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TODAYS COMMENTARY Get a Cup of Coffee & Enjoy Catching Up! If you aren’t reading this daily you are missing out on a wealth of information that could prevent unforced & unnecessary trading errors.

FUTURES LOOK UGLY: European markets are down, Asian markets are down, & at the time I’m writing this, DOW Futures are down -400. Energy stocks, utility stocks, agricultural inputs (fertilizers/pesticides) stocks, meat processor stocks, & commodity futures related to gold, food, & energy are killing it. Biotech is by far the worse performer with many of the more risky plays trading well below book value.

WHY THE MARKETS ARE SPOOKED:

• Inflation numbers will be reported this Wednesday. Given that inflation increased 1.6% YoY from March to April in 2001, we may expect less of an increase from March to April 2022. Nevertheless inflation is still increasing at an unacceptable rate. As YoY inflation came in at 8.5% in March 2022, in order for inflation to continue to accelerate at an unacceptable rate, we would need April 2022 numbers to come in higher than 7% YoY. Consensus estimate for April 2022 is 8.1% YoY. This would mean that inflation for April over the last two years is 12.3%, … which is massive!

• 30 Year Fixed Mortgage Interest Rates are 5.64%. So what right? We still have a housing shortage & people are buying them up as fast as they’re built right? Not so fast. Cash out refinancing was a major driver of economic growth amid the pandemic lockdown years. Who is going to refinance from a 2.5% interest rate to a 5.64% interest rate in this market? This means less cash out refinancing, which not only means less cash in the economy, but also less cash for the banks as well.

• China lockdowns continue. You think we had supply chain issues before? Our dependence on China, particularly Shanghai, have made things much worse!

• Oil, Gas, & Natural Gas are all up significantly. Particularly Natural Gas! The United States is producing Natty Gas at max capacity right now & President Biden has guaranteed Natural Gas shipments to Europe to help offset Russian dependence. Worse still, energy companies aren’t expanding oil production as fast as they could, & for good reason! They fear that the investment in expansion isn’t worth the risk with Biden in the White House. Remember, the current party in power is attempting to put a sunset on the oil & natural gas industry. We were getting roughly 700,000 bbl oil per day from Russia prior to the war. Biden has opened up the strategic petroleum reserve to the tune of 1m bbl per day. But the increase in supply does little to affect demand with summer coming quickly & Europe buying more American oil. & the way oil futures work over time, the price at the pump will only get higher & higher. This isn’t just an issue for transportation & shipping, but also how consumers spend. The more people spend on energy, the less they spend on retail.

• Quarterly GDP Growth Numbers were negative last quarter. Two consecutive quarters of negative GDP growth is the classic definition of a recession. Such a fear puts a cooling effect on equities.

• The Fed has raised interest rates twice. First by 0.25, second by 0.50. Folks, 75bps is not going to cool down inflation. It just cant. In fact it may make things worse. Nevertheless the Fed is offloading the balance sheet, which means sucking money out of the economy (starting June). There is a mountain of uncertainty surrounding this & a general consensus, in my opinion, that they’re doing too little too late after doing too much for too long. The stimulus congress passed in early 2021 was also likely unnecessary. It’s going to be tough to de-stimulate this economy after overdoing it well into covid.

• If the markets continue to plummet, & this may have already happened, expect some nasty margin calls on some small institutions. This means large block sales & amazing selling pressure. Remember the Archaegos fallout.

There’s so much more. The war in Ukraine has not only affected energy prices, but also fertilizers, steel, & grains. The shortage in labor supply is forcing employers to pay higher wages to remain competitive in the labor market. Company revenues are up but EPS is down. The big takeaway? As prices continue to rise people will need to economize on their needs & cut back on their wants. This is already happening, but when things come to a head, we’re looking at a slowdown in consumer spending.

Significant News Heading into 05.09.2022:

• Dow futures fall 400 points as Wall Street’s roller-coaster ride continues

• European stocks retreat as global markets rattled over inflation; Stoxx 600 down 1.5%

• Japan’s Nikkei falls more than 2% as Asia stocks slip; China’s April trade data come in above expectations

• 10-year Treasury yield hits 3.17% with inflation and economic growth in the spotlight

• Social unrest could emerge in Southeast Asia if food inflation surges

• Bitcoin drops below $34,000 to hit its lowest level since January after stock sell-off

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• A Detailed Breakdown of Yesterdays Earnings Beats & Misses

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