by Ivan Martchev
March 29, 2022
The year 2008 does not bring fond memories in its latter half, but in the middle of the year, commodity traders sure did have a lot of fun with oil and all kinds of other commodities going parabolic – like crude oil near $150 a barrel – the sort of way commodities are acting now.
WTI crude closed last week at $114 a barrel, so the 2008 high is in play, contingent of course on how the Ukrainian crisis plays out. A speedy conclusion of the war, which right now seems unlikely, would mean a relief sell-off in the commodity indexes and a continued relief rally in stocks – while a deterioration of the situation in Ukraine means the opposite.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
It is ironic that two years ago the front month WTI futures flipped well into negative territory as mechanical selling in the rollover of positions resulted in large sales of “paper oil” in the expiring contracts and large buys of the next contract month. Algorithmic trading is relentless and if one were looking for sanity that day in May 2020, one would not find it in those trading algorithms.
Now we have sanctions on one of the largest commodity producers – Russia – which invaded a large agricultural commodity producer, Ukraine. About 25% of the global wheat supply is in danger and, given that the soybean harvest in Brazil is unlikely to be very good, substitution of one commodity for another is unlikely. Put starkly, 13% of global calories are about to disappear.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Wheat and soybeans are headed for all-time highs, unless by some miracle the wheat harvest in Ukraine is saved by an immediate ceasefire and the limitation of Russian actions to the Donbass region. Having hopelessly miscalculated the ferocious resistance of the Ukrainian military, there are initial signs that the Russians are looking to save face and focus on the south only: Donbass and a possible land bridge to Crimea, which is why Mariupol is now being turned into rubble.
Source: Institute for the Study of War (ISW)
So far, I would assess the performance of the Russian military in Ukraine as a “D-,” simply because they did not anticipate the level of resistance and were therefore unprepared for it, while the great Carthaginian general Hannibal Barca, if he were alive today, would probably give the Russians an “F.” Hannibal famously won most of the battles of the Second Punic War over 17 years, in most of them outnumbered, only to lose the war in the last Battle of Zama in 202 BC.
In the present case, a superior force cannot achieve its objective due to the underestimation of the fierce resistance of an inferior force defending its homeland. The Russians can win, but is the destruction of whole cities a price they are willing to pay? I have my doubts.
This war turned into one heck of an economic event. I don’t think the sanctions, as understandable as they are, will stop the war, but they sure have the potential to backfire, particularly on Europe. And if the Chinese, who have been waiting to take Taiwan since 1949, want to use the present global chaos to invade their renegade island, they likely won’t be faced with the same sanctions, as they are a much bigger economy than Russia, and Taiwan controls over 90% of the global microchip supply, without which the global economy would come to a standstill.
The Energy Sector Probably Has Further to Run
“Energized” by a triple-digit oil price, energy stocks probably have further to run. The NYSE Oil Index (XOI) ended its underperformance against the S&P 500 in late 2020. After years of under-investment in production and assault by the ESG crowd, including Biden administration policies that encourage green investments, the stocks are on fire, catalyzed by the Ukraine crisis.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
I am all for protecting the environment and going green, but not at the cost of driving the U.S. and global economy into a recession because of botched decarbonization practices. One way to get more oil onto the market is to approve the Keystone pipeline that Joe Biden rejected.
Energy companies have been right to be more conservative in development of new projects as shareholders have demanded the return of capital while the industry got shell-shocked by a negative oil price two years ago. I think the Biden Administration, if it does not want disastrous results in the coming November midterm elections, needs to flesh out a smarter energy policy, as it would be hard to pin inflation and surging gasoline prices on Vladimir Putin alone.
All content above represents the opinion of Ivan Martchev of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
The Best Sectors for the Second Quarter of 2022
Income Mail by Bryan Perry
Bull Market for Natural Gas Exports Confirmed
Growth Mail by Gary Alexander
Don’t Blame Inflation on Putin or “Big Oil”
Global Mail by Ivan Martchev
The 2008 High in Commodities is in Play
Sector Spotlight by Jason Bodner
New Sector Leaders as Stocks “Spring Forward”
View Full Archive
Read Past Issues Here
Ivan Martchev
INVESTMENT STRATEGIST
Ivan Martchev is an investment strategist with Navellier. Previously, Ivan served as editorial director at InvestorPlace Media. Ivan was editor of Louis Rukeyser’s Mutual Funds and associate editor of Personal Finance. Ivan is also co-author of The Silk Road to Riches (Financial Times Press). The book provided analysis of geopolitical issues and investment strategy in natural resources and emerging markets with an emphasis on Asia. The book also correctly predicted the collapse in the U.S. real estate market, the rise of precious metals, and the resulting increased investor interest in emerging markets. Ivan’s commentaries have been published by MSNBC, The Motley Fool, MarketWatch, and others. All content of “Global Mail” represents the opinion of Ivan Martchev
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.