QVMS - Never Early
Summary
- England and Europe’s near-total reliance on Russia for their energy needs has prices spiking massively the last several months. We are starting to see the latest government bailouts - those of utilities.
- We feel that the only real consequential downside moves in the market are due to liquidity crises. If we were looking for a liquidity crisis, then this could be it.
- The third wave down in a bear market is usually the most severe, the sharpest and the quickest. It’s also the trickiest to maneuver.
England and Europe are in the throes of an energy crisis. If you haven’t been following along, the sanctions on Russia and the war in Ukraine are causing major disruptions in the energy/utilities market in Europe. Their near-total reliance on Russia for their energy needs has prices spiking massively the last several months. The thing that you may not realize is that energy and utility companies hedge their transactions. What does that mean? As a driller or supplier, they have the energy, so they sell the futures contract, effectively becoming short the product. If that product jumps ten-fold, then they must come up with more capital to support that transaction. We are starting to see the latest government bailouts - the bailouts of utilities. You know that we feel that the only real consequential downside moves in the market are due to liquidity crises. If we were looking for a liquidity crisis, then this could be it. Negative unintended consequences of the sanctions. More government bailouts. The more things change, the more they stay the same.
This is the third wave down in a bear market. The 3 rd wave is usually the most severe, the sharpest and the quickest. It’s also the trickiest to maneuver. Here is one of Reilly’s Rules, and it may be the toughest one for me personally to implement. It is better to be a little late than a little early. I had a partner on Wall Street that had a great sense of humor, and one of his lines that always made me laugh was - " Never wrong. Just early. " It was his way of putting on a brave face. It was very British in a way. Chin up! He was saying he was about to lose a lot of money. It always made me chuckle.
The options expiration this Friday and the looming FOMC meeting will have a large impact on the market. Markets like Europe, Japan, gold and cryptocurrencies are showing signs of trying to bottom. Doesn’t make sense logically, but who said the market was logical. Maybe the market is starting to see something we don’t see yet. The third wave is tricky, but it is better to be a little late to the party than early. Trying to stay patient.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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Never Early