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UKRAINE WORRIES SINK STOCKS. REALLY?
It’s been the mainstream narrative. Equities across the globe have been sinking as concerns mounted over Russia’s pending war with Ukraine… a fear that has intensified as Russia moves troops into the Russian separatist eastern Ukraine.
Why is this happening, what does it mean and what’s next has been detailed in previous Trends Journal and in this week’s “SPECIAL UKRAINE REPORT.” And unlike the mainstream media that parrots government lies (remember Saddam Hussein and the weapons of mass destruction propaganda?), we tell it like it is.
Yes, while tensions have destabilized equities, and now with more sanctions being imposed on Russia, such as Germany’s cancelling the certification process of the Russia-backed Nord Stream 2 pipeline project as the standoff between Russia and Ukraine over the Donbass regions intensifies, it will drive up natural gas prices in Europe.
“German Chancellor Olaf Scholz ordered to stop the certification of the Nord Stream 2 gas pipeline. Well, welcome to the new world, in which Europeans will soon pay €2,000 per thousand cubic meters of gas!”, tweeted Dmitry Medvedev, the former Russian president and now deputy chairman of the Security Council.
Inflation and Interest Rates
“It’s the economy, stupid,” not just the Russian/Ukraine/U.S./NATO conflict… which will drive up natural gas prices.
And with new sanctions now being threatened to be imposed by the EU and U.S. on Russia, it will increase and prolong inflation: Russia is a major exporter of oil, natural gas, and wheat, as well as aluminum and other metals, thus there will be shrinking global supplies of essential minerals and materials.
There has been the growing fear that the higher inflation rises, the faster and higher interest rates will rise, and the money junkies won’t get all the cheap monetary methadone that the central banksters have pumped into equities and economies to keep them high since the COVID War began two years ago.
Look at the facts. U.S. equities were sharply falling most of January because of one fear, and one fear only… and it was not because “The Russians are coming, the Russians are coming.” It was about the fear of rising interest rates which we have greatly detailed in previous Trends Journals.
In this year’s first week of trading, the Dow Jones Industrial Average lost 0.3 percent, the Standard & Poor’s 500 Index gave up 1.9 percent, and the NASDAQ shed 4.5 percent, its worst week since February 2020 and its worst entry to a new year since 2015… it had nothing to do with the Russians!
The S&P 500 fell 5.3 percent in January, its biggest monthly drop since the COVID War began to rage in March 2020. The tech-heavy Nasdaq fell nearly 9 percent, while the small-cap Russell 2000 slumped 20 percent from its November record high, falling into bear territory… and it had zip to do with the Russian Bear.
“It’s the economy, stupid.” It’s all about the beginning of the end of the cheap money flow.
Again, remember the decade-long U.S. and EU Banksters bullshit that when inflation hit above 2 percent, that would signal the need to raise interest rates?
With America’s consumer price index hitting 7 percent in 2021, the largest 12-month gain since 1982, and the EU Euro area annual inflation up to 5.0 percent… neither have pushed up rates – not one rate hike – and they get away with it. And in the U.S., inflation sped unchecked to 7.5 percent in January, a 40-year record clip.
But again, the Fed Head crap that inflation was temporary and then transitory is also not in the news… all that’s making the headline is Ukraine/Russia.
Last Week
The three major U.S. stock indexes ended last week lower. The Dow Jones Industrial Average retreated 1.9 percent, the NASDAQ 1.8 percent, and the Standard and Poor’s 500 1.6 percent, running up the S&P’s loss this year to 8.8 percent, nearing the 10-percent decline that would signal a correction is under way.
Ten of the S&P’s 11 sectors sank on Friday. Tech shares fell hardest, down 1.1 percent. Only consumer staples companies gained, eking out a 0.1-percent gain.
Also, the U.S. Federal Reserve’s pace of looming interest rate hikes remains unclear as inflation sped unchecked to 7.5 percent in January, a 40-year record clip.
Abroad, Europe’s Stoxx 600 lost 0.8 percent Friday and the Nikkei 225 dropped 0.4 percent.
China’s Shanghai Composite index added 0.7 percent, while the Hang Seng index in Hong Kong gave up 1.9 percent, pushed down by Meituan’s 15-percent plunge after China’s government said food delivery services should reduce fees they charge merchants.
U.S. markets were closed for President’s Day.
Today
Equities fell across Asia today, with the Hang Seng slumping 2.96 percent over fears of Ukraine tensions worsening, and of course the bottom line… rising oil prices.
In the U.S., the Dow fell for its fourth straight session, falling 482 points, while the S&P 500 and Nasdaq fell 1 percent and 1.2 percent respectively.
Again, according to the business media, the equity declines are not about the expectation of rising interest rates and the ending of the cheap money flow… it’s only about Russia.
Yet, as the headline in today’s Wall Street Journal tells it; “Fed Official Open to Half-Point Rise”
The WSJ goes on to note that yesterday that Federal Reserve governor Michelle Bowman was open in her belief that Feds should push interest rates up a half-percentage-point at their meeting in March.
They said “Ms. Bowman expects “uncomfortably high inflation” will persist through the middle of this year and there is a risk that high inflation would continue to persist.
Up or Down?
Last week, some Federal officials dismissed speculation that the central bank will raise its key interest rate by half a percentage point when it meets next month.
“There’s really no kind of compelling argument that you have to be faster right in the beginning” of a cycle of rate increases, John Williams, president of the Federal Reserve Bank of New York and a close advisor to Fed chair Jerome Powell, said in an 18 February press briefing.
“There’s no need to do something ‘extra’ at the beginning of the process,” he added. “We can steadily move up interest rates and reassess,” although he did acknowledge that inflation is “far too high.”
In recent days, several Fed officials have voiced the view that the bank will raise interest rates by the usual quarter point but may bump the rates more often, perhaps even between their bimonthly meetings.
“With today’s strong economy and inflation that is well above our 2-percent longer-run goal, it is time to begin the process of steadily moving [interest rates] back to more normal levels,” Williams said last week at an event at New Jersey City University.
Speculation about a half-point rate hike was triggered earlier this month when James Bullard, president of the Federal Reserve Bank of St. Louis, suggested in a Bloomberg interview that the Fed could move rates by that much next month (“Interest Rate Hikes Coming, the Worst is Yet to Come,” 15 Feb 2022).
“We are going to have to be far more nimble and far more reactive to data,” Bullard said.
Bullard also called for the Fed’s key interest rate to be one full point higher by July, a view he repeated at a 17 February event at New York University, and said that interest rates might have to rise above 2 percent if rate pressures are to slow inflation to the Fed’s 2-percent target rate.
“We’re not in a position to do that right now, but we have to get into a position to do that” if inflation fails to moderate as hoped, he said.
Bullard’s colleagues on the Fed’s rate-setting Open Market Committee have set 2.5 percent as the target interest rate in the long term, according to their median projections at December’s meeting.
Loretta Mester, president of the Cleveland Fed, said she would support raising rates faster, perhaps beginning this summer, if inflation does not ease as rates rise.
She spoke to a gathering at New York University’s Stern Center for Global Economy and Business.
The Fed also faces a decision about when and how quickly to sell its $9 trillion in bonds in a way that does not tank bond prices, the WSJ noted.
The central bank should start “steadily and predictably” selling its bond holdings later this year, Williams said, while Bullard advocates starting to pare back the Fed’s holdings in the second quarter.
Fed officials are debating whether to sell the bank’s portfolio of mortgage-backed securities outright or only to stop reinvesting returns into new purchases.
The Fed has predicted that U.S. inflation will average 2.6 percent this year.
TREND FORECAST: We maintain our long-standing forecast that when the Fed raises its key rate to 1.5 percent to 2 percent… equity, mortgage, and housing markets will sharply decline.
The Ukraine conflict is a wild card that may well alter the speed and height of interest rate hikes in the U.S. and EU. For example, should Brent Crude spike well above $100 per barrel and natural gas prices continue to rise, it will further increase inflation and push the central banks to raise interest rates.
Overall, should military tensions increase in Ukraine, it will be business as usual for the rest of the world.
However, should military conflict spread beyond its borders and continue to extend into Russia and eastern Europe, it will be a warning shot heard around the world that will rattle markets and economies. And, if it is not contained, it may well accelerate into WWIII… the beginning of the end of life on Earth.
GOLD/SILVER: As we have said for decades, gold and silver are the ultimate safe-haven assets. With Ukraine war-talk heightening, oil prices rising, gold prices hit an eight-month high and silver rose to a four-week high. Gold rose 0.13 percent today closing at $1,903 per ounce and silver edged up 0.74 percent to close at $24.17 per ounce.
TREND FORECAST: While gold and silver prices have spiked as a result of Ukraine war tensions, should they increase, precious metals prices will continue to rise. If tensions decrease, prices will move lower.
What will also drive precious metal prices down is rapidly rising interest rates, since interest rate hikes raise the opportunity cost of holding non-yielding bullion.
And as we note, but the media ignores, it will cost Washington much more to service the $30 trillion U.S. debt burden… which will in turn also put downward pressure on the U.S. dollar and push safe-haven assets such as gold, silver and bitcoin higher.
And beyond government debt, the higher interest rates rise, the heavier the business and personal debt loads grow. Thus, the higher the levels of defaults, the deeper the economy falls. And the deeper it falls, the higher safe-haven assets will rise.
Again, as we note in this and previous Trends Journals, global economies have been artificially inflated with years of cheap money. Therefore, when the cheap money flow dries up, most economies will sink into recession and depressions.
OIL: With Russia being the largest supplier of natural gas and oil to the European Union, and now Russia-backed Nord Stream 2 pipeline project halted, Brent Crude nearly hit $100 per barrel today and West Texas Intermediate spiked 3 percent to hit $96 per barrel.
Still up, but down from their highs, today, Brent Crude was up 1.04 percent to close at $96.39 per barrel and WTI moved up 1.32 percent, closing at $92.27 per barrel.
TREND FORECAST: Should the United States strike an anti-nuclear deal with Iran and permit their oil to again hit the market, it will make up for some of the lost Russian crude, thus potentially easing rising price pressures.
Overall, however, we maintain our forecast, with oil prices up over 17 percent since the start of the year, should Brent Crude passes the psychological $100-a-barrel milestone and continues to climb, it will spike inflation, thus forcing central banks to radically raise interest rates to fight it… which will sharply drive down equity markets and economies as money becomes too expensive to borrow and the cost of servicing debt increases.
We also noted that should Brent Crude hit $110 a barrel, inflation in the United States would exceed 10 percent on a year-over-year basis, according to RMS, as reported by CNN.
BITCOIN: Go back to Super Bowl Sunday. Crypto ads flooded the advertising airwaves. The message was clear. Cryptocurrencies were the wave of the future, and you had to be in it to win it.
For a short time they worked. Shortly following the massive Super Bowl cryptocurrency advertising campaign, Bitcoin climbed more than 4 percent to $44,115 per coin.
What a difference nine days makes. As we go to press, bitcoin is at $37,846 per coin and dropped as low as $36,370…. which is still high considering the price per coin started at a fraction of a penny to $0.09 some 12 years ago.
Today, across the digital currency spectrum, prices are on a down-trend.
Why?
According to the mainstream business media, it’s because of the Ukraine crisis: “Analysts attributed the drop to escalating tensions over the Russia-Ukraine crisis. Russian President Vladimir Putin on Monday ordered troops into two breakaway regions in eastern Ukraine, moments after declaring them as independent,” contends CNBC.
We disagree. Crypto players are not geopolitically focused and more importantly, are not members of the establishment club. On the contrary, they are outside the system and they buy their currencies to stay outside the system.
And in these times of high market volatility…. where to invest and what to do? Check out Gregory Mannarino’s article in this issue, “The Power of a Balanced Hedged Portfolio.”
TREND FORECAST: As we have continually noted, precious metals remain the predominant safe-haven assets and will not be replaced by cryptocurrencies for the foreseeable future. That is, of course, until what is left of “humanity” enters into the “Metaworld”… one of our “Top Trends for 2022.”
In the meantime, we maintain our forecast that bitcoin will find strength to hit new highs when it breaks above $55,500 per coin. We had also forecast, the downward breakout point would be hit should prices fall below $25,000 per coin. If they go that low, bitcoin could well fall back to the $10,000 range.
As we have been noting for over five years, a major factor in forecasting the future price of bitcoin and other crypto currencies is dependent upon government regulations.
(For more crypto trends and forecasts, please see our TRENDS IN CRYPTOS section.)