1.       Coming Chronic Food Shortages

  •  Ukraine supplies 10% of the world’s wheat production – Russian invasion preventing spring planting.
  • Worldwide shortage of fertilizer causing both massive shortages, price increases, and multi-year crop reductions across the world.
  • Diesel is another significant input to farming – and prices have skyrocketed – mainly due to pricey natural gas.
  • Natural gas is being used as a stopgap to fill energy needs in Europe left open by the war in Ukraine.
  • Supply chain issues and labor shortages have left many farms partially operational to inoperational equipment.

2.        The War in Ukraine

  • Massive disruption in European economic zone
  • Europe supplying arms to Ukraine
  • European energy supplies affected
  • European economies shifting production to military spending

3.       Inflation in the US

  • Fed is behind on inflation and likely to remain so.
  • Consumers have already “burned through” cash on hand from pandemic reserves as seen in rising credit card debt.
  • Rising rates likely to cause decrease in consumer spending.
  • The national debt is $30 Trillion.
  • This debt is all short term.
  • If interest rates go up just 2-3 percent, debt service will make up 75% of the federal budget.
  • Inflation is currently running at 10.12% as measured by the Producer Price Index.
  • The Fed will likely raise interest rates by 50 basis points next month.
  • In any inflation situation, the real rates must exceed inflation to realistically have a chance to slow inflation.
  • The Fed hasn’t even started shrinking its balance sheet yet.
  • At some point well before slowing inflation, the Fed must choose between slowing inflation and crashing the economy – and the Fed will most likely choose letting inflation go – which will tank the USD – potentially risking losing reserve currency status.

4.       China in severe Covid Lockdown.

  • Shanghai (at least) in lockdown to control Covid outbreak.
  • At least 23 million people are confined to their homes.
  • People are in dire need of food – they have been confined for 2 weeks.
  • Needless to say – no economic production of any sort has been accomplished during this time.  This must leave an economic mark that will have supply chain issues.

This is a grim set of circumstances no doubt – and you aren’t hearing about the economic impact of  many of these from conventional news sources.  Please manage your finances accordingly.

At BFS we manage quantitatively – which means that while we “know” all the above, if the market goes up and our models say go long, we will be long.  We can do this with confidence because those same models will get us out on the way down with just as much authority.

For what it’s worth – as of 4/15/2022 the market is hovering at the 200 SMA and the trend following strategies are at half weight.  If we continue down we will be completely out of trend following strategies.

At the beginning of the month Loews (a stock similar to Home Depot) fell out of the portfolio.  Is this an ominous sign for the housing market and/or overall market?  At a minimum it does signal a sign of weakness for an important sector!

Please check out the first quarter performance for the High Sharpe and Quantum Return Funds which are ideal for investors seeking to outperform the S&P 500 with less volatility.