“It’s Going to Be Energy, Energy, Energy” thumbnail

“It’s Going to Be Energy, Energy, Energy”

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Louis Navellier’s says “buy energy” … the diesel situation isn’t getting better … FTX declares bankruptcy … will another shoe drop in the sector?

[Yesterday’s cooler CPI data] is taking pressure of the Fed to raise rates beyond December.

So, everybody is hoping that the Fed is going to do 50 basis points in December and be done.

So says legendary investor Louis Navellier from yesterday’s Platinum Growth Club Flash Alert update.

Louis adds that the year-over-year inflation comparisons are getting much easier. That’s because one year ago we saw huge inflation increases. A “huge” number then compared to a “huge” number now results in a small number, or lower relative inflation.

Louis believes we could see more of these softer inflation prints in the months to come thanks to these higher starting values.

After speaking to yesterday’s CPI data, Louis quickly pivoted toward where to invest right now, and his answer hasn’t changed from recent months…

Energy.

Earlier this week, West Texas Intermediate Crude (WTIC) was selling for more than $93 a barrel. As of yesterday morning, it had fallen to roughly $85 a barrel.

In the wake of the lower prices, some of Louis’ top-tier energy plays sold off substantially.

Here’s Louis’ take:

They’re screaming buys right now.

What’s going to happen is President Joe Biden is going to stop draining the Strategic Petroleum Reserve. That’s up to a million barrels per day [of extra supply on the market that will be eliminated].

OPEC is obviously cutting. China is going to restart it economy because their Covid-zero policy isn’t going to last forever. And demand naturally goes up in the spring anyway.

So, if you’re looking for a window to buy energy stocks, today is your window…

When all the dust settles, it’s going to be “energy, energy, energy.” It’s lock-and-load time.

As to the broad market, Louis calls yesterday’s CPI data and the market’s response “very, very encouraging.”

Keep in mind, we’re in a seasonally-strong time of year for stocks. So, yesterday’s CPI news could be the match that ignites a holiday rally, resulting in double-digit gains by the end of the year.

While we’re talking energy, keep your eyes on diesel prices

Last week in the Digest, we alerted readers to the growing shortage of diesel fuel, which has been leading to elevated diesel prices.

This is a major problem because diesel fuel drives our economy.

Diesel technologies are behind more than four-fifths of the products exported from and imported to the United States by truck, train, and ship. If we look at the fossil-fueled equipment used in construction, mining, and agriculture, 75% of it is diesel-powered.

Diesel is also behind many mass transit systems, fire and rescue vehicles, hospitals and government offices, national defense, you name it.

This situation is moving in the wrong direction. Unfortunately, diesel’s elevated price has the potential to slow down the gains we’re seeing in the inflation fight.

Here’s Yahoo! Finance:

Diesel prices remain uncomfortably high, and they’re contributing to food inflation and other consumer pain points.

Around the same time gas hit $5, diesel hit a record high of $5.81 per gallon. Gas prices are now 22% below their peak, but diesel is just 8% lower.

On a year-over-year basis, gas prices are up 15% while diesel is up 43%…

High diesel prices are a kind of hidden inflation, because most consumers never buy diesel. But it’s an important input in the production and transportation and of many things, including food and consumer goods shipped around the country.

And here’s The Washington Post with additional numbers:

…Nearly 1 in 5 homes in the northeast use diesel for heating oil. The price hikes this season are crushing, in turn driving up the cost of food and other goods…

The cost to heat a residence using diesel-based home heating oil is projected to increase 27 percent over last year, according to the U.S. Energy Information Agency’s winter outlook…

…Soaring prices are very real, wreaking havoc on the economy and delivering a painful financial blow to consumers.

As of now, there’s no immediate relief coming because our nation faces a reduction in diesel refining capacity. President Biden could encourage more capacity but such a move would be highly-unpopular with his constituent base.

So, while we cheer yesterday’s cooler inflation, keep your eyes on diesel’s price. It will have a marked influence on inflation in the coming months.

Meanwhile, continuing with the latest in the FTX debacle…

If you missed our Digest yesterday, click here to review the drama that’s been playing out in the crypto sector.

In short, over the last few days, one of the biggest crypto exchanges in the world has found itself in danger of complete collapse.

This morning, the collapse happened.

From CNBC:

Sam Bankman-Fried’s cryptocurrency exchange FTX has filed for Chapter 11 bankruptcy in the U.S., according to a company statement posted on Twitter.

Bankman-Fried has also stepped down as CEO and has been replaced by John J. Ray III, though the outgoing chief will stay on to assist with the transition.

Approximately 130 additional affiliated companies are part of the proceedings, including Alameda Research, Bankman-Fried’s crypto trading firm, FTX.us, the company’s U.S. subsidiary.

Earlier this year, 30-year-old crypto entrepreneur Sam Bankman-Fried (SBF) had a personal net worth of $32 billion. In the wake of this FTX debacle, SBF has lost an estimated 94% of it.

But he’s not the only one taking it on the chin. What about FTX’s customers?

From Forbes:

FTX isn’t legally required to cover withdrawals in the same way a FDIC-insured bank would be, setting up a potentially dire scenario for customers.

GlobalBlock analyst Marcus Sotiriou told Forbes in July bankrupt crypto firms are “in a really sticky situation because they’ve been irresponsible with clients’ funds, somehow lost out and are now unable to pay back their clients—and there’s no guarantee they’ll pay the money back.”

We’re learning that FTX lent billions of dollars’ worth of customer assets to fund risky bets through its sister group, Alameda.

From The Wall Street Journal:

All in all, FTX had $16 billion in customer assets, the people said, so FTX lent more than half of its customer funds to its sister company Alameda…

FTX paused customer withdrawals earlier this week after it was hit with roughly $5 billion worth of withdrawal requests on Sunday, according to a Thursday morning tweet from Mr. Bankman-Fried.

The crisis forced FTX to scramble for an emergency investment.

The SEC is investigating. But FTX’s failure to fill withdrawal requests stinks. There will be more to come on this story for sure.

As to clients getting their money back, here’s CNBC with SBF’s comments as of yesterday:

In Thursday’s tweet thread, Bankman-Fried said his number one priority “by far” is “doing right by users.” To that end, he says that he and the team are spending the week doing everything they can to raise liquidity.

“I can’t make any promises about that,” he said. “But I’m going to try.”

“Every penny of that–and of the existing collateral–will go straight to users, unless or until we’ve done right by them,” he pledged on Thursday.

As of now, the broader crypto universe remains on shaky ground

Here’s Bloomberg with why:

Crypto markets face weeks of deleveraging in the fallout from the crisis at digital-asset exchange FTX.com, a period of upheaval that could push Bitcoin down to $13,000, according to JPMorgan Chase & Co. strategists.

A “cascade of margin calls” is likely underway given the interplay between the exchange, its sister trading house Alameda Research and the rest of the crypto ecosystem, a team led by Nikolaos Panigirtzoglou wrote in a note.

As we noted in yesterday’s Digest, the crypto world is very entangled, with this coin on that balance sheet, and that coin held in this fund. It can be an interconnected mess with significant contagion effects.

JPMorgan went on to note that the current deleveraging playing out due to the FTX debacle is even riskier because today, there are fewer crypto groups with strong enough balance sheets to rescue flailing companies with low capital and high leverage.

As of now, all we can say is the dominos are tipping and it’s unclear how far it will go.

We’ll continue keeping you updated as this story plays out.

Have a good evening,

Jeff Remsburg