2022 Week 25

THIS WEEK

• Fuel
• Inflation
• Recession

Fuel

Gimme fuel, gimme fire Gimme that which I desire - Metallica

• No slow down and consumer demand for fuel
  • Summer driving season is upon us
  • Two years of pent-up vacation demand
• Diesel remains elevated
  • Ripple effect into transportation prices
  • Will continue to fuel inflation
• Energy companies hesitant to invest in wells and infrastructure
  • Cancelation of Keystone pipeline has companies wary to invest
  • Current administration is tough on oil & gas, but avoided an outright ban on fracking
• THOUGHTS: November election may be an early indicator
  • Republican victories in mid-terms could mean a possible shift in the presidency
    • A republican administration may be more favorable to oil & gas, but no guarantee
  • Could see a second bull rally in energy sector if we avoid a recession

Inflation

Inflation feels good at first, but the endgame is grim - Jens O. Parsson

• Inflation numbers high again… we are shocked!!

  • If we intend to fight inflation with higher interest rates it will take time to work through the system

  • “This time it’s different” not exactly, but our post-COVID habits have changed

    • OBSERVATION :: It’s always the same, but a little different. Something always changes

  • J. Powell raise target rates 75 basis points, between 1.50% - 1.75%

    • It was an aggressive move, but they are feeling the political pressure to “do something”
    • Wall Street already assumes there will be no “soft landing”
    • THOUGHT :: Might see a panic if we cross the psychological threshold of 2.25% - 2.50% (2019 high)

  • Demand is back to pre-COVID levels, but how we are spending has changed

  That the high inflation has been so persistent has been a surprise, certainly to me. But so too has been the ongoing pandemic – the vaccines that became available over a year ago didn’t bring an end to it. And the Russian invasion wasn’t even on the radar screen. - Mark Zandi

  

Recession

It’s a recession when your neighbor loses his job; it’s a depression when you lose yours. - Harry S Truman

• Make no mistake, the Fed intends to fight inflation by tamping down on demand
  • There is an INCREASING high probability this will go too far and pitch us into a recession
  • Wall Street is already reacting and punishing the market
• OPINION :: Be on the lookout for several things
  1. Decline in demand for gasoline, will signal a strong pull back in consumer spending
  2. Real estate listing price reductions
  3. Companies will reduce projected earnings / fail to meet earnings expectations