Waiting on the World to Change

 

Sit back and grab a bottle of wine, or if you’re reading this at the office a very large cup of coffee. This week I really pulled a few threads and found myself learning a ton. Things are still mostly about Russia and inflation. I want to highlight again, in case this is your first time finding this, I abhor the situation in the Ukraine and I wish there's is more that I could do to help, but my focus here is to explain how it's impacting financial markets. As the title suggests, we're all waiting on the world to change, for war to end. 

As I’ll show below, commodities across the board are just ripping, especially those with ties to Russia. Equities were off a bit because of all this, but not as much as one might expect. The West is attempting to slow down Putin’s push in Ukraine by tightening sanctions on him, his cronies, and Russia. Anyone and everyone is scattering away from ties with Russia like a child with cooties. BP pulled out of a deal with Rosneft. Equinor, Shell, and ExxonMobil just walked away from their Russian assets. MSCI and FTSE Russell, an LSEG subsidiary, dropped Russian equities out of their indices. Russian related stocks were halted, the Van Eck and iShares ETFs as well. Below I’ll cover some of the slivers of good news coming out of this situation, but like last week most of the links will be related to Russia or the impacts this war is having on global markets.

Let’s take a look at what happened in major assets last week. This week I added more on commodities and a look at volatility assets.

The VIX is climbing a wall of worry, even though it’s muted compared to many of the other major assets. 

All eyes will continue to be on eastern Europe this week. It's impacting almost every market in some shape or form. Also of note will be the US CPI reading.  The Reuters poll is showing this to be expected as about 7.9% with a max estimate of 8.1%. The Core number is expected to be north of 6%. UK and Japan GDP numbers are out this week too. As you'll see below, we've come off the bulk of earnings reports, so Economic numbers and Geopolitical events seem to be driving markets. 

Earnings Watch

Last Week

I didn’t do so well picking names last week. BJ’s beat but didn’t do so well and Canfor didn’t do much of anything. Three names that did shine were Target, Kroger, and Best Buy. Target had a solid beat on the bottom line and opened up 13.5%. That came in a bit during the day, but the stock closed the week up more than 12%. That’s a solid report. Kroger smashed the bottom line and ended the week up 19%, and Best Buy had a small beat but seems to catch traders fancy. I didn’t have time to dive into the details here. Three names that had a rough week were Snowflake, Sea Ltd, and Lucid. They were down 21%, 33%, and 22% respectively after terrible earnings’ calls.

This Week

There’s not much to love this week. Oracle and JD.com standout from a size perspective. Rivian should be messy. Estimates are down recently and Starmine Predicted Surprise is -6.7%. Another EV maker out of China, Xpeng, has a -8.8% Predicted Surprise. EPS estimates are down almost 30% in the last month and it’s coming off a rough week, dropping more than 15%. Also keep an eye on German footwear maker, Adidas, which also has a big miss predicted, at 14.6%. It’s had two rough weeks in a row.

Best of the Week

Dr. Malmgren is always someone I want to listen to. The host shared some personal conversations with a few people that thought WW3 had already started a while ago. Dr. Malmgren wrote about this like six months ago. She defined this as a hot war in cold places like space, the deep arctic ocean, and Africa. Africa is hot, but she says the media gives it the cold shoulder. This war is more in cyber and remote realms and does not have mass worldwide casualties like WWI and WWII. She explains some of the nuances of Putin’s push and situation beyond the Ukraine. The main point I took from this was that the West might have to come to the table to talk to de escalate, because they are probably more aligned than ever. If you want to learn more about geopolitics, this is a must listen. Check out her blog here.
Dr. Pippa Malmgren: WWIII Has Already Started - Listening time: 79 minutes

Best of the Rest

Do you need help understanding what the heck is happening and what it might mean for markets? Luke Gromen is your guy. This talks about what the grand strategy is for Putin and even Xi in China. Luke thinks Putin is essentially launching an attack on the Dollar. He thinks, if China provides small support in buying some oil from them, Russia may succeed. According to him, it may only be weeks unless politicians are able to de-escalate. Similar story to what Pippa said above. Luke thinks it’s a strong possibility that Russia moves everything into Gold, which could push it much higher. Below you can see Gold trading sideways for about a year, but it’s up 10% in the last month. Who’s to say that the 2019/2020 move wasn’t buying from Russia?
A Macro take on Russia’s Gambit, Oil, Gold, Bitcoin and more with Luke Gromen - Listening time: 65 minutes

Staying on this subject of Russia, Ian Bremmer touched on something I’ve heard a few others say. Putin may take the Ukraine, but he might have unified the rest of Europe. As we’ll see in a couple of links below, Germany is now looking to increase spending on an old military and move more quickly towards more renewable energy. This has also made Americans on the side of red and blue stop and realize how little differences they actually have. Many people and businesses have been wary of doing business or investing in Russia, because it could all be gone in the snap of a finger, Mr. Putin’s to be specific. Now, that’s going to be an even bigger hurdle.
Putin may win the battle for Ukraine, but he has already lost the war

Less than half of German assets are operational according to this report. With Russia’s aggression and instability in the region, word is they may be looking to improve that.
The German Military Is Woefully Unprepared For Action

When such a large percentage of your energy comes from an unstable country, you may need to speed up the process of moving away from that. This article talks about the German government’s first steps towards being green by 2035. Part of this is removing some restrictions. The one thing I didn’t love here was them saying longer term nuclear is unlikely. Below, I looked at some renewable equity names around the globe over the last week. Volume for most was up big and the bigger names look to have found some buyers.
100% green power by 2035 – high hopes for Germany's next renewables reform

Jamie Catherwood is a member of the new kids on the block for finance. He’s found himself a nice specialty and is mentored by one of the best on Wall St. This interview with Jamie goes through how he found himself where he is now, which is a fabulous story, and then he goes into some of the topics he discusses on his blog. I loved this chat, but I like most of everything Jamie produces. If you’re a history fan, this is a great listen. Most interesting point made is when Jamie challenges the Tulip Bubble. He’s not sure it even really happened.
The History of Bubbles, Mania & Fraud w/ Jamie Catherwood - Listening time: 57 minutes

Reuters put some work in on Russian debt. The country has $640B in reserves, but they’re locked up due to sanctions. Russia has never defaulted on sovereign hard currency debt, but Starmine models show more than a 96% chance of it happening in the next year. CDS spreads are out of this world for the next few years.
Analysis: Ukraine war raises spectre of Russia's first external debt default

This article attempts to answer whether crypto is good or bad during this time of crisis. On one hand, aid is able to quickly get to those in need in the Ukraine. Also, Russian oligarchs are able to circumvent sanctions. Let’s focus on the good. Ukrainian citizens are moving fast to get away from this. The country’s central bank has suspended electronic transfers and withdrawing foreign currency, so citizens are trading on the crypto platform Kuna. There they can leave and log in from anywhere to convert to whatever currency they need. The challenge though is that citizens need to unfreeze assets to buy the crypto assets. Luckily, Ukraine ranks fourth in terms of crypto adoption.
War in the time of crypto

About 1.5B RUB in BTC volume traded on Thursday. According to Kaiko, most of this was on Binance. Ukrainian volumes spiked as well, but not to the same extent. Kaiko also noted that stable coin Tether denominated in Ruble and Hryvnia also spiked. 
Ruble-Denominated Bitcoin Volume Surges to 9-Month High

Here’s a benefit of crypto. The wallet received over $33M in crypto and this specific NFT is worth $220-250k and is a very creative way to donate.
Someone just donated CryptoPunk #5364 to the #Ethereum wallet of the Ukrainian government

As mentioned in the open, many investors are looking to get out of Russian holdings. There’s been a huge vacuum of liquidity in Russian equities and tons of volatility too. The local Russian markets were closed, so many looking to move around risk were trading Russian ADR, GDRs, and ETFs in the US and other European markets. The first chart is Russian domiciled equities trading in Europe. Most of the volume prints in the UK. The second chart shows even after the Russian market closed, the ETFs and other listing allowed for trading.
Public Pensions Want to Divest From Russia. But Can They?

Quick chart from Pictet Asset Management, via the Sober Look via Jesse Felder. This one is a bit ominous. When the Brent oil prices deviate from trend, basically get super overpriced, the US goes into a recession.

Will Energy cause a US recession before the Fed?

Callum always puts out one or two charts per week that completely surprise me. This was a good one. OAS spreads are not reacting as negatively as the MOVE index.

The Weekly ChartStorm - 6 March 2022

One for the Road

In this one, Ben shows just how far off we can be when trying to predict the future. He shares an letter to President G.W. Bush that shows how things changes in history. He also notes that even when looking back it can be hard. Look at the Dutch tulip mania, which Ben highlights, Jamie questions whether it even happened. I mean look at how different this world is from a month ago. 

Predicting the Future is Hard

Thanks for reading. Have a safe week.

Michael