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Printed: 02 December 2023 4:07 AM


5 Oct 2021 - Traditional Markets Stable in August; Trouble in September

By: Tony Bremness, Laureola Advisors

Traditional Markets Stable in August; Trouble in September

Tony Bremness, Laureola Advisors

September 2021

THE INVESTMENT ENVIRONMENT - Traditional Markets Stable in August; Trouble in September

The S&P 500 was up 2.9% in August but developments in September suggest trouble. JP Morgan issued a bearish report pointing to warning signs which included huge gains in IPOs, the frenzy for SPACS, contagion from China, the Delta variant, and inflation exacerbated by supply chain blockages and raw material price increases.

The China prediction began to unfold in September. The Chinese conglomerate Evergrande owes $90 bn to over 128 banks, $100 bn to suppliers, and has 1300 projects in 280 cities for sale. It can't pay. It has bought a soccer team in China and is part way through building a $1.7 bn stadium for the team. The company's bonds are trading at $0.25.

In Europe, the price of natural gas, used in many critical industries including heating and electricity generation, has skyrocketed. Wholesale gas prices are up 50% since February, and some electricity prices are up as high as 7x last year's level. Inventories are at their lowest for a decade and less electricity than expected is being produced from wind. Russia, the main natural gas supplier, is limiting supplies.

Higher gas and electricity prices will inevitably lead to higher inflation, lower economic output, and even potential blackouts. The Delta variant appears to be picking up steam. In these uncertain times, investors have few places to seek refuge, but a well-managed portfolio of life settlements can offer genuine shelter from the economic storms ahead.

LAST MONTH IN THE LIFE SETTLEMENT MARKETS - Regulatory News from Washington Good; From the States, Mixed

Life Settlement Markets were stable in August as IRRs remained in their usual wide range around the 12% to 14% midpoint. (Investors should always remember that this represents the projected IRR on the purchase price, which may not be the amount the seller receives due to transaction costs.)

A bill went before Congress to allow insureds to use the proceeds from selling their insurance policy tax free to fund their own long term health care. This bill has bi-partisan support, a rare thing indeed in the current US political climate. It would be a win for the insureds, but also a win for the government as the savings to Medicaid would be significant.

Some insurance companies have been offering enhanced surrender payments on a few policies, a move that is being challenged by the Life Settlement Association and its legal team. Such payments have been disallowed in Virginia and Louisiana but allowed in Texas. Florida disallowed them but later allowed them. These enhanced surrender payments have the potential to interfere marginally with the Life Settlement markets, but mostly for investors who rely on policy characteristics rather than an analysis of mortality. As Laureola relies on mortality analysis first and foremost, any negative impact on the LS markets will have little effect on the Laureola strategy.

Funds operated by this manager:

Laureola Australian Feeder Fund

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