The Bread and Beer Will Get More Expensive (and the Gas, Too)

The 'breadbasket of Europe' is hurting... The bread and beer will get more expensive – and the gas, too... Wheat goes 'limit up'... $150 oil?... The Fed's keeping rates low... Protect yourself from inflation...

The 'end game' of the war in Ukraine is unclear...

And it's likely still far off as well...

It's nearly a week since the Russian military started bombing neighboring Ukraine, and from our view in Baltimore, it still looks like the conflict could just be getting started... and the fallout getting worse.

Today, we're reading reports of a developing humanitarian crisis in Ukraine, concerns about food shortages within days... not to mention the toll the violence and loss of life are taking on folks still in the country and on the hundreds of thousands who have fled.

On the Russian side of the border, we're not saying that sweeping financial sanctions on its economy weren't appropriate... nor do we care if oligarchs have a foreign country to pilot their yachts to... But while the Russian economy is being "canceled," millions of everyday citizens are now being isolated, no matter what they think of Vladimir Putin's ideas...

Our thoughts are with the people of Eastern Europe today, but as is our work here in the Digest, we also must turn our attention to the markets. And when I (Corey McLaughlin) do that, I see real ‒ perhaps overlooked ‒ economic consequences from the war in Ukraine...

I'll explore these factors... and discuss why the war matters to the global inflation story – beyond oil. And I'll look at how it directly influences things like the prices of foods that hundreds of millions of people consume every day...

Who knew Russia and Ukraine grow 30% of the world's wheat?

I know we have a great readership with a variety of life experiences... including more than a few farmers, so some of you might have known this statistic already.

But I'm willing to bet many folks didn't before now know where roughly a third of the primary ingredient for bread, beer, and cereal comes from... Tell me if I'm wrong with an e-mail to feedback@stansberryresearch.com.

Back from our college days, we knew the region near Ukraine was known as the "breadbasket of Europe"... but I for one didn't realize just how much the world is dependent on wheat from the region.

According to Bank of America, of the more than 200-million-ton international wheat trade, 17% comes from Russia and 12% comes from Ukraine. Russia's the largest exporter of wheat of any country, and Ukraine is among the top four...

Of course, Ukrainians are more worried about their safety than farming right now... Bridges and transportation routes have been bombed.

And Russia's economic isolation ‒ essentially pulling its goods from the global supermarket shelves and gas tanks ‒ isn't good for most people, especially in today's high inflation economic environment.

It's not as simple as we're about to make it sound... but it's not a stretch to say that global wheat supply could experience as much as a 30% hit in the months ahead ‒ or at least feel significant supply chain turbulence between exporters and importers.

This would be a big deal in 'normal' circumstances...

We're talking about a staple crop of the world... It's used in basic foods – human essentials – and some of the most consumed products in existence... I know that my household budget will need to adjust to higher beer prices.

Short of water and oxygen, wheat has been one of the world's most important resources since the advent of farming thousands of years ago... Though today's gluten-free folks don't think so.

Two of the world's top producers of wheat in war with each other matters even more in a global economy already experiencing historically high inflation and an extremely stressed supply chain.

It seems commodities futures traders have realized this...

Today, the price of wheat futures contracts hit its highest levels in nearly 14 years... and wheat traded "limit up" for the second straight day on the Chicago Mercantile Exchange.

This got our attention yesterday – and again today.

This means volatility in this particular asset – future contracts of wheat – is sky-high... and market regulators put a "limit" on how high or low the price of an asset can trade in a single day to try to keep the exchange orderly.

Regulators from the Chicago Board of Trade essentially flip a "circuit breaker" to stop trading. In this case, it's because commodity traders think whatever they can pay for wheat today is a bargain... They can't buy contracts fast enough.

We'll see if it happens again tomorrow...

For context, we saw "limit up" or "limit down" stoppages in stock market futures back during the COVID-19 crash in March 2020, when markets swung wildly – up and down – before the major U.S. indexes eventually bottomed out down 30% from previous highs.

It's not just wheat (or oil, now above $110 per barrel) that is trading violently either... Corn futures are at new highs too... because of concerns about the war in Ukraine.

As Retirement Millionaire editor Dr. David "Doc" Eifrig and our colleague Kim Iskyan pointed out on our special Town Hall event on Monday, Ukraine is one of the world's top corn exporters as well...

According to the USDA's Economic Research Service, over the last 15 years, the area set aside to plant corn in Ukraine has tripled and corn yields have roughly doubled... The country was forecast to account for 17% of global corn exports this year.

Ukraine actually sends as much corn to China as the United States does...

Doc spoke about this during Monday's Town Hall...

If you've followed the Digest for the last two years, you know we've been talking about inflation concerns since the Federal Reserve and the world's central banks printed trillions of dollars and other currency into existence during the onset of the pandemic in March 2020...

Today, we're seeing the consequences... inflation that we haven't seen in decades... including in the prices of essentials like food, housing (mortgage rates have been trending higher), and energy (oil prices spiked again today).

As Doc said on Monday in the Town Hall, which you can watch here...

What strikes me is there's components that are critical here to human existence: Food, energy, and housing. The basic fundamentals.

You could still blame stressed supply chains – for now – for price imbalances, but eventually that excuse will go away, and if inflation remains at historically high levels, one reason will be left standing... the massive economic stimulus from the Fed and other central banks.

But Mr. Market doesn't care about that – today, at least...

The Fed, which traditionally raises its benchmark interest rates to head off inflation and a hot economy, is still intent on keeping rates relatively low... even with record inflation and a tight labor market.

According to our Stansberry NewsWire editor C. Scott Garliss, Fed Chair Jerome Powell, in his latest public testimony before Congress today, "eased worries about overly aggressive policy" coming sooner rather than later to the economy.

Powell basically said that investors should expect the central bank to raise rates by only 0.25%, up from near zero, at its next meeting later this month. On balance, Mr. Market took this as good news – let the easy money keep flowing – and stocks rallied sharply today.

The benchmark S&P 500 Index, tech-heavy Nasdaq Composite Index, and the Dow Jones Industrial Average were each up more than 1.6%... and the small-cap Russell 2000 was up the greatest, 2.5%.

As Scott reported, other Fed governors in recent weeks have suggested more aggressive policy "tightening" moves – like raising rates higher and sooner. But Powell "appears to have other ideas," as Scott wrote...

While speaking, the discussion inevitably came around to the central bank's interest rates plans. Congressional representatives, much like Wall Street and individual investors, want to know how quickly rates will rise.

That's when Powell eased worries about overly aggressive policy...

The Fed chair said he's in favor of raising interest rates by 25 basis points, or 0.25%, at the upcoming policy meeting. He also said he's open to increasing rates by as much as 50 basis points, or 0.5%, at some point down the road.

For money managers and traders, this soothed worst-case-scenario fears. Powell has the ultimate say in terms of policy action.

Powell also cited the Russian invasion in Ukraine as a reason for caution... and that the central bank will wind down its balance sheet via lack of reinvestment at first.

We know what the Fed is waiting for...

It's waiting for year-over-year statistical comparisons using its "official" inflation data to get better over the next few months, which probably will happen...

That might support a slow-and-steady approach to raising interest rates and peeling back asset purchases...

And that might keep what True Wealth editor Dr. Steve Sjuggerud calls the "Melt Up" churning higher... with asset prices going to unimaginable highs largely thanks to monetary stimulus from the government.

In the meantime, though...

High inflation is here, and as we've said, even if prices ease slightly in the months ahead, inflation is going to run at a rate millions of people can't afford when they go to buy bread, beer, or gas.

If you think there's not going to be large knock-on effects from this kind of widespread inflation, well, that's just not the train of thought that we are going along with at the moment...

Powell's wait-and-see approach will ultimately fail Main Street over the next few months at least... similar to how it didn't do anyone any good last summer to call inflation "transitory" while it clearly wasn't just passing through.

Gas prices will go higher... along with everything else.

At the same time, though, lower rates from the Fed tend to support higher stock prices, too ‒ since the cost of doing business is cheaper... But with inflation as high as it is today (and could be), not all companies will benefit equally, or be limited on the downside...

This is why growth names ‒ small and large ‒ have sold off drastically over the last three months... It's why oil prices continue to surge and the hated energy sector has been probably the biggest winner of the past 12 months...

As we mentioned, oil prices hit more new highs again today...

Brent crude, the international benchmark, traded near $114 per barrel today, up 9% over yesterday... And West Texas Intermediate, the U.S. standard, rose by more than 8% to $111 per barrel.

As NewsWire analyst Nick Koziol reported today, the OPEC oil cartel today announced that it's keeping its output plans the same as it was before Russia invaded Ukraine... and the West broke off many economic ties...

This announcement comes after the U.S., Europe, and China said yesterday they would release 60 million barrels of oil from their strategic petroleum reserves... That didn't ease the idea of higher prices, according to NewsWire analyst Daniel Smoot...

Analysts aren't confident the decision will move the needle. With Russia invading Ukraine – and the rising number of sanctions against Russia – experts forecast a 7 million barrel-per-day ("bpd") hit to supply. So, even with the reserve release, it could merely be a short-term solution to a much larger problem.

Consumer demand will likely remain stronger than current supply levels for quite some time. As a result, prices may trend higher, with some analysts projecting $150 per barrel of crude oil by the middle of the year – putting further pressure on consumers while potentially boosting the Energy Select Sector SPDR Fund (XLE), Chevron (CVX), and Enterprise Products Partners (EPD).

You can say it's because of the war in Ukraine, and the fact that Western countries probably won't be getting oil and gas from Russia for a while, but the backdrop of an inflationary world distorts value – in favor of things that people actually use and need right now.

With inflation running hot, and the dollar becoming a little bit stronger – relatively speaking with higher interest rates in the economy – there's a good argument to be made that assets with prices tied to "real" value should go up relative to those that don't.

We're talking about assets like oil, gold, real estate – now wheat and corn – and shares of world-class companies that make things that millions of people need, want, and buy... no matter what's happening on a given day.

Dan's '10-Stock Inflation Protection Portfolio'...

When real assets inflate, it can be wise to own those real assets in order to make sure your portfolio keeps pace... plus the companies that know how to make the most out of higher prices and pass the profits on to shareholders.

As we've written recently, our colleague Dan Ferris' "10-Stock Inflation Protection Portfolio" is a perfect solution for anyone looking to make sure their portfolio is ready to weather – and capitalize on – high inflation sticking around.

This is a basket of stocks that Dan has hand-picked just for the time we're living in. Some are traditional inflation plays like gold stocks, but many of these recommendations are new... or are ideas that other financial analysts aren't covering.

As Dan wrote in the February 7 Digest...

I've included four infrastructure-related stocks that serve industries like power generation, road construction, energy, and homebuilding... They're also essential pieces of modern life, without which we simply cannot maintain a high standard of living.

Finally, I've included a business that is like a royalty on the commercial-insurance industry... Most people don't think of insurance stocks when they think of inflation protection, but it makes sense.

Hard assets like real estate, factories, and product inventories all have to be insured. As their replacement cost rises, so do the premiums required to keep them covered... Whether there's a bear market or not, this company's clients still need insurance... Once again, it's selling an essential component of modern living.

Putting Dan's advice into action shouldn't take more than a few minutes... And if you ask us, jumping in to Dan's portfolio is a risk-reward worth taking to protect yourself and your portfolio from inflation.

Click here to hear more directly from Dan. In an interview with our editor-at-large Daniela Cambone, he shares all the details... and how you can access this special portfolio and all of the excellent research in his Extreme Value newsletter.

Kevin O'Leary: Inflation Is a 'National Emergency'

Shark Tank star Kevin O'Leary, also known as Mr. Wonderful, explains why inflation is a "national emergency"... the fallout can kill presidencies... and that a broken supply chain could lead the Federal Reserve to be cautious when it comes to hiking rates...

Click here to watch this video right now. For more free video content, subscribe to our Stansberry Research YouTube channel... and don't forget to follow us on Facebook, Instagram, LinkedIn, and Twitter.

New 52-week highs (as of 3/1/22): Alcoa (AA), Bunge (BG), Freeport-McMoRan (FCX), Freehold Royalties (FRU.TO), SPDR Gold Shares (GLD), Lockheed Martin (LMT), Northrop Grumman (NOC), Sprott Physical Gold Trust (PHYS), Raytheon Technologies (RTX), Suncor Energy (SU), United States Commodity Index Fund (USCI), Virtu Financial (VIRT), Viper Energy Partners (VNOM), and SPDR S&P Oil & Gas Exploration & Production Fund (XOP).

In today's mailbag, feedback on our special "Town Hall" event, which we put together Monday in light of the geopolitical events and volatility in the markets we've seen recently... As always, if you have a comment or question, e-mail us at feedback@stansberryresearch.com.

"The Town Hall yesterday was one of the best events I have listened to at Stansberry. Perhaps this unscripted format should be done more regularly – more natural and believable. Thanks to participants who pulled together quickly, especially Bill McGilton who has and still is going through a horrendous experience. I pray for you and your family's health and safety." – Paid-up subscriber Betsy B.

"Thank you for the Town Hall meeting. It was very informative, at a critical time, when we are looking for some guidance. I very much appreciated it." – Paid-up subscriber Tom G.

"The Town Hall was great. It was good to see the faces and hear the voices of the panelists that I read so regularly. It is an interesting time we live in. This year I have been stopped out of some positions and I have also taken advantage of opportunities as a direct result of being an Alliance member. Keep up the good and informative work." – Stansberry Alliance member Jeffrey G.

"May I say to all of you, thanks for taking the time to produce this. For me it is a value add. It is a time when your Alliance cost is reduced for the simple reason you can hear a variety of opinions and decide for yourself where your investments stand in the face of insecurity worldwide." – Stansberry Alliance member Jeff S.

Corey McLaughlin comment: This is why we do what we do... We're glad each of you enjoyed the Town Hall and found it valuable...

On a related point, if anyone missed the event and wants to watch or listen to it, which I suggest you do – it's nine of our editors giving their unscripted and unedited takes on the markets – you can find it at this link.

All the best,

Corey McLaughlin
Baltimore, Maryland
March 2, 2022