In today’s Exponential Investor

  • The vacant office
  • The credibility gap
  • The supply/demand mis-match


Time for lunch – or Mittagessen as they call it around here – is well and truly over.

Everyone in Vienna who is not on vacation is back at their desks.

However, only the receptionist and I are currently working here in the lobby of Regus’ serviced office in the Millennium Tower.

A quick walk around the floor has told me that most of the individual offices are also empty.

As I survey the panoramic view over the City of Music, everything is wonderfully tranquil.

I feel like a winner: so…

… who else is benefiting from offices being vacant?

This is a big question which is also relevant to the City of London.

According to Transport for London (TfL), there were just under 500,000 people a day exiting its 15 “City” tube stations prior to the Covid-19 lockdowns in March last year.

After falling to nearly zero at the end of 2020, the number has since been rising, and was around 140,000 per day in mid-July.

One possibility is that there are people who commute to the “City” tube stations each day, but they are only 28% of the number who were commuting prior to the outbreak of the Covid-19 pandemic.

Another possibility is that everyone who was commuting at the beginning of 2020 is still doing so, but only comes into his/her office on five or six working days each month.

Of course, the truth very probably lies between these two extremes.

TfL’s numbers add up to a lot of headaches for organisations with offices in central London.

Many are having to rethink how much office space they use.

And lots are having to figure out how best to use that office space – while taking account of actual and possible rules that say how far apart desks should be in the age of Covid-19.

Therein lies an opportunity – for any company that can provide the answers.

According to consultancy Verdantix, the workplace software market is set to grow from $0.9 billion to $1.7 billion by 2026.

Sam Volkering, who is well known to readers of Exponential Investor, has identified a company that has successfully developed software that helps companies to run their offices more efficiently – and that is selling that software globally.

In fairness to subscribers to Frontier Tech Investor, a publication of Southbank Investment Research which Sam edits, I can’t reveal that company’s name.

However, I can tell you that that company features in Frontier Tech Investor’s portfolio…

… and that, over the last year, its stock price has risen by about 400%.

The gulf between expected inflation and actual inflation

Charlie Morris, a veteran wealth manager who now edits The Fleet Street Letter Wealth Builder – a weekly publication of Southbank Investment Research – has spent the last few weeks focusing on another, quite different, empty space.

That space is the difference between expected and annual inflation in the United States.

Charlie uses the United States as a proxy for the global economy and financial markets.

His recommendations to his readers are based in part on his tried and tested Money Map tool.

The Money Map is defined by two questions:

  • Are bond yields rising or falling?
  • Is inflation rising or falling?

The inflation question is the one that matters here.

In early July, Charlie explained that investors in the US bond market expect that inflation will be around 2.5%.

A little later, the US Bureau of Labor Statistics (BLS) said that, over the year to the end of June, the Consumer Price Index (CPI) rose by 5.4%. This was the largest 12-month increase since August 2008, when inflation was also 5.4%.

Additional comments from the BLS highlighted how consumer prices in the United States have been rising across the board:

The all items index rose 5.4 percent for the 12 months ending June; it has been trending up every month since January, when the 12-month change was 1.4 percent. The index for all items less food and energy rose 4.5 percent over the last 12-months, the largest 12-month increase since the period ending November 1991. The energy index rose 24.5 percent over the last 12-months, and the food index increased 2.4 percent.

Either the investors are right about inflation, or they are wrong.

If they are wrong, it means that inflation will stay high/increasing and that central banks will have to at least consider increasing interest rates.

A full discussion of what that would mean for the global economy and financial markets is beyond the scope of this edition of Exponential Investor.

However, possible outcomes would include a slump in bond prices (and an increase in yields), volatility in stock markets, a wave of corporate bankruptcies and sovereign debt crises.

So, what if the investors are right?

As Charlie explains, that would mean that the economic recovery in the United States, the UK and globally is likely to lose momentum.

Growth over the next six-to-12 months would therefore be (much) slower than a lot of people have been expecting.

Charlie has been adjusting the Whisky portfolio and the Soda portfolio of The Fleet Street Letter Wealth Builder accordingly.

Oil: the difference between over- and under- supply

Another hint that the global economic recovery may be slowing comes from the global oil market.

At the top of the staircase?

Source: Koyfin

As is well known, the economic disruption which followed the arrival of the Covid-19 pandemic in March last year hit the price of oil very hard.

From the beginning of 2021, the price of oil (shown in the above chart as the West Texas Intermediate – or WTI – benchmark in the United States) rose from about $49/ barrel to a high of about $75/ barrel on 12 July.

Over the last ten days, the price has fallen back to around $70/barrel.

In May this year, when the WTI price was about $69/barrel, the International Energy Agency (IEA), a Paris-based think-tank, noted that “global oil demand is set to soar from 93.1 million of barrels per day (mb/d) in 1Q21 to 99.6 mb/d by year-end”.

The IEA also observed that projections from the OPEC+ group of oil-producing countries indicated that supply would not be able to keep up with the demand.

So, the pace of growth in the global economy – and demand for oil – has become a gap in the big picture.

That is another empty space that we will look to fill in the coming weeks here at Exponential Investor.

Until next time,

Andrew Hutchings
Managing Editor, Southbank Investment Research