A Proxy War And An Economic War
In his podcast addressing the markets today, Louis Navellier offered the following commentary.
Cramer Puzzle
Jim Cramer advised investors to sell stocks this week as earnings season continues. Specifically, Cramer last Friday said “The market’s dominated by the tick, tick, tick of bonds, oil and the dollar. So, remember, if we have a big up day like yesterday, that is a chance to do some (selling) because there probably won’t be any follow-through.” Humm.
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Q3 2022 hedge fund letters, conferences and more
I am puzzled why Cramer did not recommend any oil stocks if he thinks they are so disruptive, but perhaps after pushing ESG-related stocks, Cramer may be morally offended by fossil fuel companies.
Sometimes you cannot see the forest through the trees. The simple fact of the matter is that we have to learn to live from inflation and profit from it. Not only can we buy fossil fuel companies, but also other stocks profiting from inflation, like many food and fertilizer companies.
The theory that investors should sell all stocks when many companies are profiting from inflation and continuing to post record sales as well as earnings, is puzzling to me.
If like Cramer, you are worried about inflation and want to flee the stock market, then you might be out of the stock market for decades, since inflation is expected to persist.
This is a good time to remind you that I am originally from Berkeley, California, so I have been thoroughly indoctrinated in ESG and other social investing restrictions. The simple fact of the matter is that ESG was hijacked to push “pump and dump” IPOs like Rivian Automotive Inc (NASDAQ:RIVN) and Lucid Group Inc (NASDAQ:LCID) last year, which were both briefly worth more than Ford and GM, respectively, after their IPOs.
Arcane California Rules
What I find amazing is that Berkeley led the natural gas ban on new construction in California, which has expanded recently to a new requirement that natural gas appliances (i.e., water heaters, pool heaters, dryers, etc.) must now be replaced by electric appliances.
My family was very lucky to replace a natural gas water heater in our Solano Beach, California home last year, which would have to be replaced by an electric water heater this year.
These arcane rules in California to systematically eliminate natural gas appliances in an effort to “save the planet” and “reduce the carbon footprint” are grossly misguided, since natural gas is a very efficient and clean burning fossil fuel.
Europe led the world’s green revolution, but they never strived to systematically ban natural gas as Berkeley and California have implemented. The truth of the matter is if the green revolution persists, it will be very inflationary for decades since it is replacing efficient fossil fuels with less efficient alternatives.
A good example is how California handed out lucrative incentives to refiners to produce green diesel from organic animal waste, so suddenly the refiners’ diesel output declined by 400,000 barrels a day, which in turn, sent trucking and transportation costs soaring in the past year.
This naturally triggered inflation on food and other goods. Again, the green revolution is inflationary and will persist for decades if these green policies continue to be implemented.
So let’s get back to Jim Cramer who advised investors to sell into earnings strength this week, since he is very worried about inflation impacting bonds, oil and the dollar.
Unfortunately, much of the inflation is caused by government policies that may last for decades, due to record budget deficits, the war on domestic fossil fuel production (e.g., ban on drilling on federal lands) as well transportation (e.g., Keystone pipeline) and now electric vehicles (EV) prices soaring due to an acute shortage of lithium and cobalt.
My advice is to get used to inflation and learn to profit from it by (1) investing in Sociedad Quimica Y Minera De Chile S.A. (SQM) to profit from high lithium prices, (2) agriculture/fertilizer stocks to profit from high food prices and (3) fossil fuel companies to profit from both high crude oil as well as natural gas prices.
The midterm elections are now shaping up to be a big political earthquake, since a change in Congressional leadership is now certain. However, this change is not expected to fix everything that is wrong, but merely cause gridlock, so the EV revolution is expected to persist, since green incentives are not going away.
So in the end, you can be happy and profit from inflation or you can let it ruin your life as well a being perpetually depressed. I am choosing to be happy and to profit from inflation, rather than run and hide from inflation.
In the wake of the OPEC+ production cut, Europe apparently figured out that they cannot fully break away from Russian crude oil.
As a result, the U.S. and its European allies are striving to come to an agreement on a price cap on Russian crude oil. So while OPEC+ (including Russia) imposes production quotas, the G7 and Australia are trying to implement a plan by December 5th that would bar the financing, insurance and shipping of Russian crude oil, unless it is sold before a set price limit.
In the meantime, Russia is happy to sell its crude oil to India, Saudi Arabia, the UAE and other countries that are all too happy to refine that crude oil, so they can sell refined products (i.e., diesel, heating oil, jet fuel, gasoline, etc.) to circumvent any restrictions on Russian crude oil. As a result, I expect most attempts to price-fix Russian crude oil will fail.
A Proxy/Economic War
In the meantime, many G7 members are also in a proxy war by arming Ukraine in their fight against a Russian invasion. Since Russia recently turned up the attacks on major Ukrainian cities after a bridge to Crimea was blown up, the G7 risks being drawn into a long drawn-out proxy war.
If Vladimir Putin shows up at the G20 meeting in Indonesia in mid-November, it will be fascinating how other countries react to Putin.
At least with China, the U.S. is only in an economic war. Chinese President Xi Jinping is in the midst of being reappointed for an unprecedented third 5-year term after a campaign of anti-corruption purges has effectively suppressed any potential challengers.
The Biden Administration is now actively trying to suppress Chinese semiconductor manufacturing and refused to eliminate any the Trump Administration tariffs against China products. The bottom line is the Biden Administration is actively involved in an economic war with China as well as a proxy war with Russia.
The Chinese trade figures and third-quarter GDP announcement was abruptly delayed during the Communist Party Conference. China’s statistics bureau did not provide a reason for the delay, but it is widely believed to not interfere with Chinese President Xi Jinping’s nomination for an unprecedented third 5-year term.
Additionally, other economic reports from China, like retail sales, property sales, and fixed asset investment were marked as “delayed” on the website of China’s National Bureau of Statistics. There is no doubt the Covid Zero lockdowns in major provinces to suppress the opposition to Chinese President Xi have likely restricted China’s third-quarter GDP.
New British Chancellor of the Exchequer (Treasury minister) Jeremy Hunt proposed reversing most of Prime Minister Liz Truss’ proposed tax cuts and also pared back an energy price cap to calm nervous financial markets that caused gilt (bond) yields to soar and undermined the British pound.
The Bank of England intervened last week to shore up British bond yields to stem a “fire sale” by British pension funds. It will be interesting if the Bank of England will have to intervene again, but Chancellor Hunt did what the market wanted.
The leadership of new British Prime Minister Liz Truss is also being questioned, but thanks to Chancellor Hunt’s action, a leadership challenge will likely be postponed. In my opinion, British Prime Minister Truss did the right thing to provide energy price relief and to stimulate the British economy, but unfortunately, the British bond market disagreed.
Interestingly, despite record tax revenue and employment, the U.S. budget deficit is also weighing on Treasury bond yields. However, the Treasury market is much larger than the British bond market and is aided by a strong U.S. dollar that should attar foreign capital.
However, the British have shown the world that there is a limit to how much a government can effectively borrow. There is no doubt that the era of Modern Monetary Theory (MMT), which is unlimited money printing, has ceased now that currencies and government bond yields are under siege.
Like Europe, New England relies on natural gas to generate electricity and heat homes. However, now that utilities in New England have to compete with Europe for LNG supplies, a severe cold front this winter could strain the electric grid and result in rolling blackouts.
Specifically, the electricity producers in New England have limited natural gas storage, since most natural gas pipelines are reserved by gas utilities. As a result, electricity producers in New England have to increasingly rely on spot prices and now have to compete with Europe, so electricity prices are rising.
Interestingly, the governors of New England states sent a letter to U.S. Energy Secretary Jennifer Granholm this summer that cited high natural-gas prices as a reason to waive the Jones Act and allow for domestic LNG imports to the region.
These governors also requested more coordination with the federal government to ensure energy reliability and help modernizing New England’s heating-oil reserve. Rising utility bills in New England and other states will likely constrain consumer spending if this winter is colder than normal.
Amidst all this uncertainty, the only thing that is certain are companies and their underlying earnings. This is a good time to remind investors that the strongest results tend to be announced early. Netflix Inc (NASDAQ:NFLX) and Tesla Inc (NASDAQ:TSLA) are among the market leaders that will be announcing this week. Frankly, I am looking forward to how the stock market will respond to the energy stocks' record third-quarter results in the upcoming weeks.
Coffee Beans
Dr. Howard Tucker of Cleveland, the world's oldest practicing doctor, is now 100 years old and has no plans to retire, believing that "retirement is the enemy of longevity". Tucker, a neurologist, said he continues to work full-time, with his typical day lasting from 9 a.m. until 6 p.m. Source: UPI. See the full story here.
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