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US midterms: An opportunity for voters to choose their economic future

This podcast was originally published by the BBC here: https://www.bbc.co.uk/sounds/play/w172ydq57tyy2z0

The midterms decide who controls Congress as well as state legislatures and governor’s offices. Rahul Tandon is joined by Dianne Brady, assistant managing editor of Forbes from New York and Tony Nash, the founder of Complete Intelligence in Texas.

Billions of US dollars are being spent on the election campaign adverts that voters will be seeing and hearing in the run-up to the elections – but is it worth the investment?

And has the economic situation in the US overshadowed the overturning of Roe v Wade?

Transcript

Rahul

Hello, and welcome to Business Matters here on the BBC World Service. I’m Rahul Tandonin-depth. On the program today, we’re taking an in depth look at the US midterms. As millions of Americans get ready to vote, we’re going to be looking at the economic factors that are going to have a huge impact on their decisions. I’ll be joined throughout the program, as always, by two guests on opposite sides of the world. We have Dianne Brady, assistant managing editor of Forbes, who’s in New York, was on the program just a couple of days ago, but she did so well, we decided to bring her back. Diane, is it exciting in New York? Are people gripped by election fever?

Dianne

Well, yes and no. Let’s just say New York is considered a flyover state by some, so I don’t think this would be considered a swing state. But yes, lots of excitement, of course, as we look around the country, and everything feels high stakes.

Rahul

It does indeed. The laugh you heard there was from Tony Nash, who is the founder of Complete Intelligence, who’s in Texas you need quite a lot of intelligence to understand the midterms. I think, Tony.

Tony

I’ve never heard of New York described as a fly overstate.

Dianne

All right, well, I’m a Canadian turned American citizen, so forgive me all listeners who think I’m being cavalier here, but I think it’s not inaccurate.

Rahul

But I don’t think there’s no need to ask for forgiveness so far in the program.

Dianne

The election is over.

Rahul

Yeah, maybe by the end of it you might need more than forgiveness, but who knows? Tony, for our listeners who will have heard of the midterms, can you try and explain what happens here? Because there’s lots of terms that we’re going to use. The Senate, the House, governors. I mean, what are people voting for?

Tony

Sure. So every four years we have a presidential election where you vote from the president on down to, say, local offices. Like in Texas, it’s people who run your waterboard and judges and your local commissioners. So it’s from the president on down. In between presidential elections, we have what are called the midterms.

Tony

So every two years so in the US. House of Representatives, those representatives have to campaign and be reelected every two years. Senators are reelected every six years. So not every senator is up for election in every election cycle. And then you have governors, and those governor’s terms change by state. They’re not always the same. In some cases, it’s four years. In some cases it’s five years. And I don’t know if there’s other places, but Americans are now voting on kind of everything except the president, and those, say, Senate seats and governorships that are not up for vote.

Rahul

Well, I tell you what. That was pretty impressive, actually. If you ever see a job as a sort of political correspondent, I think you might get one, Tony, I think we’re done here. Real quick.

Dianne

Tony, summer up beautifully.

Rahul

There we go. Should we all go? No. Oh, probably not, Dianne. And this is important, isn’t it? Because at the moment, the Democrats, which is the party of President Biden, they control the House and the Senate, there is a strong possibility that they may lose both, which will have huge implications for President Biden’s ability to pass legislation.

Rahul

I think Diane said there’s a lot to get through and we’re going to try and get through some of that. Let’s start by looking at the key economic issues.

Rahul

Cost of living, Tony, is something that people around the world want tackled. I’m sure that as people begin to cast their votes in a few hours time, when those polls do eventually open up on Tuesday for the midterms, that will be close to the top of the agenda. When we talk about the Democrats and the Republicans, the left and the right, what are the big economic differences between them and tackling this problem?

Tony

Well, I think there was a bill passed about a year ago, the Inflation Reduction Act. Diane, tell me if I’m wrong. I think it was $3 trillion in spending, and I think that was one that many Republicans didn’t want because there was a feeling that that was going to contribute to inflation. And so I think there was. The irony of it is just a year earlier, in the depths of COVID there was a massive stimulus package passed under the Republicans that everyone was happy about. So I think it’s easy to say, while the Democrats are the ones who spend and the Republicans are the ones who don’t, it’s not really the case. It really just depends on what they spend on. Republicans tend to spend on things like defense and security and law enforcement and these sorts of things. Democrats tend to spend on things like social programs. So I don’t know that one is necessarily more disciplined than the other. They just have different spending priorities.

Rahul

When we think of Texas, we think of gas, gas prices. We’ve seen President Biden releasing those strategic reserves of oil to try and bring down the price of gas. Is it that crucial a factor, do you think, in these elections? Will Americans just look at the cost of putting it in their vehicles and say, it’s too high, I don’t want to vote for this government?

Tony

Well, I think I saw a poll earlier today and I think it said that 65% of Americans believe that Biden is responsible for high gasoline prices. And I thought that was really surprising. I think it was from Pew. I can’t remember who it was from, but it was credible polling group. So Americans do see that and they do see that on Biden’s first day, he killed the pipeline, a potential pipeline from Canada, which would have brought heavy sour crude from Canada to fill US refinery.

Rahul

But these are global factors really, aren’t? I mean, of course, there are individual factors that will impact that.

Tony

No, they’re not global factors because the fact is, the sources of the crude that we need for American refineries is heavy sour. And there’s places like Venezuela or Saudi Arabia or other places where we could get it. But the most accessible is Canada. And so Americans do pay attention to that stuff, and they do pay attention to what is impacting gasoline prices because it’s such a huge portion of their budget. And so I think policy does lead to the cost of living, and I think it is a big factor. And I think people are looking at the way the different parties have reacted to this. And when that pipeline was canceled, republicans were very unhappy and voiced it. So I think that’s the case. And like I said, I think 60, 65% of Americans believe that Biden does have responsibility for the gasoline price in the US.

Rahul

Tony, one thing that often happens after midterm elections in the US is we begin to get an idea of who the presidential candidates are going to be. Do you think that we are likely to see in two years time a rerun of President Biden against Donald Trump, or do you think it will be other candidates for both parties?

Tony

To be honest, I think it’s too early to tell. I think even if Donald Trump starts campaigning Tuesday or Wednesday, I don’t necessarily think that it’s a done deal because people like Ronda Santos have taken a national profile.

Rahul

That’s the governor of Florida, isn’t it?

Tony

Governor of Florida. That’s right. And so I don’t think that Trump kind of as the Republican candidate is a done deal. I also don’t think that Biden as the Democrat candidate is a done deal. I think we’re very much things are very much in play, and really, anything could happen. I wouldn’t want to put money on, say, Trump or Biden right now because I think two years is a long time.

Rahul

Is it a bit harder for the Democrats? Because we know that with the Florida governor, there is, it seems, a candidate that the Republican Party can get behind if it isn’t President Biden, is there an obvious Democratic candidate at this moment in time? Tony.

Tony

I think there are a lot of people who believe they are, but I think maybe Gavin Newsom in California, but I think his politics are a little bit too far left for most of those independent votes that both Republicans and Democrats really try to get in order to get elected. So I think people like Gavin Newsom in terms of, like, political consultants do, because he looks good on television and all this other stuff, but I just don’t think he’s electable for a nationwide office.

Rahul

What we’re seeing here, Tony, and there’s a large Hispanic community, isn’t it, in Texas who play a significant role in elections there. Are we seeing these communities, whether it’s the Latino voter, whether it’s the black vote saying, don’t take my vote for granted, and that’s a message for all parties.

Tony

Sure, absolutely. If you look, say, on the border in the US. Part of my family lives in Del Rio, Texas, and they’ve never seen the quantity of people crossing the border that they’ve seen before, traditionally Democratic voters. And they’re really questioning their voting intentions because of the things that they’re seeing on the border. We’ve seen Texas border counties really start to swing right because of that. These communities that are small and safe and other things have really had an influx of people, and it’s really threatened, I guess, their way of life on the border. So some of these places that were very, very securely Democratic locations have started to move away from that.

Rahul

Tony, have you been flooded with lots of different political adverts as well across TV, across social media, across everything?

Tony

Yeah, I saw more during the World Series than I had seen in other places, but I just kind of ignore them, to be honest.

Tony

Yeah, I think it can I think a couple of dances on TikTok are probably worthwhile as well, but I think TV advertising is probably worth it.

Rahul

Are there any dancers of Tony Nash on TikTok, by any chance?

Tony

No, but I’ve seen some comments about different candidates kind of dancing on TikTok, and it was kind of silly. But it does get people talking about the candidate, and who knows if it works. I’m not 22 anymore, so it may work on me if I was 22.

Rahul

And when we’re looking at turnout here, we touched on it briefly before we heard John Sadworth saying to us that it was going to be a good turnout here. But the simple fact is, in the midterms, the majority of voters never vote, do they?

Dianne

That’s usually the case. I don’t think that will be the case this time. Tony, what do you think?

Tony

So I went to early vote last week, and I had to stand in line for quite a while to vote. So I think people are really, really engaged this time around, and I think it’s mostly because people’s pocketbooks are hurting and they’re just tired of it. So I think you’re hugely engaged because of the economy.

Rahul

That is interesting. Let us see what those numbers are. We will get them very, very shortly. Tony, if you believe the polls, and often that may not be a sensible thing to do nowadays when we talk about elections, they do seem to indicate that this is not going to be as important an issue. Clearly it’s a very difficult issue for many Americans, but it’s not going to sway voters as much as maybe people thought it was going to sway voters a few months ago.

Tony

It definitely won’t, I think. Look, all the Supreme Court said is that they’re leaving it up to the states, and so there’s no issue for mobility in the US. So people can go to another state to have an abortion if they want. So I think we had the initial emotion after the Supreme Court judgment, but I think when people really realized it’s a state issue and many of the things in the US. Constitution are really devolved to the states, and so this just takes that same issue and puts it up to the states unless the states decide. And so I think most adults, when they read it and they consider that if they really want to have an abortion, they can drive or get on a flight and go to another state, it’s really actually pretty simple.

Rahul

It’s a communicated economy, the US. Isn’t it? Because you look at it and we hear this talk of recession, we hear this talk about the incredible rises in inflation, cost of living, and at the same time, you sort of hear still about a very strong jobs market. Still.

Tony

Yes. But what we are starting to see there was an announcement yesterday, I think, that Meta, Facebook will soon be announcing major job cuts. And so job cuts are starting to hit the tech sector. Companies like Stripe laid off, I think, 18% of their workforce. Twitter had some big layoffs last week, and so tech is really starting to be hit hard with layoffs. So a lot of the discussion about job vacancies and unemployment, say, out of the Fed and the White House, that will start to even out. And the job market by the end of the year will likely be much less strong than it is right now.

Rahul

Yeah, I knew Twitter was going to make its way into the program at some particular point. Okay. Prediction diane. What is what’s going to happen?

Dianne

I think the House will go to the Republican. Senate, will hold Democrat, and Biden will have a tougher time the next two years.

Tony

Tony, Republicans get the House, they get 52 in the Senate, and they pick up a couple of governorships.

Rahul

Okay, well, thank you to both of you for your insights and thoughts on the American midterm elections. Americans will vote on Tuesday for the Senate, for the House, for governors as well. We’ll bring you all the results here on the BBC World Service. You.

Categories
Week Ahead

The Week Ahead – 25 Jul 2022: Europe is a mess. What’s next?

Get 95% accuracy on your markets forecasts with CI Futures. Learn more here: https://cipromo.wpcompleteintel.com

We had a big week, with a lot going on globally. The president’s got COVID. Europe raised rates to zero, and so on and so forth.

First, we talked about Europe. It’s a mess, everyone knows that, but we talked through some opportunities there.

Next, we talked about aluminum. Industrial metals have been really interesting on the downside of late, but Tracy found something around aluminum that is really interesting.

And then we talked about tech, about Snap’s earnings, and what that could mean for other tech earnings coming up.

Key themes:

  1. Europe is a mess. What’s next?
  2. Aluminum supply shock
  3. Tech SNA(P)FU
  4. What’s ahead for next week?

This is the 27th episode of The Week Ahead, where experts talk about the week that just happened and what will most likely happen in the coming week.

Follow The Week Ahead experts on Twitter:

Tony: https://twitter.com/TonyNashNerd
Sam: https://twitter.com/samuelrines
Albert: https://twitter.com/amlivemon/
Tracy: https://twitter.com/chigrl/

Time Stamps

0:00 Start
0:50 95% on markets forecasts using CI Futures
1:44 Key themes for the week
2:34 What’s happening in Europe and what are some opportunities there?
6:37 Why did the European equity indices in the wake of the ECB meeting?
8:32 What can the ECB do moving forward?
9:40 Metals: what’s going to happen in the aluminum markets?
13:14 Will we switch back to goods in September?
16:50 Snapchat’s earnings and other earnings of tech equities.
21:06 Ad inventory element to tech earnings
23:16 Is there an opportunity for Meta to buy something like Snapchat.
24:21 The week ahead: Fed meeting next week

Listen to the podcast version on Spotify here:

Transcript

TN: Hi, everybody. Welcome to The Week Ahead. My name is Tony Nash. Today we have Albert, Tracy, and we have Sam doing a remote from his car because the Texas power grid can’t handle his house. So thanks, guys, for joining us. Before we get started, if you could please like and subscribe to the channel. When we’re done, and while we’re talking, please make comments, ask us questions. We get back to you during the week, and we really want to hear from you.

Also, I want to let you know about a promotion we’re having for our subscription product, CI Futures, which is a forecast platform for equity indices, currencies, and commodities. We are offering a $50 a month promotion for CI Futures. That is a short term promotion. So please check it out on the link right now and take advantage of that promotion. Okay?

We had a big week, a lot going on globally. The president’s got COVID. Europe raised rates to zero, and so on and so forth. First, we’re going to talk about Europe. It’s a mess, everyone knows that, but we want to try to find some opportunities there. Next, we want to talk about aluminum. Industrial metals have been really interesting, I guess, on the downside of late, but Tracy found something around aluminum that is really interesting. And then we’re going to talk about tech, about Snap’s earnings and what that could mean for other tech earnings coming up.

So first, let’s talk about Europe. Albert, you retweeted this tweet from HedgeEye earlier this week, talking about the 50 basis point rise by the ECB, and we’ve talked about it for months about the problems that Europe has if they raise. The problems they have if they don’t raise. And it was kind of a middle ground that they did. What are your thoughts on what’s happening in Europe, and are there opportunities there?

AM: Are there opportunities? Yeah, of course there are opportunities everywhere, Tony. You just got to be able to sit there and sift through the wreckage of what Europe is at the moment. Their economy is struggling. The 50 basis point rate hike, I kind of like, shrug it off. Surprise they actually did 50, but I kind of shrug it off. Their biggest problem is the dollar being elevated at the moment. It kind of helps them in the manufacturing sector for exports. But realistically, without China importing their products, what are they going to accomplish in the coming, like, two, three months? Probably nothing.

Aside from Europe speaking about the dollar being up, I’m kind of looking at Brazil and India’s next problem places.

TN: Okay.

SR: Yeah. And to that point, Albert, it’s a really interesting one, given it really doesn’t matter if you have great export markets if you can’t actually make anything.

AM: Yeah, I mean, the Europeans right now can’t make anything. They’ve got a labor problem worse than the United States at the moment. They have kind of COVID crazy policies still lingering. As soon as the tourist industry dies down a little bit for tourist season, they’ll probably come back in full force. So, I mean, it’s kind of a gloomy outlook for the Europeans at the moment.

SR: Power prices for the manufacturing engine in Germany.

AM: Yeah.

SR: If you’re not manufacturing anything, good luck selling something.

AM: Yes. I mean, even the stuff that they are manufacturing is going to be an inflated price that the world is not going to be able to even buy at the moment. They got food prices to deal with, not let alone energy prices. But didn’t European?

TS: It was a mixed message. No. Right. Yes. On one hand, they said, we’re raising rates to zero, meaning they’re not going to charge you anymore.

TN: Right.

TS: They don’t have negative rates. But on the other hand, they’re talking about bond buying program that they don’t want. They actually said, this is going to be kind of untransparent bond buying, which is fine.

SR: But that’s important and actually kind of a good thing, if you think about it.

TN: But the BOJ did right. The BOJ did that in 2014, 15, 16, where they bought up all the government debt and it just disappeared. And so is this a way for the ECB to disappear a bunch of government debt within the Eurozone?

SR: That’s what QE is.

AM: Yeah, of course. That’s like a standard thing, especially specifically for the Europeans. They love to hide debt and reissue it elsewhere, longer dated and whatnot. They love to kick the can down the road because they know that the United States is going to bail them out anyways at some point.

TN: Sam?

SR: Yeah, it’s exactly what they’re going to do. In my opinion, it’s kind of brilliant because in a way, you don’t want everyone to know how much Italian debt you’re buying, and they’re going to buy Italian debt, they’re going to buy Greek debt. And then, believe it or not, if we continue to have these kind of problems in Germany, guess what? Germany is probably going to be a huge beneficiary of the debt buying program. So it might be the first time in a long time that we don’t hear Germany complaining about it.

TN: Right. So I just want to be clear, they’re not hiding that they’re actually buying it to retire it. Right.

AM: Tomato, tomato.

SR: They’re not necessarily directly retiring it. They’re just buying it and holding it to maturity.

TN: Exactly right. Which is exactly what the BOJ did in Japan five years ago and they continue to do, actually. Okay, very good. So one last question on that. Why did European equity indices rise in the wake of the ECB meeting? Was it because of this debt issuing?

AM: I think..

TN: was distracted by Tracy. Was it because of the debt program?

AM: Yeah, the non transparent bond buying, and seems like the ECB is going to try to keep the market at least elevated, but, I mean, it was crushed so much that bottom feeders just started to come in in my opinion.

The only companies in the European Union right now that I would even think about are the ones that have ADRs in the US that have more revenue based in the US than anything else.

TS: I think what got them excited is because you saw a spike up in the Euro temporarily, so people started buying into the equity market. However, that’s going to be very short lived, I think still we are going to see inflows to the US market from all of these other markets, but there’s really no other place to go right now.

TN: Right.

SR: There’s also the problem of markets are forward looking and it’s so bad in Europe and it’s all priced in that at some point you get a mechanism where it’s not as bad as it could have been. And that to a large degree, looks to be what’s going on right now.

You’ve got the Euro almost at par. You’ve got an economy that is absolutely in the toilet. Everyone knows that. And it’s all priced into the equities. So if you begin to see a bright light at the end of the tunnel, there’s the potential for a significant rally there that could be kind of face ripping.

TN: Oh, yeah, great. Yes. So the position that the ECB’s in, what can they do going forward? Do they continue raising at small increments or are they kind of one or two and done? What possibilities do they have?

AM: I think they’re only one and two and done. I don’t think they can really keep raising rates like the United States right now. That would decimate them.

TN: Okay.

SR: 100%. One or two and done. And by the way, that kind of lines up with where the US is probably going to be done.

TN: So let me ask you one final question on this. If you’re an American company and you have a vendor in Europe and you’re paying Euros, would you long those contracts, get them locked in and euro prices as long as you can right now, do you think the Euro at Parity is a short-term anomaly?

AM: I think it is, yeah.

SR: Yes. And by the way, you can’t no European companies that dumb. That’s worth doing busines.

TN: I think you overestimate. Okay, that’s good. That’s good. Okay, perfect. Great.

Let’s move on to metals. Tracy, you posted a great graphic on and had a great discussion about aluminum and some aluminum factories that are shutting down largely because of power prices. Can you help us understand that situation and help us understand what’s going to happen in aluminum markets?

TS: Yeah, I mean, if we sort of look at the aluminum markets right now, the big thing is that because of the power crisis in the EU, right, we’ve seen almost 50% of their smelter market come offline because they just can’t afford it anymore. We’ve also actually seen this drift to the United States. We just had Alcoa shut down one of their lines in Indiana. So this is a global phenomenon.

The problem is that we’re short of aluminum by a lot. Because if we look at this energy transition, and I think I stated, particularly if we were looking at because the drivetrains are so heavy, you need a lot more aluminum to produce these vehicles, we’re looking at a deficit.

We’re already in a deficit. We’ve seen a 30% pullback in this market. We’re in a deficit. We’re going to be headed to worst deficit in H2 of ’22 and into 2023. And actually, if we look forward all the way until 2025, what I’m thinking is this pullback in the market has been a little bit overextended, over recession fears. Right. Huge pullback in the metals markets. Huge pullback and slightly pullback in the energy markets. But really, if we’re looking at these based on industrial metals, especially ones that are particular to energy transition, I think this move is a little bit overdone right now. I think there are opportunities to be had because we are looking at structural supply deficits across many of these metals, aluminum in particular.

AM: You know it’s interesting. It’s interesting. That just came to my thought of Tracy talking is utilities have given up every gain that they’ve had for the year, come right back down. Even some of the wheat and commodities just came down. Unbelievable. Dollars surge, futures crushed. It’s stunning. But I believe, just like Tracy says, I believe it’s all oversold at the moment.

TS: It actually is. Even if we take in a scenario where DM markets go into somewhat of a recession, we’re still in a structural supply deficit. So even if we’re in a recession and that takes a particular amount of demand out of the market, we’re still at a deficit.

TN: Okay. So I want to be careful with recession and not to kind of push back on you, Tracy.

TS: I’m just saying because everybody’s throwing that word around right now.

TN: So we can have a slowdown without having a recession, right?

TS: Correct. Absolutely. And I wouldn’t say that we’re necessarily in a recession, but things could get a lot worse in Europe or whatever. But even with taking that demand out of the picture, if we look at it as in we do have a recession in the market. “If”. Right.

TN: Right. So Sam has written quite a bit about the kind of switch to services over the summer from goods and Sam, do you see us switching back to goods, say, in September, October, from service says is that kind of a pretty dramatic switch from one to the other?

SR: No.

TN: Okay, so what happens? We switched. Goes to services over the summer, does that end what happens there? Because I’m curious.

SR: Yeah. No, you continue to have services be the dominant factor, and the services tended precovid to be the dominant factor.

TS: We talked about this a few weeks ago.

SR: Exactly. It’s one of those where goods probably don’t fall off a cliff because at some point you do have to have a comeback outside of the US. In goods. So that’s somewhat of a tail end. You have a reopening in China, you have a reopening in Europe, you have some sort of resolution to the Ukrainian conflict. You begin to have some tailwinds for Goods, but it’s simply not what I would say is kind of back to the coveted, like, goods model that was goods driven, everything was great, blah, blah, blah. No, it really does look like it’s kind of a summer of party, summer of vacation, summer of get out there. We didn’t have vacations in 20 20, 20 21. We’re going to go in 2022, and we’re going to go back. That appears to be the case, and it appears to be playing out. The question is, does that continue as kids go back to school? Probably not. Does it continue as people go back to work in the office? Probably not.

In the fall, you get kind of the current trajectory in Goods, which is back to normal somewhere around a 1% growth rate, and in services back to normal one to 2% growth rate, maybe a little bit more. It’s not a bad thing, but it’s certainly not the boom in goods that we saw over the past year and a half and the boom that we’ve seen services over the last six months.

AM: No, I was thinking about what Sam is saying. There’s a risk here because if the Fed pivots a little bit too early, which everyone thinks they will, and then goods start coming back online and demand still elevated, we could have another inflationary event going into 2023.

It’s like you make policy mistakes and the economy is still red hot at the moment in all sectors. As much as they want to try.

TN: To cover, it’s not red hot because people use the recession word all the time.

AM: Why?

SR: The only pushback I’ll give there is that I would say the interesting thing is that goods come back online in a pretty big way, and if you just have steady state current consumption levels, it’s not a boom. Right. It’s still going to be deflationary or disinflationary on the margin. If you don’t have a surge in the demand for goods, and it’s hard to see where you’re going to have that demand surge for goods in an elevated services environment. Right. So that could actually be the fault signal that makes the Fed back off as we go into the back half of the year.

TN: Interesting. Fantastic. Okay, great. Speaking of signals, let’s look at tech for a minute. Sam, you have the most mysterious newsletter in the US. And newsletter today talk about snaps earnings. And I put a snapshot of your newsletter on the screen looking at average revenue per user for Snap. Can you talk us through some of that? Some of the earnings work for, say, Snap and Twitter? What does that mean for tech generally?

SR: Yeah, it’s interesting. We all kind of know that tech, particularly smaller tech, the startup VC type act companies have been struggling, right? You’ve seen Layoffs, you’ve even seen the big guys. Microsoft, you’ve seen Meta, you’ve seen parts of salesforce have hiring freezes. So we know that there’s been a little bit of underlying problems with the overall tech world in terms of employment.

There are only two ways that you can really solve the problem of slowing revenue growth if you want to drop money to the bottom line, whether it’s or earnings. And that is you can lay people off and you can cut advertising spent. And so Snap and Twitter are kind of, what?

TN: PG and E? Travel and expenditure as well. Travel expenses.

SR: Well, yeah, travel and expenditures. We’ll get there because I hit that later on the night. Perfect. As you know.\

TN: Yeah.

SR: The problem with Snap and Twitter is basically what you saw was great user growth, right? Better user growth than I think anybody really was anticipating. The only issue was that they didn’t monetize it. There was nobody really backing up on the advertising front. Right. We all know that Peloton and all those guys were cutting back on ad spend, carvana basically bankrupt crap company. These guys were cutting back on ad spend, and they were the big marginal drivers of growth for those platforms.

So when you cut back on people in ads, you begin to actually be able to drop something potentially to the bottom line, or at least survive a downturn in VC spent. That played through with Snap and Twitter in a marvelous way. But then to your point on travel and entertainment, you get to the earnings of American Express, which is a great way of getting kind of a peek at upper middle and upper class spending and business spend. And those could not have been better earnings. I mean, if you’re telling me that the consumer is in a recession, it is the bottom half of the spectrum that’s in a recession, if anyone is in a recession. Those were massive earnings numbers, massive spend numbers on a year over year basis. The chart that I sent out was of the spend by bracket of age, and millennials and Gen Z are the biggest spending boost.

AM: Luxury items still are unbelievably hot right now. All the earnings are just beating all estimates.

SR: But it’s the pivot. It’s the pivot, right. Peloton all that crap that we had in Silicon Valley that was overvalued, that everybody bought and everybody thought was cool, everybody bought it. They’re already done with it. You don’t need to buy three peloton bikes, right? It’s the problem with keurig. We all remember the whole Green Mountain coffee thing. It’s the same problem, right? Once you buy it, you don’t have to buy five Turks. You don’t have to buy five Pelotons.

The ability to monetize that over time is something that I think people kind of get a little iffy with. That’s really what I think is smacking right now, and it’s smacking in a pretty real way, and it’s not going anywhere anytime soon.

TN: Okay, so we also have new ad inventory coming online in a big way with Netflix, right. So can you talk about that side of the ad inventory element a little bit?

SR: Sure. You have a ton of ad inventory, right? If you want traditional media, you can go to traditional media. NBC, CBS, whatever. If you want online, you have Facebook, you have Instagram, all part of Meta. You have TikTok. You have snapchat. We can go down the list forever.

Netflix is basically trying to save their business with the greatest dumb quote in their earnings release where they said, our great content is going to have a premium CPM. The way that we measure advertising reps, they’re amazing content. Are you kidding me? No, I mean, they’re going to be competing with Twitter and Snapchat, which is the bottom of the barrel in terms of advertising revenue.

TS: Took that model and extrapolated on it. Right. So now you have maybe they were the first, but now you have everybody else doing it, especially very independent media. Right. That is starting to gain traction.

TN: Exactly. Things like plumbing and that sort of thing. And Hulu’s done that really well as well, inserted advertisements. So the only thing worse than new Netflix content is new Disney Plus content.

SR: Unless you have kids, it’s a lifesaver.

TN: Yeah, it may be a lifesaver, but the old content is good. The new content.

AM: I don’t know, the content on Disney nowadays is kid friendly. Okay.

SR: I didn’t say it was kid friendly. I said it was a lifesaver.

TN: Yeah, but you’re right. I mean, there’s a huge amount of ad inventory and they will be competing with Netflix. They are already competing with Hulu, those sorts of guys. Is there an opportunity for somebody like Meta to buy someone like Snapchat? Would they want to do that?

SR: They tried years ago to buy Snapchat. And why would you like…

TS: Why would you buy it?

SR: Yeah, I mean, that’s the key. And I think that it’s the reason why you can have a 30 plus percent down day and call it a company that has something interesting and something that nobody’s done before. Because I’m sorry, it’s only fans, but without subscription revenue.

TS: They have no real model to make money. That’s the problem. Without subscription, no solid revenue model.

AM: I’d buy an only fans IPO all day long.

TS: I wasn’t talking about only fans, I was talking about Snapchat. No idea about ole fans. Never been on there.

TN: All right, guys, very good. Now let’s just segue to the week ahead. What are you guys looking for in the week ahead? We’ve got the fed meeting next week, right? So that’s going to be all the talk all week long. So what’s going to happen there?

AM: I think they try to get us to the bull bear line of 40 20 or 40 30 in that range and linger us there until the Fed meeting. I think Jerome Powell is pretty much his last chance to be hawkish, because I don’t think there’s not another meeting until September at that point, like, the Fed already are talking about pivoting by then. So this is probably their last chance to be real orkish.

TN: Okay. No, go ahead. Sorry.

TS: I think as far as the energy market that’s concerned, we’ll probably see oil, gas pretty much sideways for the week, just as we have been seeing. And I think I’m very interested in the metals complex the first time in a very long time. So I think we might see a slow kind of interest in that market next week.

TN: Interesting.

SR: I think it’s going to be interesting to see how the market interprets the feds forward view, honestly. We all know they’re going 75. It’s already there. It’s already priced in. I think it’s going to be very interesting to see how the fed begins to look out to September and beyond, and the market is going to begin to really price that in. And so you could see some pretty big whipsaws in the dollar. You can see some pretty big whipsaws on the long end of the curve. And equities in general, I think equities could see the most volatile week, even though it’s the most predictable Fed raise in a couple of meetings, I think you could see some incredible volatility and some really interesting outcomes.

TN: Yes. Very good. I can’t wait to watch. Guys, thanks very much for your time. Have a great weekend. And have a great weekend. Thank you.

TS, AM: Bye. Thanks.

TN: Okay. I forgot to put you on mute. I apologize, Ready?

Categories
Week Ahead

The Week Ahead – 28 Feb 2022

Last week’s big news is Ukraine and Russia. So in this episode, we want to talk you through some context and what this means for markets in the near term. First, the guys talked about the most surprising thing that happened and then we moved on to answer a few viewer questions like what’s the implication of Russia being disconnected from SWIFT? Will anything change between Europe and China? Will the Russia-Ukraine inspire China to actually invade Taiwan? How disrupted the energy markets will be? And finally, what happens to the world economy – Fed, QE, QT, consumers, etc.?

Listen to this episode on Spotify

https://open.spotify.com/episode/6ynTFaOtWF6rl1xNKX1Cnq?si=439f4977cb3743fd

Follow The Week Ahead experts on Twitter:

Tony: https://twitter.com/TonyNashNerd
Sam: https://twitter.com/SamuelRines
Albert: https://twitter.com/amlivemon
Tracy: https://twitter.com/chigrl

Transcript

TN: Hello. Welcome to The Week Ahead. I’m Tony Nash. And I’m joined by Tracy Shuchart, Albert Marko, and Sam Rines. Before we get started, I’d like to ask you to subscribe to our YouTube channel. And like this video. It helps us with visibility and you get reminded when a new episode is out. So thanks for doing that right now.

We had a lot on this week, especially around Ukraine. So today we’re really focused on Ukraine. We want you to understand the context around Ukraine. We want you to understand what it means for markets. And we’re going to take a lot of your questions that we’ve been gathering off of Twitter.

So just a quick recap of what we said last week. Coming out of last week’s episode, we said it’s not a time to make big decisions. We said to keep risk tight and be careful of volatility. And we said that crude markets would move sideways. So we did kind of come into this assuming risk would be there this week. And obviously, we saw that.

So first, guys, can you walk us through some of your observations of the past week? What are you seeing directly in and around Ukraine or Ukraine, and how is that affecting markets? And as each one of you talk, Albert, I want to start with you, but name something that surprised you most in the past week in markets. Okay. Can you give us a quick overview? I know you’ve got deep networks in that region. So can you talk to us a little bit about what you’re hearing and seeing there?

AM: Well, I mean, concerning Ukraine and the markets. What I was most surprised and a little bit taken aback by was the amount of mainstream media just decorations of World War Three and whatnot then how much it affected the markets? So much so that you have to look at the markets and say what is going on?

Because this is just not normal behavior for markets to respond to a situation in the Ukraine that’s really kind of not really attached to the United States market at the moment. I mean, it isn’t commodities and that’s something Tracy will get into. But it was an overabundance of bad news, just an overdrive. And that’s what actually really took me aback.

TN: Good opportunities out there.

AM: There is absolutely good opportunities. But the problem is the volatility goes way up higher. The VIX exploded. You can’t get into options because they’re just far too expensive. You’re going to get burned doing that. And what do you do? Maybe sitting on your hands is the proper thing to do until things stabilize. But yes, there were actually great opportunities.

TN: What are you hearing on the ground, Albert? I know you’re really close to that part of the world. So what are you hearing on the ground?

AM: Well, the situation is really fluid and really tense at the moment. I think the Russians were taken aback. I know that the Russians were taken aback about the actual veracity of defense by the Ukrainians. Their main objective is to take Mariupol and then take Odessa. That is their number one and number two objective. Their next objective is to take not really to take you because I don’t think they can actually do it unless they want to do some kind of redo of the Chech and guerrilla warfare and just start massacring people. They’re not in that business at the moment. The world’s eyes are on it.

So I think political change, maybe snap elections is what they’re probably going for in Kiev just to surround it, stress the city, stress the residents, force a change where Western governments can’t get a bigger say in the matter on a nation that’s right on the doorstep.

TN: Okay, so I’m seeing on say on social media like TikTok videos of burned out Russian tanks and all these things, and I think it seems to me that Russia is losing the PR war right now and that’s really important in the early days and with different demographics even within Russia. Do you think Russia or Putin kind of underappreciated the impact that social media would have, at least on the early days of this?

AM: Of course, Russia has a vast network globally of PR campaigns in the west. So for him, it’s definitely a concern where you have negative images of Russia, Russia’s military trying to enact power projection. It’s a little bit daunting for him at the moment.

However, from a military strategic point of view, we don’t know exactly what their exact strategy is. Whereas they’re just trying to expand Ukrainian defenses, trying to get the best of their defenses out already. So they have a shortage of supply later on. That’s what most professionals would say is happening.

So we really have to see over the weekend to see what kind of resources have been expended by the Russians trying to take back Mariupol and Odessa.

TN: Do you think the Ukrainians can get stuff resupplied? Do you think they would have any difficulty getting stuff resupplied from the west?

AM: It’s totally up to the west and what they’re going to supply them and how they’re going to supply them. I’m sure that the west have Special Forces sprinkled without inside of Kiev assisting as advisers to the defense forces there. So it just depends on the will of the Europeans at the moment.

TN: Okay, Sam, what have you seen this week in markets that’s kind of gotten your attention or surprise you?

SR: I would say what really caught my attention were two things. One, how quickly Wheat went up and how far it went up and then how quickly Wheat went down and how far it went down.

There were two days where Wheat was just skyrocketing. I think it was 5.5% day followed by negative. I forget where it closed, but a significant negative day in the six to range at a minimum. That really caught my attention.

Ukraine is incredibly important on the wheat front. That’s a pretty important one. And then I would say how quickly and how far gold went. Right. Gold was almost $2,000, and now it’s below where it was prior to the invasion, and it did that all in a day. I mean, that was an incredible move in my book and somewhat shocking. And I think it was kind of interesting when people caught on that if you cut off Russia from being able to really sell, call it dollars, Euros, et cetera, on the market openly, it’s going to potentially have to sell gold if this thing drags out.

So you have an overhang of gold in a war scenario. Not necessarily, I call it a tailwind. I thought that was a really interesting call it knee jerk reaction up in gold, and then kind of a realization of, oh, crap, this might not be the thing to own here.

And then the final thing and I’ll make this one quick is crypto and how war was supposed to be great for crypto. And as the war started, you saw crypto sell off pretty hard. I think it’s interesting on two fronts. One, there’s a significant amount of crypto activity in Ukraine and Russia.

Russia is the second largest country when it comes to providing hash rate to the market for Bitcoin. And if there’s any sort of disruption there, all of a sudden the US could become 50% of the hash rate awfully quickly, which could become an interesting scenario there.

TN: How does the hash rate for people who aren’t crypto experts? How does the hash rate equate to say, the crypto price?

SR: It makes it, call it’s basically an efficiency mechanism where you can either do transactions more quickly, more efficiently, and somewhat of a lower cost. That’s basically what you do.

So if you lower the hash rate, you increase the cost of doing transactions and slow the general system down.

TN: Okay, great.

AM: This is interesting, Tony, because this actually leads into a lot of my arguments against crypto being decentralized, saying, hey, when push comes to shove, governments have control of the networks and the financial system. You can’t get away from that.

TN: Yeah. And if you cut off the electricity supply, it becomes even more difficult.

AM: Nearly impossible. Puerto Rico.

TS: And if you’re Russia that has control of the entire Internet, you can cut off whatever sites that you want. Right?

TN: Right.

SR: Yeah, that’s right. Yeah. It was interesting. There was something floating around yesterday where it appeared that Russia was at least partially geofencing their country from the rest of the world. And if it does that, that could become problematic if it does it in a meaningful way for crypto.

TN: Sure. And taking down the RT site doesn’t help their paranoia there. Right. Tracy, what happened for you over the week? What’s one of your observations that really kind of surprised you?

TS: Well, I mean, to be honest, because I’m focused on the commodity side of everything, pretty much how I saw the markets going or how I pretty much thought how the markets were going to go. Right. I posted a bunch of stuff on Twitter.

TN: You saw all this coming?

TS: No. Well, I didn’t do this. I don’t want to sound like arrogant. I focus on energy, metals, materials, agriculture. And because Ukraine and Russia are such large hubs for all of these commodities, wasn’t really surprising to me that we saw a jump in all of these.

TN: Yeah. Were you surprised the magnitude of the jump?

TS: Yes. And in some respects, I actually expected Palladium to have a bigger jump than it did because Rush is 43% of that global markets and wheat went far beyond bonkers that I thought it was going to go.

Was I surprised about oil? No. On the upside and on the downside today.

TN: Great. Okay, very good. Let’s jump into some of these viewer questions. You guys know that we saw a lot of viewer questions at the start of this.

So the first one I’m going to read out is from Keith Snyder. It’s @snyderkr0822. He says, what would the implications be of disconnecting Russia from SWIFT?

I’ve inspired your knowledge and have to be informed. So there’s been a lot of talk about SWIFT over the past few days. Sam, do you have some insight there on what would happen if Russia was taken out of the SWIFT network?

SR: It would be less bad than it would have been call it three years ago. Russia has somewhat insulated themselves from SWIFT, but not entirely by no means. Right. The SWIFT system can cut you off from dollar denominated, at least dollar denominated transactions.

That’s a pretty important thing, particularly when you’re selling a lot of things that are denominated in dollars. Right. Oil, et cetera. That becomes somewhat problematic. I would say that would be a very significant hit to Russia.

And it would also be a significant hit. And by significant hit, I mean that’s putting you on par with Iran and Cuba. Right. That’s basically putting you at Code E country without saying it. That’s Iran, your Cuba, see you later, bye.

I think that what I would be paying very close attention to is the reaction of European banks. That’s $330 billion worth of Russian liabilities assets on their books. So you’ve got to figure something out there pretty quickly because those books are going to get smacked if you can’t actually get on the SWIFT system.

TN: Okay. And Tracy, if they were taken off a SWIFT on Friday, Germany said that they would be okay with imposing that sanction, how would Germany pay for its electricity?

TS: I mean, Germany said that with a caveat, let’s say, because they did say we’re going to look at this, but we need to look at the implications of this. So obviously the problem there in lies that if you take a Rush off SWIFT, then Europe is screwed energy wise. Right? Unless they choose to scramble and make long term contracts with, say, the United States.

They could go through the United States. They could go through Azerbaijan on the Tap pipeline. They could go through Israel and Egypt if they wanted to, through the Southern gas quarter. I mean, there are options for them.

The problem is that they should have been looking at long term contracts this summer when we already knew that Nordstream Two was going to be delayed.

TN: Four, three, four years ago. I mean, they’ve had this optionality on the table for a long time.

TS: But those options are still on the table for them. But by delaying SWIFT, if you cut Rush off SWIFT, the big problem Europe has to decide is do we cut off SWIFT and hurt ourselves or do we hurt Russia more? And I could argue that both ways. Anybody could argue that both ways. But that’s a big decision that they have to make.

TN: Well, everybody hurts, right? That would not be a sanction that would be pain free for anybody.

TS: Right. Except maybe the US.

AM: Well, Tony, despite the rogue status of Russia, it’s still well attached to the Western financial system. It’s not seen as able or even as aggressive as the Chinese are and detach it from the financial system.

There would be a lot of problems if they were banned from SWIFT. But it’s certainly a valid deterrent if the west wants to actually use it. They keep a lot of their bank and central bank money in the Euro dollar market. So no SWIFT would mean no more Treasuries, but they’d just move into the Euro dollars itself.

Maybe that’s why they were buying gold because of this tension that they saw coming. It’s a risk to their global market.

TN: Sure. Okay, let’s move to China now. We’ve got a few questions on China. We’ve got one from @NathanDallon. He says, does anything in Europe change the situation with China?

There’s another one from Ritesh @chorSipahi, he says question for Samuel Rines and Albert, Ritesh. I’m not taking offense at this. What is the deterrence for China not to invade Taiwan or now to invade Taiwan?

And then we’ve got another one from Rich @rm_ua09. How could China benefit the most out of the Russia Ukraine situation? A, supporting Ukraine in some manner, B, remaining neutral, or C, taking measures to whether Putin.

So there’s a broad spectrum of questions there, guys.

TS: Take the first one, I think, Tony.

TN: Okay, let’s go for it. What happens in Europe?

AM: Well, Europe. I think that the Europeans are going to be actually more dependent on China trade after this because they’re seeing a problem with the Russians politically.

You can’t sit there and tell me that they’re going to be able to support the Russians like they were in trade, whether it’s commodities or whatnot on steel. I mean, name your commodity. Name your.

TN: Chinese already own like 70% of the global steel market. So is it going to make that much of a difference?

AM: It’s, well, I mean, they still diversify. They’re still going to have to play ball in the global trade. So I think at this point, politically, Russia’s poisonous, and then you’re going to have to steer even more towards China.

TN: Right. So, yeah, it seems to me that China could actually use this as an opportunity to distance itself from Russia. Right. If it goes bad, China is very silent right now. And if it goes bad, they could distance themselves from Russia and make some really tight allies in Europe at Russia’s expense. Does that make sense to you guys?

AM: It does to me.

SR: 100%. I think that would be the spare play from China in a lot of ways, because you get two things. You’re going to get tighter ties to Europe, which diversifies you somewhat away from the US even more. It gives you call it a barrier to the United States and whatever the US wants to do, and it also, to a certain extent, raises your profile on the international stage. Right.

TN: That’s key. China really wants to be seen as a credible diplomatic player and I think there’s still a bit of a chip on their shoulder about not being seen as an equal with a lot of the larger Western Nations. So I think your last point is really important.

There seems to be a view that Russia invading Ukraine somehow enables China to invade Taiwan. What are your thoughts on that?

AM: I absolutely disagree with that wholeheartedly. I think the two situations are nothing alike at the moment. I mean, Ukraine is in Russia’s eyes, it’s own territory. Same as is China views Taiwan.

However, Taiwan has a much more active defense military force and more of a backing from not only the US, but Australia, Japan, India. That’s a problem for the Chinese, too. So I think the two. I don’t like to draw a comparison between the two. I don’t think there is anything related to it.

TN: Sam?

SR: I have almost nothing to add beyond that. And I think the one country that’s really interesting in there is India, because India did not step up on the Ukrainian front and India would step up on the Taiwan front.

AM: Yeah. And on top of that, on top of that, let’s just be realistic here. We know that the Chinese probably have military observers inside of Ukraine watching and taking notes.

TN: Sure. How to conduct right now. If you’re a Chinese PLA officer and you’re looking at what’s happening in Russia versus what the United States did in Iraq, what would be your assessment? Russia gives us nothing against the United States.

The United States is a juggernaut. That’s what I think nobody’s even talking about.

TN: Yeah. If Russia didn’t just roll into Ukraine and take it over in 24 hours, what kind of model are they for China?

AM: And that’s on their border, Tony, that’s on their border.

TN: Exactly. No, exactly. So logistically, Russia’s logistic supply chain for their military, it seems like it’s pretty horrific. Their intelligence, like everything. It just seems like a mishmash of let’s just go get them.

AM: They are a professional military force. They have budget problems. That’s what. If they really wanted to go into Ukraine and just smash the place, they could. But the problem is you’d have to kill many civilians in the meantime, which they can’t do that.

So the Chinese are sitting there probably looking at like, what do we do here? Who is this military partner that we’re actually partnering up against the United States? It’s not sufficient.

TN: Yeah. It seems to me that on some level, going back to the social media comment I made, Russia is kind of embarrassing itself. China doesn’t want to be seen allied with someone who’s embarrassing themselves. Right. They’re happy to.

TS: That’s why they’ve been so quiet. They haven’t said nothing.

TN: Yes. And I think China is always looking also looking at how unified is the world’s response against Ukraine. Right. So if they were to go after Taiwan, how unified would the response be?

So going back to what I said earlier, I think China has a real opportunity here to distance itself from Russia, to play nice on Taiwan and really benefit from trade and finance and diplomatic relationships.

AM: 100%.

TN: Tracy, do you have anything else on that on China? Any other thoughts?

TS: No. I think you guys…

TN: Awesome. Okay, very good. Let’s go to the next ones. Okay. Tracy, these are all energy related. So primarily, if we look at this @DaveRubin15, he says, what are the energy implications if Ukraine has no choice but to make this a war of attrition rather than surrender, bleeding Russia out from exposure and can this catalyze an energy super cycle? Okay.

And then we’ve got another one from Giovanni Ponzetto asking, assuming that gas from Russia is kept flowing at the same rate of the past couple of months, will the EU be able to restock gas reserve? So, Tracy, you’re the expert here. Take it away.

TS: All right. So for the first one, there are two extreme scenarios that could happen. Either somebody blows up a pipeline by accident or somebody blows it up on purpose and blames the other side. And if you look at the chart that’s on the screen right now, you can see the choke points where this could easily happen to really hurt gas flows into Europe.

That said, if we look at the role of Ukraine in the gas markets, they’re much smaller today than they were in the 1990s. Right. There was a time when 90% of gas that came from Russia to Europe went through Ukraine. And now it’s about less than a quarter percent.

The other extreme is that Russia just cuts off gas flows entirely. Right. And that hurts EU way more than it hurts Russia because they don’t really actually make that much money selling gas. They make way more money selling oil. They have $640 billion in reserves. They could live without the gas for a few months. And that’s kind of why the US has had problems getting the Europeans on board with sanctions against existing flows from Europe.

In addition, Europe also has other options. They can go again to the United States, Azerbaijan or Israel and Europe.

Now there are about 2.9 million barrels at risk of oil exports that are exported from Russia to the United States and Europe, which is about 30% of their exports. And that would be much more catastrophic than, say, natural gas in the oil markets. But as far as oil flows through Ukraine, it’s very limited. Again, you can see the map.

TN: Okay.

TS: The second question.

AM: Sorry about that. I had a related question for you. How possible is it or how necessary do you think it would be for the Italians to take the initiative and become Europe’s energy hub?

TS: Actually, they really could with Greece. Right. And I’ve been talking about the Southern gas border for a very long time, which branches off, you could go Cypress into Greece and then you could go straight into Italy from the Southern gas corridor.

I think that region is really something you really want to keep an eye on right now. And I’ve kind of been talking about this for a couple of years right now because there’s just so much supply. And although people say that region is geopolitically unstable, so is everywhere. But that’s never really stopped oil and gas flows.

Personally, I think as an investor, I would be looking at that particular area of the world because they really have a lot of gas supply. And now we have pipelines built, and I think it’s more stable than, say, Ukraine, Azerbaijan, that have had a lot.

AM: You know what’s funny, though, Tracy, is every time the Libyans or Egyptians or whoever try to export gas and oil and whatnot, the Russian Wagner conveniently shows up.

TS: Conveniently shows up. Right. Exactly.

AM: Here we are, guys.

TS: Exactly. For the second question, as far as, I think that you were asking about gas flows, if Europe could restock. Absolutely. They can restock because of the things that, because of the alternative sources that I mentioned before, and we’re headed into a season that we don’t need as much. So I think that as we head into summer, it will not be as dire as the dead of winter.

TN: Very good. Okay. Thanks for that.

Sam, let’s look at some economic questions now. We’re looking at from @_0001337 probability of rate hikes and tightening now. We just let inflation run amok. When we see price controls. That’s one question. There’s another one, wondering how North America will go about continuing to grow consumerism, things like cuts on gas taxes, that sort of thing.

And there was another question about gold, which you covered a little bit at first from @Mercerandgrand looking at gold prices. So if you don’t mind, let’s talk a little bit about kind of Fed options now. Are we still expecting given the volatility, are still expecting the Fed to act in March? Are they going to continue to are they going to stop QE? Will they hike? Is QT still on the table for June?

SR: Yes, 25 is going to happen. They will end QE, and QT is still on the table, at least a runoff, not a sale. They’re not going to go over their skis here and start selling mortgage backs or do anything along those lines.

TN: Okay.

SR: But they will continue with their tightening path. I think the broader question here is just how far they actually can go this year. I do think that the limiting factor of highly volatile energy prices at the pump, which is something that monetary policy just can’t solve. Right.

Tightening 5100 basis points isn’t going to push the cost of oil down unless you somehow spark a recession or something. So I think it’s going to be interesting to see how their language evolves around future hikes. I think we kind of know that it’s 25 basis points. 50 is simply not priced in enough for them to do that.

And how we see and how they see monetary policy evolving, call it in the September and onward is going to be really important with the midterms coming up, et cetera. So I think that’s important.

On the consumer front, maybe you see call it a gas tax holiday or something along those lines to lower gas prices at the pump. That could happen. But generally the consumer is not in horrible shape. The consumer is not great, but it’s not in horrible shape. So I don’t really think they have to do much there. And I don’t see any point in buying gold here with the type of move you’ve seen over the past week. I think that if you had narratives that went from invasion of Ukraine to World War Three and you only got it to $2,000 and you couldn’t hold, I think that’s a little bit of a problem for the gold narrative.

TN: Sure. Okay, great. So let’s wrap it up and let’s start looking at the week ahead. What do you guys expect to see the week ahead? Albert, I guess we’ll start with you. Part of it is what do you expect to see on the ground in the week ahead in Ukraine? I expect that to impact markets.

AM: I think that we’re going to get a little bit more bloody, a little bit more daunting headlines. It’s going to affect the markets. I think we probably start shooting a little bit lower depending on how low we go. I think that’s going to make a big impact of what the fed does. I agree with Sam. I think it’s going to be 25 basis points. If the news is okay out of Ukraine, I think they even go 50 basis points.

TN: Wow. Okay. Tracy, what do you expect to see in the week ahead?

TS: I’m looking at the equity markets in particular. So just came out and global flows despite the fact that equities are coming off globally, we’re still seeing people pile into equities, right. We’re still seeing flows into equity markets.

So that to me says that the current situation with Ukraine in Russia is likely to be temporary and that perhaps the big funds and managers are thinking that we’re going to see less of a rate hike in March than most anticipate because they’re still selling bonds and they’re still buying equities.

TN: Okay. Interesting. Sam?

SR: I think you’re looking at a lot of chop here as we transition from as pointed out a moment ago, as you transition from Ukraine grabbing all the headlines to the Fed getting back in the headlines that’s going to be a choppy hand off. When the fed was in the headlines. It wasn’t exactly great for markets and a little bit of a relief rally here off of world war three going into.

TS: Sorry to interrupt. I think that’s a bit of a little bit of end of month rebalancing too, right? What we’re seeing right now.

TN: It could be. Yes, that’s right.

SR: Yeah. Definitely. But I think the hand off from Ukraine headlines back to the Fed headlines creates a lot of chop and probably some downside bias across asset classes or at least we’re assessing.

TN: Sounds like a very interesting week ahead, guys. Thank you. You so much. I really appreciate this. Have a great week ahead. Thank you.

SR, AM, TS: Thank you.