Hey There Income Hunter,

 

We are trading in the wildest macro environment that I’ve ever seen.

 

And that’s saying something after 40 years in the game.

 

Thankfully, I was able to escape all the geopolitical turmoil and meet up with my son for a weekend of golf in Naples …

 

But now we #IncomeHunters are back at – and it’s one hell of an exciting market to trade.

 

Today I want to zero in a key part of an expanding war …

The West Is Winning Ugly

 

Vladimir Putin is losing everything – the war, the arguments, generals (some dead and some discredited) and more. Yes, the West is winning.

 

But the West is badly injured. Here are a few reasons why …

 

1)    Putin has a triple inflation shock

 

• • An oil price shock
  • A fertilizer price shock
  • A food inflation shock 

Each will impact every home in the world.

 

2)    We hit Russia with sanctions … Russia defaults … Meanwhile the West is beginning to realize how much they depend on Russia … Europe is even more reliant and Russian default means the European banking systems, especially Italy and Germany, will suffer a huge – maybe fatal – blow. 

 

3)    Russia's actions are damaging the West’s open markets … The London metal exchange closed when the nickel price went so high that the exchange could not handle it.

 

4)    Russia is not afraid to use nukes. Putin invented the “Escalate to De-Escalate” strategy … His theory is you must deploy nukes to get de-escalation, which puts fear in every western home and will add to negative consumer sentiment.

 

5)    Putin’s timing was perfect as the West faces record debt, record credit risk, fast-rising inflation and central banks that have no ammo left. What better time to throw a punch?

Collateral damage is beginning to show up in many areas

 

• • The Italian livestock growers have already announced that they will start culling animals in another few weeks due to the high cost of feedstock (wheat/grain). 

Why have wheat prices skyrocketed? Ukraine and Russia are the 4th and 5th largest producers of wheat in the world.

 

• • The high oil prices caused by Western sanctions and ban on Russian energy exports has now caused a spike in the cost of both fertilizer and food delivery.

The association of truck drivers in Italy announced a stoppage and the problem is that they simply cannot make any money delivering food when the oil price is so high.

 

• • The Food and Agriculture Organization has said all-time record high wheat is causing nations in the Middle East and Africa to be at risk of famine now.

These nations depend on the supply from Russia and Ukraine for as much as 30% of their needs. The cause is either there won’t be a harvest (Ukrainian tractors are too busy hauling away Russian tanks) or because these countries will hoard what they have. 

 

It is every man for themselves now and this will last for years, making inflation stick and possibly spike much higher along the way. 

 

European Banks Are Very Vulnerable

 

Germany and Italy are especially vulnerable because they built their economies on the idea that they could outsource production to the East and lend to Russia and its neighbors without a problem.

 

Now this strategy could come back to talk a huge bite out of their economies…

 

Sell euro banks and bank ETFs.

 

Sell iShares MSCI Europe Financials (Ticker: EUFN)

 

I am long put spreads on EUFN and will add on a move towards the .618 Fibonacci retracement level at 19.56. 

 

The International Monetary Fund says a Russian debt default is no longer “improbable” after banks froze half of their foreign reserves.

 

Russia is obligated to pay $117 million of interest this week on two dollar-denominated bonds that mature in 2023 and 2043. Ten percent of Germany’s GDP is invested in Russia and Ukraine. A default would be devastating to their banks.  

 

I think the EUFN ETF will likely test the lows in the weeks ahead. Notice the down trend that has been in place since early February in the chart below. 

 

Bring It Home

 

Can Putin keep this up? 

 

The price of oil could rise to $200+ and possibly $300+, if Putin can keep this up, but it looks increasingly doubtful that he can.

 

His marines and soldiers are refusing to follow orders now and sending in troops from the Pacific is not going to fix this.

 

However, the damage is already done … 

 

The West is saddled with a massive debt burden that cannot be balanced, interest rates that are hard to raise without terrible consequences, and fragile markets are now facing waning confidence in fiat money. 

 

Putin’s actions will compel the US to default on its own citizens in one of two ways …

 

1. 1. Either we are all forgoing retirement and accepting that Social Security payments are never coming
   2. Or  we force the government to print, which means inflation on a scale of hyperinflation similar to the Weimar Republic after WWI … 

No. 2 is scary but is more likely based on the Fed’s words and actions so far …

 

German inflation, money supply and gold during their hyperinflation in the early 1900s.

 

 

For the US, COVIDwas the catalyst that increased the size of our currency beyond repair …

 

The Russian invasion could put the US into recession, which would then force the Fed’s hand to print trillions and trillions more dollars. risking a similar fate to Germany after WWI. 

 

Check out how gold explodes once the central bank loses control of the money supply. My strategy is to dollar cost average into gold to protect my savings. 

 

Live and Trade With Passion My Friend,

Griff