemic in their early 2020, you know, forecast. It did happen. And one of the outcomes was, you know, disruptions to supply chains. So we have very complicated supply chains with a global economy. We haven't experienced this before with the sort of the new global economy where different countries produce different goods and services and we don't carry large inventories and you kind of get everything moving smoothly for everything to work together and for various locations and factories to get the components and the parts they need. What that did is it drove inflation super high because consumer demand stayed resilient. And we had difficulty producing the output that we needed. when it's commodities, like many goods and services move on supply and demand, if demand is constant, supply goes down. The only thing they can give is price and it goes up. So I think that's something that we still face today. And the way I think it impacts commodities is that Demand is still quite resilient. We haven't seen the recession that's been forecast for many quarters now. It hasn't happened. We're still continuing to grow in the US. China still continues to grow, not at the pace that they did for former two decades, but still growing at 4 to 5 % a year. They have a 5 % target. So that's all creating new demand. And supply is challenged. Oil supply is challenged because of the tensions in the Middle East. We've got bottlenecks at certain points of delivery or transshipment areas, like the Straits of Hormuz or the Red Sea. We had port strikes here. Another one that we've talked about before, but it's happening longer term, is the drought in Panama. Of course, you can't get goods from the Pacific to the Atlantic without either going around the Americas like below South America, which adds a lot of cost and a lot of time. Or you do what most countries and ships do is you go through the Panama Canal, but they've had a like a worst drought more than 50 years in the last year and a half. And so the water levels in the canal are very low. Ships can still move through, but they're moving through, you know, with 30 % less cargo because they have to go travel very shallow in the water. All of these things marginally impact you know, the timing of supply and the quantity of supply that's delivered and with demand still very robust that that creates higher prices. And I think, the strikes on the ports are interesting because that was not an external event, like a pandemic or a war. That was just natural, you know, local economic event where the shipping companies made tons of money. Hundreds of billions of dollars of excess profits collectively during the two years of COVID. And it wasn't shared, according to the workers in the union, fairly amongst the labor. And so labor agitated for higher wages and that thankfully stopped in the last 24 hours and they've cut a deal, but with significant wage gains for labor. If labor starts taking and agitating for a larger share, maybe deservedly so. They'll have more income, which means more spending power and again, higher inflation.

Maya Lowry (06:52.122)
Well, it seems like we'll be talking about inflation for quite some time. Thank you for joining us today, Kurt. And thank you all for joining us today on another episode of The Real Spill. Please reach out to us at the real spiel at USCFInvestments.com. If you have any questions and make sure to subscribe using your favorite podcast platform or at USCF investments.com until then, this has been Maya Lowry.

Katie Rooney (07:18.75)
and Katie Rooney.

Maya Lowry (07:20.632)
And this is The Real Spiel with USCF Investments.