by Gary Alexander

June 22, 2022

Last Tuesday, Louis Navellier and I hosted a Teleforum for almost 400 private clients and subscribers to MarketMail. Louis answered over a dozen questions live and gave his views on four major concerns, but our first order of business was to poll our callers on which of four subjects concerned them the most.

Take the same poll now. Which of these subjects concerns you most for the rest of 2022? (Pick only one.)

  1. Inflation
  2. Interest rates
  3. COVID-19
  4. International conflicts

The answers were NOT evenly divided. Of 225 respondents, over 61% chose inflation, 21% chose international conflicts, 17% chose interest rates, and only one person (that’s 0.4%) chose COVID-19.

Before the poll, Louis and I had predicted something along those lines, since COVID fears were waning, and interest rates mostly impact those in the mortgage market or deep into bonds. Even then, interest rates follow inflation – so if you kill inflation, interest rates will likely decline too. Wars drain a nation’s blood and treasure, but the current wars are very far away, whereas inflation impacts everyone, every day.

In essence, these main concerns also replicate the 1970s – a time of rising inflation, rising interest rates (to fight that inflation), and rising Cold War tensions, with an expansionist Soviet Union (under Leonid Brezhnev) which occupied nations on most continents and invaded Afghanistan the last week of 1979.

Agricultural Commodities Index Chart

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

Inflation suddenly burst on the scene in 2021 under Biden’s Presidency. He isn’t entirely to blame, but neither is he as innocent as he claims. At several times on the campaign trail, candidate Biden said, “I guarantee you we will end fossil fuels” and “No more drilling, including offshore. No ability for the oil industry to continue to drill. Period.” That extreme policy was guaranteed to exacerbate energy inflation.

In addition, President Biden passed an inflationary $1.9 trillion spending bill in his first few months in office, a bill which even leading Democratic economist Larry Summers warned would be inflationary.

In early 2021, Fed officials all sang from the same hymnal, saying that inflation would be “transitory” and some inflation would be good after years of low inflation. In an August 2020 statement on their long-term goals and strategy, the Fed said it would welcome inflation above 2% “for some time” to compensate for prior inflation shortfalls of its 2% goal. They also said they could easily control inflation if it got too high.

San Francisco Federal Reserve President Mary Daly, a voting member of the FOMC in 2021, said in a Barron’s interview (April 12, 2021) that, “We have struggled for a whole decade… to get inflation up to our 2% goal.” She deflected inflation fears by saying, “We always have the tools to pull inflation down if it gets too high.” That hubris got my goat, so I wrote a Growth Mail column rebutting her confidence: “File that promise away for future review – or review Paul Volcker’s experiences in 1979-82 to see how he struggled to rein-in double-digit inflation: We had to suffer two recessions that felt like a Depression.”

That quote was in the first of several articles in which I warned of rising inflation and lower GDP growth:

4-13-21: Inflation Will Roar Again – And Probably Soon – Navellier (Growth Mail link)
6-8-21: Enjoy Your GDP “Sugar High” – While it Lasts! – Navellier (Growth Mail link)
6-22-21: The Grand Experiment in “Funny Money” Continues – Navellier (Growth Mail link)

Maybe it’s my background in monetary economics and gold investing, but I have been writing about Fed malpractice and fiscal follies since graduating from college 55 years ago this month, so it really wasn’t that hard to make these predictions. What’s baffling to me is why these PhD Fed economists don’t get it.

Now, let’s look at the current situation, with a special focus on energy, sanctions, Russia, and the ruble.

Sanctions Hurt the Wrong People, Including Us

Sanctions don’t tend to hurt those in power in the offending nation. They tend to hurt the poorer citizens of that nation and the citizens of the victim nations, especially European citizens in this Ukrainian war.

On June 14, Bloomberg reported that, “Biden officials privately express concern that rather than dissuade the Kremlin as intended, U.S. sanctions have instead exacerbated inflation, worsened food insecurity and punished ordinary Russians more than Putin or his allies.” Prices in Europe are up spectacularly, mostly due to the sanctions, but also due to the fall of the euro and the spectacular recovery and rise of the ruble.

On March 26, 2022, about a month into the Russian/Ukrainian war, President Biden tweeted: “As a result of our unprecedented sanctions, the ruble was almost immediately reduced to rubble.”

Some rubble! From March 4 to June 20, 2022, the euro is down 62% to the ruble – falling from 147 ruble per euro on March 4 to 55.7 rubles per euro on June 20. (Inversely, the ruble is up over 160% from its lows, from .0068 euro on March 4 to .0180 euro on June 20.) That makes energy far more expensive in Europe, not only due to the shortages from the sanctions but also from the weaker euro to the ruble.

Ruble versus Euro Chart and Ruble Gold Standard Bar Chart

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

One big reason for the ruble’s revival is that Russia just pegged the ruble to gold, at a rate of 5,000 ruble per gram, giving Russia the only limited gold standard on earth. The reason Russia could do this is that they have been exchanging paper money for gold for 20 years, buying more gold than any central bank.

Russian Gold Reserves Bar Chart

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

Political Double Talk Is Wearing Thin as Elections Approach

Meanwhile, leading Democrats are pushing all the usual political buttons of blaming “corporate greed” instead of looking in the mirror at their own policies. President Biden sent a letter to oil executives June 10, warning them that any “above normal profits” are not acceptable. In that letter, he used variations of the phrase, “Vladimir Putin’s Price Hike” five times as he issued challenges to oil companies to lower their profits and produce more of their products to counter the inflation “that Vladimir Putin’s actions have created for American families.” The President singled out Big Oil for their greedy reluctance to sell more oil (!), even though Biden’s policy was to phase out fossil fuels in favor of other sources of energy.

The President must not realize that energy is already a very volatile and risky business enterprise, with companies failing right and left, even in the best of bullish times. Alex Muresianu of the Tax Foundation wrote that, “Energy was the most volatile sector of the stock market in the 2010s. And when the pandemic arrived, more than 100 oil companies went bankrupt, and the major producers significantly rolled back their operations.” Considering Biden’s anti-fossil fuel promises and the Green New Deal, Chevron CEO Mike Wirth, said “I personally don’t believe there will be a new petroleum refinery ever built in this country again … What we’ve seen over the last two years are shutdowns. We’ve seen refineries closed.”

Secretary of Energy Jennifer Granholm is an ideologue who believes that “Ultimately, the solution to make the entire world energy secure is to move to clean energy. No country has ever been held hostage to access to the sun or access to the wind.” Oh, really? The sun always shines, does it? Clouds and snow and rain never darken our skies? The wind always blows hard enough to drive large generators? Think again.

The art of politics is compromise. The President’s progressive wing better learn that art before November, or else inflation will keep rising and their political dominance in Washington DC will start to unravel.

Navellier & Associates owns Chevron Corp. (CVX) in managed accounts. Gary Alexander does not own Chevron Corp. (CVX) personally.

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

Please see important disclosures below.

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About The Author

Gary Alexander
SENIOR EDITOR

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander

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