7-Chart Monday (3/14/22)

By Charlie Bilello

14 Mar 2022

Note: I have a new video channel on YouTube where I’ll be sharing my latest thoughts on markets and investing. Check out the video accompanying this post here.


This week’s post is sponsored by YCharts. Mention Charlie Bilello to receive 20% off your subscription when you initially sign up for the service.


7 charts from the past week that tell an interesting story in markets and investing

1) There Is No Impossible in Markets

Two years ago the entire world was shutting down and Gasoline futures hit an all-time low.

Last week, they spiked to an all-time high, surpassing the previous high from 2008. If someone told you this would happen two years ago, you would have said that was impossible. But as we have learned time an again: there is no impossible in markets.

With gasoline futures hitting new highs, it wasn’t long before prices at pump would follow. By the end of the week, the average price of gasoline in the US had hit $4.33, surging past the prior high of $4.11 from 2008.


2) Rising Risk of Recession

Shortly after the US announced a ban on imports of Russian Oil, we saw a spike to over $130 a barrel in WTI Crude, its highest level since 2008.

Crude Oil has now risen 75% in just the last 12 weeks. We’ve only seen a move of this magnitude two previous times in history (Crude Oil futures date back to 1983):

-In August 1990, when Iraq invaded Kuwait. A US recession would begin that month and last until March 1991.

In June 2020, Oil was rebounding from the pandemic crash.

Many are fearing a repeat of the 1990 scenario, with Consumer Sentiment (University of Michigan survey) plunging to its lowest levels in over 10 years. With the exception of the 2011 Bear Market, sentiment has never been this low in the past without a recession. In a dramatic shift from a year ago, “personal finances were expected to worsen in the year ahead by the largest proportion since the surveys started in the mid-1940s.”

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Will the US enter another recession in the the next year? Many now believe so, as the results of my recent twitter poll indicate…


3) The Biggest Concern

What are people worried about?

More than anything else: rising prices continuing to outpace increases in wages. That’s been the case in the US for the last 11 months and is likely to continue in the near term.

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February’s inflation rate of 7.9% was the highest we’ve seen in 40 years, and this was before the recent spike in commodity prices.

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Here’s the breakdown by category…

Once again, CPI’s largest component (Shelter, at a third of the index) is being significantly understated with rents in the US up nearly 18% in the last year. What this means is that the true inflation rate is much higher, likely north of 10%.

4) The Rate Hikes are Coming

Despite all of the recent turmoil, the inflationary picture is leaving the Fed no choice: it must hike interest rates.

A 0.25% increase at the March 16 FOMC meeting is already priced in by the markets, and additional 0.25% hikes are expected at each meeting through the end of the year (7 hikes in total).

The disconnect between Fed Policy and rising inflation is becoming more glaring each month, with the real Fed Funds now sitting at -7.8%. That’s the lowest we’ve seen in history outside of a single month in 1974.

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Monetary policy has never been close to this easy in the past when the Unemployment Rate was at 3.8%, as it is today…

With rates hikes expected, interest rates continue to rise (2-Year Treasury yield has moved up to 1.75% from 0.73% at the start of the year), and bond prices continue to fall. This is now the longest (581 days) and largest (-6.6%) correction in US bonds that we’ve seen in recent history.

If the year ended today, it would be the worst year ever for the bond market (-4.8% year-to-date).

5) Nasdaq 100 Bear Market

Rising interest rates continue to put pressure on the high multiple Tech sector. The Nasdaq 100 is now in a Bear Market, down over 20% from its high.

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Many stocks within the index are down much more, including Facebook ($FB) and Netflix ($NFLX) which have been cut in half…

Interestingly, Facebook is looking more and more like a value stock, with its P/E ratio (13.8x) now below IBM (19.9x).

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6) Worst Starts in History

The S&P 500 is down 11.8% in the first 48 trading days of 2022, the 4th worst start to a year in history. The worst 5 starts prior to this year (2009, 2020, 1935, 1933, & 1982) all mounted tremendous comebacks to end the year in strong positive territory.

Is another epic comeback in order? Only time will tell, but many seem to believe the S&P 500 will at least end the year higher than where it stands today…


7) When Valuation Proves Meaningless

At the end of February, Russian stocks were among the cheapest in the world, with a CAPE ratio of 7 versus 35 for the US. A week later, an investor in US equities had lost 1% versus a nearly 100% loss in Russian stocks (note: the Russian stock market has been closed since February 28 but trading in all Russian ETFs in the US has suspended at an NAV close to 0).

The lesson: valuations mean nothing when a fat tail event hits and securities are banned from trading. Every stock appears to be at its cheapest level right before it goes to 0.

Bonus Chart: Nickel Breaks the Market

Russia is the world’s third largest producer of Nickel and Norilsk Nickel (of Russia) is the world’s largest Nickel mining company.

It’s no surprise, then, that the price of Nickel would rise, but what happened last week was beyond anyone’s wildest imagination.

Nickel Futures more than tripled in just two days, causing the London Metal Exchange to suspend trading (for the first time in any metal since 1985) as it rushed to resolve a crisis stemming from an $8 billion loss by a large Chinese Nickel producer (Tsingshan Holding Group) that was short the metal.


The Nickel ETN ($JJN) rose 69% in a single trading day, a 40 standard deviation move.


What is Nickel used for?

Source: Nickel Institute

And that’s it for this week.

Have a great week everyone!


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