By Louis Navellier. Originally published at ValueWalk.
In his Daily Market Notes report to investors, while commenting on recession, Louis Navellier wrote:
This week is all about the first quarter’s earnings, each stock’s reaction and the guidance looking forward.
Q1 2022 hedge fund letters, conferences and more
Recession Skirt
There is no doubt that the U.S. is skirting a recession due to order backlogs keeping manufacturing strong, a very strong service sector and an amazing upbeat consumer. Specifically, the University of Michigan’s preliminary consumer sentiment index recently surged to 65.7 in April, up from an 11-year low of 59.4 in March. I will be eagerly awaiting the Conference Board’s consumer confidence report to reaffirm if the University of Michigan’s preliminary consumer sentiment report is re-confirmed. My primary comment is that consumers are naturally optimistic when Spring arrives, so this may be a seasonal surge.
Although consumers may be happy in the U.S., the population of Shanghai are not happy campers due to the oppressive Covid lockdown by Chinese authorities. Shanghai is three times larger than New York City and its citizens have been forced to not leave their apartments and undergo mass virus testing. If a Shanghai citizen tests positive, they are forcefully put into mass quarantine centers with 24/7 lighting and no showers.
Shanghai accounts for a tremendous amount of China’s GDP and operates its biggest port. Both Apple and Tesla have been negotiating to restart their respective production that stalled due to the oppressive Covid lockdown. When China announced that its GDP rose at a 4.8% annual pace in the first quarter, many economists were skeptical that this GDP growth can be sustained due to the Shanghai lockdown and home sales have fallen 25.6% in the first quarter in the wake of the Evergrande debt crisis. Officially, Chinese officials are expecting 5.5% annual GDP growth in 2022, so unless there is a surge in the second half of this year, it looks like China will fall short of its GDP growth goal.
Due to the fact that China’s economic growth has stalled and much of Europe is in a recession, many economists now believe that inflation “peaked” in March. Obviously, any inflation relief will be welcome, but the real break in energy inflation may be postponed until September, when worldwide demand naturally falls due as the weather cools in the Northern Hemisphere.
EV Shortage > Semi Shortage
The lithium-ion battery shortage is now becoming increasingly obvious as companies struggle to cope with high lithium, nickel and cobalt prices, which threatens to postpone the electric vehicle (EV) revolution. Tesla Inc (NASDAQ:TSLA) has been raising its prices for all its EVs, but the most interesting development is that its Model Y from the new Austin factory that has the latest and greatest 4680 batteries with 90% nickel, has only a 276-mile EPA range. This is because Tesla has purposely shrunk the Austin-built Model Y’s battery pack, so it can apparently sell more cars.
Obviously, with Tesla also now operating another new manufacturing plant in Berlin, Germany, the demand for the latest and greatest lithium-ion batteries with high nickel content may continue to outstrip supply, which is why Bloomberg has said the EV battery shortage is becoming even more acute than the semiconductor shortage.
The fact that Russia was a major nickel supplier was just one of the catalysts behind soaring prices for lithium-ion battery components. Another factor was rising demand for EVs, especially in China and Europe. Between Russia’s commodity ban by Western nations, plus more supply chain disruptions from the Shanghai Covid shutdown, you might be wondering what else can go wrong?
Financial Weapon
Well, the fact that Russian sent a diplomatic pouch to Washington D.C. that apparently demanded that the U.S. stop supplying Ukraine with weapons is an escalation of the war in Ukraine. Clearly, the Russian invasion of Ukraine is not over and threatens to draw in NATO countries, so uncertainty persists.
I should add that the probability of a Russian debt default is rising, which could trigger the U.S. to seize more assets, including the assets of the Russian central bank where $642 billion in foreign currencies are frozen. The U.S. did seize $3.5 billion in assets from Afghanistan’s central bank, so global finance is being used as a major weapon in addition to economic sanctions.
However, if the U.S. and its allies try to seize the assets of the Russian central bank, it will be interesting if Russia starts flying its TU-160 nuclear bombers over Europe or the U.S. The Russian state media is already citing that World War III has commenced, but at least many in Russia remain skeptical.
Coffee Beans
In Finland, 8 out of 10 respondents said that they had turned to the web for health-related information in 2021 – an increase of 22 percentage points from 2011. Denmark recorded similar levels of reliance on Dr. Google – 75 percent. In Germany, however, reliance on the internet for these topics saw a decrease between 2011 and 2021 – from 54 to 45 percent. Source: Statista. See the full story here.
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