Russia shoots itself in the foot (economically)
Could there be any doubt in the bowels of the Fed building that price inflation is actually not ‘transitory’ but deeply entrenched and getting deeper as energy prices (and also metals and ags) surge?
Back when the Fed first commented on inflation, most experienced traders knew then that the ‘transitory’ adverb was just a cover for a finger-crossing exercise as they saw crude prices were working higher. More astute observers also saw that the Net Zero-enthralled West were in a major bind with no new supplies possible as their governments had declared War on Fossil.
Now, with US crude at my long-held $114 target we are seeing the very same stagflation (price inflation and stagnant economy) that I personally saw after the famous oil price shocks of the 1970s.
I recall before the first shock that I filled up my US car tank with gas at 23 cents a gallon (there were gas wars back then and had I change out of a $5 bill) – equivalent to about 5p a litre today. Eat your hearts out, drivers! With petrol today at £1.50 a litre, that is an inflation rate of 3,000 pc. Now that’s what I call real inflation.
And that hit the UK (and US) economy hard. And it lead straight to record high UK Bank Rates rates of over 15% to try to defend sterling thus crippling the housing market. I believe we will see a repeat of the latter soon.
And guess what – inflation is likely to go a lot higher (unless Russia can somehow skirt the sanctions).
Adding to economic woes, now the ludicrous Carbon Emissions market has completely broken down as I have been warning
That massive 50% collapse in just four weeks heralds a severe slowdown in global economies this year – and a front-running collapse of shares. The EV revolution is no more. You should keep your ICE cars!
The bad economic news will follow a little later.
Don’t you just love the MSM?
I saw one of the unintentionally funniest headlines in the MSM from a well-known author last week: Hargreaves Lansdown’s shares have slumped but its growth prospects are strong. In other words, I lost you money by getting you in at the top but too ashamed to admit it.
And here is another beauty I spotted yesterday: Technology shares have nosedived – is it time to cash out? The US Fang Index is currently down 25% and in what many qualify as a bear market – the MSM have noticed!
As you know one of my favourite pastimes is to scan the MSM financial headlines – not for sage advice but for amusement and to likely trigger an entirely contrary view.
In the first case, the fact that the shares are down indicates its growth prospects are anything but strong. That’s the message the markets always tell. If shares are down, investors on balance believe growth is not strong. Now that’s a real 100% contrarian stance from the conventional.
In the second one when I see this headline with a strong action indicated, I am tempted to buy technology (but not for long). A ‘sell’ note in a MSM headline is a rare event indeed and is well noted. I believe we shall see more of them this year.
In fact, I am sure it is possible to form a trading/investing system based just on getting am accurate reading of the financial headlines across the MSM and do the opposite of what is suggested. But it may not work in bear markets.
In most cases, the authors are regurgitating what all the others are saying – a true herd – and that consensus takes time to form. A bear trend must be pretty obvious before such a bearish view can be expressed in public – and that is rare enough. Most are perma-bulls and staying fully invested is their default position.
Safety in numbers is their mantra. It makes perfect sense as going against the herd is a job-threatening position. If they are wrong, all of the others can pounce on him/her (on Twitter, obviously) and kick him out of the club.
If correct (rare), they pat themselves on the back and relish in the ‘I told you so’ meme.
But I digress… and stocks rallied off the hugely oversold 24 February lows despite the Ukraine war intensifying and Russia sanctions biting hard down on the Russian economy – and ours. Adding to woes, ag prices such as Wheat have reached levels last seen in 2008 (and then only briefly). As I have been describing the ag markets for members of my VIP Traders Club that we are in historic times in agriculture and I wish I were a farmer enjoying these prices.
Of course, with Russia as the world’s leading Wheat exporter (with Ukraine high up that list) – their production is essentially frozen since what state would dare buy from the pariah Russia with everyone else seemingly behind the West’s hard sanctions policy.
But all it would take to burst the bubble would be for a nation to defy the ban and bypass the sanctions to feed its people (Egypt is one such suspect). What starving nation could resist the temptation to buy from Russia’s backdoor if offered a juicy discount?
A likely scenario is the the West will eventually allow Russian exports to alleviate the inflation pain on their citizens – and when word leaks out (before an official press release), prices will tumble. I am taking profits on the way up ahead of this possibility.
Not only that, but with record high prices, every Wheat farmer on the planet is being encouraged to plant fence post to fence post this season in the Northern hemisphere. Down under, Australia is reported to be harvesting a record crop in excellent condition about now. So supplies are likely to balloon (weather permitting) this year – and when the market turns, it will turn violently in a typical sharp spike – see chart
That’s not to say this will happen anytime soon – the sanctions have had a very short life so far and Russia is still digging its own hole financially speaking.
We could see a decent pull-back from around here and then one more lunge to new highs later in the year That is another possibility.
Note the similarity to the previous moonshot in 2008 – an exponential spike and then hard down.
Of course, many traders will be so full of starry-eyed visions of even larger profits that they will hold during the next slide egged on by the masses of bullish articles that always appear at major tops. For most, a bull run causes them to become even more bullish and are manically so at major tops. A good trader resists that urge and will look for sensible places to take part (or all) profits and bank them. For a trader, there is nothing like having money in the bank.
What is fascinating here is that the commercial trade in Wheat is quite heavily short (COT data) and must be suffering unimaginable losses. And hedge funds are not massively long as you would expect. For an example of how large hedge funds/banks can get it all wrong here is the mammoth US bank Citi taking a hammering on a short oil trade
Ouch! Maybe we should all be grateful my VIP Traders Club members have got that trade right – in fact, very right as we have been holding long positions for some time.
But Wheat is not the only market that is a beneficiary of the Russian invasion of Ukraine. Base metals, much of which originates from Russian mines, are booming. Here is zinc:
Interestingly, it has appreciated by 120% off the Corona Crash low two years ago – the very same percentage that the benchmark S&P 500 index has achieved to its recent ATH! How about that?
But I hear you cry -who trades Zinc except for the guys down in the bowels of the London Metal Exchange (the leading global market for base metals)?
And that is the point – with such a great history of making major moves, maybe we all should be trading these obscure markets (obscure for UK traders, that is). VIP Traders Club members certainly are.
In reality, a market is a market. In other words, does it really matter what name lies on the chart’s heading? A common mistake for retail traders is that it very much does. They focus on one or a select few markets and ignore other profit-making opportunities in more obscure markets such as Wheat or Zinc. They mistakenly believe they ‘understand’ the Dow or the FTSE or GBP and haven’t a clue about Wheat or Zinc.
Anyone who has studied a wide variety of price charts must notice that the same patterns pop up time and time again in all charts. After a while, it becomes difficult to distinguish between a Zinc chart and a Dow chart. That is because the very same forces work on all publicly traded markets – the sentiment/mood swings of the participants.
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Markets are rapidly on the move and traders must be on high alert for sudden reversals. Hedge Fund algos that read the headlines before you do are swinging markets one way then another. Accurately timing when to get in and when to get out is a rare skill. Most cannot do it – and that is because they do not have the right tools and the right experience with them. If you feel you need help in better timing your trades with the help of my unique Tramline Trading system- and getting the direction right – then join my VIP Traders Club where we trade stock indexes, currencies and the super-hot commodities. Join us here.
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Do women exist?
I rarely comment on women’s fashion trends but from this year’s major fashion shows, I believe we have some pointers for the stock market and global economies.
Recall the well-known Hemline Effect first proposed a hundred years ago around the time of the Great Depression? When skirt lengths (remember those?) were high, stocks advanced. When the skirts were longer, stocks declined. That was the theory.
So historically, female fashion trends have been noted by stock analysts – and I propose to revive the connection for today’s major trends in stocks and the economy.
This year’s shows have marked a clear departure from the norm. Male catwalk models have been used extensively (in women’s clothes) and those clothes are marked by heavy long length shrouds.
One writer describes this as The Week That Fashion Cancelled Women.
I have long suspected that the high fashion industry existed only to make women (of the female variety) as ugly as possible in their misogynist zeal – here is just one example from Milan
With the current trend towards ‘inclusiveness’ and the confusion among the young about gender, this is the perfect moment in history that matches the confusion among investors. Is this a dip to buy or one to sell? Confusion reigns.
If the latest flow of funds data is anything to go by then they have been filling their boots in the decline off the November/January highs. Last week saw an all-time record inflow to the US exchanges as investors truly bought the dip. A glance at the above photo with the floor-length garment should give them pause.
Last week, institutional investors built up a record long position in S&P futures (COT data) – while commercials held a 13-year record short position. My money is on the latter.
We have started a major third wave down with much fuel to be provided by the recent buyers who will turn into very willing sellers. It will reach lows unimaginable to most investors today.
My wrong-way bet – the Dollar
Last week, Gold, the Dollar, T-Bonds were all bid much higher. I had believed the Dollar was making a major top, but it spiked higher on Friday and the Euro collapsed in a heap.
That was certainly contra to the popular theory that when the Dollar advances, Gold suffers. Not so. They were all bid up together as traders sought traditional ‘safe havens’ as they also bid up the Yen.
But do I see a final capitulation in the Euro about now? And easing the pain of that wrong bet, we have been bullish Gold for some time. Trading at $1975 it is only $100 away from the $2,070 ATH set in August 2020. Hmm.