by Louis Navellier
January 22, 2025
This is the time of year when crude oil demand is seasonally low, but oil prices have surged 10% in less than a month to $80 at one point. I do not expect oil to rise above $85 per share in the near term, but crude oil prices have risen on new sanctions imposed on Russia. The Treasury Department blacklisted about 180 ships, including around 160 oil tankers that have transported Russian crude oil, predominantly ships operated by China, India and Turkey. If you include the European Union, 270 crude oil tankers have been sanctioned for transporting Russian oil. The best we can say about these Biden-era sanctions is that they could provide President Trump with leverage for negotiating a ceasefire between Russia and Ukraine.
Toward that end, Bloomberg reported that the incoming Trump Administration is preparing a wide range of energy sanctions to facilitate a diplomatic accord between Russia and Ukraine, as well as “squeezing” Iran and Venezuela, two major crude oil producers. The sanctions against Russia will be eased if Russia agrees to a ceasefire with Ukraine, but Iran is always a complicated case, since the U.S. does not have diplomatic relations there. Chevron operates in Venezuela and the Biden Administration has put a $25 million bounty on Nicolas Maduro, who is widely believed to have stolen the last Presidential election.
Prices are rising even more rapidly for crude oil and other commodities in China, Brazil, Britain, Mexico and the euro-zone since the dollar is so strong and currencies in all those nations are depreciating relative the U.S. dollar. Since the end of September, the U.S. Dollar Index (DXY) is up almost 10%, so overseas inflation is largely currency-related and won’t impact the U.S. as much. Also, many countries, especially the euro-zone, are in the midst of a recession that is expected to envelop Britain and other trading partners.
Liquefied Natural Gas (LNG) exports are poised to surge this winter due to colder weather and to refill depleting natural gas storage facilities in Europe. Most countries that have “gone green” have had to use natural gas as a transition fuel when their green energy sources fell short. For example, Colombia now has to rely on LNG, despite the fact that it is one of Latin America’s largest natural gas producers. Colombia’s President Gustavo Petro’s transition to green energy is actually boosting their LNG imports, since the country’s green energy facilities (mostly solar) are not reliable for producing consistent electric power.
Biden Policies Put a Temporary Damper on Nvidia – That May Soon Be Lifted
AI is creating huge new energy supply demands in America, and Nvidia is a major source of AI growth, but the Biden Administration required any new natural gas power plants to sequester and capture carbon dioxide by 2032. This carbon-sequester order caused new natural gas plant construction to plummet. However, under Trump 2.0, the carbon-sequester rules are expected to be eliminated, which will allow more natural gas fired power plants to be added in the U.S. to provide more electricity for AI demand.
The Biden Administration was also angling to implement chip export controls that would restrict chip sales, making 18 U.S. allies free of restrictions and controls, while entities beyond that limit could only purchase up to 50,000 advanced graphics processing units per country. Ned Finkle, Nvidia vice president of government affairs, called these rules “unprecedented and misguided” and said they “threaten to derail innovation and economic growth worldwide.” These new rules were set to take effect 120 days from publication, which means they likely won’t take effect at all if they are reversed by Trump policies.
As if that were not disturbing enough, Bloomberg reported that there is also an industry report that AWS (Amazon Web Services), Meta and Microsoft are cutting their orders for Nvidia’s new Blackwell chip racks that go into cloud computing facilities. I am very skeptical of this report, since there are no analyst earnings estimate cuts for Nvidia. In fact, in the past month, the analyst community has revised their consensus earnings estimate 4.9% higher. Since the analyst community tends to be more accurate than any special reports from short-sellers or other so-called experts, I do not recommend selling Nvidia, since its order backlog for its Blackwell chip remains massive and will likely remain massive under Trump 2.0.
Last Week’s Tame Inflation Reports Helped Lift Stocks
Last Tuesday, the Department of Labor announced that the Producer Price Index (PPI) rose by only 0.2% in December, well below the economists’ consensus estimate of 0.4%. The core PPI, excluding food and energy, was unchanged. However, natural gas prices surged 57.7% in December (due largely to cold weather), accounting for nearly the entirety of the increase. The best news is that wholesale service costs were unchanged in December, while wholesale goods rose 0.3%, after being unchanged in November.
The next day, the Labor Department announced that the Consumer Price Index (CPI) rose by 0.4% in December, slightly higher than the economists’ consensus estimate of 0.3%. Excluding food and energy, the core CPI rose 0.2%, the lowest the core CPI gain since August, which helped Treasury yields decline. Gasoline prices rose 4.4% in December, the largest monthly increase since August 2023. Shelter costs (owners’ equivalent rent) rose 0.3% last month. Eventually, lower rental and home prices should cause shelter costs to decline further and help lower the CPI, so overall, there is rising hope that the Fed may continue to cut key rates if the Personal Consumption Expenditure rate comes in lower than the PPI.
Bloomberg reported that members of Trump’s incoming economic team are discussing slowly ramping up tariffs by 2% to 5% per month under the President’s executive authority under the International Emergency Economic Powers Act. This gradual approach would be designed to boost his negotiating leverage while helping avoid any significant spike in inflation. Clearly, the bond vigilantes have stayed the hand of the Trump economic team, since they are now striving to avoid any early inflation shocks.
In the meantime, as long as the dollar remains strong and worldwide economic growth remains weak, commodity inflation should remain muted. For example, carbon steel scrap prices declined 11.7% in the December PPI report. Overall, it is clear that the Trump economic team does not want to shock financial markets with its tariff policy, but maintaining a strong U.S. dollar will provide them with more flexibility.
In other economic news, the Commerce Department announced last Thursday that retail sales rose 0.4% (month-over-month) in December, which was below economists’ consensus estimate of 0.6%. Excluding a 0.7% increase in auto sales, retail sales rose just 0.3%. However, 10 of the 13 sectors improved last month. There were also some “green shoots” in some sectors, such as furniture (+2.3%), sporting goods (+2.6%) and clothing (+1.5%). Online sales were also stellar in December, with a 4.3% monthly increase.
Nations Are Lining Up to Curry Favor with Trump 2.0
One example of how countries are striving to appease President Trump is Mexico’s President Claudia Sheinbaum, who announced a plan to reduce her country’s imports from China in a bid to support local industry and align herself more with Canada and the U.S. as trade partners. Facing a shrinking share of North American exports, Sheinbaum stated that Mexico would offer incentives for near-shoring, including tax deductions and plans for individual sectors to increase the local content of goods made in Mexico.
Sheinbaum said that the US-Mexico-Canada trade agreement, known as USMCA, is the best way to compete commercially with China, and Mexican Finance Minister Rogelio Ramirez de la O has said that, “If North America replaces 10% of the imports we are getting from China, and we make them in North America, Mexico’s GDP would grow 1.2% more than it normally does, the U.S. 0.8% more and Canada 0.2% more.” Clearly, Mexico is striving to appease President Trump and avoid a punitive 25% tariff.
Treasury Secretary nominee Scott Bessent was very impressive in his Senate confirmation hearing on Thursday, saying that maintaining a strong U.S. dollar is crucial to U.S. economic health. In prepared testimony, Bessent said, “We must secure supply chains that are vulnerable to strategic competitors, and we must carefully deploy sanctions as part of a whole-government approach to address our national security requirements.” Bessent concluded by saying, “We must ensure that the U.S. dollar remains the world’s reserve currency.” I expect Bessent to be confirmed and the euro to reach parity with U.S. dollar.
Furthermore, I expect the British pound to slip to $1.15 to the U.S. dollar. Britian’s Office for National Statistics announced that retail sales declined 0.3% in December and down 0.8% in the fourth quarter. Britain is expected to join the rest of Europe and slip into a recession soon. Ever since the Labor Party’s Prime Minister Keir Starmar was elected, Britain has been struggling with higher taxes and capital flight.
On the tax and spending front, President Trump has asked Congress to present him with “one big, beautiful bill” that is expected to pass, although two bills could be passed if some members of Congress balk at one bill. The Trump wildcard is tariffs, namely how many and how big? China is expected to be the biggest loser in the tariff rollout, but I suspect that our allies might scramble to “make a deal” if Trump implements tariffs with a specific deadline, such as February 1st. As I have repeatedly said, President Trump likes to use tariffs to make allies uncomfortable, so he can negotiate from strength.
Interestingly, outgoing President Joe Biden issued last-minute pardons for General Mark Milley, Dr. Anthony Fauci and Liz Cheney, along with the staff of the House Committee that investigated the January 6th Capital riot. President Trump has said he would not seek retribution against his opposition, but the Biden Administration apparently did not believe him when he said “success” will be the best retribution.
In closing, I expect that President Trump will provide TikTok with a 90-day extension to find a U.S. buyer after the Supreme Court upheld the Congressional decision that the company must be sold. President Trump is also expected to implement a slew of executive orders that can best be described as “shock and awe.” Immigration raids may commence soon, with the deportation of criminals and gang members as the top priority, persisting for a few months, but the most important things for investors to monitor now are U.S. Treasury yields, the strength of the U.S. dollar and a potential ceasefire between Russia and Ukraine.
Navellier & Associates owns Nvidia Corp (NVDA), Amazon.com, Inc. (AMZN), Microsoft Corp (MSFT), and Meta Platforms Inc Class A (META), in managed accounts. We do not own Chevron Corp (CHV). Louis Navellier and his family own Nvidia Corp (NVDA), Amazon.com, Inc. (AMZN), and Microsoft Corp (MSFT), via a Navellier managed account, and Nvidia Corp (NVDA), and Amazon.com, Inc. (AMZN), in a personal account. They do not own Chevron Corp (CHV), and Meta Platforms Inc Class A (META), personally.
All content above represents the opinion of Louis Navellier of Navellier & Associates, Inc.
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