The Semiconductor Chip Crisis Is About To Get Worse

March 7, 2022

69

By Louis Navellier. Originally published at ValueWalk.

In his Daily Market Notes report to investors, while commenting on the semiconductor chip crisis, Louis Navellier wrote:

Q4 2021 hedge fund letters, conferences and more

This is the week that we will all remember that inflation spun out of control. Well, it could have been a lot worse because crude oil futures hit $139 a barrel this weekend and they were $126 a barrel before the market opened. And then, of course, when the market did open, they quickly fell to $116 a barrel.

It’s pretty wild but the reason the market wasn’t as bad today as some people feared is there’s speculation that there might be a real ceasefire. Russia’s no longer demanding that the current government of Ukraine change. So that was considered to be by many a positive development.

Interestingly, Germany has come out against a ban on Russian crude oil, so Europe remains dependent on Russian energy. Both France and Italy also want to continue to buy Russian crude oil. As a result, a Western alliance against banning Russian crude oil remains problematic. It looks like whatever we’re trying to do to corner Russia and hurt them economically is not going to work with all our allies.

On the other hand, British Prime Minister Boris Johnson remains more hawkish against Russia, so it is possible that Britain and the U.S. may proceed with their own Russian sanctions.

Amazingly, the U.S. sent a delegation to Venezuela to meet with the government of President Nicolas Maduro to have him break ties with Russia and restart trading crude oil with the U.S.

Making Friends with Enemies

Furthermore, there are also widespread reports that a new Iran nuclear deal may be in the works and that many Western nations would be willing to import more Iranian crude oil. Essentially, the U.S. is trying to cut off all Russian crude oil imports, which represent 7% of worldwide production, and make deals with previous enemies, if these countries help to isolate Russia.

Interestingly, Elon Musk has tweeted that “it is now extremely obvious that Europe should restart dormant nuclear power stations and increase power output of existing ones” in an apparent dig at Germany, where Tesla’s new Berlin manufacturing plant has been approved. Furthermore, Musk also tweeted “hate to say it, but we need to increase oil & gas output immediately. Extraordinary times demand extraordinary measures.”

According to the United Nations, worldwide food prices have risen 20.7% in the past 12 months. Since Ukraine is the breadbasket of Europe, and Russia is a major wheat producer, food prices are expected to continue to soar.

Furthermore, higher energy prices are pushing up fertilizer prices, which in turn naturally increases crop prices. I think that we can all agree that food and energy inflation is spinning out of control. The Russian invasion of Ukraine is widely anticipated to disrupt this year’s wheat, corn and sunflower harvests since its citizens are fleeing as the war escalates.

Semiconductor Issues in Q3

Ukraine also supplies 70% of the neon used in the world. Neon is used by semiconductor manufacturers to run lasers that are required to manufacture chips. Russia is the other major producer of neon. So the semiconductor chip crisis is about to get worse if the Russian invasion of Ukraine persists.

Fortunately, most semiconductor manufacturers stockpiled neon prior to the Ukrainian invasion, so if there is a worldwide disruption in chip production, it will most likely materialize in the third quarter. Let’s all hope and pray the Ukrainian invasion is over as soon as possible.

Ironically, as Russia continues to get bogged down in Ukraine and causalities mount, the fear is that Vladimir Putin may become even more erratic as Western nations retaliate. The White House has reportedly offered Poland F-15s as a replacement if they give Ukraine their Mig-29s. Poland is in the process of upgrading its military aircraft and started flying F-16s back in 2006. Furthermore, Poland signed a deal in 2020 to acquire 32 F-35s that will arrive in 2024. So the U.S. is offering to help Poland upgrade its aircraft faster, which will allow their Mig-29s to go to Ukraine.

Not only has the Russian ruble been destroyed and now at a record low, but the euro is now losing its value fast as the European Union slips into a recession. The European Central Bank (ECB) meets on Thursday and virtually no one is expecting a key interest rate increase. ECB President Christine Lagarde’s press conference is going to be closely scrutinized, but other than blaming the Ukraine crisis for inflation, there is little that can be done to fight the recent surge in food and energy prices.

Up, Up And Away

Next week, the US Fed is supposed to raise rates. We’ll see what they say. Once we get all that central bank uncertainty out of the way, then it should be up, up and away for stocks to prosper from quarter-end window dressing. Professional managers like to have powerful stocks in their portfolios. So we expect that to happen.

Coffee Beans

While Russia’s currency is facing an uncertain future, the ruble’s role in global financial markets was insignificant even before the latest escalation. According to data published by SWIFT, the Russian currency was used in just 0.2 percent of all payments processed on SWIFT in December 2021 based on total transaction value. That puts the ruble 20th among global currencies, behind the Danish krone, the Polish złoty, and the South African rand. Source: Statista. See the full story here.