UKRAINE Showdown, NASDAQ Under the Gun

Play Defense and Offense With Anti-Inflationary Assets!

Dear Reader,

Technology stocks – some representing companies that aren’t profitable – have single-handedly held up the market indices for years and generated triple-digit percentage gains since the start of COVID-19. Now, however, they’re leading the way down. The bigger they are, the harder they fall.

At the same time, hedge funds are furiously rotating into commodities, some of which have been stuck in a range for months on end. They apparently forgot what a geopolitical crisis feels like because it’s been a while, and now investors are terrified.

What are they afraid of? First, supply shortages will continue to wreak havoc on businesses that produce tech components, including the microprocessors that power the phone you use every day.

Second, they’re worried that interest rate hikes will crimp borrowing and lending activity, thereby disincentivizing business activity in America. This will have a negative impact on the economy and financial markets.

The Federal Reserve’s purpose in stifling economic activity is to slow down money velocity and put a damper on rising inflation. Speaking of inflation, the biggest price increases have been seen in commodities that impact practically all consumers: oil, natural gas, lumber, and even wheat and corn.

These problems are being exacerbated by the current geopolitical turmoil. Ukraine and Russia are collectively responsible for roughly 14% of global wheat production, and the two countries supply about 29% of all wheat exports.

Moreover, Russia is one of the world’s largest oil producers. In 2020, Russia produced 10.1 million barrels per day of crude oil and natural gas condensate. That put Russia in second place behind the U.S. at 11.3 million barrels per day.

To make matters worse, the U.S. consumes far more oil (17.2 million barrels per day) than Russia (3.2 million barrels per day). The net result is that the U.S. is a net importer of crude oil, and this puts Russia at an advantage.

We have a flipping in the financial markets, with tech stocks out of favor and commodities front and center. This has had a ripple effect on the cryptocurrency markets since Bitcoin has been highly correlated with technology stocks lately.

Surely, it’s not an accident that Bitcoin’s slide from $67,000 to $42,000 coincided with the tech wreck that started in November of last year. After all, many technology companies are following the lead of Mark Zuckerberg and Jack Dorsey by going all-in on blockchain tech.

The thing to remember as Wall Street sours on Bitcoin is that once technology stocks stage a comeback, crypto is sure to follow. This is precisely what happened when tech stocks bottomed out in March 2020 but then ran higher – as you may recall, that’s when Bitcoin exploded from $5,000 to $60,000.

With the Federal Reserve signaling not just one, but a series of interest rate hikes in 2022, investors will have to be nimble, playing offense and defense at the same time. Since the rate increases will be gradual (so as not to spook the markets too much), the Fed won’t be able to contain inflation quickly or easily.

Amid a backdrop of persistent inflation and a relatively ineffective Fed, it’s imperative to have at least some portfolio exposure to commodities. It’s understandable if you’re not interested in trading expensive oil or natural gas futures, though – this isn’t an easy game to play, much less win.

Gold and silver, on the other hand, are accessible to just about anyone who wishes to buy them, whether it’s the bullion itself or stocks representing the companies that mine it. Besides, gold and silver haven’t had their long overdue moonshots yet, though they are starting to break out to the upside.

The opportunity to buy gold at $1,940, silver at $25, and Bitcoin at $42,000 is a precious gift from the markets. As Warren Buffett once famously said, “When it’s raining gold, reach for a bucket, not a thimble.”

There are also great deals in the energy sector, including alternative energy. Across the board, assets that benefit from persistent dollar inflation should perform well for at least the remainder of the year.

The only real surprise here is that this didn’t happen sooner. Commodities always have their day in the sun. Sometimes it’s delayed, but that makes the rally all the more powerful when it finally happens.