Things you need to know
– Russia initiates invasion, targets military installations
-`Global leaders unite – expect more sanctions
– Is Diplomacy dead?
– Commodities Soar, Corn, Wheat, Oil, Gold Silver, Palladium
– Try the Chicken Kiev
Russian President Vlad Putin – making the announcement on Wednesday evening
– “Military operations have begun across Ukraine”.
Putin vowing to ‘demilitarize’ the country and replace the ‘puppet’ government triggering the worst crisis in Europe since World War II. Kyiv – Ukraine’s capital is now under attack – air raid sirens blaring as civilians told to ‘please shelter in place’. Ukrainian media reports a barrage of missiles and air attacks. On TV, Putin ‘promised’ not to ‘occupy its neighbor’ but rather protect civilians from the Ukrainian military – something that there is NO evidence of…. Vlad also said that he needed to teach President Zelensky and the West a ‘lesson’ that they ‘crossed the RED LINES by attempting to expand the NATO alliance. In the end – Vlad will replace the current West Friendly gov’t with a Russian Puppet gov’t that is aligned with Moscow and not Washington, DC. Putin has also confirmed that he is not targeting civilians – he is only trying to take out military installations – if that makes you feel any better.
Joey immediately calls him out saying that the attack was ‘unprovoked’ vowing to hold Russia accountable.
This action is sending global markets into a complete tailspin as stocks around the world plunge…. The Russian index – MOEX falling 41% in just hours…. Across Asia – Japan ended the day lower by 1.8%, Hong Kong – down 3.2%, China down 2%, Australia down 3%, Taiwan down 2.5% and South Korea also down 2.5%.
At 7 am European markets are even lower……FTSE -3.35%, CAC 40 – 5%, DAX -5.2%, EUROSTOXX – 5%, SPAIN -4.3% and ITALY -5%.
US futures are now implying a loss of better than 2% across the board – Dow futures down 885 pts or 2.5%, S&P’s 110 pts or 2.5%, Nasdaq down 408 pts or 3% and the Russell down 48 pts or 2.5%….And this on top of the weakness yesterday that saw the indexes endure losses of 1.8% – 2.5%…..US indexes are now all in ‘correction’ territory and by the end of they day the Nasdaq could officially be in ‘bear market’ territory if the RISK OFF mood continues.
Commodities markets surged…. Brent crude up 8.7%, WTI (West Tx Intermediate) oil up 8.8% piercing $100/barrel as the drama unfolds……Wheat prices also up 5.6%, Corn up 5%, Gold up 3%, Silver up 3%, Palladium up 9%.
The VIX (the fear index) is up by 20%, 10 yr. treasuries are up as well – sending yields lower….in the early morning hours the 10 yr. is yielding 1.85% – down from last night’s close of 1.98%. 30 yr. money (bonds) are also finding buyers, sending 30 yr. yields down 11 bps at 2.17%.
So, expect it to be a very ugly day for stocks….as investors around the world now begin to re-assess what the level of risk really is to global peace. (Again, I’ll say that the Russia/Ukraine drama is the dress rehearsal for the China/Taiwan drama that is being formulated as we speak). So, now investors will need to understand – What’s the next move for the US and Europe…. what sanctions can they impose now? Will they hit more Russian banks? Will they impose export controls – think restrictions on smartphones, aircraft and automobile parts that will hit their manufacturing facilities. Will they slap sanctions on Russian oil? And if they do expect gas prices in the US to have a $6 handle – now I say this because the US is a big importer of Russian oil – on average we import about 18 million barrels /month and while you might think that is ‘nothing really’ it is when our energy industry has come under assault by the far left – I mean we’ve all heard the stories of how Joey has been begging OPEC + to pump more oil to help offset surging demand and surging prices here in the US – all while we are awash in oil but have been regulated to not produce enough of it as Joey caves to the far left wing of his party.
Yesterdays’ weakness saw Consumer Discretionary XLY names continue to get slammed – that ETF down another 3% taking that index down 17% ytd. Industrials – XLI down 1.8%, Financials – XLF down 1.7%, Tech – XLK down 2.5%, Communications – XLC lost 1.7%. Energy (again) was the only sector that rose – XLE gaining 1% on the back of this building crisis. The Growth trade – SPYG lost another 1.4% leaving that ETF down 16.5% ytd while the Value trade – SPYV is down 5% ytd.
And don’t discount what Xi Xi is setting up to do. We have discussed this- China has its eyes on Taiwan and they are watching the world as this Russian/Ukraine drama plays out on the world stage. What will Xi Xi learn from this? Will he adjust his plan of attack? Will he launch his move now, creating even more chaos around the globe that will offer him some cover or not? What about cyber-attacks? Expect to see more of these as both Russia and China perfect that form of attack to bring down cities and countries. (It’s not like we haven’t seen this.)
The cyber security ETF’s – HACK, CIBR, BUG, IHAK are just some of the ways to play this…and if you look at them, they have all gotten slammed – which is completely illogical……The ETFs are off 15% – 25% This is completely mispriced…. I mean think about it. Cyber security issues will be the new battlefield (actually, not so new….) so why would those stocks be under pressure, you’d think they would be soaring – Unless of course – the message is that we are woefully unprepared for a massive cyber security fight. I fear that both Russia and China are more advanced in this space – and that the US and Europe are behind the 8 ball. Is that what the market is telling us?
And now what does this latest event do to the FED? Can the FED continue with the overly aggressive stance, 4 – 9 rate hikes in 2022? Or will this crisis cause them to back off. Now, this might take 50 bps off the table and force the Fed to have to tolerate higher inflation…. a place they didn’t want to be – or it could force the Fed to cause a recession – which means slamming on the brakes….….
The S&P closed at 4225 – down 80 pts – ending the day right on the January 24th lows….a level I had been calling for…..and while I did think it was going to hold – all bets are off now……I will say, I did not expect Vlad to invade….I expected an 11th hour diplomatic solution…..but I was wrong……so this puts new information into the equation – causing a different answer to appear. Very much like the changing equation at the FED……. What happens to valuations when you price in 2 – 3, 25 pbs hikes is different from 4 – 8 hikes that could include 50 bps moves.
So now that Vlad has disrupted the global landscape – investors need time to reassess what this all means…and when that happens – it is always shoot first ask questions later. But remember – for every seller there is a buyer….so it’s not as if everyone has walked away, the buyers are just choosing to pay lower prices, forcing sellers to either hit the lower bids or do nothing…..what we are seeing this morning is a ‘panic’ move to get out at all costs…which usually proves to be the wrong decision…..
The S&P is down nearly 2.5% – which would take that index to 4130….a level last seen between April – June 2021….a failure there could see the S&P trade down to the 3850 range which would represent a 20% move off the all-time highs….Like I have been saying- If you are long only and are continuing to put money to work in the markets – now is the time to sit back and let this turmoil play out a bit. If you haven’t hedged by now, I’d be careful, because we are more likely closer to a bottom than not…. I always like to allow 2 – 3 days to pass after a shock to see how it settles in. If you are a trader type – then get to work….and trade your portfolio…. These are the days you long for….
Remember – stick to the plan. Call me to discuss.
Take Good Care
Chief Market Strategist
kpolcari@slatestone.com
Chicken Kiev
Considering the issues in the Ukraine – I thought it might be appropriate to show support for its citizens and feature the infinitely famous dish.
This is a simple dish – and includes a flavored butter – so use the same technique I gave you last week – just different spices.
For the butter you need: Minced garlic, 1 tblspn of lemon juice, chopped parsley, s&p
Soften the butter – mix well and roll into a log and place in freezer so that it gets hard –
For the chicken – you need thinly pounded breasts, eggs, flour, breadcrumbs, s&p and vegetable oil.
Remove the butter from the freezer and cut into equal slices. Season the cutlet with s&p – place the dollop of butter in the middle and now – fold the sides over and then roll it up. Use a toothpick to hold it closed if you need to.
Repeat –
In 3 sep bowls – put the flour, the beaten eggs, and the breadcrumbs. Like an assembly line – roll the chicken in the flour, then egg wash and then the breadcrumbs. Repeat.
Preheat oven to 350 degrees.
Now in a heavy bottom deep pot – add the vegetable oil – enough to cover the breast about halfway…. heat up to about 325 degrees. Very gently – to avoid splashing – add in one chicken breast to the oil and brown nicely – 3 – 5 mins…. Do not add more than one at a time – the oil will cool down and it won’t come out right.
Now – place the browned chicken on a baking dish and place in the oven for about 10 – 12 mins…Remove – let rest for 5 mins and serve with sauteed spinach and some herbed flavored rice.
Buon Appetito.
