Market comment 2022

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The tight global market for grains, vegetable oil, and fertilisers was probably one of the many reasons that Putin chose this moment to strike, calculating – wrongly it may prove – that the West would not dare to squeeze him too hard.

The world faces what amounts to a commodity “black swan” across the gamut of primary resources. Oil, gas, coal, and the “ags” are all spiraling higher together, with metals catching up fast. It is a systemic stagflation shock, an intractable problem for central bankers. It acts like a war reparations tax on the economies of importing nations and is ultimately contractionary.

 Putin’s energy shock is broadening into a world food crisis, so brace for rationing

Why and when did conquest become unprofitable? Angell argued that everything changed with the rise of a “vital interdependence” among nations, “cutting athwart international frontiers,” which he suggested was “largely the work of the past forty years” — beginning around 1870. That seems like a fair guess: 1870 was roughly when railroads, steamships and telegraphs made possible the creation of what some economists call the first global economy..  In such a global economy, it’s hard to conquer another country without cutting that country — and yourself — off from the international division of labor, not to mention the international financial system, at great cost. We can see that dynamic happening to Russia as we speak.

 Opinion | Russia's Invasion of Ukraine Will Only Make It Weaker - The New York Times

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“Frankly speaking, they tricked us,” the officer replies, referring to his military superiors sitting in Moscow. “Everything we were told was a fake. I would tell my guys to leave Ukrainian territory. We’ve got families and children. I think 90% of us would agree to go home.” The three-minute video was filmed under conditions of duress. The soldiers are evidently scared. And yet there are numerous similar interviews with Russian captives which have been circulating on Ukrainian social media channels, expressing similar sentiments. Asked what he would tell his commanders, one said bluntly: “They are faggots”. Another phrase frequently used is oni obmanuli nas: they duped us. Eight days after Vladimir Putin’s invasion it is clear that a significant number of his servicemen are demoralised and reluctant to fight. Some have given themselves up.

 Demoralised Russian soldiers tell of anger at being ‘duped’ into war | Russia | The Guardian

With its land invasion apparently stalled, and with little progress made in the advance of a Russian super-column towards Kyiv, Moscow is increasingly turning to indiscriminate shelling and bombing of civilians. The objective, Kyiv believes, is to spread panic and terror. Multiple cities were hit on Saturday. They included Bila Tserkva, south of the capital, and Kharkiv, where residents spent another night in underground shelters and metro stations. There was fierce fighting in Bucha, just north-west of Kyiv, with reports of civilian casualties.

Meanwhile, a desperate humanitarian disaster was taking place in Mariupol. An apparent agreement to evacuate 200,000 people from the port city fell apart because of what Kyiv said was continuous Russian shelling. About 500 people managed to exit from the nearby town of Volnovakha. At least 200,000 people remained trapped in Mariupol on Saturday without heat, electricity and water. “Everything has been hit. Apartment blocks, shops, the hospital. It’s like world war two,” Anatoliy Lozar, a volunteer defender, told the Observer. He added: “We won’t give up. We will fight to the very last man.”

 Ukrainians defy Putin’s hopes of swift victory as 66,000 return from overseas to fight | Ukraine | The Guardian

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The 25-year-old has been speaking regularly to her mother, who lives in Moscow. But in these conversations, and even after sending videos from her heavily bombarded hometown, Oleksandra is unable to convince her mother about the danger she is in. "I didn't want to scare my parents, but I started telling them directly that civilians and children are dying," she says. "But even though they worry about me, they still say it probably happens only by accident, that the Russian army would never target civilians. That it's Ukrainians who're killing their own people."

 Ukraine war: 'My city's being shelled, but mum won’t believe me' - BBC News

Four days after Russia began dropping artillery shells on Kyiv, Misha Katsiurin, a Ukrainian restaurateur, was wondering why his father, a church custodian living in the Russian city of Nizhny Novgorod, hadn’t called to check on him.

“There is a war, I’m his son, and he just doesn’t call,” Mr. Katsiurin, who is 33, said in an interview. So, Mr. Katsiurin picked up the phone and let his father know that Ukraine was under attack by Russia.

“I’m trying to evacuate my children and my wife — everything is extremely scary,” Mr. Katsiurin told him.

He did not get the response he expected. His father, Andrei, didn’t believe him.

“No, no, no, no stop,” Mr. Katsiurin said of his father’s initial response.

“He started to tell me how the things in my country are going,” said Mr. Katsiurin, who converted his restaurants into volunteer centers and is temporarily staying near the western Ukrainian city of Ternopil. “He started to yell at me and told me, ‘Look, everything is going like this. They are Nazis.’”

As Ukrainians deal with the devastation of the Russian attacks in their homeland, many are also encountering a confounding and almost surreal backlash from family members in Russia, who refuse to believe that Russian soldiers could bomb innocent people, or even that a war is taking place at all.

 Ukrainians Find That Relatives in Russia Don’t Believe It’s a War - The New York Times

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There is a temptation to seek rational answers to these questions. The reason we are in this dark place is the failure of the rational to dominate in the Kremlin. We just do not know how far Putin -- who over the course of two weeks has tried to encircle a capital city, placed his strategic nuclear defenses on a higher level of alert, used cluster munitions and attacked a nuclear power plant -- will go. Again and again, the war fails to make sense. It seems to be outside the reaches of what I thought our shared reality was. We can only hope it does not stay that way..

 Analysis: Vladimir Putin's clumsy military campaign in southern Ukraine makes little sense - CNN

French Marshal Ferdinand Foch once said that the first task is to answer the question De quoi s’agit-il?, or “What is it all about?” The answer with respect to Ukraine, as with most other strategic problems, is less straightforward than one might think. At the most basic level, a Russian autocrat is working to subjugate by the most brutal means possible a free and independent country, whose independence he has never accepted. But there are broader issues here as well. The other wars of the post–Cold War era could be understood or interpreted as the consequence of civil war and secession or tit-for-tat responses to aggression. Not the Russian attack on Ukraine. 

This assault was unprovoked, unlimited in its objectives, and unconstrained in its means. It is, therefore, an assault not only on that country but on all international norms of decent behavior. A broader world order is at stake; so too is a narrower European order. Putin has made no secret of his bitter opposition to NATO and to the independence of former Soviet republics, and it should be expected that after reducing Ukraine, he would attempt something of a similar nature (if with less intensity) in the Baltic states. He has brought war in its starkest form back to a continent that has thrived largely in its absence for nearly three generations. And his war is a threat, too, to the integrity and self-confidence of the world’s liberal democracies, battered as they have been by internal disputes and backsliding abroad.

 The Strategy the West Needs to Beat Russia - The Atlantic

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Over the past few days, Western traders and refineries have slashed their purchases of Russian oil, with some ceasing to transact with the Russians altogether. Meanwhile, oil giants Shell and BP both announced that they are abandoning partnerships with Russian state-owned oil companies and halting extraction projects in the country. “The enablers of oil exports — the banks, insurance companies, tanker companies and even multinational oil companies — have enacted what amounts to a de facto ban,” Tom Kloza, the global head of energy analysis at the Oil Price Information Service, told the New York Times last week.

 The West’s Sanctions On Russia Are Working Too Well

Watts, who served in the U.S Army and went on to be recruited by the FBI to assist in combating terrorism, claims the unpopularity of the war among Russian citizens will continue to grow and, combined with the sanctions that are already crippling the country's economy, may threaten his tenure as leader of Russia. The former FBI official explained that Putin won't be able to disguise the war dead, which will continue to grow because the Ukrainians are putting up such a stiff resistance that Putin -- and his generals -- appear to have not anticipated. "He’s got a disaster on his hands, for a couple reasons," Watts told Swisher. "Militarily, even if he is successful, he’s taking casualties. That will filter back home. You cannot disinformation your way out of 10,000 dead. It’s just not possible. And you’re going to have war-wounded. The mothers in Russia have always been the pushback against Putin during these conflicts. This is going to be next-level scale." Pointing out that it is hard to occupy a country, the analyst suggested Putin will be unsuccessful at installing a compliant government that will be able to control the populace, meaning the Russians will need an unsustainable 800,000 soldiers to tamp down an insurgency that Watts predicts "won't go away." Add to that, dissatisfaction over the collapsing economy and the crippling sanctions that are also afflicting Russian oligarchs could lead to Putin's downfall.

 'He’s got a disaster on his hands': Expert says Putin could see Moscow fall within six months - Alternet.org

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With WTI at over $107 per barrel, and Brent at $111, energy stocks are setting record highs and buybacks are in the air. Bloomberg reports that a minimum of 21 major North American energy companies engaged in stock buybacks in Q4 2021, and that buybacks continue to gain significant momentum as Russia’s invasion of Ukraine escalates. In total, analysts expected big oil to conclude $38 billion in share buybacks this year, and possibly more, with all seven oil supermajors pursuing the return to shareholders based on bumper profits. That would be more than at any time since 2008..

 Big Oil Is Planning $38 Billion In Buybacks This Year | OilPrice.com

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Guess what? Fiscal policy is already contractionary:



And here further sobering signs:



Building inventory isn't sustainable, meaning production will soon slow down quite a bit.

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China's securities regulator said on Thursday both China and the United States have a willingness to solve their audit disputes, and the outcome depends on the wisdom of both parties. The China Securities Regulatory Commission said whether Chinese companies listed in the United States are delisted in the future depends on the progress and results of the audit and regulatory cooperation between the two countries.

 Outcome of China-U.S. audit disputes depends on wisdom of both parties - regulator | Reuters

A nasal spray that blocks COVID-19 infection and treats people who are already sick could be available within the next six months, according to researchers at Cornell University. Their study discovered a small molecule that people can spray into their noses which prevents COVID from infecting human cells.

 'First-of-its-kind' nasal spray that prevents COVID-19 could be available this year - Study Finds

Despite the U.S.-led ban on importing Russian oil that some of Washington’s allies will also implement, Russian oil in significant volumes will continue to flow into various leading oil-importing countries, so adding to the overall global supply and affecting oil prices. In oil trading terms, then, it is erroneous to assume that all circa-11 million barrels per day (bpd) of Russian oil supply has somehow been removed from the global supply/demand matrix and that this will tighten that oil pricing matrix in favor of further gains. This was highlighted last week by Russian Deputy Prime Minister, and former Energy Minister, Alexander Novak, and supported by the current top global oil importer, China, and the country set to take over this mantle, India.

 Russian Crude Continues To Flow Despite Harsh Sanctions | OilPrice.com

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Of 195 nations on earth, just 34 are liberal democracies — where citizens have rights to free speech, free press, free and fair elections, and other liberties — according to a study by Varieties of Democracy. Living in a stable democracy leads to a longer and more fulfilling life, the data shows:

1. Health: If you live in a democracy that’s at least 25 years old, you're likely to live 14 years longer than people in autocracies, a University of British Columbia study found. Babies in mature democracies are 78% less likely to die in childbirth.
   
2. Wealth: Democratization boosts a nation's wealth 20% over 25 years.
   
3. Education: Democratization bumps citizens' enrollment in secondary education by 70%.
   

 Democracy is good for your health

As for where to invest now, Goldman brushes aside the growth versus value obsession and says focus on alpha — companies that can innovate, disrupt, enable and adapt. As well, look for companies that can deliver high and stable margins, instead of those with higher-revenue and record-high valuations that were chased in the last cycle. Also important — building a wall around portfolios using broad diversification across assets, geographies and sectors, i.e. real estate and commodities. Hedging is also important, and with the VIX volatility index VIX, 2.95% below 20, S&P 500 puts — an option that offers the right to sell at a specific price by a specific date — are an attractive hedge. Defensive value and high-dividend yield stocks are another area they like.

There may be little upside left in this stock rally, says Goldman Sachs. Here's where it advises investors to put their money now. - MarketWatch

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Chinese search engine giant Baidu Inc said on Thursday it is exploring options, after the company was added to a U.S. securities regulator's list of companies that face the risk of being delisted. Baidu and its streaming affiliate iQIYI (IQ.O) will continue to comply with applicable laws and regulations in both China and the United States, the company said.

China's Baidu exploring options after U.S. delisting risk | Reuters

CNBC’s Jim Cramer on Thursday predicted that Wall Street will price in a bottom soon and the market will be set for a “tremendous rally.” “Suddenly, the conventional wisdom says there’s too much of everything, so prices are going to come down. Stock prices are anticipating that. And that’s why the only sectors that sustained rallies in the first quarter were the oils, because they’ve cut back, and the utilities, which really act well only when there’s going to be a heavy recession,” the “Mad Money” host said. “We price in this negativity far more quickly than you’d think. Maybe it takes a month, maybe only a few weeks. But it will happen and once it does, we’ll be poised for one incredible, tremendous rally,” he later added.

Cramer: Market will find a bottom soon and is poised for a rally