Turbulence and Tensions – by Justin Vaughn

(Justin Vaughn, Editor, Options Trading Report)

Stocks are stung by Ukraine tensions, as all markets gave ground at Friday’s closing. The threat of an invasion of Ukraine by Russia looms large, weighting heavily on investors’ minds. A war between Ukraine and Russia could prolong elevated inflation by disrupting supplies of needed commodities-world wide. Russia is among the world’s largest suppliers of oil as well as the biggest exporter of wheat and a major producer of metals such as palladium, aluminum, and nickel. “Inflation is really the big question that will determine how markets play out, and that only adds to the delay in resolving the inflation situation,” said Mr. Hani Redha, a portfolio manager at PineBridge Investments. He expects markets to remain volatile as investors try to sort out how central banks will respond to elevated prices and the direction of the Ukraine conflict. Federal Reserve officials at their last January meeting discussed an accelerated timetable for raising interest rates amid concerns with high inflation, according to minutes released Wednesday. Now, with the added tensions for a probable Russian invasion of Ukraine, the timetable is under siege. On Friday, the S&P 500 fell 31.39 points to 4348.87. The Dow dropped 2323.85 points to 34079.18, and the Nasdaq declined 168.65 points to close at 13548.07. The stock market declines were broad-based with 10 of 11 sectors of the S&P 500 pulling back. The technology sector was the worst performer. The Russell 2000, a good barometer for value stocks of smaller companies was down a modest 0.92%, or 19 points. Looking at oil, America’s largest ‘frackers’ are reporting huge profits, but plan to keep production in ‘low gear’ this year, adhering to an agreement with Wall Street, even as prices approach the $100-a-barrel mark for the first time since 2014. Presently oil is $91.07 as of Friday, 2-18-22.

High Stakes In Online Betting….Sportsbetting has spread to 30 states and may come to others. Gambling companies are spending hundreds of millions of dollars to lure potential betters, with give-away-deals. Bookmakers have always been busy on Super Bowl Sunday, but this year was a bonanza like never before. Betters were on track to wager $7.6 billion on the game, up 78% from last year, and it is not because ‘the office pool is getting bigger.’ In the four years that it has been legal, both the amount of money bet on sports and the amount counted as revenue by gambling companies have risen nearly 1,000% to $57 billion and $4.3 billion, respectively, according to the American Gaming Association or AGA. In New Jersey alone, which led the way in allowing sports betting, $10.9 billion was wagered in 2021, a staggering amount. That’s $1,200 for every man woman and child in the state. Yet the business is still in its infancy in the U.S., as a handful of companies fight for position, flooding newly opened states with massive ad campaigns to ‘lure’ customers. DraftKings, MGM Resorts International, Flutter Entertainment’s FanDuel, and Caesar’s Entertainment have collectively grabbed 80% market share, according to MoffettNathanson. Two others are also in the mix, Penn National Gaming and Bally’s. Analyst Robert Fishman, of MoffettNathanson, likens the opportunity to the early days of movie streaming, with one crucial difference: Each state has become its own extremely competitive market. “We are still in the very early stages of this war,” he writes. Gambling companies spent $725 million on television ads in 2021, three times as much as on cereal ads, according to Nielsen. Such levels of spending, in addition to give-aways to bettors, mean that these companies could report losses for years to come until a consolidation narrows the field. DraftKings has said that online sports betting could be a $22 billion to $36 billion market when it matures up from around $4 billion today. Gambling is taking off at a moment when speculation of all sorts has boomed, fueled by pandemic ‘boredom’ and the easy-access apps. Sports betting launched first in Nevada, but the modern era really began in New Jersey in 2011 when the Department of Justice gave its OK, though Federal law prohibited sports betting. That changed in 2018 when New Jersey won a Supreme Court case that allowed states to decide whether they wanted sports betting or not…..that opened the ‘flood-gates.’


Tim Duy, chief U.S. at SGH Macro Advisors, WSJ “The Fed is deeply behind the curve on inflation. There is no other story at this point.”

Brian Sack, he ran the New York Fed’s markets desk from 2008 to 2012 and is now director of economics at hedge-fund firm D.E. Shaw, WSJ “Ideally the Fed would come out and exert control of the policy message, including by saying it will raise rates in a fashion that doesn’t inflame fears of an emergency,” said Mr. Sack.

Scott Minerd, chief investment officer at the investment firm Guggenheim Partners, WSJ “There are people who are living in a world in which an aggressive Fed tightening-an increasing possibility here is not the outcome they can accept, so they’re pretending it won’t happen,” said Mr. Minerd. “The places where that’s very real-cryptocurrency, tech-related companies in private equity-could be in deep trouble.”

Dolf van den Brink, CEO of Heineken, on a quarterly earnings call, Barron’s “I’ve never seen anything like it, not even close…. There’s no model that can handle this kind of inflation.”

THE NUMBERS… – Barron’s

$108B – Private-equity mergers and acquisitions hit a record level in China last year, as overall M&A slowed.

40.5% – Increase in the price of used cars in the past year

136 – The U.N.’s Food Price Index in January

36 – Number of battery gigafactories currently under development across the U.K. and Europe, only one of which is Tesla’s.