Inflation & Sanctions Tighten – by Justin Vaughn

(Justin Vaughn, Editor, Options Trading Report)

Russia’s war of destruction in Ukraine has disrupted and curtailed many ‘grain’ products from one of the world’s top grain-exporting regions, pushing up prices for wheat and corn. The loss in exports from the Black Sea region has pushed wheat prices up about 40% this year. Other big crop-producing countries, such as South America, are also affecting the supply shortage. Worldwide demand remains strong for food, fuel made from grains, and livestock feed, industry analysts said. Grain traders are experiencing tremendous production pressures in directing the flow of corn, wheat, soybeans, and other food commodities around the world, as closed higher prices have fattened the bottom line of producers. “These market disruptions are rerouting many traditional trade flows and contributing to crop price inflation,” Bunge Chief Executive Greg Heckman said on a call with analysts. “Industry markets spiked globally due to the combination of continued strong demand and an even tighter supply outlook,” he said. As food commodities soar and inflation creeps up, the consumer bears the brunt.

As stocks crept higher mid-week, gaining back some of their losses Monday and Tuesday, investors showed renewed optimism, after a string of positive earnings reports. Investors said they saw the moves higher as temporary relief. Nearly 80% of S&P 500 companies that have reported earnings so far have beat analysts’ estimates according to FactSet data. Seema Shah, chief strategist at Principal Global Investors sees the next moves in the stock market as either sideways or down. Earnings are “supporting the market to some extent, but I don’t think it’s enough to support it higher,” Ms. Shah said. She said her team has moved to a natural recommendation on their overall equity positions. “The risks are just piling up,” she said. “We don’t want to be picking up pennies in front of the steamroller.” All markets closed lower on Friday. The Dow Jones Industrial Average was off 2.47% for the week at 32927.21, and down 4.9% % for the month. The S&P 500 dropped 8.27%, finishing the week at 4131.93, and down 8.8% for the month. The Nasdaq Composite finished the week off 3.98% to 12334.64, and dropped 13.3% for the month, as the tech-heavy index suffered the worst of the indices.

Putin’s girlfriend and mother of his three children have so far avoided all sanctions. Our State Department has been very timid to even discuss her non-sanction status, but she continues to be untouchable. Since Putin’s invasion of Ukraine, she has been living in a well-guarded estate in Switzerland with her children. She has several affiliations with many organizations in Russia and throughout Europe, with a substantial income, most of which is derived from the West. It seems our brain-trusts in Washington are ‘scared’ to invoke any sanctions in fear that Putin will retaliate with more force in Ukraine. So the standoff continues and Ms. Kabaeva gets a free ride.


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Nicholas Colas, Co-founder of Datatiek, Barron’s “Markets discount three things. Earnings and rates, of course. But the third is conviction about those inputs,” he says. “It’s a fancy way of saying (the) markets hate uncertainty. We’ve already got a fair amount of uncertainty, but can we really know if the 10-year (yield), stops at 3% or goes to 4%? No one knows. Not investors. Not the Fed.”

Doug Ramsey, Leuthold’s chief investment officer, in the firm’s April report, known to Wall Street as the Green Book, Barron’s “If history repeats, this summer should be uncomfortable for equity bulls. Stock markets’ valuations still look extremely high and the Fed has just begun to tighten. But the cycles say an ideal window for a major low is already about to open. Just don’t jump through it too soon.”

Zoltan Pozsar, Credit Suisse’s widely followed interest-rate strategist in a research note, Barron’s “The central banks’ problem is that they cannot print oil to heat or wheat to eat or large tankers to transport oil,” points out Mr. Pozsar. “That limits their ability to bring about price stability and, ultimately, their credibility,” he concludes.

Hani Redha, a portfolio manager at PineBridge Investments, WSJ “We had a beautiful scenario over the last 18 months. Growth was accelerating and bond yields were falling–the perfect combination for risk assets,” said Hani. “Now we have the complete opposite.”

THE NUMBERS – Barron’s

$193B – March level of prime money-market funds in the Americas, up from $146 billion in February.

72% – Decline in global IPO volumes from a year earlier, to $67.2 billion so far in 2022.

3.9M – Decline in barrels of U.S. gasoline stocks in April’s third week, a result of rising demand as the weather warms up.

58% – Percentage of the U.S. public that has been infected by Covid, including 75% of younger children