AM Brew, Jun 21st 2022

Tuesday is shaping up to be a nice snapback bear-market rally. As of 4:38 a.m. EDT, US equity Futures are up around 2%, the FTSE is up 57 bps and the Nikkei was up 1.84%. The pound, which has been absolutely pounded recently, is up 46 basis points in morning trading. Asia ex-China had its first up day after 8 straight down days. The market did need a pause.

Our friend Crypto had a wild weekend. Saturday started out in a panic, with BTC falling below $18k and ETH to $900. Both recovered nicely and are reasonably strong right now, with BTC above $21k and ETH above $1150. We are giving the coin of the day award to Solana. When BTC was crashing the other day, Solana was flat. That got us wondering, so we googled "Ethereum killers". The lists are different but Solana seems to top everyone's list. Evidently its able to do smart contracts fast, efficiently and scalably. For those interested in Crypto, Solana merits some research. This morning, with BTC & ETH up 4% to 4%, Solana is up 13%, and its small market cap gives it plenty of room for upside.

At the Qatar Economic Forum, Exxon's CEO said that oil markets could be tight for 3 years or more due to the recent lack of investment. The combination of covid demand destruction and ESG has led to under-investment in fossil fuels and now the world is growing again. JetBlue bumped their offer for Spirit by $2 to $33.50. They wouldn't be doing this unless the last few months of bookings were strong across the industry.

The impossible keeps happening. Look at the Russian Ruble, which just hit another new high:

Despite the rate cuts to help Russia's exports, the Ruble is still very strong, ostensibly because they are getting paid for oil in Rubles now. We talk about the impossible because it keeps happening: negative interest rates & oil prices, bitcoin rising 70,000x in 12 years, a global pandemic shutting the world down etc. The ruble as the strongest currency at this time? Seems impossible but its true.

China's impending takeover of Taiwan would bring more of the impossible, likely a lot more. Think about no prescription drugs, think about no iPhones. An economic war with China would be devastating to both nations, but of course, China is better prepared in the short run. Just a few weeks ago, Shanghai was locked down. Russia's despicable invasion of Ukraine is a harbinger of what Taiwan may look like. Imagine if Texas were to secede from the union in a democratic vote where 80% favored independence. You can bet that there would be plenty of Americans wanting a Putin-like invasion to restore things to the way they were. Taiwan is a similar situation and China has that argument for reunification. Xi will be immortalized if he moves soon, while he is still healthy and in charge. Don't postpone your electronics purchases and stock up on prescription medications, as medicines past their useful dates are better than none. Mexican stocks could be the big beneficiary of any de-globalization, and this could be a big big winner for those with a 7 year time horizon. At a minimum, Mexican stocks merit further research.

Bloomberg is writing that sentiment is being aided by Biden's comments yesterday that "recession is not inevitable." Since when did markets listen to rhetoric like that? I hope that is not the reason for this morning's strength.

Copper is weak even in the face of potential worker strikes at massive producer Codelco. Is Dr. Copper forecasting recession? It sure looks that way. Gold seems to have lost its luster as disaster insurance - gold has been extraordinarily weak through this bear market.

Finally, oil is strong this morning after last week's $10 swan dive. Its our feeling that until oil breaks, the economy will be weak. That $10 drop looked like the start of weakness. Its likely that there will be a holiday on the federal $0.184 gasoline tax. Nice gesture, but history won't judge kindly of politicians foolishly trying to appease voters at a time when the environment is voting hot. Its painful to fill up 20 gallons at $5 and have to fork over $100 per tank of petrol, but an 18 cent decrease is just going to move that needle to $95 - whether you forked over $95 or $100, you are still out a c-note. Look for Biden to extend the moratorium on student loan payments past September 1st - nobody is talking about it, but this is a big deal - if and when these payments are restored, its going to be painful for a lot of people who have learned to live without paying this obligation.

Yesterday, our DeMark team put out a video update you might enjoy.