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The crises are now coming home to roost.
We're now entering the third inning of the problems exacerbating around the globe. This is why I created World's Biggest Trade... and why I give away the momentum indicator to help you navigate these markets in real-time.
Right now, the energy sector is holding broad market momentum in barely positive territory. But there's no doubt now that we are a world in crisis.
Harvest is coming. Winter is coming. The recession is here... and will worsen.
This is a world in crisis... and it's high time that our media acts like it and stops painting a rosy brush for our political elites.
Europe doesn't have enough baseload fuels to keep its manufacturing centers humming in the winter. The region is now in a manufacturing downturn, and all energy costs to the continent have exploded. People are hoarding wood to keep warm across the continent.
That energy crisis is spilling over to the United States. The price of natural gas is testing that $10 level for the first time since 2008. What should we make of this?
Another opportunity to trade commodities and other "real assets."
Natural gas is heading higher, which will only drive up the cost of fertilizer and other critical products needed in other industries. In addition, food is about to get more expensive - as the Federal Reserve can't print more of it.
Drought is terrible in the United States, Europe, and China. Leaders from those regions have warned about food problems with the harvest approaching. And it's not like drought conditions magically go away.
Bloomberg reports that the corn yields in Europe are expected to fall by 20% year over year. Yesterday, I showed the drought chart in the U.S.
The challenge with food and energy is that it will impact the price of everything. Corn isn't just food for humans. It's used for animal feed, in certain plastics, and has industrial uses.
The same goes for natural gas - which is an industrial gas used to power entire economies. Unfortunately, the reliance on Russian gas has doomed Germany and created a situation where inflation will only get worse across the continent.
This is a reminder that the Federal Reserve - as it takes a blunt hammer to the markets with higher interest rates - CANNOT print food, energy, and other commodities. Higher rates, higher prices, and lower supplies will only fuel a vicious cycle that leads the global economy into a recession.
The harvest has started for corn in smaller output states in the south. But the real problems start in late September and early October when the largest producing states take to the fields. If drought remains high, this will exacerbate a severe global food shortage fueled by the Ukraine/Russian war. Already, the stakes are high. Today, 37% of farmers are killing existing crops that won't reach maturity due to drought. That's up 24% from 2021, according to the American Farm Bureau Federation.
I think that even experts are human right now and don't know what to say in public. Privately, there is panic. There is confusion. And a lack of leadership and comfort that is required in times of serious uncertainty.
We have to keep an honest dialogue about these problems, which is why I host Midday Momentum each day. We'll show you how to trade these worrisome trends.
Today's Momentum Reading
Recap: Momentum is Yellow. We're in positive territory, but markets are trading sideways this morning on low volume. The next two weeks can be tricky, and energy stocks are holding this market up right now. Every other sector is seeing more selling pressure. The pressure across the food industry will intensify as well, it appears, as we head into harvest and more speculation surrounds the quality and volume of global harvests.
Three Things I'm Watching
Twitter Trouble: Shares of Twitter (NYSE: TWTR) fell 3% to start trading after an ex-security official at the company made some strong whistleblower claims. The former employee says that the social media giant misled regulators about the number of "bots" that operate on the site. According to reports, Elon Musk and his lawyers want to subpoena this ex-official. The news could raise concerns about Twitter's regulatory filings, impact the lawsuit that would force Musk to buy the company for $54.20 per share, and make this circus even more dramatic.
The Fed Pivot: The 10-year Treasury bond popped above 3% yesterday as markets showed fresh concerns about rate hikes by the Federal Reserve. What's crazy, however, is that the futures markets continue to anticipate that the central bank will start slashing rates aggressively in May 2023. As I've said before, inflation must be squashed. If rates are cut and demand returns without fixing supply issues, inflation will return to the economy, and we'll repeat this process all over again. A recession is necessary, but political will is feeble.
"Transitory": The CEO of The Corcoran Group says that ongoing hikes in interest rates have more people looking for rentals across the United States. And - as a result - rental prices are moving higher. Plus, anyone who is seeking to rent an extra property must set a price that compensates for increasing taxes, insurance, and other high costs - including buying prices from 2021 to 2022. Peak inflation... is not over.
Hot Long Shot
The biotech sector continues to grab my attention due to the ongoing speculation in the space and the ongoing short squeeze. But I can't help but notice that challenges lie ahead, especially if the Fed moves on 75-point hikes and we experience another dramatic rollover in this market. So, I'll go out to October, where historically the dragons live.
Buy to Open the October 21, 2022 SPDR S&P Biotech ETF (NYSEArca: XBI) $63 put for $0.50. That is down near our bottoms for XBI in May and June.
What You Missed
This summer bear market rally had everyone feeling like the old bull market was back. But from my side of the desk, the fundamentals are clear. We have serious issues plaguing our economy, and the Fed response has been too slow, in my opinion.
Now I'm getting calls and texts asking... What's up with momentum? Here's what.
I've been waiting for the other shoe to drop for this market, and it seems we may be on the precipice. We've been actively preparing for this moment, including last week's special short episode of Midday Momentum.
The World's Biggest Trade members are the most prepared traders on Earth as we've been laser-focused on what's actually happening in this economy.
We are focused...we are steady...our fingers gently resting on the button...
To catch an episode of Midday Momentum you may have missed click here to watch a REPLAY.
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About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.