by Louis Navellier
January 30, 2024
The recent Arctic Blast was great for natural gas demand, but last Friday it shocked me that the Biden Administration halted approval for new licenses to export liquified natural gas (LNG) due to concerns about climate change and national security. Specifically, President Biden said, “We will take a hard look at the impacts of LNG exports on energy costs, America’s energy security, and our environment. This pause on new LNG approvals sees the climate crisis for what it is: the existential threat of our time.”
Ironically, environmental advocates urgently want developing nations to stop using coal and are urging Europe to power its economy without using Russian natural gas. So far, so good: This opens up huge markets for U.S. LNG. But these same environmentalists refuse to build the infrastructure required to ship LNG. That ensures our natural gas will be wasted (burned-off) for generations to come. I can only say that “it’s hard to fix stupid.” Stopping the expansion of LNG exports will just result in wasting our natural gas. In my opinion, some zealots in the Biden Administration are so stupid they need to be put out to pasture.
Prohibiting LNG exports will just result in more coal burning, which is booming globally, since coal is cheap and popular in China, Eastern Europe, India, Indonesia and many other emerging economies. There is a glut of natural gas in the U.S. since much of it is a byproduct of crude oil production. Since we have more natural gas than we can use in the U.S., it is just going to be wasted (flared) if we do not export it.
Mike Sommers, President of the American Petroleum Institute (API), the oil-and-gas industry’s biggest lobby, denounced the Biden Administration decision, saying that it benefits Russia and is a broken promise to our allies, adding, “It’s time for the administration to stop playing politics with global energy security.” Additionally, Neil Chatterjee, a former Federal Energy Regulatory Commission (FERC) chairman, appointed by President Trump, said that LNG projects support jobs, not only in Republican states like Texas and Louisiana, where most terminals are, but also in swing states such as Ohio and Pennsylvania, which produce a significant proportion of U.S. natural gas. In other words, President Biden just lost Ohio and Pennsylvania, which are two key swing states in the upcoming Presidential election.
The Energy Information Administration (EIA) reported that U.S. crude oil inventories have declined in recent weeks and are now at 430 million barrels, or 4% below a year ago. The American Petroleum Institute (API) reported last week that crude oil inventories declined by 6.7 million barrels in the latest week. However, API also reported that gasoline inventories surged by 7.2 million barrels in the latest week and many Americans stayed off the roads during the recent Arctic Blast, so the prices at the pump are expected to remain low until demand picks up in the spring. So far, crude oil prices have risen more than 10% since January 8, due to low inventories, the disruption to shipping in the Red Sea and evidence that crude oil demand could rise from any Chinese economic stimulus as well as U.S. economic growth.
The expansion of the war in the Middle East has also helped boost crude oil prices, with Iranian proxies effectively closing shipping in the Red Sea. Furthermore, U.S. troops are now effectively “pinatas,” being hit with relentless attacks. Several troops recently suffered “traumatic brain injuries” from missile attacks at the Ain al-Asad air base in Iraq. U.S. and British naval attacks on Houthi rebels in Yemen persist and eight new targets were hit last Monday in a major assault. Additionally, the U.S. attacked Iran proxies in Iraq after the Ain al-Asad air base attack. The latest escalation was an oil tanker, the Marlin Luanda, hit Friday by a Houthi missile in the Gulf of Aden. The fire wasn’t extinguished until Saturday. Ironically, the Marlin Luanda was carrying Russian naphtha, a product used to make plastics and gasoline.
Due to chaos in the Middle East and disrupted shipping lanes, crude oil shipments and production could be disrupted in upcoming months. Do not be surprised if crude oil prices hit $80 during the next flareup in the Middle East. After Ukraine bombed Russia’s natural gas pipeline and the Trans-Siberian Railway, there is rising concern that Russia’s crude oil pipeline could be bombed, which could also send crude oil prices soaring. Ukraine’s latest major attack was a drone attack on a chemical transport facility in the Ust-Luga port last week, about 100 miles southwest of St. Petersburg. This port is a crucial location for Russia’s energy infrastructure. It is operated by Novatek, Russia’s second-largest natural gas producer.
The Chinese are taking over the electric vehicle (EV) market, as the price wars have expanded to Europe and Tesla has temporarily closed its Berlin plant due to the Rea Sea supply disruptions. Frankly, Tesla needs to make a cheaper city-oriented EV for China, and Europe needs to get its “mojo” back and capture market share from BYD. Tesla has a new, lower-cost EV in the works with a code name of “Redwood” that would use “revolutionary manufacturing technology.” It is supposed to be introduced in mid-2025.
The other interesting EV-related news is that Apple will be introducing its EV in 2028 with level 2 driver assistance. Clearly, Apple’s attempts at autonomous driving via “project Titan” has fallen short of its ambitious expectations, but when Apple introduces any product, it strives to be reliable and problem free, so I suspect its EV will be a hit and will capture some market share from Tesla and other EV carmakers.
The recent Arctic Blast has revealed several problems with EVs: Bitter cold can cut the range of EVs, and cold weather also closed down many charging stations. The EV glut continues to grow at car dealerships. Ford announced that it will continue to slash its production of the F-150 Lightening due to weak demand. Effective April 1, F-150 Lightening production will be reduced to just one shift, so 1,400 employees from the second shift will be reassigned to other shifts at other assembly plants. Meanwhile, Ford is increasing its Bronco and Ranger pickup production, as the demand for internal combustion vehicles remains strong.
The Wall Street Journal last week had an article about how BYD, which passed Tesla as the largest EV manufacturer, is moving upscale to take more market share away from Tesla. Specifically, BYD introduced an upscale brand of EVs, Yangwang, to make more luxurious and exciting EVs, including one model that looks like a Lamborghini! The truth of the matter is that EVs can be a bit boring, so great style and design are important to boost sales. Personally, I find Tesla’s Cyber-truck a bit hilarious. Elon Musk said that the Cyber-truck is designed for the Zombie Apocalypse! After the Cyber-truck launch, there have been a lot of comparisons with other electric pickups, and the Ford F-150 Lightening has fared well. However, good media reviews are not enough to boost sales. Interestingly, Ford and Toyota hybrids are outselling their EVs, so it appears that EV range anxiety persists, especially in the truck world.
I am still holding some energy and refining stocks that are poised to surge as seasonal crude oil demand picks up in the Spring. Since seven of eight people (87%) live in the Northern Hemisphere – seven billion vs. one billion in the Southern Hemisphere – crude oil demand naturally rises as the weather improves.
2024 Should Be a Positive Market Year
At the World Economic Forum in Davos, Switzerland, many European leaders exhibited their Trump Derangement Syndrome (TDS), fearing a second Trump term seemingly more than a series of world wars now going on, or global warming fears, or global recessions. With Florida governor Ron DeSantis dropping out of the race and endorsing Donald Trump just before the New Hampshire primary, it now appears that Trump will lock up the GOP nomination faster than any non-incumbent has ever done.
Still, we should be prepared for some twists and turns in the Presidential race throughout this year. The bottom line is that the most positive candidate is typically elected, and that positive energy helps to boost both consumer and investor confidence. Furthermore, a series of Fed key interest rate cuts are expected to send the stock market higher right up to election-day in November, so we have a lot to look forward to.
Another positive for investors is that earnings comparisons remain favorable for the next three quarters, so the stock market is expected to rally right up to election day. The typical historical pattern would be a slow first quarter followed by a strong finish. The big question is when will the Fed’s rate cuts will start.
Now that the New Hampshire primary is over, the Presidential election is looking like a Joe Biden and Donald Trump rematch, with Robert F. Kennedy, Jr. running as an independent, taking votes away from both Biden and Trump. Post Covid-19, the world has been shifting right. The latest example is in New Zealand, where the Conservative party won a majority of seats. New Zealand was one of the most locked down countries during Covid-19 and voters clearly do not want those authoritarian lock-downs to reoccur. In America, this worldwide rightward shift would seem to bode poorly for Joe Biden being re-elected.
Unless President Biden can turn around his unpopular energy policies and his perceived aging challenges, a new President will likely be elected in November. In addition, the Biden Administration’s on-shoring efforts have clearly failed, since the big semiconductor plant in Arizona is not scheduled to open until after the election, in 2025, plus the Big 3 canceled most of their battery plants with their Chinese and South Korean partners. In addition, the U.S. has been in a manufacturing recession for 14 months now.
U.S. GDP has kept rising because services (which account for about 70% of GDP) have kept expanding. In the wake of the announcement that December retail sales rose 0.6%, the strongest rise in three months. Treasury bond yields meandered higher, so some economists do not expect Fed rate cuts to begin until June. Obviously, the faster the Fed cuts key interest rates, the more the stock market is expected to rally this year. The Fed’s favorite inflation indicator, the Personal Consumption Expenditure (PCE) index was updated on Friday, rising 0.2% in December and 2.6% in the past 12 months. The core PCE, excluding food and energy, also rose 0.2%, but the best news is that the core PCE has been within the Fed’s 2% inflation target over the last seven months, so that should convince them to cut rates sooner rather than later.
According to the Fed’s own “dot plot,” Federal Open Market Committee (FOMC) members predicted six to seven 0.25% rate cuts in 2024 and 2025. Frankly, I think the majority of those cuts should occur in 2024, since home sales are running at the slowest pace since 1995, so mortgage rates need some relief.
Last Thursday, the Commerce Department announced that its preliminary estimate for fourth-quarter GDP was an annual rate of 3.3%, which is substantially higher than the economists’ consensus estimate of 2%. Consumer spending rose at an impressive 2.8% pace in the fourth quarter, while business investment and the housing sector also contributed to better-than-expected fourth-quarter GDP growth.
The other news coming from the Commerce Department last Thursday was that durable goods orders remained unchanged after surging 5.5% in November. This was a disappointment, since economists were expecting a 1.1% increase. Transportation orders fell 0.9% after surging 15.3% in November. A 2.9% decline in defense orders was also a drag. Core non-defense capital goods rose 0.3% in December after an upwardly revised 1% in November. Overall, the durable goods report will likely improve in the upcoming months when Boeing’s production glitches with the 737 Max jets are finally resolved.
Specifically, I think the U.S. market will remain an oasis compared to our major markets, like China or Europe. More than $6 trillion of market value has been wiped out in Chinese and Hong Kong stock markets since their peak in 2021. Another weak market has been the carbon credit trading market in Europe, which is off to its worst start for any year since it was opened in 2016. The price of carbon credits has fallen 22% this year and almost 40% from its highs in February 2023, so until economic growth perks up and/or the wind in Europe lessens, the carbon credit market will remain in the doldrums.
The European Central Bank (ECB) left its key interest rate unchanged at 4% on Thursday. ECB President Christine Lagarde at her press conference signaled that the ECB will cut its key rate “likely” by summer. Economic growth in the 20-nation European Union (EU) remains weak, so many economists believe that the ECB should cut its key interest rate sooner rather than later. Lagarde said, “The euro area economy is likely to have stagnated in the final quarter of 2023.” Despite that comment, Lagarde added, “We need to be further along in the disinflation process before we can be sufficiently confident that inflation will actually hit the target in a timely manner.” Frankly, the ECB should start cutting rates much sooner.
In closing, we have a lot to look forward to this year. Surging consumer confidence and retail sales both bode well for improving economic growth. My favorite economist, Ed Yardeni, titled his briefing last Monday, “Let’s Party Like It’s 1999!” Then, last Friday, Yardeni was on a Bloomberg podcast citing parallels between the 1920s and 2020s, with similarities between the Spanish flu pandemic that preceded the 1920s and the aftermath of the Covid-19 crisis, saying, “We’re in the early stages of a productivity growth boom.” Yardeni said “The course of progress we’re making puts us in a roaring 2020s scenario.”
I agree with Yardeni, especially since there is $8.8 trillion in cash on the sidelines to fuel a big rally. This year could be just as spectacular as 1999. As interest rates decline, much of this cash could return to the stock market, so there is plenty of fuel to propel stocks higher. Naturally, stocks must keep reporting improving quarterly results as well as positive guidance to get investors excited. I remain especially excited about our growth stocks, like Super Micro Computer, since they are the new market leaders!
Navellier & Associates owns Apple Computer (AAPL), Super Micro Computer, Inc. (SMCI), and Ford Motor Co. (F) in managed accounts. A few clients own Tesla (TSLA), and Boeing Company (BA), per client request in managed accounts. We do not own BYD Company (BYDDY). Louis Navellier and his family own Apple Computer (AAPL), Super Micro Computer, Inc. (SMCI), via a Navellier managed account, and Apple Computer (AAPL) in a personal account. He does not own Ford Motor Co. (F), Tesla (TSLA), BYD Company (BYDDY) and Boeing Company (BA), personally.