by Louis Navellier

January 31, 2023

The Biden Administration has stopped releasing one million barrels per day of light sweet crude oil from the Strategic Petroleum Reserve (SPR), so crude oil prices are expected to meander higher, despite a domestic glut of crude oil. As I have repeatedly said, crude oil demand naturally rises in the spring as the weather in the Northern Hemisphere improves and people travel more. Natural gas is more weather dependent, but since the U.S. is “the Saudi Arabia of natural gas,” and Europe needs LNG, I also expect that natural gas prices will firm up after recently falling to their lowest level since April 2021.

The Biden Administration’s call to start following California to ban natural gas stoves and possibly other appliances is anticipated to fail due to the new Republican-led House of Representatives. In fact, the fuss over natural gas stocks by the Consumer Product Safety Commission may just have been a political ploy to distract the news media over the mounting problems associated with classified documents being found at Joe Biden’s Wilmington, Delaware home. The truth of the matter is President Biden is now effectively a lame duck in his Party, especially if he continues getting opposition from within the Democratic Party.

I should add that at my Reno home, I added natural gas to one of my decks, so I could install a natural gas barbecue and a fire bowl that will be nice on cold, crisp evenings. At our Reno home, we had a lot of snow this winter and my family also likes to have a natural gas fireplace roaring. When spring comes, I believe we will be outside more due to the new natural gas fire bowl, which helps to promote more family gatherings. I for one cannot imagine life without natural gas, especially in the Mountain West, due to our crisp evenings several months a year. As Americans, we should be proud of our vast natural gas reserves and production. Despite the Biden Administration’s new tax on natural gas (as well as on coal and crude oil production), I do not foresee other states following California and banning natural gas appliances.

In the meantime, The Guardian on Tuesday had an article that predicted “environmental havoc” as the U.S. transitions to electric vehicles. The Guardian said that the U.S alone would triple the worldwide demand for lithium, “causing needless water shortages, Indigenous land grabs, and ecosystem destruction.” This may be one reason why ESG is being redefined to shun Tesla and the battery suppliers.

Then, on Wednesday, The Wall Street Journal published an article about how a natural graphite shortage for making batteries is forcing the use of man-made graphite. Specifically, the WSJ stated that “most lithium-ion batteries use synthetic graphite, which is produced from a petroleum byproduct, mostly from China. The WSJ then went on to say that, “using an energy-intensive, high-emissions process to produce graphite defeats the purpose of the batteries that power EVs and store renewable energy.”

According to Benchmark Mineral Intelligence, which tracks the battery supply chain, the production of synthetic graphite can be four times more carbon-intensive than that of natural graphite. Confused?  We all are. As ESG constantly gets redefined, it has the potential to blow your brain, since clean mining does not really exist, and making anything without significant carbon emissions is problematic, at best.

The Fed’s Dilemma – Raising Rates While Our National Debt Soars

The other political distraction is that due to the federal government’s $31.4 trillion debt ceiling, the Treasury Department is now taking extraordinary measures to keep the U.S. government operating through June. Obviously, the federal government’s debt ceiling is going to be a political football that will be debated endlessly, so one side can embarrass the other. In the end, the debt ceiling will likely be raised, so as investors, we should not worry unless it adversely impacts Treasury bond yields. Our bigger worry should be how we are going to service those astronomical debts at the new Treasury yields averaging 4%.

By far the best news last week was that the Treasury auctions have been going amazingly well. We are now in the midst of the strongest bidding for Treasury securities since October 2021. Frankly, this means that bond investors are now expecting inflation to cool off. They believe that the Fed will soon announce that its cycle of interest rate hikes will soon end, perhaps with just a small 0.25% rate increase tomorrow.

The Fed has succeeded with its interest rate policy of driving existing home sales down 34% in 2022 to a 4.02 million pace, which is the slowest pace in over 12 years (since November 2010). Additionally, the Fed has also spooked consumers, since retail sales declined 1.1% in December (the largest drop in a year) and 1% in November. The ISM manufacturing index also contracted in December and November, while the ISM non-manufacturing (service) index plunged to 49.6 in December, so it is now signaling a contraction.

Despite all this dire economic news, the Commerce Department announced that its preliminary estimate for fourth-quarter GDP growth is a 2.9% annual rate. The fourth-quarter GDP will be revised after trade and other data come in, but from the last quarter of 2021 to the 2022’s last quarter, the BEA said last Thursday that our GDP grew only 1%, down from a robust 5.7% from the end of 2020 to the end of 2021.

I should also add that the Conference Board announced that its Leading Economic Index (LEI) declined 1% in December, following a 1.1% decline in November. The LEI decline for December was worse than the economists’ consensus estimate of a 0.7% decline and marks the tenth straight monthly decline. The LEI is designed to forecast recessions, which we have so far avoided, but one may still be forthcoming!

The Commerce Department on Friday announced that consumer spending declined 0.2% in December and they revised November lower to a 0.1% decline (down from a 0.1% increase previously reported), so the consumer spending data is in line with retail sales, which also declined in November and December.

I should add that the Commerce Department on Friday also announced that the Fed’s favorite inflation indicator, the Personal Consumption Expenditure (PCE) index, rose 0.1% in December and 5% in the past 12 months. The core PCE, excluding food and energy, rose 0.3% in December and 4.4% in the past 12 months. Food prices increased 0.2% in December, while energy prices declined 5.1%.

Although the core PCE decelerated from a 4.7% annual pace in November to a 4.4% rate in December, the deceleration may not be as strong as some Fed members wanted to see. However, the core PCE is now at the lowest annual rate since October 2021. The most fascinating tidbit in the PCE data was that the prices for goods declined 0.7%, while the price of services rose 0.5%. The Fed is trying to squelch service inflation, so that may be the Fed’s justification for another rate increase at its FOMC meeting this week.

The Wall Street Journal reported that in the past five months, the U.S. economy has shed 110,800 temporary workers, including 35,000 in December. This is a warning sign that the job market is getting weaker. 3M is just the latest company to announce layoffs in the wake of disappointing quarterly sales and earnings. As soon as this weak job market shows up in weekly unemployment claims and weak payroll numbers, the Fed will have to take notice, since one of its mandates is a low unemployment rate.

Despite so many announced layoffs, the Labor Department announced that weekly unemployment claims declined to 186,000 in the latest week, down from a revised 192,000 the previous week. Continuing unemployment claims rose to 1.675 million in the latest week, up from a revised 1.655 million in the previous week. Overall, the four-week average declined to 197,500, so the labor market remains healthy.

If you are confused by these contradictory statistics, you are not alone. The Biden Administration “fixed” inflation, GDP, and the trade deficit in one Executive Action, when he released approximately 200 million barrels of light sweet crude oil from the Strategic Petroleum Reserve in 2022. That grossly reduced the U.S. trade deficit, which exaggerated overall economic growth. Furthermore, China’s declining exports also boosted the U.S. trade deficit, which caused economists to revise their U.S. GDP estimates higher.

The truth of the matter is that China is reopening after its severe “Covid Zero” restrictions were abruptly discontinued, and it reopened its international air travel. In the meantime, India, Indonesia, South Korea, Taiwan, Thailand, and Vietnam all benefited from China’s economic woes. Europe is also faring much better than expected due to an unusually warm winter, as well as more accommodative central banks.

In the U.S., the Fed has led the worldwide fight against inflation. Although the Fed cannot influence food and energy prices, they did succeed in squelching final demand in services prices to only 0.1% in the December PPI. Now that the Fed funds rates is above Treasury yields, it is anticipated that the Fed will only raise key interest rates by 0.25% tomorrow. More important than the Fed action will be the FOMC statement, which I am hoping will signal that the Fed is nearing the end of its key interest rate hikes.

In the meantime, the most certain economic event will be that crude oil prices will rise in the upcoming months due to growing global demand and the fact that the Biden Administration will no longer be releasing up to one million barrels per day from the SPR to manipulate crude oil prices. It will also be interesting to see what happens to EV sales now that Tesla and other EV makers have an inventory glut.

Earnings News from Tesla and Other EV News Reports

Tesla announced its fourth-quarter results on Wednesday, saying that its fourth-quarter sales rose 37% and earnings rose 59%. Although Tesla’s sales were slightly below analyst expectations after its Chinese price cuts, its earnings were a bit better than analyst expectations. Tesla future sales are expected to be strong due to recent European and U.S. price cuts. The fact that the company announced that the Tesla semi-truck would be built in Nevada inspired confidence in the company’s cash flow and long-term prospects.

The news that Elon Musk was exploring options to pay off Twitter’s debt also helped Tesla’s stock rebound 50% from its recent low, and I do not expect that its January lows will be retested.

Concerns about Tesla’s operating margins are diminishing, but until its Shanghai plant re-opens and its first-quarter results are announced, it is anticipated that the company’s margins will be under compression. Long-term, Tesla is facing more competition, but Tesla is expected to remain the EV leader for 2023.

Speaking of EV sales, Germany has joined France in calling for European Union (EU) support to counter the green subsidies in the Inflation Protection Act that favor U.S.-based EV sales and battery manufacturing. Specifically, German Chancellor Olaf Scholz is looking to provide similar aid to manufacturers within the EU, which has already lobbied the U.S. to expand the green subsidies in the Inflation Protection Act to European manufacturers, but the Biden Administration has been resistant.

Scholz said, “The EU shouldn’t be treated worse than Canada or Mexico.” This tiff between the U.S. and Europe is escalating, so it will be interesting to see if other countries join France and Germany in protest.

Navellier & Associates owns Tesla (TSLA) per client request in a few managed accounts only.  Louis Navellier does not own Tesla (TSLA) personally.

All content above represents the opinion of Louis Navellier of Navellier & Associates, Inc.

Please see important disclosures below.

About The Author

Louis Navellier
CHIEF INVESTMENT OFFICER

Louis Navellier is Founder, Chairman of the Board, Chief Investment Officer and Chief Compliance Officer of Navellier & Associates, Inc., located in Reno, Nevada. With decades of experience translating what had been purely academic techniques into real market applications, he believes that disciplined, quantitative analysis can select stocks that will significantly outperform the overall market. All content in this “A Look Ahead” section of Market Mail represents the opinion of Louis Navellier of Navellier & Associates, Inc.

Important Disclosures:

Although information in these reports has been obtained from and is based upon sources that Navellier believes to be reliable, Navellier does not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute Navellier’s judgment as of the date the report was created and are subject to change without notice. These reports are for informational purposes only and are not a solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in these reports must take into account existing public information on such securities or any registered prospectus.To the extent permitted by law, neither Navellier & Associates, Inc., nor any of its affiliates, agents, or service providers assumes any liability or responsibility nor owes any duty of care for any consequences of any person acting or refraining to act in reliance on the information contained in this communication or for any decision based on it.

Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any securities recommendations made by Navellier. in the future will be profitable or equal the performance of securities made in this report. Dividend payments are not guaranteed. The amount of a dividend payment, if any, can vary over time and issuers may reduce dividends paid on securities in the event of a recession or adverse event affecting a specific industry or issuer.

None of the stock information, data, and company information presented herein constitutes a recommendation by Navellier or a solicitation to buy or sell any securities. Any specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients. The holdings identified do not represent all of the securities purchased, sold, or recommended for advisory clients and the reader should not assume that investments in the securities identified and discussed were or will be profitable.

Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. Individual stocks presented may not be suitable for every investor. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. Investment in fixed income securities has the potential for the investment return and principal value of an investment to fluctuate so that an investor’s holdings, when redeemed, may be worth less than their original cost.

One cannot invest directly in an index. Index is unmanaged and index performance does not reflect deduction of fees, expenses, or taxes. Presentation of Index data does not reflect a belief by Navellier that any stock index constitutes an investment alternative to any Navellier equity strategy or is necessarily comparable to such strategies. Among the most important differences between the Indices and Navellier strategies are that the Navellier equity strategies may (1) incur material management fees, (2) concentrate its investments in relatively few stocks, industries, or sectors, (3) have significantly greater trading activity and related costs, and (4) be significantly more or less volatile than the Indices.

ETF Risk: We may invest in exchange traded funds (“ETFs”) and some of our investment strategies are generally fully invested in ETFs. Like traditional mutual funds, ETFs charge asset-based fees, but they generally do not charge initial sales charges or redemption fees and investors typically pay only customary brokerage fees to buy and sell ETF shares. The fees and costs charged by ETFs held in client accounts will not be deducted from the compensation the client pays Navellier. ETF prices can fluctuate up or down, and a client account could lose money investing in an ETF if the prices of the securities owned by the ETF go down. ETFs are subject to additional risks:

  • ETF shares may trade above or below their net asset value;
  • An active trading market for an ETF’s shares may not develop or be maintained;
  • The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track;
  • The cost of owning shares of the ETF may exceed those a client would incur by directly investing in the underlying securities; and
  • Trading of an ETF’s shares may be halted if the listing exchange’s officials deem it appropriate, the shares are delisted from the exchange, or the activation of market-wide “circuit breakers” (which are tied to large decreases in stock prices) halts stock trading generally.

Grader Disclosures: Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. The sample portfolio and any accompanying charts are for informational purposes only and are not to be construed as a solicitation to buy or sell any financial instrument and should not be relied upon as the sole factor in an investment making decision. As a matter of normal and important disclosures to you, as a potential investor, please consider the following: The performance presented is not based on any actual securities trading, portfolio, or accounts, and the reported performance of the A, B, C, D, and F portfolios (collectively the “model portfolios”) should be considered mere “paper” or pro forma performance results based on Navellier’s research.

Investors evaluating any of Navellier & Associates, Inc.’s, (or its affiliates’) Investment Products must not use any information presented here, including the performance figures of the model portfolios, in their evaluation of any Navellier Investment Products. Navellier Investment Products include the firm’s mutual funds and managed accounts. The model portfolios, charts, and other information presented do not represent actual funded trades and are not actual funded portfolios. There are material differences between Navellier Investment Products’ portfolios and the model portfolios, research, and performance figures presented here. The model portfolios and the research results (1) may contain stocks or ETFs that are illiquid and difficult to trade; (2) may contain stock or ETF holdings materially different from actual funded Navellier Investment Product portfolios; (3) include the reinvestment of all dividends and other earnings, estimated trading costs, commissions, or management fees; and, (4) may not reflect prices obtained in an actual funded Navellier Investment Product portfolio. For these and other reasons, the reported performances of model portfolios do not reflect the performance results of Navellier’s actually funded and traded Investment Products. In most cases, Navellier’s Investment Products have materially lower performance results than the performances of the model portfolios presented.

This report contains statements that are, or may be considered to be, forward-looking statements. All statements that are not historical facts, including statements about our beliefs or expectations, are “forward-looking statements” within the meaning of The U.S. Private Securities Litigation Reform Act of 1995. These statements may be identified by such forward-looking terminology as “expect,” “estimate,” “plan,” “intend,” “believe,” “anticipate,” “may,” “will,” “should,” “could,” “continue,” “project,” or similar statements or variations of such terms. Our forward-looking statements are based on a series of expectations, assumptions, and projections, are not guarantees of future results or performance, and involve substantial risks and uncertainty as described in Form ADV Part 2A of our filing with the Securities and Exchange Commission (SEC), which is available at www.adviserinfo.sec.gov or by requesting a copy by emailing info@navellier.com. All of our forward-looking statements are as of the date of this report only. We can give no assurance that such expectations or forward-looking statements will prove to be correct. Actual results may differ materially. You are urged to carefully consider all such factors.

FEDERAL TAX ADVICE DISCLAIMER: As required by U.S. Treasury Regulations, you are informed that, to the extent this presentation includes any federal tax advice, the presentation is not written by Navellier to be used, and cannot be used, for the purpose of avoiding federal tax penalties. Navellier does not advise on any income tax requirements or issues. Use of any information presented by Navellier is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance.

IMPORTANT NEWSLETTER DISCLOSURE:The hypothetical performance results for investment newsletters that are authored or edited by Louis Navellier, including Louis Navellier’s Growth Investor, Louis Navellier’s Breakthrough Stocks, Louis Navellier’s Accelerated Profits, and Louis Navellier’s Platinum Club, are not based on any actual securities trading, portfolio, or accounts, and the newsletters’ reported hypothetical performances should be considered mere “paper” or proforma hypothetical performance results and are not actual performance of real world trades.  Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier Investment Products’ portfolios and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters contain hypothetical performance that do not include transaction costs, advisory fees, or other fees a client might incur if actual investments and trades were being made by an investor. As a result, newsletter performance should not be used to evaluate Navellier Investment services which are separate and different from the newsletters. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or hypothetical Newsletter performance claims, (which are calculated solely by Investor Place Media and not Navellier) should be referred to InvestorPlace Media, LLC at (800) 718-8289.

Please note that Navellier & Associates and the Navellier Private Client Group are managed completely independent of the newsletters owned and published by InvestorPlace Media, LLC and written and edited by Louis Navellier, and investment performance of the newsletters should in no way be considered indicative of potential future investment performance for any Navellier & Associates separately managed account portfolio. Potential investors should consult with their financial advisor before investing in any Navellier Investment Product.

Navellier claims compliance with Global Investment Performance Standards (GIPS). To receive a complete list and descriptions of Navellier’s composites and/or a presentation that adheres to the GIPS standards, please contact Navellier or click here. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report.

FactSet Disclosure: Navellier does not independently calculate the statistical information included in the attached report. The calculation and the information are provided by FactSet, a company not related to Navellier. Although information contained in the report has been obtained from FactSet and is based on sources Navellier believes to be reliable, Navellier does not guarantee its accuracy, and it may be incomplete or condensed. The report and the related FactSet sourced information are provided on an “as is” basis. The user assumes the entire risk of any use made of this information. Investors should consider the report as only a single factor in making their investment decision. The report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. FactSet sourced information is the exclusive property of FactSet. Without prior written permission of FactSet, this information may not be reproduced, disseminated or used to create any financial products. All indices are unmanaged and performance of the indices include reinvestment of dividends and interest income, unless otherwise noted, are not illustrative of any particular investment and an investment cannot be made in any index. Past performance is no guarantee of future results.