The other day my partner Henry Hoffman was commenting on what his family pays for natural gas to heat their home in Pelham, NY. Winters in the northeast US are not for everyone – your blogger misses most of the worst weather by evacuating to Florida for a few months.

Natural gas is the most common source of heat in most northern homes. The US continues to enjoy the supply benefits of the Shale Revolution, although those benefits are spread unevenly. Pennsylvania became a huge source of natural gas that has kept prices low for those that use it.

US states have significant influence over energy policies. Where climate change is a concern of political leaders, what typically follows are poorly conceived progressive strategies that increase prices and create inconvenience for residents of that state. New Jersey, New York and Massachusetts are three states well positioned to rely on natural gas from the Marcellus shale. Their energy policies could be dubbed “Left-leaning” (NJ), “Liberal” (NY) and “Wacky” (MA).

.avia-image-container.av-qit9ad-ab463e2d076d30a8c9eb9665847bf211 img.avia_image{ box-shadow:none; } .avia-image-container.av-qit9ad-ab463e2d076d30a8c9eb9665847bf211 .av-image-caption-overlay-center{ color:#ffffff; }

NJ passed legislation in 2020 mandating an 80% reduction in greenhouse emissions by 2050. Among other steps it is developing offshore windpower. So far, these efforts haven’t been too disruptive to life as we know it. The Energy Administration Information shows that in 2020 NJ’s power mix was 50% natural gas and 2% solar and wind. NJ households are paying 17% less for natural gas than a decade ago.

New York state’s governor wants to ban natural gas connections to new buildings in the state, copying a similar plan enacted in New York City. The Marcellus shale even extends into the state, but no drilling is allowed. New York’s power mix is 41% natural gas and 4% solar and wind. NY households have seen natural gas prices rise 3% over the past decade even though the US is a significant exporter and has some of the world’s cheapest supply.

Massachusetts, which relies on natural gas for 78% of its electricity generation (9% solar and wind) and half of its residential heating, has blocked new gas pipelines coming into the state in spite of the fact that they are so dependent on it. Boston regularly imports Liquified Natural Gas (LNG) from the Caribbean and in the past has even bought from Russia. This forces them to compete with European and Asian buyers who have paid prices 10X or more higher than US domestic prices in recent months. Massachusetts has completely missed the benefits of increased US supply, with prices 9% higher than a decade previously.

.avia-image-container.av-19twu1x-f14a913b8081bd599ac137f1f950fcd3 img.avia_image{ box-shadow:none; } .avia-image-container.av-19twu1x-f14a913b8081bd599ac137f1f950fcd3 .av-image-caption-overlay-center{ color:#ffffff; }

Energy policy in Massachusetts has managed to combine heavy reliance on natural gas with impediments to access it. Such masochistic virtue signaling receives scant attention other than from the self-congratulating political leaders who have engineered such an outcome.

The result is that over the last decade or so, average natural gas prices in NJ have trended lower than those in more progressive NY and MA. I hesitate to hold NJ up as an example of enlightened energy policy, because there are Democratic political leaders in Trenton probably envious of what NY and MA policymakers have imposed on their residents. But at least NJ isn’t importing LNG from foreign countries.

.avia-image-container.av-2qnxdx-5352aefc72359c3576bc45509359e4f5 img.avia_image{ box-shadow:none; } .avia-image-container.av-2qnxdx-5352aefc72359c3576bc45509359e4f5 .av-image-caption-overlay-center{ color:#ffffff; }

US states can learn from Europe, where excessive reliance on renewables has led to an energy crisis with eye-watering prices for natural gas. The UK is an example. It gets around a quarter of its electricity from renewables – mostly wind from the usually reliable North Sea. But northwest Europe isn’t always windy, and that contributed to the UK’s sudden increased reliance on natural gas and coal. Renewables are not just limited to sunny/windy days; when they don’t produce they all go down at the same time. Dispatchable energy sources such as natural gas have diversified uptime risk. Ten independent plants are unlikely to fail simultaneously.

One result is that the UK regulator has approved an increase in the cap on household energy bills that will see more than 50% hikes for many within a couple of months. The government has responded with income-based subsidies to soften the blow, only three months after pressing the COP26 Climate Change conference to eliminate “inefficient fossil fuel subsidies.”

Germany has among the most expensive electricity in the world, also because of their switch to renewables.

These expensive and not very impactful moves away from cheap, reliable energy are swamped by increasing emissions in emerging countries such as China, which doesn’t plan to reduce emissions before 2030. This is because they value raising living standards more than curbing emissions, a reality overlooked by climate extremists attempting to impose dysfunctional policies on western communities.

It’s becoming increasingly clear that the energy transition will be disruptive and expensive. Politicians suggesting anything less are not thinking through the issues.

The EU has been farther ahead in seeking to reduce CO2 emissions. As a result, they’ve confronted more of the problems than most US states, and offer some useful examples. In a triumph of pragmatism over religious fervor, the EU recently defined natural gas and nuclear power as clean energy. There are caveats, such as that the natural gas must be displacing a coal-burning power plant and have CO2 emissions below a reasonably achievable threshold.

It’s a sensible move. So far the energy transition has delivered more expensive, less reliable energy without any discernible impact on emissions. Sharply higher prices will test the strength of public support for climate ambitions. States like New York and Massachusetts would be well served to follow the EU’s lead. Cheap natural gas is right on their doorstep.

We have three funds that seek to profit from this environment:

Energy Mutual Fund

Energy ETF

Inflation Fund

Please see important Legal Disclosures.

Last year fund outflows totaled $1.94BN for the midstream energy infrastructure sector (still often referred to as the MLP sector even though most of the market cap is corporations) according to JPMorgan. October was the only positive month, at a modest $6MM. 2021 was the third straight year that fund outflows exceeded $1.9BN. The last full year of inflows was in 2016.

It would seem hard to find much positive in those statistics – so read on.

.avia-image-container.av-2076cye-d18ceaa518965cddd07d566fcc3b1ff4 img.avia_image{ box-shadow:none; } .avia-image-container.av-2076cye-d18ceaa518965cddd07d566fcc3b1ff4 .av-image-caption-overlay-center{ color:#ffffff; }

Commentators often refer to money flowing into or out of a market – a description that often betrays intellectual laziness. Since for every buyer there’s a seller, trading flows rarely result in net flows of money. The notable exceptions are (1) IPOs, when new money is invested to purchase shares, and (2) buybacks, when a company retires shares leaving the sellers with net cash taken out from the market.

Ordinarily, the $1.94BN in sales from pipeline sector funds would have been bought by other investors – institutions, high net worth or retail investors – and would simply represent a change of ownership.

But in recent years MLPs and midstream corporations have been announcing buybacks. It’s another example of the industry’s continuing desire to demonstrate financial discipline and return capital to shareholders. When the MLP model prevailed, buybacks were rare since the MLP was always intended to be a funding vehicle, issuing equity when directed by its General Partner (GP) in order to build or buy assets – often from the GP itself in “drop-down” transactions. It’s why we believed GPs were always a better bet than the MLPs they controlled (see The Power of the MLP GP from 2014).

For an MLP to repurchase its own shares would be contrary to its raison d’etre.

Poor capital allocation decisions during the Shale Revolution led to many big MLPs converting to corporations. This was so they could access more traditional investors rather than the US taxable, K-1 tolerant high net worth buyers that had become disillusioned with serial distribution cuts, as well as for various tax advantages for the GP.

.avia-image-container.av-1s9ikwm-2f16b784a712f6ca4c976b343cb97abe img.avia_image{ box-shadow:none; } .avia-image-container.av-1s9ikwm-2f16b784a712f6ca4c976b343cb97abe .av-image-caption-overlay-center{ color:#ffffff; }

This led to a shift to more traditional performance metrics including total shareholder return (dividends plus buybacks). A selection of the biggest companies shows over $13BN in announced buyback programs. These only impact flows when they’re implemented though – but three companies’ actual 2021 buybacks executed in the open market equal 43% of the $1.94BN in net fund outflows from the sector. They are Enterprise Products Partners, Magellan Midstream and MPLX.

Most companies have yet to announce full year earnings with 4Q21 buybacks – of the three, only the EPD figure is for all of 2021.  Wells Fargo estimates that midstream companies in their coverage repurchased $2.9BN of stock in 2021 and see that number steadily increasing in the coming years.

In the first of two privately negotiated transactions, Hess Midstream (HESM) repurchased $750MM in LP units from its parent and investor Global Infrastructure Partners, which also resulted in a commensurate sharecount reduction and increased ownership of HESM by its shareholders. The second private deal saw Crestwood buy out their general partner and investor First Reserve for $400MM.

.avia-image-container.av-11cylzq-48953f3911dff843fd29e44368fb014a img.avia_image{ box-shadow:none; } .avia-image-container.av-11cylzq-48953f3911dff843fd29e44368fb014a .av-image-caption-overlay-center{ color:#ffffff; }

What it means is that when all the figures are added up for last year, all the fund redemptions by retail investors were easily absorbed by the operating companies themselves. Once FY 2021 reports are published this figure will move higher.

The last five years have been emotionally draining for anyone with an overweight to the energy sector. Your blogger can attest that equal measures of resilience and stubbornness were necessary to maintain holdings through early 2020, so as to participate in the strong recovery that followed. Some of the retail sellers were just weary.

.avia-image-container.av-j63xpy-02f05b8a11c1a8b9a7277a7be173088b img.avia_image{ box-shadow:none; } .avia-image-container.av-j63xpy-02f05b8a11c1a8b9a7277a7be173088b .av-image-caption-overlay-center{ color:#ffffff; }

Energy executives are genetically engineered to spend on new projects – new oil and gas output for E&P companies, and new infrastructure for midstream. Thousands of executives have made their careers by putting money into the ground. All these companies and others have rejected internally generated capex proposals, some with optimistic IRRs, in favor of buying back stock. Given the energy sector’s culture, CFOs must show that reducing the share count by returning cash to shareholders to be exceptionally attractive to compete with the desire of some colleagues to spend the money on building projects instead. Also thank environmental extremists for throwing up so many roadblocks that capex has become less attractive.

In other words, in 2021 the less-informed sellers were taken out by better informed buyers.

It’s why net fund outflows didn’t visibly hurt performance. The broadly representative American Energy Independence Index (AEITR) was up 38.6% for the year, beating the S&P500 by almost 10%.

Given the size of the announced buyback programs, any sustained weakness in the sector is likely to be countered with more companies buying back their stock. There are also signs that funds outflows are ending – we’ve been seeing steady inflows into our products for some time, and interest to set up calls by existing and new clients has never been stronger. As the sector switches to experiencing fund inflows, it’s likely to propel prices sharply higher.

We have three funds that seek to profit from this environment:

Energy Mutual Fund

Energy ETF

Inflation Fund

Please see important Legal Disclosures.

Markets interpreted Fed Chair Jay Powell’s press conference bearishly last week. This was mostly because of omissions – he didn’t rule out raising rates at a faster pace than once a quarter, and he didn’t rule out beginning with a 50bp hike in March. As ever, monetary policy will be data-dependent.

Eurodollar futures flattened further, with a faster pace of tightening being priced in while a cycle peak of 2% remains. The powerful feature of interest rate futures is that market prices rarely if ever fail to reflect available information. For the Fed to succeed in bringing inflation back to 2% without even raising rates above that level seems unrealistically optimistic, but one can scarcely suggest that investors have overlooked this implication. A substantial number must find this plausible. December ‘24 eurodollar futures yield almost exactly 2%, and to us a trade to 2.5% seems far more likely than 1.5%. The data will determine it.

.avia-image-container.av-20rno5p-4b079d26cd70cc29efa97d7ee1323475 img.avia_image{ box-shadow:none; } .avia-image-container.av-20rno5p-4b079d26cd70cc29efa97d7ee1323475 .av-image-caption-overlay-center{ color:#ffffff; }

The 4Q21 Employment Cost Index registered a 1% increase in total compensation – down from 3Q21 1.3% but nonetheless a 4% rate for the year.  We all know businesses that are struggling to hire people. Labor is tight. PCE inflation is running at a 5.8% annual rate. Both these reports were better than expected, and bonds consequently recouped earlier losses to finish the week roughly unchanged. The Fed’s languid normalization of monetary policy reflects their expectation, or hope, that incoming data will assuage the sting of criticism from past Fed members Treasury secretaries, and others.

Critics include David Kelly, chief global strategist at JPMorgan Asset Management, who said “They are behind the curve and they are guilty of being too easy for too long,”

.avia-image-container.av-1my3pwt-abbf8f591304b827708b28600bc652a9 img.avia_image{ box-shadow:none; } .avia-image-container.av-1my3pwt-abbf8f591304b827708b28600bc652a9 .av-image-caption-overlay-center{ color:#ffffff; }

Wall Street tightening forecasts are ratcheting up. Goldman and JPMorgan expect five this year; Bank of America seven; Nomura expects 50bps in March. The incongruity in the market is a yield curve forecasting a 2% cycle peak along with ten year inflation expectations of only 2.5%, which with real yields of –0.7% is anchoring ten year treasury yields below 2%. It’s hard to see how both forecasts can be correct – we think inflation is most likely to be higher, but for that reason the rate cycle peak probably will be as well.

Like the Fed, the path of rates will be data dependent.

In other news, US natural gas prices drew attention when front month futures jumped sharply just prior to the February contract expiration. Volumes were low and covering by a few tardy short sellers probably the cause. Europe’s vulnerable gas supplies may be a factor, but the US has limited ability to make up any Russian shortfall because Liquified Natural Gas (LNG) export facilities are running close to capacity. The most likely result of a Russian invasion of Ukraine would be reduced European consumption as energy intensive industries are forced to halt production, either by ruinous prices or government edict.

.avia-image-container.av-194jrnx-1458fa4dc426cf500eb5587922fe8bb8 img.avia_image{ box-shadow:none; } .avia-image-container.av-194jrnx-1458fa4dc426cf500eb5587922fe8bb8 .av-image-caption-overlay-center{ color:#ffffff; }

This is turning out to be more than simply a short-term problem. TTF futures, the European LNG benchmark, have been increasing two years out, exposing the enormous strategic error planners in Germany and elsewhere have committed in relying so heavily on Russia. January ‘24 futures have more than doubled from a year ago. European households will be paying more for electricity.

The price difference to the US is easily sufficient to draw more US LNG exports if they weren’t capacity constrained. However, shipments will increase over the next year or so, which will modestly underpin domestic prices and support volume growth. Forget about what the climate extremists may strive for – global natural gas demand is going to grow, to the benefit of investors in producers and midstream energy infrastructure.

.avia-image-container.av-wm7hot-ee56ec68d654a8ee3f3c9f9c008c46f7 img.avia_image{ box-shadow:none; } .avia-image-container.av-wm7hot-ee56ec68d654a8ee3f3c9f9c008c46f7 .av-image-caption-overlay-center{ color:#ffffff; }

For further confirmation of the energy sector’s newfound fiscal prudence, note the decline in its share of S&P500 capex between 2014 and now. Thanks to Barry Knapp of Ironsides Economics for highlighting this in his very readable weekly newsletter. The White House is caught between proclaiming the demise of traditional energy while pleading with OPEC to increase production. Energy investors are benefiting from higher prices with less spending.

Finally, the ever-colorful Jim Cramer weighed in against the hapless Cathie Wood and her ARK Innovation ETF (ARKK) with a clip that’s gone viral. The Tuttle Capital Short Innovation ETF (SARK) bets directly against ARKK’s holdings, and Cramer memorably emptied a bottle of Cutty Sark over a table of figures representing ARKK. It’s 25 seconds of theatre masquerading as unconventional investment advice – although worth noting that in SARK’s brief existence its investors have done better than ARKK’s, since the latter are net down (see ARKK’s Investors Have In Aggregate Lost Money). Cramer must like Buffet’s quip (“If you’re not going to kick a man when he’s down, when are you going to?”) even at the cost of his chivalrous credentials.

We have three funds that seek to profit from this environment:

Energy Mutual Fund

Energy ETF

Inflation Fund

Please see important Legal Disclosures.

.

It’s a measure of the increased importance of natural gas to the world economy that geopolitical tensions now move its price the way crude oil has responded for decades. Russian troops massing on the border with Ukraine have shed an uncomfortable light on Europe’s vulnerable natural gas supply. Climate extremists are partly to blame because they’ve assumed windmills can solve every energy problem.

Germany’s government is still dead set against nuclear power, and is lobbying the EU to omit it from the revised list of clean energies. But relying on Russia for so much of Germany’s natural gas has constrained their ability to respond to Russian aggression elsewhere in Europe. US energy policy, whatever its faults, is more enlightened than Europe’s.

.avia-image-container.av-zub0n6-05903474a360a7cf0da18b04ab3f9919 img.avia_image{ box-shadow:none; } .avia-image-container.av-zub0n6-05903474a360a7cf0da18b04ab3f9919 .av-image-caption-overlay-center{ color:#ffffff; }

In recent weeks, the Ruble’s moves against the US Dollar have been calibrated to the fluctuating odds of a Russian military incursion into Ukraine with its consequent damage via sanctions to the Russan economy. The deployment of NATO assets to member countries in the region represents another step in escalation that has drawn the market’s attention.

.avia-image-container.av-jhs15u-d863e712e53d04af73e50a529a1bc41f img.avia_image{ box-shadow:none; } .avia-image-container.av-jhs15u-d863e712e53d04af73e50a529a1bc41f .av-image-caption-overlay-center{ color:#ffffff; }

But Russia isn’t uniquely vulnerable – European natural gas futures have begun moving with the Ruble too, reflecting the possibility of supply disruptions if Russia chooses to respond to sanctions by using its own economic leverage.

Geopolitical risk often comes with fears of supply disruption to crude oil, but this might be the first time in history that natural gas prices have been sensitive to the possibility of armed conflict. It’s rarely easy to predict such events, but investments in the energy sector can be a source of some comfort when uncertainty is driving the market lower. The strong recent performance of pipelines versus the S&P500 may be a coincidence – the shift from growth to value has been more important – but holding US energy infrastructure assets does bring the comfort of knowing America retains more control of its destiny than any other country. Domestic natural gas pipelines and LNG export terminals are invulnerable to foreign conflict and potentially able to opportunistically benefit from supply disruptions elsewhere.

Eastern Europe is the current focus, but it’s not the only potential hotspot. On the weekend, the United Arab Emirates intercepted a ballistic missile fired over Abu Dhabi, probably by rebels in Yemen where a proxy war between Saudi Arabia and Iran continues to smolder.

China has been adopting a more bellicose posture towards Taiwan, whose independence from the mainland it has never recognized.

North Korea periodically tests new missiles, sometimes flying them over Japanese territory.

None of these other flashpoints are related – and yet, the risk is that if one heats up it raises the tension elsewhere. This is because all of them to some degree draw the oversight and potential engagement of the US. If American military attention and resources are focused in one area, bad actors in another may perceive an opportunity to act when the superpower is briefly looking away.

It’s this strategic challenge that underlies US military planning to be prepared to fight two major wars simultaneously – most likely one in Europe and another in Asia. The thinking is that conflict in one makes an adversary more likely to take provocative action in the other theatre.

Russia’s troops massed on Ukraine’s border are likely to move within weeks – either as invaders or back within their own country. Winter with its ice-hardened roads and fields offers a preferable environment for tanks and heavy equipment than the spring thaw when the terrain is muddy.

Usually, the bad outcomes you fear in investing don’t happen, but it’s as well to be prepared. It scarcely seems in Russia’s interests to draw the apparently ruinous sanctions the US has planned. So the most likely outcome must surely be a diplomatic exit.

But it’s worth considering that Russian tanks rolling into Kyiv isn’t the limit of how bad things could get. Other points of conflict will then be at increased risk of heating up.

This is where energy investments offer a form of geopolitical tail risk insurance. Most of the time, such coverage provides little or no payoff, but occasionally can look prescient. If you consider a list of all the products and services offered by the companies in the S&P500, domestic energy and the physical infrastructure required to process, transport and store it looks more vital and in our national interest relative to much else that generates EPS.

Hopefully, this crisis will pass, but it is a reminder that planning for the unexpected is an essential element of risk management.

We have three funds that seek to profit from this environment:

Energy Mutual Fund

Energy ETF

Inflation Fund

Please see important Legal Disclosures.

It’s easy to sympathize with Cathie Wood’s plaintive cry that value stocks look like a bubble. As long-time energy investors, we’ve watched awestruck as the ARK Innovation ETF (ARKK) traced out its stratospheric path for both performance and AUM. “Bubble” was a wholly inadequate sobriquet (see ARKK’s Investors Have In Aggregate Lost Money).

Having reached its apogee, there is now no pleasure in watching ARKK’s Icarus-like plunge. Pipeline investors were there a little over two years ago, when a sector that looked ridiculously cheap lost over half its value as Covid ravaged the energy sector.

.avia-image-container.av-qa6gz8-7adb29d2a404a73249eaf1e336012c18 img.avia_image{ box-shadow:none; } .avia-image-container.av-qa6gz8-7adb29d2a404a73249eaf1e336012c18 .av-image-caption-overlay-center{ color:#ffffff; }

We have no view on ARKK’s holdings, and little more to say on value stocks outside of energy, where we have much to add. Although momentum is extending the recent moves of ARKK and the pipeline sector, valuations of the latter provide ample justification for this to continue.

An overly exuberant Shale Revolution, the looming uncertainty of the energy transition and Covid’s demand destruction were the adverse trifecta that floored sentiment around traditional energy. April of 2020, when crude oil went briefly negative, represented a nadir of sentiment and valuation so severe it likely surpassed anything that came before.

The recency of such trauma continues to impose caution on prospective investors, allowing valuations to remain attractive. Flows into the sector are once again positive. Bubbles do not follow with such relative haste as Cathie Wood implies.

Industry capex appears parsimonious against the standards of five years ago, provoking incongruous pleas from the White House to produce more of something they claim to want phased out. CEOs such as Pioneer’s Scott Sheffield maintain that investors don’t want production that isn’t accretive on a per share basis. It took the last few years to convince them, but capital discipline remains the industry’s new religion.

.avia-image-container.av-1919vtg-e9d47a19d7bd45b5d3538046382246e3 img.avia_image{ box-shadow:none; } .avia-image-container.av-1919vtg-e9d47a19d7bd45b5d3538046382246e3 .av-image-caption-overlay-center{ color:#ffffff; }

An example is the growing spread between Distributable Cash Flow (DCF) and Capex. DCF is cash from operations minus maintenance capex (the cost of maintaining existing assets). Capex on new projects is down by almost two thirds for pipeline companies, similar to the reduced spending by E&P companies who are their customers. Many investors may be skeptical that such frugality will persist, but as Scott Sheffield’s comments show, financial performance is now more important than production growth.

.avia-image-container.av-w8mt2s-1766278ca37b21625d5497c069ec5ab5 img.avia_image{ box-shadow:none; } .avia-image-container.av-w8mt2s-1766278ca37b21625d5497c069ec5ab5 .av-image-caption-overlay-center{ color:#ffffff; }

Free Cash Flow (FCF) is being boosted by the DCF-Capex spread. Sources and uses of funds is an important variable. In projecting FCF we’ve assumed that half of growth spending is debt-financed, which would still allow leverage to continue decreasing while increasing payout coverage. We’ve made no assumptions about dividend hikes or buybacks, which are hard to forecast more than a year out.  Both may trim FCF growth, but since these represent a direct return of additional cash to investors there would be little to complain about.

Increased capital discipline is occurring simultaneously with energy policies intended to inhibit supply growth. Political leaders routinely draw on professed public concern about climate change to provide legitimacy for related policies. However, there seems to be little political appetite to limit demand for reliable energy. The focus remains on the supply side, as if the energy transition can be painless to consumers with the disruption only on big corporations.

The result is that continued demand growth and constrained supply are boosting prices for natural gas, crude oil and even coal. Progressive policy prescriptions have failed to meaningfully impact emissions – but they have served to highlight the challenges of intermittency with renewables, inadvertently improving the outlook for traditional energy companies.

Emerging countries favor raising living standards over fighting global warming, and the most impactful step the world could take would be promoting natural gas over coal for power generation.

Moreover, midstream energy infrastructure companies will mostly own and manage the infrastructure needed for carbon capture, where increased Q45 tax credits enjoy bipartisan support. If hydrogen use becomes commercially viable, the same companies will manage that. In short, rather than threatening the pipeline sector, the energy transition is turning out to be impossible to execute without it.

Any economic threat posed by Covid has long since passed – the collapse in stocks like Peloton and Netflix shows that lockdown spending is dissipating as normalcy returns.

The result is that all three headwinds that hurt investment performance in midstream energy infrastructure have been converted to tailwinds. Meanwhile, valuations remain compelling. If some sellers of ARKK are fleeing to pipelines, they are drawn by the positive fundamentals listed above. They’re abandoning what was clearly a bubble in favor of solid fundamentals.

We have three funds that seek to profit from this environment:

Energy Mutual Fund

Energy ETF

Inflation Fund

Please see important Legal Disclosures.

Jamie Dimon thinks the Fed may tighten rates six or seven times this year. Bill Ackman believes the Fed should punctuate the start of the tightening cycle with a 50bp hike in order to regain some credibility. Whatever their self-image, this is a dovish FOMC. Central bank bond buying is set to continue until March, and raising short term rates can only start then. So monetary stimulus continues, in the interests of avoiding any surprises. An unemployment rate of 3.9% combined with hourly earnings increasing at a 7.5% annualized rate (December was up 19 cents to $31.31) reflects full employment. They’re already late.

Cyclical peaks in short term rates have declined over the past couple of decades. It seems the economy succumbs to monetary tightening more readily each time. This is why the market doesn’t expect rates to move much above 2%, and is probably why the Fed is so lethargic in normalizing policy. They don’t expect to tighten much.

.avia-image-container.av-rkdpi0-3e41082d3d518a1fe0b86b4ca64074e8 img.avia_image{ box-shadow:none; } .avia-image-container.av-rkdpi0-3e41082d3d518a1fe0b86b4ca64074e8 .av-image-caption-overlay-center{ color:#ffffff; }

Over the next year, the risks seem skewed to the upside for rates. Fed chair Jay Powell continues to blame goods shortages for inflation, even though labor is most clearly under-supplied. FOMC forecasts of inflation have been steadily increasing. A 2% rate cycle peak with the economy booming and the Fed still stimulating seems optimistic. Eurodollar futures have been pricing in less optimism recently, but surely need to at least match FOMC projections in order to stop offering an asymmetric bet.

.avia-image-container.av-82bcyg-97ac003ae664b9cf8efc03b249ff8d1d img.avia_image{ box-shadow:none; } .avia-image-container.av-82bcyg-97ac003ae664b9cf8efc03b249ff8d1d .av-image-caption-overlay-center{ color:#ffffff; }

Looking farther out, ten year inflation expectations at 2.5% invite one to wager on higher. Although Jamie Dimon’s warning of more aggressive tightening looks prescient, we only reached this point because of the FOMC’s dovish posture. Reducing inflation from 7% draws little debate; bringing it down from 4% to 3%, and eventually to their long run 2% target, is likely to provoke concern about unnecessarily costing jobs. The Fed has taken excessive inflation risk to achieve today’s full employment – they clearly interpret their dual mandate as weighted towards people over bonds.

.avia-image-container.av-1pr4z88-62e8abf1afa43ca22e7680e582f93308 img.avia_image{ box-shadow:none; } .avia-image-container.av-1pr4z88-62e8abf1afa43ca22e7680e582f93308 .av-image-caption-overlay-center{ color:#ffffff; }

This is not necessarily bad. Monetary orthodoxy has long held that 2% inflation maximizes employment, but that could change. America’s indebtedness is relentlessly up. Expect more thoughtful pieces arguing that a little higher inflation eases the burden of debt service by providing more room for negative real rates. It is the endless gift from investors who must own bonds to those who service them — US taxpayers. We should take advantage of it.

.avia-image-container.av-15jpkbc-0154afd633b37886aa430937f5dd76a6 img.avia_image{ box-shadow:none; } .avia-image-container.av-15jpkbc-0154afd633b37886aa430937f5dd76a6 .av-image-caption-overlay-center{ color:#ffffff; }

There are in any case ways for the Fed to overlook certain elements of inflation. Owners’ Equivalent Rent (OER) is one. This flawed survey of what homeowners believe their home would rent for continues to show the cost of shelter to be only inconsequentially rising, in complete defiance of the buoyant real estate market the rest of us see. Since the July 2006 peak in housing OER and the Case Shiller index, which actually measures home prices, have recorded similar increases albeit along very different paths.

.avia-image-container.av-nvsh2w-f5882af46767025368f6e0e6d9700d1d img.avia_image{ box-shadow:none; } .avia-image-container.av-nvsh2w-f5882af46767025368f6e0e6d9700d1d .av-image-caption-overlay-center{ color:#ffffff; }

OER is lagging housing prices by over 15% year-on-year but has belatedly begun to reflect the housing market since its annual rate of increase has risen from 2% in April to 3.8% now. This suggests OER is set to inconveniently accelerate just when the FOMC strategy of hope is supposed to be working. But since OER is the only non-cash item in the inflation statistics, it wouldn’t take much for the Fed to dismiss its message since nobody writes a monthly rent check linked to OER.

The energy transition is another example. Shifting to a lower carbon energy system is going to raise prices – obviously, or we’d already be there. The inflation that counts usually excludes food and energy, because they’re volatile. But Europe’s energy crisis shows what excessive reliance on windmills and policy aligned with Greta soundbites can deliver.

ECB member Isabel Schnabel recently warned that Europe’s transition to cleaner energy presented upside risks to their inflation target. US states have generally avoided the worst of Europe’s policy errors but won’t be immune to rising global demand for coal, natural gas and oil. Investments in new production remain well behind what most analysts believe is necessary to meet emerging economies’ increasing living standards, and energy sector growth capex will remain constrained by caution around public policy.

If inflation is elevated due to the energy transition, tighter monetary policy need not follow. Although the energy value of a British Thermal Unit (BTU) is fixed, officials could conclude that greener BTUs are more desirable. It’s similar to the numerous quality adjustments statisticians at the Bureau of Labor Statistics make, which lower stated inflation. Successive iPhones are more expensive, but their added features represent improved quality. Since inflation measures the cost of a basket of goods and services of constant utility, this approach records falling prices for most consumer electronics even if the consumer winds up paying more. The same approach could be used for energy, in that the BLS could assess a quality improvement to energy delivered with reduced emissions, muting its actual increased cost.

The bottom line is that investors over the next year or so should consider the risks of a more hawkish Fed. But over a longer timeframe, the impact of sustained 3-4% inflation on portfolios warrants more attention. It’s likely to be the path of least resistance.

We have three funds that seek to profit from this environment:

Energy Mutual Fund

Energy ETF

Inflation Fund

Please see important Legal Disclosures.

Investing based on Environmental, Social and Governance criteria (ESG) continues to gain following. Committing capital to companies that strive to do good appeals. Naturally, every company claims ESG credentials – because the criteria are so flexible it’s an inclusive definition. My favorite is Lockheed Martin’s regular membership of the Dow Jones Sustainability Index. If a company that builds machines to blow up people and things can have an ESG portal, it demonstrates the infinite flexibility of ESG.

Blackrock offers 30 socially responsible funds and leads AUM in the space with $60BN.  Investors are often surprised to learn that energy stocks are included, but for example, the $25BN iShares ESG Aware MSCI USA ETF (ESGU) has a 3% weighting to energy. Conventional ESG thinking is that companies that handle fossil fuels, which provide over 80% of the world’s energy, are not deserving of the ESG imprimatur. But Blackrock invests in pipeline corporations such as Williams Companies. Natural gas offers the greatest opportunity to lower CO2 emissions, by displacing coal. The EU looks as if they’re finally reaching the same conclusion, via changes to their taxonomy that would classify it (along with nuclear) as clean energy based on meeting certain criteria.

.avia-image-container.av-jpgitq-b94fa62891c30be63547b62e61055cd4 img.avia_image{ box-shadow:none; } .avia-image-container.av-jpgitq-b94fa62891c30be63547b62e61055cd4 .av-image-caption-overlay-center{ color:#ffffff; }

Although ESGU’s energy weighting is a pragmatic choice, the energy transition will create challenges for those who seek a moral purpose from their investments along with outperformance. Evy Hambro, Blackrock’s global head of thematic investing, sees the energy transition boosting infrastructure spending. Hambro recently said, “What we’re likely to see is strong demand that will keep prices at very very good levels for the producers for many years into the future, and that could be decades.”

Hambro expects prices for copper, cobalt and other minerals vital to electrification to enjoy a long bull market. But spending on infrastructure will also boost traditional energy demand, because concrete, steel and other inputs won’t suddenly be produced using windmills.

This creates a conundrum for ESG funds. Positioning for a world that’s decarbonizing implies a much bigger allocation to Basic Materials, which along with Energy is only 5% of ESGU’s holdings. Apple, Microsoft, Google and Amazon are almost 20% of their portfolio. Many observers question the move to carbon neutrality these companies and others claim. Apple manufactures consumer electronics; Amazon delivery trucks are ubiquitous, and all have cloud-based offerings that require server farms consuming vast amounts of electricity.

Given the infinite flexibility of ESG funds, their most important attribute has been relative outperformance. This has been driven by fund flows, and there are signs this tailwind may be easing. As we noted last year (see Pipelines Are ESG) ESGU was beating the S&P500 for a couple of years. Its portfolio only deviated modestly from the index, demonstrating how many ESG-eligible companies there are. But over the past few months ESGU has started to lag.

The energy transition is fundamentally inflationary. This is axiomatic – reducing emissions will cost money, raising the price of energy. Otherwise we’d already live in a world full of solar panels and windmills. The energy crisis roiling Europe, a result of poor planning and too much dependence on windpower, is a case in point. ECB member Isabel Schnabel recently gave a speech warning about the inflationary effects of decarbonization.

ESGU is very highly correlated with the S&P500, because their holdings are so similar. Although it had modestly outperformed the market in the past, 2021 relative performance was negative. The past three months have been especially poor, leaving it 2.5% worse off over the past twelve months. This period of underperformance corresponds to heightened inflation fears with sectors like Basic Materials and Energy doing well.

ESG has long enjoyed a very flexible set of criteria. Relatively strong performance led some to believe that companies with high ESG standards were generating better performance metrics, such as ROE or profit margins. However, the evidence was never compelling, and more likely is that investor bias towards ESG funds has been self-fulfilling.

That may have started to reverse. It’s likely a portfolio designed to profit from a long bull market in commodities, as forecast by Blackrock’s Hambro and others such as Goldman’s Jeff Currie would look quite different from today’s ESG funds. The irony is that concern about climate change is high on the ESG checklist, and yet decarbonization may leave ESG funds underinvested in the sectors most likely to profit from this.

It’s fortunate that ESG is so flexibly interpreted, because if recent trends continue we’ll likely see new offerings that combine ESG with heavy commodity exposure.

We have three funds that seek to profit from this environment:

Energy Mutual Fund

Energy ETF

Inflation Fund

Please see important Legal Disclosures.

In Fed chair Jay Powell’s testimony yesterday during his renomination hearing before the Senate Banking Committee, he stuck to his familiar narrative of blaming inflation primarily on supply bottlenecks. We think excessive fiscal and monetary stimulus are more important reasons. One of the more persuasive charts is of Personal Consumption Expenditures (PCE). The Fed likes to use the PCE deflator to measure inflation, because unlike CPI its weights adjust to incorporate substitution (i.e., apples for pears if relative prices move).

Consumer spending is running well ahead of its ten year trendline – currently 7% above, equal to an extra $1TN. It’s 10% above it’s pre-Covid level. This would seem to be a more plausible explanation for inflation than supply bottlenecks. Fiscal and monetary policy are the cause. It still beggars belief that the Fed continues to buy bonds and maintain near-zero interest rates, providing ongoing stimulus that the economy no longer needs.

.avia-image-container.av-1vtirwd-bd097c4f0c485033ba6e94bda7c2d0bd img.avia_image{ box-shadow:none; } .avia-image-container.av-1vtirwd-bd097c4f0c485033ba6e94bda7c2d0bd .av-image-caption-overlay-center{ color:#ffffff; }

Senator Pat Toomey (R-PA), the ranking Republican on the Committee, asked if it was realistic to expect the Fed to succeed in curbing inflation without bringing short term rates at least up to the level of inflation itself. Prior to entering politics, Toomey traded derivatives at Merrill Lynch and in the 1980s he and I once ate dinner together in New York with several other markets people. He understands finance better than most politicians, and this was a good question.

Powell responded that they expect supply bottlenecks to ease, but that the Fed was ready to do more if required. Their slothful normalization of policy reflects a degree of hope that supply constraints will recede, and inflation fall, without them having to do much.

Toomey’s question was salient, because the FOMC’s projections are for the Fed Funds rate to reach 2.5% in about five years’ time, presumably long after inflation has been vanquished. The eurodollar futures market is even more optimistic, priced for short term rates to stall out at around 2% within three years. Both are consistent with the supply constraints explanation for inflation. If it turns out that the $1TN in extra spending power available to consumers is more important, a change in expectations will be warranted.

.avia-image-container.av-1p8i3z1-143b4c1c3902ea30cc98c9f5f3349f91 img.avia_image{ box-shadow:none; } .avia-image-container.av-1p8i3z1-143b4c1c3902ea30cc98c9f5f3349f91 .av-image-caption-overlay-center{ color:#ffffff; }

Bond yields have provided support for stocks for many years. Low long term yields continue to defy logic. Former Fed vice chair Alan Blinder was on CNBC yesterday morning, and like many observers he remains puzzled by this. Return-insensitive investors with substantial assets indiscriminately buying sovereign debt is our best guess. While it’s foolhardy to assume bond yields will rise significantly, it’s a risk worth pondering as the Fed finally starts normalizing policy.

Attention recently has focused on the Fed’s $8.8TN balance sheet. In response to a question, Powell said, “We will reduce the balance sheet sooner and faster than last time.” FOMC minutes from December fueled concern about how this might take place. The minutes noted that the balance sheet, “… was much larger, both in dollar terms and relative to nominal gross domestic product (GDP), than it was at the end of the third largescale asset purchase program in late 2014.”

If the Fed sits on its hands, $1.1TN in US treasuries will mature within the next year. More intriguing is whether the Fed concludes long term yields need to rise in order to slow inflation. They have $3.9TN with maturities longer than ten years, $2.6TN of which is Mortgage-Backed Securities (MBS). Total 2021 MBS issuance was $4.2TN, so the Fed is a big player here. Their balance sheet was growing at a $1.4TN annual rate until the recent taper announcement. If they ever decide to shrink it at the same pace, the Fed would have to start auctioning off some of its holdings.

.avia-image-container.av-19ss3x9-0c3b96614a5f38ec22a7187ea1daaff9 img.avia_image{ box-shadow:none; } .avia-image-container.av-19ss3x9-0c3b96614a5f38ec22a7187ea1daaff9 .av-image-caption-overlay-center{ color:#ffffff; }

For equity investors it’s worth considering what a 3% yield on the ten year treasury might mean. The Equity Risk Premium (ERP) would no longer show stocks to be cheap, at least compared with valuations over the past decade.

.avia-image-container.av-pzvo65-9358c228c767a065f4ff972a5840cf2b img.avia_image{ box-shadow:none; } .avia-image-container.av-pzvo65-9358c228c767a065f4ff972a5840cf2b .av-image-caption-overlay-center{ color:#ffffff; }

Energy continues to perform well, and yet pipeline stocks remain mispriced relative to their bonds. Several investment grade issuers offer dividend and free cash flow yields substantially higher than their long term bonds. A buyer of debt maturing in three decades by definition holds a constructive view on the equity.

Midstream infrastructure bond yields reflect equanimity if not optimism over the long term prospects for the issuers. By contrast, equity valuations continue to suggest concern about the security of payouts, overlooking the increasing prevalence of dividend hikes and stock buybacks. The apparent disconnect between equity and debt pricing remains a puzzle.

Stocks are vulnerable to a sharp jump in bond yields.  However, pipeline stocks offer much better valuations as well as protection against inflation if it persists at a higher level than many expect.

We have three funds that seek to profit from this environment:

Energy Mutual Fund

Energy ETF

Inflation Fund

Please see important Legal Disclosures.

Last Thursday Jim Cramer described the performance of the ARK Innovation ETF (ARKK) run by Cathie Wood as “attrocious”. This caught my attention – Cramer, whether you love him or not, doesn’t often criticize other asset managers.

It turns out that the demise of ARKK highlights what happens too frequently in finance. To wit, because inflows to ARKK followed strong performance, as is usually the case, it turns out that the cumulative P&L on ARKK is negative. It peaked last February at just under $12BN and has been in steep decline ever since. At the beginning of this year it crossed into negative territory. The average dollar invested in ARKK has lost money.

.avia-image-container.av-1k7xc5r-85e3879d31d01d0494733f5ed72f3128 img.avia_image{ box-shadow:none; } .avia-image-container.av-1k7xc5r-85e3879d31d01d0494733f5ed72f3128 .av-image-caption-overlay-center{ color:#ffffff; }

I employed this type of analysis when I wrote The Hedge Fund Mirage a decade ago. The high returns hedge funds generated in the 1990s weren’t enjoyed by many, because Assets Under Management (AUM) was small. There just weren’t that many clients.

Flows followed performance, and by the 2008 financial crisis the hedge fund industry was big enough that in one year it lost all the earlier profits ever generated for investors. This inspired the book’s opening sentence: “If all the money that’s ever been invested in hedge funds had been put in treasury bills instead, the results would have been twice as good.”

This indictment of the hedge fund industry was justified because in its early days “absolute returns” were promised – a positive return over a market cycle. Investors were also led to believe funds would close to new capital once the manager determined deploying it would dilute returns. More common was for the most successful wealthy hedge fund managers to return ALL the capital so they could focus on their own money.

Marketing has moved on since then because absolute returns were unachievable. Good relative returns was tried but also dropped as empirical evidence found this wanting. They later settled on uncorrelated returns, and have succeeded with undiscerning investors ever since.

.avia-image-container.av-139hlm7-c688d1cc6327031d199b1ea5eb6a747a img.avia_image{ box-shadow:none; } .avia-image-container.av-139hlm7-c688d1cc6327031d199b1ea5eb6a747a .av-image-caption-overlay-center{ color:#ffffff; }

Even though ARKK has now joined hedge funds in generating net losses for investors, it would seem unfair to be quite as critical of PM Cathie Wood. ARKK clearly doesn’t hedge, and every manager believes their fund will generate positive returns. It’s easy to forgive circumstances beyond the manager’s control – your blogger has run an energy mutual fund and ETF for many years. It hasn’t always seemed the place to be, which is partly why performance has been so strong lately.

It is nonetheless sobering to compare the cumulative P&L of ARKK with the management fees earned, which we estimate at around $230 million since its 2014 launch and still piling up at around $300K per day. Clearly an investment in Ark Investment Management, LLC, the advisor to ARKK, was a much better choice than ARKK itself, just as being a hedge fund manager has been far better than being a client.

.avia-image-container.av-q1feb3-3889a8f26ecebe5c5e586b1e05a95b69 img.avia_image{ box-shadow:none; } .avia-image-container.av-q1feb3-3889a8f26ecebe5c5e586b1e05a95b69 .av-image-caption-overlay-center{ color:#ffffff; }

Fund managers can resolve this misalignment of interests between them and their investors by investing alongside their clients. Fluctuations in the value of my personal holdings of pipeline stocks exceed by a wide margin the returns from asset management, which is how it should be.

Even though the contrast between the fortunes of Ark Investment Management, LLC and ARKK is due in large part to inflows chasing performance, it’s still visually striking. A large segment of the investing public needs confirmation from others before committing their own capital.

While copying others is  usually a sound approach in the purchase of most things (cars, consumer goods etc.) financial markets don’t work that way. History regularly provides examples of the folly in following the crowd. But it repeats. The timing of ARKK’s biggest inflows coincided with its peak – the moment of maximum misplaced confidence.

Morningstar doesn’t help. Even now, with a lifetime negative P&L, ARKK has four stars and is the #1 ranked fund over five years. Morningstar’s rankings are all based on quantitative data, presumably to eliminate any analyst judgment. But you might think that the trajectory of ARKK’s cumulative profits would be worth considering. It’s hard to identify much useful for investors here, although Morningstar rankings do drive fund flows which generally benefits managers.

ARKK has still handily outperformed the energy sector over the past five years. Pipelines have not drawn innovation-seeking buyers, instead appealing to more pedestrian tastes. The opposite trajectories of ARKK and energy have persisted during the boom in commodity proces and global energy crisis.

Although there’s no pleasure in seeing ARKK’s fall from grace, the shift from growth to value has benefited midstream energy infrastructure. Pipelines are also a long way from experiencing the type of manic buying that punctuated the peak in ARKK’s share price, which seems like another good reason to consider the sector.

We have three funds that seek to profit from this environment:

Energy Mutual Fund

Energy ETF

Inflation Fund

Please see important Legal Disclosures.

Although markets were quiet over the Christmas break, treasury yields drifted steadily upward. On the first trading day of the new year the ten year yield burst higher by 0.12%. Although the Fed seemed to bring inflation expectations under control at their most recent FOMC meeting in December, this is now starting to reverse.

The yield curve has been steepening, reversing the sharp flattening that hurt several hedge funds late last year. It still seems impossibly flat – we’re about to enter a tightening cycle and expectations are that it will be mostly complete by the end of 2023 – less than a full 0.25% tightening is priced in over the following two years.

.avia-image-container.av-2a9p72u-2786abd2deafe2b4da963780d64af7d2 img.avia_image{ box-shadow:none; } .avia-image-container.av-2a9p72u-2786abd2deafe2b4da963780d64af7d2 .av-image-caption-overlay-center{ color:#ffffff; }

Eurodollar futures are still priced for Fed Funds to remain below 2% — implausibly optimistic, because it implies that the Fed will contain inflation without raising short term rates even to their long term inflation target. The FOMC’s guidance is 0.50% higher, and although they are awful at forecasting their own actions, this time perhaps the market will adjust to the Fed rather than the other way around as usually happens. Put another way, history suggests that inflation won’t get back to 2% unless the Fed raises rates above this level.

Part of the justification for equanimity over how high short term rates need to go has come from the bond market. In mid-December, ten year treasury yields were below 1.5%. Pushing short term rates above long term yields, creating an inverted curve, would provoke warnings that the Fed was about to cause a recession. An inverted yield has a mixed track record as a predictor of a slower economy, but it might be expected to give decision makers pause.

.avia-image-container.av-1gzy3hy-d3ac85bdead43a00cf1a84fcf377179a img.avia_image{ box-shadow:none; } .avia-image-container.av-1gzy3hy-d3ac85bdead43a00cf1a84fcf377179a .av-image-caption-overlay-center{ color:#ffffff; }

However, following the recent slump in the bond market, ten year treasury yields are within reach of last year’s 1.73% high. Maybe it’s a delayed reaction, but confidence about the Fed’s ability to bring inflation back down has been seeping away for a month. The continued fall in real yields has muffled the message somewhat, but ten year inflation expectations have risen 0.30% since the announcement of a speedier taper.

Employers are budgeting for wage increases of 3.9% this year, according to a survey by the Conference Board. Most analysts expect inflation to moderate, but bringing it back to 2% is looking less likely. The modest tightening projected by the market is unlikely to convince businesses to expect it, which would make ~4% annual wage hikes more likely to persist.

.avia-image-container.av-18gqfcm-b2c0135ad20767fa7ebe45dbd64e4bd8 img.avia_image{ box-shadow:none; } .avia-image-container.av-18gqfcm-b2c0135ad20767fa7ebe45dbd64e4bd8 .av-image-caption-overlay-center{ color:#ffffff; }

The Fed over-estimated the amount of slack in the labor market, a point chair Jay Powell began to concede during his press conference last month. They maintained a highly accommodative policy stance for too long in the hope that labor force participation would improve. They targeted a return to employment level of 152 million last seen in January 2020, before Covid hit. It’s still more than four million below that level, and since the Fed now emphasizes the “full employment” element of their twin mandate, they were willing to risk inflation to help those remaining unemployed people back to work.

The Fed has not given up, because their policy remains highly accommodative. A slower pace of buying bonds and near-zero rates do not represent hawkish policy. But they’ve belatedly recognized all the other signs of a tight labor market, such as 3.9% wage increases or the record 4.5 million Americans who quit their jobs in November.

“The important metric that has been disappointing really has been labor force participation,” noted Powell during his press conference. He cited, “factors related to the pandemic, including caregiving needs and ongoing concerns about the virus…”   Others were, “aging of the population and retirements” Three years of a strong market has probably helped many people retire ahead of time.

The rise in treasury yields is bearish. It reflects rising inflation expectations and implies a higher peak in the Fed Funds rate during this tightening cycle. At a certain point it is negative for stocks, since low rates have driven investors into equities for years. However, ten year yields would need to be approaching 3% not 2% for that to be a factor. And the pool of return-insensitive capital willing to own sovereign debt at negative real yields seems limitless, which is facilitating a degree fiscal profligacy that would otherwise be much more costly.

But it does mean that eurodollar futures 2+ years out below 2% remain too low. The Fed’s sloth-like return to neutral policy relies on the hope that inflation will moderate of its own accord, not that the Fed’s actions will cause it to. Much can go wrong with that.

.avia-image-container.av-q60fna-a0c4b72a98643342ec4dc1486bd3e3d0 img.avia_image{ box-shadow:none; } .avia-image-container.av-q60fna-a0c4b72a98643342ec4dc1486bd3e3d0 .av-image-caption-overlay-center{ color:#ffffff; }

Unrelated to inflation but notable nonetheless was news that last month the US became the world’s biggest exporter of liquified natural gas.

We have three funds that seek to profit from this environment:

Energy Mutual Fund

Energy ETF

Inflation Fund

Please see important Legal Disclosures.