An Offer America Wants To Refuse
This week, President Biden asked Americans, essentially, if they'd rather have lower gas prices or let Putin win.
Biden: "For all Republicans criticizing me for high gas prices in America, are you now saying we were wrong to support Ukraine and stand up to Putin? Are you saying that we'd rather have lower gas prices in America than Putin's iron fist in Europe?" pic.twitter.com/Z7U8YIFgnM
— Greg Price (@greg_price11) June 22, 2022
Responses tended toward "Yes",
I would personally lead the asiatic orc horde into kiev for 2$ gas. https://t.co/7GUmk67hoh
— Star Bard (@StarBarduous) June 22, 2022
With some noting the spike in CPI occurred before the Ukraine War started,
Yes and it’s not Putin’s fault it’s yours. pic.twitter.com/LyB1SZ8PFH
— 🚛 Lisa McG ®🍀� (@LisaMcGov) June 22, 2022
Others pointing out actions Biden's administration made that hindered the oil and gas industry in America,
If only there were somewhere else in the universe with oil and gas other than Russia, oh well pic.twitter.com/GbdX2KXO0Y
— Edge of Washington (@VVashingtonEdge) June 23, 2022
And still others noting that we could have had peace in Eastern Europe and lower gas prices instead.
The choice was not either lower gas prices or Putin’s iron fist in Europe. The choice was: either 1) Peace between Ukraine and Russia + Low price in US & EU, or 2) Proxy war against Russia using Ukraine + inflation in US & EU. Biden chose 2).
— Shell S (子皮) (@shell_zipi) June 23, 2022
How About High Gas Prices And A Win For Putin?
That's what the current trajectory looks like. To begin with, high prices for petroleum products have been, of course, an economic win for Russia. Russia's current account surplus has been surging and its currency recently hit a 7-year high versus the dollar.
1/2 Despite Biden’s claim that he would reduce it to “rubble,” the ruble is at 7-year high Inflation, while high, now dropping, from 17.8% to 17.1% in May � ran a trade surplus of $110.3B from Jan-May ‘22 (3.5x more than same period in ‘21) Avg export prices 60% higher in ‘22 pic.twitter.com/Ty6weybiNt
— Marshall S. Billingslea (@M_S_Billingslea) June 22, 2022
And it's becoming increasingly clear that Russia is winning the war in Ukraine, despite the massive arms shipments and other assistance the U.S. and the rest of NATO have given the Ukrainians. On June 1st, Ukraine President Zelensky claimed his country was loosing 60-100 men killed in action per day; two weeks later, his senior advisor David Arakhamia revised those daily KIA estimates up to 200-500, with a total of 1,000 being killed or wounded per day.
And Ukrainian sources are now acknowledging recent Russian territorial gains.
Not good at all — Russians have made some dangerous territorial gains south of Lysychansk, getting further to closing the Zolote pocket and also threatening the Severodonetsk grouping’s rear. The fight continues. pic.twitter.com/hU9JgvIUvH
— Illia Ponomarenko � (@IAPonomarenko) June 21, 2022
On Wednesday, Russian sources reported that the encirclement of the Zolote pocket, or cauldron, was complete, meaning the likely loss soon of thousands of additional Ukrainian troops (hopefully, via surrender, rather than injury or death.).
Why The Biden Administration Can't Lower Gas Prices
The main problem the Biden administration has is that its various policy goals are irreconcilable. They want lower gas prices in the short term, to help their party's electoral prospects in November, but they also ultimately want the fossil fuel industry to go out of business, which doesn't give those companies much incentive to invest to expand production. A secondary problem is that the administration is staffed, at the highest levels, but people who are not quite up to today's challenges.
Our Secretary of Energy. pic.twitter.com/rqxXHoJ0RN
— David Pinsen (@dpinsen) June 22, 2022
So, Buy Energy Names?
That's been a big part of our approach since early this year. For example, in a post here in late January ("Why Civilizations Collapse"), we noted that our system's top ten names included two oil E&P stocks (Laredo Petroleum (NYSE: LPI) and Antero Resources (NYSE:AR)) and two oil ETFs (ProShares Ultra Bloomberg Crude Oil (ARCA:UCO) and VanEck Vectors Oil Services (NYSE:OIH)).
Screen capture via the Portfolio Armor on 1/28/2022.
Since then, those top names are up 9.23%, on average, while the SPDR S&P 500 Trust (NYSE:SPY) is down 15.03%.
But as you can see, the oil names are all down so far this month.
The Risk That Remains For Energy Names
Although the Biden Administration is unlikely to lower energy prices through any constructive policy, the risk that remains for energy names is the prospect of a steep recession, that will crater demand. For that reason, we suggest anyone who is long energy names consider hedging them.
