Things you need to know
- It’s all about the geo-political headlines – that divert the attention away from weakening US data and runaway inflation
- PPI is due tomorrow – what will that show?
- Oil – holding steady at $93/barrel if Vlad invades then watch it go to $100 in short order.
- Xi Xi watching every move – as he considers taking Taiwan. Expect Xi Xi to support Vlad in return for Vlad supporting him. What will Joey do?
- Try the Borscht Soup
Stocks slid on Friday as the administration played up the possible Russian takeover of the Ukraine – all as the economic data in the US pointed to surging inflation leaving the administration appearing confused while some members of the FED offered up their thoughts on what the next move ‘should be’ – saying that they are only speaking for themselves – and their opinion does not reflect the thinking of the FOMC (Federal Open Market Committee). Ok – there is a lot to digest here…. but the takeover of Ukraine by the Russians is not the main plot at all. The media is playing it up as if that is the main story, but investors in the US and around the world are all trying to price in what happens to markets when global central banks begin to pull back the reins in the weeks and months ahead. Reminding us of all of the Great Winston Churchill quote from the 1940’s as the WWII was coming to an end – “Never let a good crisis go to waste”
As the day wore on – stocks got weaker – talk of an even more aggressive FED caused investors to remain cautious…. many analysts telling us that Jimmy B’s view of the world was ‘his own’ analysis – NO MATTER that he is a voting member of the FOMC this year. Are we supposed to believe that Jimmy B would come out and offer up that kind of commentary without a blessing from Jay, with no warning at all to his fellow committee members? Doubtful, but as the talk of how the FED misread all the signs and how the administration’s policies have only amplified the current inflationary environment ratcheted up – they needed to change the focus. They couldn’t let this geo-political crisis go to waste – so as the sun began to set – talk of a ‘weekend’ invasion by the Russians sent stocks into an end of day tailspin. By 4 pm – the Dow had given back 500 pts or 1.4%, the S&P down by 85 pts or 1.9%, the Nasdaq choked up 400 pts or 2.8%, the Russell fell 20 pts or 1% while the Transports gave up 390 pts or 2.5%.
Yes- a Russian takeover of the Ukraine would be big geo-political news and yes, markets will most likely react (if they haven’t already) – but at this point how could anyone be surprised? I mean – Vlad has been building up his forces on the border of Ukraine for months now…. satellite images reflect this, talk of an invasion is and has been all over the place – on TV, on the radio, in the papers, splashed over the internet for weeks now and only appears to be building as US economic data gets worse. Now there is name for that – it’s called ‘diversion tactics’….and it is intended to ‘divert’ the attention away from what they don’t want you to see or question’. In this case – the ‘they’ is the current administration – and what they don’t want you to see is how inflation is heating up – as if you don’t see it already…. (that’s what’s comical…).
The ‘attack’ could be multi-pronged according to CNN – it could be via the internet – shutting down their communications, jamming the lines – all while tanks drive into downtown Kiev –
Secretary of State Tony Blinken warning of an invasion at any moment, blah, blah, blah…. Joey telling us that ‘if Russia makes a move, then there will be severe consequences. Talk of shutting down the Nord Stream 2 pipeline at the top of the list – leaving some reporters to ask ‘How?’ The pipeline goes from the Russian arctic to Germany via the Baltic Sea. It was completed in September 2021 and provides natural gas to Europe – so are the Europeans going sanction Russia and disrupt the flow of natural gas causing yet another crisis across the region? Vlad thinks not (and I think not as well) ……Sanctions on the Russian economy? Sounds interesting but most likely a non-event. In the end – I think the Germans and the Europeans will negotiate a deal that will allow Vlad to save face, give the American’s an out and leave Ukraine a non-member of NATO, dependent on Russia.
What I think is interesting and more dangerous is what Xi Xi is thinking and readying to do…. because a takeover of Taiwan will be a much more severe, global issue that has the potential to disrupt the world order…and you know what? Shame on us for even allowing that to happen. The fact that the US does not produce our own semiconductors is a complete failure of our gov’t going back decades…. but that’s another story.
The issue here is if Russia invades Ukraine, China will support them and that will put more pressure on an already tense US/China relationship. And then what happens if China decides to take Taiwan – (surely Russia will back China) ….and you can be sure that Xi Xi is watching very closely how the world reacts to Russia/Ukraine. But no matter how the world reacts – China has made it very clear that Taiwan is part of Greater China and that they are tired of Taiwan acting like they are their own nation. And this my friends is the much bigger issue….
In any event – Russia did not invade Ukraine over the weekend – but talk of the possible takeover continues today…. European markets are getting slammed – all down more than 3%. The media telling us that this is the week – that the Russians can invade at any moment…. some suggesting that he will wait until the end of the Olympics (Friday) while others suggest not. Word out of Russia is that the US is creating the hysteria and that investors only need to look at Washington to find the problem.
US futures are down in pre-dawn trading…. Dow futures down 300 pts, S&Ps off 50, the Nasdaq lower by 200 and the Russell off by 24 pts…. the VIX (fear index) is up 16% at 31.63 – and going higher. The triple leveraged S&P short – SPXS – which was up 6% on Friday is quoted up another $1 this morning…. the other ETF Non-levered Shorts also moved up on Friday- DOG +1.5%, PSQ +2.7% and the SH +1.8%. Energy and Utilities were the only 2 sectors that moved higher on Friday – with Tech, Consumer Discretionary and Communications all getting slammed.
There is no eco data today but tomorrow brings us the all-important PPI (Producer Price Index) and that will be important for investors and the FED. Now the estimates are calling for a retreat…. PPI y/y of +9% down from 9.7% while PPI ex food and energy y/y is estimated to be 7.8% down from 8.3%. The whisper numbers though, suggest that the reports will be higher. In any event, IF the PPI reports do come in weaker than last month – that will take ‘some’ of the pressure off of the very aggressive FED comments – but my sense is that Bullard was so emphatic last week – that they must suspect something is up and they want to be prepared, now if they are weaker then they can always say that Bullard’s comments do not reflect the FED’s thinking.
Crypto’s continue to get hit…. Bitcoin trading at $42,100 and Ethereum trading at $2,800.
The S&P closed at 4418 down 85 pts. Breaking the key long term trendline (again) at 4450 and that leaves us ready to retest the January 24th lows of 4,222…. or there abouts. (That’s a 4% move lower from here) We have been talking about this….so now it is happening….no one should be surprised. If you are a long only investor – now is the time for patience…. if you play it from both sides, then just make sure you are watching your ‘short’ hedges…the tone can change quickly (although I don’t think its changing today) but this is not the time to fall asleep.
Remember – stick to the plan. Call me to discuss.
Take Good Care
Chief Market Strategist, Consultant
kpolcari@slatestone.com
Borscht Soup
Considering the most recent developments in the Ukraine – try the Borscht soup.
Borscht is a classic beet soup originated in the Ukraine – which is now a popular staple across the East and Central European countries. It can be made completely vegetarian style, or you can add sautéed sausage to spice it up.
For this you need: Sweet Sausage, 4 med beets – peeled and shredded, shredded carrots, potatoes, tomato paste, onions, water, shredded cabbage, diced tomatoes, garlic, s&p, sugar, sour cream and fresh parsley.
If using the sausage – then sauté it in a frying pan over med hi heat – season with s&p… remove from the heat.
Next – add 2 qts of water to a large pot and bring to a boil. Add sausage and beets- bring to a boil. Next add the carrots and diced potatoes return to a boil for about 20 mins.
Now add the cabbage and the diced tomatoes.
In a separate frying pan – sauté the onion – when translucent -add in the tomato paste and about 1 c of water. When mixed well – add to pot – toss in the raw garlic cloves – bring to a boil and then turn the heat off – let it rest for 10 mines – taste and season with s&p and a dash of sugar.
When serving – put a dollop of sour cream in the middle along with some fresh parsley.
Buon Appetito.
