by Bryan Perry

April 12, 2022

The stock market has undergone a reality check these past two weeks, with the majority of market sectors enduring selling pressure as investors reprice risk on assets against a landscape that now accepts inflation, rising rates, elevated commodity prices, supply chain constraints, and the Ukraine war as market realities that will likely last longer than first perceived. So far this month, these negative forces took a broad toll on all but utilities, consumer staples, REITs, healthcare, and fertilizer sectors. Even energy stocks came under modest pressure from concerns over future demand destruction, given the high price of crude oil.

Investor sentiment is downshifting in seeing a domestic economy that risks falling into a recession after the 2/10 Treasury spread in the yield curve briefly inverted. Translated, that means when short-term rates (2-years) yield more than long-term rates (10-years). That “inversion” implies a hard landing for the economy, especially since the Fed is aggressively reining in inflation by raising the Fed funds rate and shrinking its balance sheet – aka quantitative tightening (QT) – the opposite of quantitative easing (QE), which has supported asset inflation since 2009. To say that “the ground has shifted” is an understatement.

Ten Year Treasury Note Yield Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Now that the Fed has pulled the punch bowl of financial stimulus away and turned decidedly hawkish, the stock market has to stand on its own – where it’s “every stock for itself.” As we enter the first-quarter earnings season this week, the big money center banks will have a lot to say about business conditions from their client bases regarding demand for credit to fund inventories, expand businesses, and acquire real estate. Rates have spiked around the globe this past month – and that raises some red flags.

Global 10-Year Rate Expansion (1 Month and 1 Year) As of April 7, 2022

Global Rate Expansion Table

With the yield on the U.S. 10-year at 2.66%, the bond market is already adjusting to levels that anticipate the Fed to hike rates by 50 basis points at the next three FOMC meetings over the next three months. This comes at a time when the Russian and Ukrainian economies are in depression, Europe’s economy is in a recession, and China’s economy is slowing – to what extent is not clear, since Chinese economic data is routinely manipulated by financial technicians within the Chinese Communist Party.

What is a well-known fact, however, is that rising interest rates are a huge drag on debt service following nearly a decade of near-zero short-term rates after several rounds of QE and bloated government spending, long before (and during and after) the COVID-19 pandemic took hold of the global economy – topping $226 trillion at the end of 2020. Currently, the global GDP is about $80 trillion, but “Global debt, according to a recent report by the Institute for International Finance, amounted to nearly $300 trillion in 2021, equal to 356 percent of global GDP. This extraordinarily high debt level represents a 30 percentage-point rise in the global debt-to-GDP ratio in the past five years.” (source:

Global Debt Bar Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Central banks can ill afford to allow short-term interest rates to rise much over 3%, or they face stressing debt-to-GDP ratios that are already excessive. A 1% increase in short-term Treasury notes adds $300 billion per year in interest costs to service the U.S. federal debt. That is a steep finance charge and is why the Fed has abruptly done an about face on its gross underestimation of inflation that now runs at a 40-year high of 7.9%. The big question facing the stock market is whether inflation is peaking. If so, then there is a good chance that the lows for the S&P 500 are in. This week’s inflation data may clarify that.

The LNG Train Has Left the Station

The current widespread sanctions applied to Russia will have a lasting impact on a number of industries, both positive and negative. One of the larger secular themes that is playing out is the rising global demand for liquefied natural gas (LNG) to replace coal and to also replace Russian imported LNG to Europe.

In 2021, 40% of natural gas consumed in the EU came from Russia. This is a staggering statistic.

On a global basis, the U.S. is exporting record amounts of LNG as several nations rapidly convert to gas-burning utilities from coal-fired plants. According to the U.S. Energy Information Agency: “U.S. exports of liquefied natural gas (LNG) set a record high in 2021, averaging 9.7 billion cubic feet per day (Bcf/d), according to our most recent Natural Gas Monthly. U.S. LNG exports increased by 50% from 2020. The increase in U.S. LNG exports was driven by increased demand in both Europe and Asia (particularly China) and by expanding U.S. liquefaction capacity. In 2021, liquefaction at the six U.S. LNG export terminals averaged 102% of nameplate (or nominal) capacity and 89% of peak capacity….” (EIA).

Annual United States Liquefied Natural Gas Exports Bar Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

On March 25, 2022, the U.S. pledged to dramatically increase LNG shipments to Europe to replace their previous dependence on Russia. The Biden administration is proposing to send up to 15 billion cubic meters (bcm) to Europe, which is only about 10% of the 150 bcm Europe used in all of 2021. With the LNG production in the U.S. at near capacity, this supply shortfall will keep prices elevated as the supply/demand equation heavily favors producers and shippers of LNG to foreign buyers.

Liquefied Natural Gas Exports Bar Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Since there are no pure LNG ETFs to buy, investors need to cobble together their own portfolio of LNG terminal, natural gas E&P, gas pipeline, LNG shipping, and LNG gasification stocks, which are not hard to find by scanning the top LNG and natural gas stocks. LNG bridges the several gap years in transition of fossil fuels to renewable energy. The LNG sector is in a “stealth” bull market – and that’s what matters.

Despite all the volatility, uncertainty, and opaqueness going on within the markets, this secular trend has growing bullish visibility that, in my view, will have a profoundly positive impact on investors’ portfolios – for those who boldly lean into this opportunity. By definition, this is shaping up as a generational trade.

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

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
Is the Fed in “Panic” Mode?

Sector Spotlight by Jason Bodner
When to Sell Great Stocks…? (Perhaps Never)

View Full Archive
Read Past Issues Here

About The Author

Bryan Perry

Bryan Perry

Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.

Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry

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