There are no words to describe the atrocities of war. No winners, just losers. The pictures and videos are unwatchable and unfortunately there does not seem to be an end in sight. The other news we will summarize this week will have such little consequence to what we are witnessing.
There is significant concern that the current situation in the Middle East will tip the global economy into a recession. The worst situation currently being contemplated is a full scale war between Israel and Iran. Bloomberg estimates oil prices could rise to $150 per barrel with a 1% hit to global GDP. While the humanitarian crisis is most important, the continued high interest rates and higher inflation could impact the banking sector according to the IMF.
Despite the strong US job numbers last week, US consumer sentiment declined. Stubbornly high Inflation is hurting consumers. This is hurting the youngest members of society. Bank of America recently reported that Gen Z spending is down while Baby Boomers is up.
Robert Kennedy Jr. has thrown his name into the 2024 Presidential race. Not unlike John Anderson in 1980, Mr. Kennedy is a long shot to win although could be the deciding factor in the election. Similar to 1980,there is no early consensus on who RFK Jr. hurts more in the 2024 race. Anderson was a Republican congressman from Illinois although seen as a moderate conservative and sympathetic to certain liberal causes. Anderson began his candidacy as a Republican with good polling but his support faded as voters focused on the top two candidates, Gov. Ronald Reagan of California (who ultimately won in a landslide) and incumbent President Jimmy Carter. Carter won only 49 electoral votes and Reagan won the popular vote by nearly ten percent. Currently, RFK Jr. has higher favorability ranking than both presumed frontrunners in former President Trump and President Biden.
The next Speaker of the House is no closer to being named. Jim Jordan is the currently the favorite, although he still has detractors within his own party and Republicans have not scheduled a floor vote. Currently, there are 221 republicans, 212 democrats and two vacancies. A simply majority is needed to name the next speaker, therefore Republicans can only afford to lose 4 members in any vote. Additionally, Rep. Santos from New York is in a bit of hot water although he has no intention on resigning. Should he be expelled, a special election would occur not unlike the two current vacancies. This more than likely will not play out until after a Speaker is voted in as Republicans need Santos' vote.
While this is a pipe dream for Democrats, you can never rule out the unexpected when discussing US politics. There are currently 18 Republican members of the House who represent districts won by Biden. There are also five Republican House members who are retiring or expected to retire. Could the Democrats flip five of these members to vote for Rep. Hakeem Jeffries?
Given the gridlock in the House, there is no news to report on the Opportunity Zones Transparency, Extension, and Improvement Act. Brad Molotsky has written a nice summary of the pending bi-partisan bill and is a good source for OZ investors.
There has been some research recently on the success of the OZ program. Given its infancy, no concrete conclusions should be reached for at least ten years in our opinion. The EIG had a thoughtful piece on this topic this week which is worth reading. The hundreds of billions that will be ultimately invested in this program should benefit both investors and the communities receiving the capital they could often not raise. Only time will tell.
Last weeks strong jobs report has led many economists to believe in the short term rates are staying at current levels or potentially even moving higher. As we pointed out last week, this will have a chilling effect on an already struggling commercial real estate market. This will also take a bite out of the clean energy industry. These projects are capital intensive thus requiring significant debt and interest service. A second more damaging aspect of higher interest rates is the long-term contracts that many clean energy companies have entered into. Over the past two months, the S&P Clean Energy Index, which is made up of 100 of the biggest companies in solar, wind power and other renewables-related businesses, has dropped over 20%. Again, it does not mean the industry is un-investable. Rather, due diligence with respect to the timing and projections of each company is of the utmost importance when contemplating any investment.
We have written often about the lack of domestic critical minerals and the global fight to secure access. The United States is currently contemplating dropping charges against Israeli Dan Gertler given his control over many African mining operations. The Treasury Department sanctioned Gertler in 2017, accusing him of amassing his fortune through opaque and corrupt mining and oil deals in Congo through connections with former Congolese President Joseph Kabila.
This week the US also pushed forward in a partnership with allies to promote responsible investment into critical mineral projects.
A Life Well Lived
Charles Feeney passed away this week. In times of darkness, it is good see the positive impact that many have on society. Mr. Feeney certainly took that to heart in his lifetime.