Pardon My French
Pardon my French... Europe is staring down an energy crisis... Another nod to the history books... Central banks started it... The crypto panic is less 'extreme'... Don't miss Doc on camera tomorrow morning...
Here's a phrase we weren't expecting to talk about today...
Force majeure.
Pardon my French... But this morning, we learned that Russian state-owned energy company Gazprom has told at least one major European customer that due to "extraordinary" circumstances, it can't and won't keep shipping natural gas to Europe from Russia.
This might have surprised us to read today, but it doesn't come out of nowhere...
Back in February when the Russian military invaded Ukraine, we talked about the potential tensions linked to the Nord Stream 1 natural gas pipeline that runs from Russia to Germany and beyond... There were worries about supplies being shut off back then.
Five months on, the bloody war keeps dragging and civilian casualties continue to rise. Russia is jockeying for leverage against Ukraine's European allies as the continent's energy and inflation crisis looks like it's spiraling out of control...
Russia supplies about half of Europe's current natural gas...
And natural gas accounts for about 25% of Europe's energy. It's key to a mosaic of the continent's energy supply...
In Germany, for example, natural gas is the country's second-most-important energy source after crude oil. It heats and cools homes and businesses... And around 95% of Germany's natural gas is imported.
Gazprom claims the Nord Stream 1 pipeline that runs under the Baltic Sea from Russia to Germany has been struggling with a faulty turbine and is also closed at the moment for "routine maintenance." But those with a decent B.S. detector are skeptical and fear it might never go back on... at least anytime soon.
Whatever the truth, the Russian energy company – which has a monopoly on the country's natural gas pipelines to Europe – is invoking the "force majeure" clause of its contract, retroactive to last Thursday...
I'm not a lawyer, but this is a standard clause in many deals. By going all French on us, Gazprom is essentially arguing it shouldn't have to pay any damages in the event of a lawsuit... and isn't in violation of its contract because of unforeseen events.
They're right about one thing...
These aren't ordinary times. Europe is staring down an energy crisis... particularly Germany, the world's fourth-largest economy (behind the U.S., China, and Japan). During peacetime, Germany opted to ditch nuclear power in favor of green energy that isn't doing the trick today...
This year, with the concept of a Russian energy cutoff front of mind, Germany and other European countries have been making contingency plans, including bringing old, dirty coal plants back online.
This is the main reason coal prices are up 176% in the past year and more than 30% higher in the past three months... even as some other commodities have pulled back their gains of the past year or so.
As our colleague and Stansberry NewsWire editor C. Scott Garliss told us today, the worst of this story could still be ahead...
Europe's biggest economy is also trying to conserve natural gas supplies in storage ahead of the winter but it's still drawing them down at a faster rate than they can be replenished.
And energy prices are driving Europe's record-high inflation (of 8.1% in the eurozone at last report). Only now, the European Central Bank ("ECB") has started to raise interest rates to address this problem.
The impact on markets and policy...
If you think the Federal Reserve was slow to fight inflation, the ECB has been even slower. But its decision now to hike rates to slow the European economy to try to lower costs could have greater effects... like a much deeper recession than we may face in the U.S.
It will still matter to everyone, though. As Scott told us today...
If Europe remains shut off from Russian gas supplies, it's likely to drive global natural gas prices even higher as more countries are competing for fewer resources. It also means inflation will likely grow worse in the region, forcing the ECB to become more aggressive with regards to its interest rate policy.
In other words, no matter what happens with Russian energy, the war in Ukraine will be a tailwind for higher prices in the short and intermediate terms.
This is familiar news... Remember back to the start of Russia's invasion of Ukraine, when the German government decided to halt the certification of the new Nord Stream 2 gas pipeline. As I wrote then in the February 24 Digest...
There is already a Nord Stream 1 pipeline that has been moving gas between the two countries for the last 10 years.
This new project, which has been built but hasn't been "switched on," was supposed to double the capacity of natural gas currently being pumped from Russia to Germany.
And over the past year, Europe has been struggling with a "gas crunch"... and high inflation, just like in the U.S...
At the time, we wrote that 75% of Germans had been in favor of these pipelines before the war... and neither demand for Russian energy nor its supply was going away, at least not right away. But that's now a possibility.
And people and businesses still need to heat and power their homes, offices, and factories, like Germany's two largest companies, carmakers Volkswagen and Daimler. Said another way, history books regularly point out that war causes inflation – and that's proving true again.
That's not to say central banks didn't get inflation started. But there are other contributing factors – like governments fighting wars their people don't necessarily want – that can make things worse.
For more on this story, be sure to check out Scott's analysis in the NewsWire.
Today alone, natural gas futures prices jumped more than 6%... As Scott shared, natural gas prices on the New York Mercantile Exchange ("NYMEX") are approaching highs from earlier this year...
Also today, oil was up nearly 5%, with Brent crude – the international benchmark – up slightly higher than West Texas Intermediate ("WTI"), the U.S. standard...
Moving on to a quick note about cryptos...
After a brutal past few months for cryptocurrencies, it looks like the panic that gripped the market of late is beginning to ease...
That's what we're seeing from the Crypto Fear & Greed Index, a metric we've mentioned before. Created by software company Alternative, it measures prevailing sentiment among crypto investors. It's calculated by measuring volatility readings, crypto trading volume, social media sentiment, market-share data of the major cryptos and "altcoins," and other trend behavior.
As our colleague Eric Wade wrote on Friday in the "Crypto Corner" section of our Stansberry Innovations Report, it looks like sentiment around cryptos may have bottomed last month...
Back in June, bitcoin (BTC) was trading for around $22,000 and Ethereum (ETH) was trading for about $1,200.
At the same time, the Crypto Fear & Greed Index read 7, indicating extreme fear... It was the highest reading since the index hit 5 in August 2017. (A reading of 0 reflects extreme fear, and a reading of 100 reflects extreme greed.)
This month, bitcoin and Ethereum have dropped to around $20,600 and $1,100 [that's up to around $22,000 and $1,500 today], respectively. And yet, the Fear & Greed Index has climbed back up to 22...
That indicates that investor sentiment is improving despite falling prices and significant damage to various crypto and blockchain companies...
For example, Eric noted that crypto lender and exchange Voyager Digital declared bankruptcy after freezing user accounts. Celsius, another crypto lender, froze withdrawals last month, only to file for Chapter 11 bankruptcy protection last week.
Singapore-based Vauld also froze withdrawals and is looking to prevent bankruptcy by restructuring, raising more funds, or completely selling its operations.
The past few months in cryptos should serve as another big reminder to make sure you do your research – or follow a great guide like Eric and his team – before putting your money into any cryptocurrency or platform that promises eye-popping returns.
But as Eric continued, if you are a long-term bull on cryptocurrencies, now might be a great time to consider getting greedy – precisely because others are still so fearful, but the mood is getting better. Fear is still "extreme" but not as extreme as it was recently...
These types of events can signal that an oversold market is reaching the end of its downtrend phase (part of the four stages of a market cycle). That's when prices drop so low that investors give up on any recovery and quickly sell their holdings.
Interestingly, that's also the point where contrarians begin to see the tenderest green shoots of hope... The slightly recovering Crypto Fear & Greed Index backs that up.
This is all to say, it might be time to think about buying cryptos once again. Bitcoin and Ethereum, for example, are down more than 60% from their all-time highs in November. But as Eric said...
We're not giving up on the crypto sector...
Its underlying blockchain technology is transformative... impacting everything from global economics to monetary policy. It can also help improve company efficiencies, optimize supply chains, and reduce business costs...
It's easy to get discouraged by a market like this. But we're here for the long haul. The technology is accelerating at a rapid pace, and we want to be there when the market turns in our favor once again.
In the past 24 hours, bitcoin is up 4% and Ethereum is 10% higher...
Existing Stansberry Innovations Report subscribers and Stansberry Alliance members can find the latest issue here. It includes the full Crypto Corner update, which also analyzes one blockchain-focused fund.
And the latest issue is led by editor John Engel's buy recommendation on a popular company in the entertainment industry with great upside whose shares might never be as cheap as they are today.
Finally today, one more reminder before it's too late...
If you missed our recent notifications about our colleague Dr. David "Doc" Eifrig's upcoming special event, I want to make sure you see this one...
Tomorrow morning at 10 a.m. Eastern time, Doc will go on camera to detail what he's describing as the "biggest shock to retirement in more than 40 years."
As longtime readers of Doc's work know, he's an expert on most things related to retirement... and he doesn't make proclamations like this lightly. So when we heard about it, it got our attention.
Doc says no one is paying attention to this story today, which is precisely why he wants to tell it. The details will have a far bigger impact than a recession... inflation... or who controls Congress or the White House.
Tomorrow morning, Doc will share exactly what's happening... and why, if you're over 40 years old, the stakes could literally be life and death. The presentation is totally free. We just ask that you sign up in advance so you don't miss a minute. You can do so here.
An 'Island Stock' Pick
In this episode of Making Money With Matt McCall, Matt is joined by investor Meb Faber, the co-founder of Cambria Investment Management. Among other things, Meb shares the stock he would choose to own if he were stuck on an island for 10 years.
You might be surprised by his answer...
Click here to watch or listen to this episode right now. And to catch all of Matt's shows and more videos and podcasts from the Stansberry Research team, be sure to visit our Stansberry Investor platform anytime.
New 52-week highs (as of 7/15/22): Centene (CNC) and Option Care Health (OPCH).
In today's mailbag, more feedback on the saga of Twitter and Elon Musk and a thought about inflation... What's on your mind? Let us know with an e-mail to feedback@stansberryresearch.com.
"Hello, Your commentary is so fantastic that it educates me every day no matter, inflation to Musk. My thought is Mr. Musk has proven Twitter was playing with a bunch of fake numbers and not being truthful. So, Mr. Musk's representation whittles them down and he gets Twitter for a lot less and their board ends up having to deal with him after all... I thank everyone at Stansberry for being so great!" – Paid-up subscriber Jeff B.
Corey McLaughlin comment: Thanks, Jeff. We appreciate it... and we shall see what happens next with the Twitter and Musk story tomorrow when the sides are scheduled to have their first hearing before a judge.
"If people would pay attention to what is happening around them like the likely railroad strike next week and upcoming food shortages they would not be asking if we have reached peak inflation." – Paid-up subscriber John M.
All the best,
Corey McLaughlin
Baltimore, Maryland
July 18, 2022