Hey There Income Hunter,

Whatever Nancy Pelosi’s true intentions, her trip to Asia will not help the US economy.

This maneuver will backfire in a similar way to the Russian sanctions. The US does not have the power it once had, and we should be setting ourselves to regain the power instead of demanding it when we are at our weakest. 

Now, our relationship with China just went from cold to being put on ice for the foreseeable future. 

That would be fine if we were already self-sufficient and could produce our essential materials domestically, but we rely on China for raw materials needed for high-capacity batteries, jet engines, cameras, turbine blades, optical fiber, advanced magnets and MUCH more.

A Department of Defense review of the supply chain for minerals and materials critical for national defense found that China has mastered every step in the supply and production of all key minerals, from mining and extraction to purification, refining and finish. 

My guess is China may pull a page from Putin’s playbook and play hardball with some of the most essential products we need. That may be the best case scenario, with a Taiwan invasion being the worst.

Today, I’ll dive into a few market implications and trades that may make sense. 

Stagflation Will Be Back

Remember the supply chain issues that were blamed for inflation? … Well, now after Pelosi poked the bear, we will be dealing with supply chain issues for much longer. 

I have said deglobalization, meaning reduction in global unity and an every-man-for-himself shift, was a major reason to expect inflation to remain elevated for longer. 

Now, provoking China, just as we did Russia, will set us even further back, and I believe will add more stress on our already slowing economy …

Even as the energy crisis and further damage to supply chains adds pressure to prices of essential goods and materials!

In other words, stagflation …

Between the Fed reverting back to ultra hawkishness this week, as Fed members Daly, Evans and Mester took turns talking tough, and Pelosi’s trip to China,we should see the equity rally fizzle out.

Meanwhile, I would say Pelosi’s trip to Taiwan may move Putin to reduce the 20% of gas flowing to Europe to zero. 

This will cause even more damage to Europe’s economy with spillover effects to the US.

Buy Energy stocks and US Treasuries

This week, I purchased bullish option strategies on Schlumberger N.V. (SLB), an oil field service company, Royal Dutch Shell PLC (SHEL) and Southwestern Energy Co. (SNW), a quality natural gas company. 

I believe all three companies are well positioned in the oil and natural gas segments that will benefit in the months ahead as the lack of supply continues to pressure prices higher.

I also hedged part of the portfolio with bearish sector strategies.

And I’m looking to purchase bull strategies in the US Treasury bond ETFs. They got crushed Monday on the Fed pivot back to hawkish. 

My view hasn’t changed as far as looking for a capitulation trade in stocks until the Fed is forced to pivot for real, maybe as soon as the end of September.

Bring It Home

These times allow you to sift through the markets to find the right stocks in the right sectors and the wrong stocks in the wrong sectors to build a long/short portfolio.

Long only gets destroyed in these environments because there is nowhere to hide in a stagflation environment.  

Knowing the macro flows is a must along with finding the stocks that have the fundamentals and technicals behind the trend you are trying to capture. 

Stay tuned because the next couple of weeks will provide us with the data that will determine the next big move.

Live and Trade With Passion My Friend,

Griff