By Louis Navellier. Originally published at ValueWalk.
In his Daily Market Notes report to investors, while commenting on the market rally, Louis Navellier wrote:
The Only Winner
The stock market is trying to rally on the news that Russia is asking China for military equipment. Officially, “China is deeply concerned and grieved on (the) Ukraine situation” and added “We support and encourage all efforts that are conducive to a peaceful settlement of the crisis. The high priority now is to prevent the tense situation from escalating or even getting out of control.”
Q4 2021 hedge fund letters, conferences and more
Russian Finance Minister Anton Siluanov said that part of Moscow’s gold and foreign currency reserves were now in Chinese yuan. So far, China has emerged as the only potential winner from the Ukrainian crisis, even though inflation will also hinder its economy.
Dovish Fed = Market Rally
Speaking of inflation, the Producer Price Index (PPI) that will be announced on Tuesday is expected to be hideous. Surging natural gas prices are now responsible for higher utility bills from both heating and electricity generation. Obviously, wholesale diesel and gasoline prices are also rippling through the prices of goods and services.
When I landed in Reno on Saturday night, I noted that Uber was three times the price of a cab, so I decided to take a cab. The price of virtually everything that is transported is expected to rise due to higher transportation costs. It is possible that energy prices may be peaking as Europe and other major economies slip into a recession, which raises hope that worldwide energy demand may moderate somewhat.
Food inflation remains rampant due to the growing shortage of wheat from both Ukraine and Russia, which combined account for 30% of the world’s wheat production. Furthermore, the high cost of fertilizer due to high natural gas prices is continuing to raise the cost of both crops and livestock due to higher feed costs.
Despite inflation being concentrated in both food and energy, the core PPI, which also excludes trade margins, continues to steadily rise, so companies that are profiting from this wholesale inflation, like truckers, food processors, and grocery stores are all poised to post record results.
The Federal Open Market Committee (FOMC) statement on Wednesday at 2:00 pm EST, plus Fed Chairman Jerome Powell’s press conference is expected to be dovish and trigger a decisive market rally, despite a 0.25% increase in the Federal Funds rate.
The yield differential between the 2-year Treasury note and 10-year Treasury bond is now too close for comfort and likely will cause the Fed to hesitate on further interest rate hikes. Under no circumstances does the Fed want to invert the yield curve, since it would cause undue stress on the banks that the Fed regulates. So essentially, I expect that the Fed will signal that it will be more cautious with future interest rate increases, which should trigger a positive stock market reaction.
ESG Chaos
The Environmental, Social and Governance (ESG) investing world is very worried lately since they are notorious for avoiding fossil fuel investing, even natural gas. As a result, ESG returns are avoiding the strongest industry sector (i.e., energy) and their returns relative to benchmarks continue to plunge. Furthermore, since China dominates solar panel manufacturing through is Uyghur slave labor, there are serious social concerns.
The electric vehicle (EV) world is also struggling with the nickel that comes from Russia and the cobalt that comes from the Congo that is all too often mined by children crawling into dangerous 100-foot holes in the ground. In general, ESG pushed global investing, but when prosperity does not spread due to slavery, child labor, or run into international sanctions, ESG chaos is the result.
I am originally from Berkeley, California, which led the California natural gas ban on new construction, but expanding natural gas restrictions have hit a wall in virtually all other states and many countries, like Germany. As a result, ESG is mutating to now be more pro-labor and diversity, since the green ESG push is now imploding and characterized by poor performance relative to stock market benchmarks.
Coffee Beans
According to the Stockholm International Peace Research Institute, the United States remains the world’s largest arms exporter responsible for 38.6% of international arms sales between 2017 and 2021, up from 32.2% between 2012 and 2016. Russia remains in the second position, but its share has been decreasing. Between 2017 and 2021, the country was responsible for 18.6% of global arms exports, down from 24.1% between 2012 and 2016. Russia’s biggest customer is India, followed by China. Source: Statista. See the full story here.Coffee Beans: According to the Stockholm International Peace Research Institute, the United States remains the world’s largest arms exporter responsible for 38.6% of international arms sales between 2017 and 2021, up from 32.2% between 2012 and 2016. Russia remains in the second position, but its share has been decreasing. Between 2017 and 2021, the country was responsible for 18.6% of global arms exports, down from 24.1% between 2012 and 2016. Russia’s biggest customer is India, followed by China. Source: Statista. See the full story here.
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