by Louis Navellier

March 8, 2022

In a state of emergency, on several fronts, President Biden’s first State of the Union speech sounded like political business as usual, with scant attention to the several new crises that have emerged on his watch.

We were given a copy of the text of the talk before he delivered it, and I was shocked to see that there was no change in Biden’s national energy policy in the light of $115 oil and soaring inflation, with prospects of much higher prices due to the cutoff of Russian supply. With the latest U.S. GDP estimate now at zero, and headed into negative (recessionary) territory, the U.S. economy faces the prospect of stagflation, which is inflation combined with lackluster economic growth, for the first time since the Carter era.

In that light, the Biden Administration’s stubborn political allegiance to the the green energy push is a head scratcher, since Russia is also a major supplier of nickel (for lithium-ion batteries), which continues to hit record high prices. A shortage of lithium-ion batteries persists and will continue to hinder the switch to electric vehicles, especially since battery companies, like LG Chem, continue to raise prices.

One lingering problem LG Chem has is their batteries’ tendency to burst into flame. That is one reason VW Group recently lost 3,965 new Audis, Bentleys, Lamborghinis, Porsches, and VWs on a transport ship as many of the EVs onboard caught fire and exasperated firefighting efforts, since lithium battery fires are next to impossible to put out, especially when they are in a ship in the middle of the ocean. The Felicity Ace sank last Tuesday about 250 miles offshore of the Azores Islands, near Portugal. Interestingly, LG Chem recently paid GM $1.9 billion for the Bolt EV battery fires, so it will be interesting if VW Group tries to hold LG Chem responsible for the loss of 3,965 new vehicles valued at about $400 million.

As Europe and the U.S. strive to diversify away from fossil fuels, it will make Western nations more dependent on China (for the processing of lithium and cobalt) and Russia (for nickel in lithium-ion batteries), during a time of acute battery shortage. For example, Lucid Group last week scaled back its 2022 production goal to only 12,000 to 14,000 vehicles, down from its previous goal of 20,000 that CEO Peter Rawlinson cited last November. Lucid has 25,000 reservations for its innovative EV, so its customers must now wait up to two years to get their vehicles, due to ongoing “supply problems.”

The fact that Tesla was not making money on its U.S. operations in the fourth quarter – due partially to the high cost of the lithium-ion batteries – is a bad omen for the Green Revolution. Virtually all of Tesla’s profits were attributable to its Shanghai factory, which uses cheaper, less efficient iron phosphate batteries from CATL. Although LG Chem, SK Innovation, Samsung, and other battery suppliers are ramping up their battery production, the higher prices for lithium, nickel, and cobalt are hindering the EV revolution.

During his State of the Union talk, President Biden addressed the supply chain bottlenecks as one of the reasons why inflation has surged, but he missed the point. He was very critical of the lack of competition among ocean shipping companies, essentially blaming the industry for the higher cost of goods. He threatened to crack down on shippers, but nearly all shipping companies are foreign chartered due to U.S. liability laws, so there is little he can do to attack foreign shipping companies or improve competition.

Crude oil futures rose above $120 per barrel recently on news that 70% of Russian crude oil was “struggling to find buyers,” according to Energy Aspects, as major buyers shunned Russian-sourced crude oil. President Biden said the U.S. and 30 other countries are releasing 60 million barrels of crude oil from strategic reserves, adding that “we stand ready to do more, if necessary, united with our allies.”

That is only a stopgap measure. I was disappointed that President Biden did not call for boosting domestic energy production and making the U.S. energy independent again. Fortunately, higher energy prices help boost domestic production, so North Dakota and other shale fields can come online to boost domestic production. I expect domestic energy production will be a major mid-term election issue and there could be a major leadership shift in Congress, since high prices at the pump have infuriated many Americans.

Inflation Rates Rise While Interest Rates Retreat

The Fed’s favorite inflation indicator, namely the Personal Consumption Expenditure (PCE) index, is now running at an annual rate of 6.1%. The core PCE, excluding food and energy, is now running at a 5.2% annual pace. The increase in the PCE has triggered many economists to call for even more key interest rate increases by the Fed. However, I am expecting that the Fed will become more cautious and increase key interest rates more slowly, due partially to the fact that the European Central Bank (ECB) will not be increasing its interest rates due to rising recession risks from the Ukrainian/Russian conflict.

According to the Atlanta Fed, U.S. GDP is now expected to remain flat (0.0%) in the first quarter, down from its previous estimate of a 0.6% increase. Although the U.S. is much less dependent on Russian crude, the West Coast has been buying more Russian oil as Alaska’s production has declined. California now has $6 per gallon gasoline, so if all Russian crude oil were cut off, $8 per gallon gasoline is possible.

The European Union’s statistics agency on Wednesday announced that inflation in the eurozone is now running at a 5.8% annual pace through February. Further inflation increases are expected due to higher energy prices and supply chain glitches, since some European companies, like VW Group, rely on Ukraine for wiring harnesses and other key vehicle parts. Regardless of surging inflationary pressures there, I do not expect that the ECB will raise key interest rates, due to their imminent recession risk.

Market rates around the world continue to plunge due to a flight to quality. As I have repeatedly said, the Fed never fights market rates. Fed Chairman Jerome Powell testified before the House Financial Services Committee last week, saying that the Fed still plans to raise key interest rates but he also clarified that the Fed would “proceed carefully.” (This last comment by the Fed Chair triggered a big stock market rally!)

The Fed’s Beige Book survey was released last Wednesday, citing widespread labor shortages as well as rising frustration with inflation. The Beige Book survey cited modest to moderate economic growth in all 12 Fed districts, but implied that economic growth was being held back by severe winter weather, as well as workers calling in sick from more Covid testing. The survey also implied that economic growth should pick up in the Spring with most Covid restrictions being dropped and the weather improving.

In other statistical releases, the Institute for Supply Management (ISM) announced on Tuesday that its manufacturing index rose to 58.6 in February, up from 57.6 in January. The new orders component was especially impressive, increasing to 61.7 in February, up from 57.9 in January, while the production component rose to 58.5 in February, up from 57.8 in January. Especially impressive was the backlog of orders component, soaring to 65 in February from 56.4 in January, and the new orders component, which increased to 57.1 in February, up from 53.7 in January. All but one of the 17 industries that ISM surveyed reported growth, so the manufacturing sector remains healthy, and it still has a good order backlog.

On Thursday, ISM reported that its non-manufacturing (service) index declined to 56.5 in February, from 59.9 in January. Economists were expecting a rise to 61, so this was a big disappointment. This is the lowest reading for the ISM service index in 12 months. I should add that any reading above 50 signals an expansion, so the service sector is still growing, but at a slower pace. The deliveries component rose to 66.2 in February, up from 65.7 in January, so that was a positive detail. Furthermore, the order backlog component rose to 64.2 in February, up from 57.4 in January, which bodes well for future service growth.

In the first week each month, the payroll reports come out. On Wednesday, ADP reported that 475,000 private payroll jobs were created in February. This time, large businesses (500 or more employees) created more than the total – 552,000 new payroll jobs – while medium business (50 to 499 employees) created only 18,000 payroll jobs, and small businesses (under 50 employees) lost 96,000 jobs, perhaps reflecting the closure of small retail businesses due to vaccine mandates for customers and employees. (ADP pointed out that the smallest business, with 1 to 19 employees, lost 95,000 of those 96,000 jobs.)

On Friday, the Labor Department reported that total payrolls rose 678,000 in February, substantially above the economists’ consensus estimate of 432,000. Also, December and January payrolls were revised up to 588,000 (from 510,000) and 481,000 (from 467,000), respectively. The unemployment rate declined to 3.8% in February, down from 4% in January. The average hourly wage rose by only 1 cent to $31.58, but average hourly wages are up 5.1% in the past 12 months. Overall, the job market remains healthy.

In between those two widely watched payroll reports, the Labor Department reported on Thursday that weekly unemployment claims declined to 215,000 in the latest week, compared to a revised 233,000 in the previous week. Continuing unemployment claims were 1.476 million, up slightly from the previous week’s revised 1.474 million. Lower unemployment claims reflected the ongoing economic recovery.

Navellier & Associates owns Volkswagen Ag. (VWAGY), a few clients own Tesla (TSLA), per client request in managed accounts, but we do not own General Motors (GM), Lucid Group (LCID), CATL, LG Chem, SK Innovation, or Samsung. Louie Navellier and his family personally own Volkswagen Ag. (VWAGY), via a Navellier managed account, They do not own General Motors (GM), Lucid Group (LCID), CATL, LG Chem, SK Innovation, Samsung, or Tesla (TSLA) personally.

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

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
The Eurozone is Going into a Recession

Sector Spotlight by Jason Bodner
When the News Constantly Changes, Go Back to the Data

View Full Archive
Read Past Issues Here

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.