Oil works as a load and correlates historically well with recessions. Gina Sanchez claimed that the stock market has largely priced FED increases. I usually agree, but doubt because Saudi has the key to the oil price. They say that Helena or Troy is the face that launched a thousand ships. Well, the question “have we already reached the bottom?” has launched a thousand articles. Or at least it feels.
Sometimes people are in the habit of making things too complicated, so let’s try to bring this back to the base here. We have a few factors in the game, which make the current economic situation relatively unique (I have given up the use of the expression “unprecedented times”, after every news anchor used it daily during the pandemic).
Let’s keep it short. Russia invades Ukraine, is still something I have difficulty with – a war in Europe in 2022? It is heartbreaking and sad and should not happen, but it also makes it impossible to predict what will happen in the markets afterwards.
The domino effect in terms of economic sanctions, possible further Russian aggression and external effects on the raw materials and oil markets have pulled the markets down. But how should a child predict on a laptop what Putin is going to do now?
The reality is that nobody knows. Is there a chance that he will withdraw sooner than expected and that all the aforementioned factors can be “repaired” in a magical way? Unlikely, but I think it is possible. But again, we are now more than 100 days in this tragedy without any sign of postponing, and it could easily go the other way. Ipostocksplanner.com for more information. Markets are therefore volatile and nervous, and for the time being I assume that nothing will change here.
FED increases interest and inflation
It is the world of Jerome Powell, and we all live in it. Or at least, that’s how it feels. The much -discussed FED chairman can move markets with one word, and at the moment the size of the expected increases is ugly, with a recession inevitable.
But that does not mean that we have not necessarily reached the bottom. The shares have plumbled faster than my respect for Kylian Mpabbé (seriously, holding your own club for ransom? Come on). We are now at a point where the S&P 500 YTD has fallen by 14% and the Nasdaq by 23%.
I thought Gina Sanchez, CEO of Chantico Global and CMO of Lido Advisors, had interesting thoughts about this when she came to CNBC this morning.
The FED is largely priced if you look at where the S&P has gone. The problem with all the stimulation measures of the FED of the past two decades is that they only recently found their way back to inflation; to the inflation of asset prices.
She also said that the average p/e ratios have fallen from 20 to 18. So it feels like we have been ingrained, especially when we look historically at how valuations have shifted in earlier recession periods. At the moment we know that the FED will increase, and this morning the news that the ECB has confirmed an increase of 25 basis points during the next month’s meeting, that only confirms that more. In the opinion of Sanchez, in the sense that we can now check potential increases as a bearish factor – the market has already responded accordingly.
On the other hand, oil is not so sure – it brings us back when predicting the Putin actions above. And while Russia continues to wage his war against Ukraine, the eyes in the oil world then go to the Saudis, who suddenly hold the key, in the midst of continuous sanctions against Russia.
Joe Biden is even planning to visit Saudi Arabia this summer to whisper sweet words in the ears of the Saudi princes, to emphasize the swamp in which we find ourselves. The effect of oil cannot be underestimated – the sky -high price has essentially adopted the form of a tax, thereby taking money out of the economy and consumer confidence is printed. Take a look at the graph below, if you are one of those visual people and do not want to hear me rattles.
If the Saudis and the OPEC+ now control the supply, the demand side has been everywhere because of China. The Zero-Covid Lockdown policy and the Great Dinforce. Jkheid of external suppliers have led to the demand side of the market moving throughout the year like a yo -yo, since they, well, have many people who need a lot of energy. The reopening of China, while oil prices are already above $ 100 per barrel, was not exactly good news for anyone who likes to drive, heats his house or loves electricity – and the last time I checked that was a substantial part of the world. So there are a number of variables that make predicting the oil market rather difficult.
The prospects (for oil prices) look terrible … The oil prices were high before China started to reopen. Then they started to open again and that started to put more pressure on the oil. We do this in a time when the supply chains were already limited because of pandemy -related labor shortages … This was a real challenge and bringing the offer online will take time.
Sanchez continues by claiming that although the stock market has already priced many negative news and that it does not see that the K/W valuations return to the 16x level that we saw before the GFC (currently 18), there may be more volatility on the Short term will be down.
I tend to agree. That brings me to the latest factor above, which you may have noticed that I left it – this concept that we have to “have” a correction. That has happened now-we no longer see Shitcoin screenshots of 1000x circulating on Twitter anymore, and NFTs no longer leave for millions of dollars every day. The foam is blown off and the sentiment is now extreme fear, that the tendency has to happen when the stock market plummets by 20%.
My feeling is that most madness is over, or that is certainly what I tell myself while I cry myself every night through the state of my wallet compared to six months ago. Of course, I agree with Sanchez, in the sense that we can see further falls when the market exceeds the “real” value, but try to predict it brings me back to what I claimed earlier – unless you have a direct line to Putin , the Saudi offices or the Chinese government, then it is and remains a foolish game.
The majority of the damage may have been caused, but for the time being I am still in stablecoins and assets with a low risk, at least a while longer until we get more clarity from the geopolitical generals.