by Louis Navellier
May 23, 2023
Tax revenues have slowed down dramatically, partly due to a slowdown in capital gains tax receipts, causing pressure on the President and Congress to accelerate their negotiations on raising the debt ceiling.
California has historically become a boom/bust state for tax collections, since approximately 3,000 people pay the vast majority of the state’s taxes, especially from capital gains. As a result, California has gone from a surplus a couple of years ago to a big deficit now. The federal government has also increasingly become more dependent on capital gains for tax revenue, but due to lackluster stock and real estate markets, it appears that the federal government’s deficit ceiling deadline may occur sooner than later.
Last week, the Biden Administration canceled a second meeting with Congressional leaders set for last Friday to debate an increase to the deficit ceiling. Officially, this delay will allow the White House and Congressional staff members more time to prepare for negotiations over budget cuts that the Republican-led House of Representatives is demanding. If a deal is not reached by June 1st, pension payments for federal retirees could be postponed to provide lawmakers more time to hammer out details. A partial government shutdown is also possible, which has happened before, but that would be the last resort.
In a Bloomberg interview last week, Treasury Secretary Janet Yellen said, “If Congress fails … it really impairs our credit rating. We have to default on some obligation, whether it’s Treasuries or payments to Social Security recipients.” In Japan for a meeting of G7 finance ministers, Treasury Secretary Yellen added this hopeful note: “I think the negotiations are very active. I’m told they have found some areas of agreement,” but in the wake of the cancelled Friday meeting with Congressional leaders, she may be guilty of wishful thinking going into the G7 meeting slightly embarrassed at our financial ineptitude.
The G7 meeting in Japan will be interesting this week. They can’t seem to agree on how to fight global warming, or climate change, or how to label various fuels. First, Germany disagrees with Britain and France over support for natural gas. In fact, Germany has strived to label natural gas as “green.” In North America, we do not even know what to do with all the natural gas we have, which is why North Dakota “flares” the natural gas in their crude oil fields – since there are no pipelines to transport natural gas.
So, if California, New York, Britain, and France succeed in curtailing natural gas usage, the excess natural gas will just be flared away. I cannot fathom such stupid policies and remain perplexed about the growing war against natural gas, especially since natural gas will be needed to make the hydrogen that the green folks are calling for as the “fuel of the future.” (Currently, any such “green hydrogen” is cost prohibitive.)
Speaking of carbon emissions, Canada’s Alberta province is burning, as are the boreal forests in Russia, from thunderstorms. In Alberta alone, over 1 million acres have burned this year, causing 30,000 people to relocate. The annual wildfires in Alberta often disrupt crude oil and natural gas production, as 320,000 barrels per day of oil equivalent, representing 3.7% of Alberta’s production, were offline last week.
The boreal forests in Alberta and Russia have ground characterized by peat, whose fires are next to impossible to put out until snow falls on the forest floor. Due to an early start to the boreal forest fire season this year, 2023 will likely set the record for carbon emissions. Naturally, the G7 has no plan to squelch these seasonal forest fires, so the green police literally cannot see the forest through the trees.
ScienceAdvances published a study last year forecasting that the annual boreal forest fires in the Northern Hemisphere could release 12 gigatons of carbon dioxide per year into the atmosphere. Historically, forest fires have accounted for approximately 25% of global carbon emissions. By comparison, the International Energy Agency said that carbon dioxide emissions from energy and industry globally hit a record of 36.8 gigatons in 2022, mostly due to China, India, and other emerging economies; so for anyone worried about carbon dioxide emissions, which were not originally named in the Clean Air Act, major problems include natural forest fires from thunderstorms as well as fossil fuels, especially coal, in emerging economies.
As a result, I am not sure the G7 or COP28 can do much to impact global carbon emissions. Naturally, a super volcano could also erupt and boost carbon emissions, and there is virtually nothing that mankind can do about that, other than to maybe tap into geothermal energy for electricity generation.
According to Clarkson’s Research, there are 625 liquid natural gas (LNG) ships in the world and the fleet will be expanded to 907 ships by 2027. By comparison, there are 849 very large crude oil carriers (VLCC) operating around the world and the fleet will be expanded to 903 by 2027. In other words, by 2027, there will be four more LNG carriers than VLCCs, so despite a war on natural gas by California, New York, Britain, and France, the rest of the world is following Germany’s advice and increasingly turning to natural gas. Obviously, the chaos surrounding Russia is boosting the fleet of LNG carriers and since its natural gas pipelines to Europe were blown up, even Russia is now fueling LNG carriers.
Speaking of Russia, the International Energy Agency (IEA) reported that Russian crude oil exports rose by 50,000 barrels per day in April to a post invasion high. Almost 80% of Russian crude oil exports go to China and India, according to the IEA. Specifically, Russia shipped 5.2 million barrels of crude oil in April. China received 2.1 million of those barrels and India got 2 million barrels. In a report on Tuesday, the IEA said, “Russia seems to have few problems finding willing buyers for is crude and oil products.” However, due to lower crude oil prices, Russia’s crude oil revenue has declined 27% in the past year.
In other energy news, the patent on China’s CATL’s iron-phosphate (LFP) battery has expired, so the big South Korean battery manufacturers, namely LG Energy Solution, Samsung SDI, and SK On are all now developing LFP batteries that utilize no expensive cobalt, nickel, or magnesium. The advantage of LFP batteries is that they can be 100% charged, do not catch on fire, and are cheaper. The disadvantage of LFP batteries is that they are heavier and lose range in cold climates. Currently, LFP batteries are being used in cheaper electric vehicles (EVs) as well as energy storage (e.g., powerwalls). So far, SK On has a head start on LFP batteries compared to its South Korean rivals. Since SK On has a big battery plant in Georgia to supply predominately Ford and VW Group, its LFP batteries could help make EVs more affordable.
Chinese consumers prefer LFP batteries and, due to a glut of EVs in China, price wars have broken out, with BYD being the big winner. The other Chinese EV companies are now looking at exporting their EVs, since selling in China has become less profitable. Longer-term, the threat of Chinese EVs with cheaper LFP batteries being exported to Europe and North America is expected to make domestic EV manufacturers nervous. Chinese EV sales rose 26% in the first quarter, while overall Chinese vehicle sales contracted 6.7%, so EVs now account for approximately 27% of China’s domestic vehicle sales.
Retail Sales at Big Box Stores in April Were Disappointing
On Tuesday, the Commerce Department announced that retail sales in April rose by a disappointing 0.4%, which was significantly below economists’ consensus estimate of a 0.8% increase. Due to lower fuel prices, gas station sales declined by 0.4% in April. Excluding gas stations, retail sales rose 0.6%.
In the past 12 months, retail sales have risen just 1.6%, well below the annual pace of inflation. The bright spots include online retail sales, up 1.2% in April and +8% in the past 12 months, and spending at bars & restaurants, up 0.6% in April and +9.4% in the past year. But consumer spending at department stores, electronic stores, and furniture/appliances all declined in April. Overall, seven of the 13 retail categories surveyed in April rose, so U.S. economic growth persists, but at a snail’s pace.
The U.S. consumer remains the driving force behind U.S. economic growth. Typically, consumer spending picks up in the spring and summer months, but spending on higher priced durable goods, like appliances remains soft. For example, Home Depot reported on Tuesday that its same-store sales in the U.S. declined 4.6% in the first quarter and warned that it expects its fiscal 2023 sales to decline 2% to 5% compared to 2022. This is the first forecasted annual sales decline for Home Depot since 2009. Sales at Home Depot remain a good barometer that discretionary consumer spending is waning.
Another barometer for consumer spending is Target, which on Wednesday reported better than expected first-quarter results. However, Target warned that the consumer remains cautious and cited “softness” in discretionary merchandise such as apparel and home goods. Target’s second- quarter guidance was below analyst estimates and cited that consumers continue to cut back on non-essential items.
Finally, Wal-Mart on Thursday reported stronger-than-expected first-quarter sales and operating earnings, and raised guidance for its fiscal year. In the past quarter, Wal-Mart’s same-store sales rose an impressive 7.4%. Groceries and on-line sales are helping to boost Wal-Mart’s results. Thanks to Wal-Mart’s positive guidance, optimism for consumer spending is rising. Amazingly, the Atlanta Fed raised its second-quarter GDP estimate to a 2.9% annual pace this week, up from its previous estimate of a 2.7% annual pace.
There’s some good news on the labor front. On Thursday, the Labor Department reported that weekly unemployment claims declined to 242,000 in the latest week, compared to 264,000 in the previous week. Continuing unemployment claims declined to 1.799 million in the latest week, down from a revised 1.807 million. Overall, the unemployment surges in previous weeks seem to be cooling off a bit, since the four-week moving averages of unemployment and continuing claims both declined slightly.
Navellier & Associates owns Volkswagen Ag. (VWAGY) in managed accounts and Wal-Mart Stores Inc. (WMT), and Home Depot (HD), in a few managed accounts only. We do not own Target (TGT) or Ford Motors (F). Louis Navellier and his family own Volkswagen Ag. (VWAGY) via a Navellier managed account. He does not own Home Depot (HD), Wal-Mart Stores Inc. (WMT), Target (TGT), or Ford Motors (F) personally.
All content above represents the opinion of Louis Navellier of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
Global Leaders Fail to Lead (or Even Compromise)
Income Mail by Bryan Perry
Regional Banks Are Setting Up for a Summer of Tough Love
Growth Mail by Gary Alexander
In This “Age of Funemployment,” Is a Recession Possible?
Global Mail by Ivan Martchev
Narrow Market Breadth Continues to Concern Investors
Sector Spotlight by Jason Bodner
The Market’s “Doldrums” Are Well into Overtime
View Full Archive
Read Past Issues Here
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.
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 email@example.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.