War Rages On, SOTU, Markets, Oil, Interest Rates, Multiple Stock Trading

“For to win a hundred victories in a hundred battles is not the pinnacle of skill. To subjugate the enemy without a fight is the pinnacle of skill.”

-Sun Tzu

Day 7

Wednesday, day 7 of the Russian invasion of Ukraine. Russian forces seem to increasingly rely on less-smart ammunition. This of course makes targeting less precise, because from thousands of miles away, Russia seems less and less concerned with avoiding civilian casualties or collateral damage. Besides the increased bombardment of major cities, this large convoy that we wrote about 24 hours ago that seemed to be trying to encircle the capital of Kiev has come to a standstill. The Rumor Mill has them stuck due to either a lack of gas, or food, or both. Maybe just to allow those kinds of supplies to catch up. Logistic support for the movement of large troops does not seem to be a Russian force a week after the start of this war.

While you slept, assuming you slept, commodities such as crude oil, natural gas, corn, and wheat continued to rise in dollars. From Wednesday, Russian financial markets will remain closed for a third consecutive day, Japan reportedly jammed fighter jets as a Russian military helicopter entered Japanese airspace, North Korea, to defend Russia, criticized US, EU and NATO policies, and Sberbank (Russia’s largest bank) withdrew from the European market after subsidiaries in Austria, Croatia, Slovenia, Czech Republic and Hungary have faced a wave of withdrawals.


In his first “State of the Union” address, President Biden declared Russian President Vladimir isolated from the rest of the world and hailed Western unity in response to the crisis in Eastern Europe. Perhaps the most chilling thing President Biden said Tuesday night regarding the Russian/Ukrainian conflict was this… “This is a real test, it’s going to take time.” Take time, I think it’s negative. Russia can wear down Ukrainian forces over time, especially if it is uninterested in taking casualties while committed to the old Soviet-style military doctrine of “overkill”.

Perhaps this plays precisely into Putin’s hands, although I don’t really see an alternative to how the US, UK, EU and NATO have reacted. Perhaps what Putin wants is a sort of rekindled “cold war” with Western powers as a way to restore Russia’s place on the world stage. I’m not saying it makes sense, and it certainly isn’t warranted. What he did in just a few days was to unite Western democracies in a “Cold War” style posture that formed an identifiable “front line” where necessary. Now Putin knows how far we will go. If one thought of the “cold war” as the “glory days” of the Soviet Union, one could try something that at first might have seemed quick and less painful than it has already become like way to get there. Once there, even if it’s expensive, that person might see no benefit in failure.

The sounds of silence

Like a chime hanging in the wind a thousand yards down the road. A warning. Like the coyote hunting at night in search of food, we also hunt. In search of fact. In search of the truth. The good news is that US equities appeared to rally in the closing minutes of the day through the closing bell…for a fourth straight session. Selling during the regular 6:30 a.m. session was wide however, trading volume was heavy. Even heavier than Monday. Across the full range of US equity indices, The Dow Jones Industrials, Dow Jones Transportation, S&P 500, S&P Midcap 400, S&P Small-cap 600, Nasdaq Composite, Nasdaq 100 and Russell 2000 all fell at least 1.59% (S&P 500) for the day, but no more than 1.93% (R2K).

There was only one SPDR ETF from the S&P sector that turned green for the session. As you would expect, this sector was Energy (XLE) , up 1.01%. Defensive sectors outperformed cyclicals, as six of the 10 sector ETFs that closed in the red fell more than 1%. The Financials sector (XLF) trailed the market at -3.69% as investors bought across the spectrum of US Treasuries, putting significant pressure on the yield curve. Unsurprisingly, the Dow Jones US Defense Index (not to be confused with the Defensive Index) climbed a further 2.81%, again led by Lockheed Martin (LMT) and Northrop Grumman (NOC) .

creatures of darkness

As the VIX made its way higher…

… readers might be surprised to see that the CBOE’s total put/call ratio for options shows no activity at this crisis level…

… Yet the spread between the yields of the US ten-year note and the US three-month Treasury bill, which is the most accurate predictor (and more economically important than the 10/2 spread) of any Economic contraction coming into our arsenal, has virtually collapsed in recent days.

Is all of this because commodity prices are rising in line with US dollar valuations? It’s a scary thought. Take a look at the rolling contract for WTI Crude futures over the past three months…

…then let it sink in the sense that this is Tuesday’s closing price, WTI crude traded above $111 a barrel overnight.

Senator Blutarsky?

Zero point zero. The Institute for Supply Management released its February manufacturing survey on Monday. The Census Bureau released January construction spending data. With overall figures of 58.6 and 1.2% (m/m), both reports appeared positive. That’s until the Atlanta Fed releases its updated GDPNow model for a real-time snapshot of first-quarter 2021 US economic growth based on reported data points.

The GDPNow model’s estimate for the US first quarter was reduced on Tuesday from 0.6% to 0.0% (q/q SAAR). The model actually adjusted its estimate of real consumer spending upwards, but significantly reduced the contribution of net exports to the bottom line. The model won’t be updated for another week (March 8) when the full US Trade Balance and Wholesale Inventories report, both for January, becomes available. This brings us to the “big event” of this morning.

In a bad place

Fed Chairman Jerome Powell will testify before the House Financial Services Committee this morning. Now, I won’t throw a stone to be behind the turns, because I myself was one of the last holdouts of “Team Transitory”. I still believe that without the war in Eastern Europe, US consumer inflation would decline by March/April. That said, there is no “otherwise for war” because there is a war. What is, is… what isn’t, isn’t. Adapt. Overcome.

The president bragged about the US economy last night, and the US recovery from pandemic lows has been remarkable. What does the Fed Chairman do now, with the January CPI showing 7.5% growth, the February CPI, which will be printed next Thursday, is expected to be worse, and with energy prices and from the diet i see, no relief going on, unless for march. All this on top of an economy that the Atlanta Fed’s own model no longer sees as growth at all?

Chicago futures are now pricing near a 100% chance of a 25 basis point rate hike (federal funds rate) on March 16, and a roughly 71% chance of the FOMC getting 125 basis points. rate hikes for all of 2022. I stuck with my prediction that the Fed only gets 75 to 100 basis points of hikes, maybe less. Will this be enough to blunt demand, which seems to be the only tool in the “price stability” toolbox at present? Well, with the destruction of demand that naturally accompanies high prices, that may be the best we can do. Cold wars are expensive. More hot wars. The “peace dividend” of the 1990s seems so distant.


– At the company’s Investor Day on Tuesday, Chevron (CVX) announced increased investment in US production, along with an increased share buyback program. My favorite raw/nat gas name in the US remains APA Corp (APA), formerly Apache Oil. I stay long both as well as Hess Corp. (HES) and Civitas Resources (CIVI) in this space.

– Sarge fave Advanced Micro Devices (AMD) has been roasted lately. The shares were down 7.7% on Tuesday. I haven’t added yet, given that stocks are still trading well above net basis. I’d rather see if AMD can hold the 200-day SMA on Wednesday after closing within pennies of that line.

– Apple (AAPL) halted product sales in Russia after being told to do so by a Ukrainian government official. It doesn’t affect my decision to stick with the name for long. However, I would like to see some sort of statement from management indicating an expected material impact.

– SoFi Technologies (SOFI) rallied overnight after beating expectations for fourth quarter revenue and earnings. SoFi also took projected revenue for fiscal year 2022 above the Wall Street consensus opinion despite the first quarter reduction below that opinion after incorporating a $30-35 million negative impact due to the extension of the federal moratorium on the payment of student loans which is due to expire on May 1. position that I added to self-defense.

Economy (all Eastern times)

08:15 – ADP employment report (February): Expected 383K, last -301K.

10:30 a.m. – Oil inventories (weekly): Last +4.515M.

10:30 a.m. – Fuel stocks (weekly): Last -582K.

The Fed (all Eastern times)

09:30 – Speaker: Saint Louis Close. fed. James Bullard.

10:00 a.m. – Speaker: Federal Reserve Chairman Jerome Powell.

14:00 – Beige Book.

Today’s Earnings Highlights (BPA Consensus Expectations)

Before the Open: (ANF) (1.27), (DLTR) (1.27)

After the close: (AEO) (.35), (SNOW) (.03), (SPLK) (-.20), (VEEV) (.88)

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