By Louis Navellier. Originally published at ValueWalk.
In his podcast addressing the markets today, Louis Navellier offered the following commentary.
If you wish to listen to this commentary, please click here.
Don’t be alarmed that the stock market opened lower this morning because the market has a natural oscillation. These oscillations are normal and are exaggerated by the algorithms on wall street. When you have a strong day as we had on Tuesday, the market usually has to give back up a third to two-thirds of its gains.
Q1 2022 hedge fund letters, conferences and more
Inflation in the UK is running at 9.1% and the Bank of England expects it to peak at 11%. Inflation is much worse in Europe because they import goods and their currencies are weak. Here in America, we have a very strong dollar. We have downward pressure on commodities because commodities are priced in dollars. So our inflation is running a lot lower. But inflation is still elevated and it will remain high until September.
Yield Curve Threat
The yields on the treasuries are meandering a little bit lower right now. The yield curve is not inverted, but it’s pretty flat. So the financial stocks are having a hard time. If the yield curve does invert, banks do cut off credit and that is a threat to the market. So we should be on alert for that.
The best news this week was that Bespoke Investment Group pointed out that when the S&P 500 has back-to-back weekly declines of 5% or more, which has happened only seven times since 1974, in the next month, six months and year, the S&P 500 has rallied an average of 5.24%, 20.64% and 28.16%, respectively. The fact that the annual Russell realignment is being finalized and we are now in quarter-end window dressing season should also aid this week’s impressive rebound.
Grumpy Elon Musk
Elon Musk announced that Tesla would lay off 10% of its salaried employees in the next three months, which should reduce its overall workforce by about 3.5%. Musk said that a recession is “inevitable at some point” and near-term is “more likely than not.”
If you are worried why Elon Musk seems so depressed lately, it is likely because Tesla Inc (NASDAQ:TSLA)’s profitable Shanghai plant was shut down for much of the second quarter. Furthermore, there is just not enough lithium, nickel and cobalt available for Tesla to operate a full capacity at its new Austin and Berlin plants, so battery availability is expected to constrain Tesla’s output at its two new factories.
In the meantime, the European Commission (EC) is considering classifying lithium as a Category A1 reproductive toxin later this year, which will effectively destroy the battery plants being built in the eurozone and hinder battery recycling efforts. Specifically, the European Chemicals Agency’s Risk Assessment Committee at the end of 2021 published its opinion that it agreed with French proposals to classify three lithium salts as Category 1A reproductive toxicants. This committee determined that lithium carbonate, lithium hydroxide, and lithium chloride should be classified under the Classification, Labelling & Packaging Regulation as substances that may damage fertility and unborn children. Furthermore, this committee also agreed that these substances may harm breastfed children.
The eurozone currently accounts for 8.3% of global lithium-ion battery production, but many giga-factories are planned and some are already under construction. The proposed regulations would hinder Tesla’s new Berlin factory and all the other new battery plants close to electric vehicle manufacturing plants. It will be fascinating if the EC destroys lithium-ion battery production in the eurozone with its new regulations. In the meantime, now you know why Elon Musk may be in a bad mood, since his battery production workers in Berlin may soon have to wear Hazmat suits to comply with the EC’s new regulation for handling lithium.
Sensitive Biden
According to The Wall Street Journal, the Biden Administration is expected to propose a 3-month federal gas tax holiday. Currently, there is an 18.4 cent federal tax on gasoline and a 24.4 cent federal tax on diesel. The biggest political problem with the focus on gasoline taxes is that the refining profit margins are smaller than both federal and state taxes in most states, so the Biden Administration’s criticism on refiners is backfiring with many voters. Back in March, Nancy Pelosi called suspending the gasoline tax “very showbiz,” so there is seemingly not a lot of unity in Congress pushing for a federal tax holiday.
The latest blowback on the prices at the pump came from Chevron’s chief executive, Mike Wirth, who in a letter to the Biden Administration said “We need clarity and consistency on policy matters ranging from leases and permits on federal lands, to the ability to permit and build critical infrastructure, to the proper role of regulation that considers both costs and benefits.” When asked by a reporter for the Biden Administration’s response to Chevron’s letter, CEO Wirth said “He’s mildly sensitive. I didn’t know they’d get their feelings hurt that quickly.” Chevron is based in California, which has its own unique fuel standards and is used to working with regulators, so if the Biden Administration does not reach out to CEO Wirth, it is not a good sign and guarantees that the prices at the pump will remain high.
Coffee Beans
About 6,000 bees were recently removed from inside the walls of an Omaha couple’s 100-year-old home. The bees likely infiltrated through a hole in the mortar of its brick exterior. The couple contacted two members of the Omaha Bee Club who charged $600 to safely relocate the bees. Source: AP News. See the full story here.
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