The Wealth Minute - April 3-7, 2022

Good afternoon, clients, partners, and colleagues. Another week, another few degrees warmer. In this week's note, I'll touch on the war in Ukraine, a chart and details covering the use of the US SPR and its limitation, followed by the RBC Global Insight Weekly below, covering the markets.

I've been tracking some of the details in Ukraine which I haven't seen amalgamated and which I thought I'd share. The main theme is that Ukraine needs to switch its approach from its successful guerilla warfare which has worked very well in the north, to a more traditional open-field battle in the south and east where Russia will now concentrate. To achieve success, as they've been saying all week, the key is weapons, weapons, weapons.

I've triangulating commentary from General David Petraeus (Head of Centcom, Commander of the US and NATO forces in Afghanistan, Head of CIA), General Wesley Clarke (most recently, Supreme Allied Commander of NATO in Europe), and General Jack Keane (former Chief of Staff, US Army). The consistent story is that they'll need 4-500 tanks, with some differences between whether Russian T-72s will be sufficient or if the Abrams M1 is needed. In addition, they'll need longer-range air defense, self-propelled artillery, plenty of ammo, and planes to protect them from the back. My understanding is that without this equipment, Ukraine is doomed to a long and destructive stalemate rather than an outright defeat of Russia, regardless of courage and skill.

To that end, NATO, the UK, Australia, Slovakia, and the Czech Republic have announced additional weapons systems, with NATO remaining somewhat coy about all the details. Amongst new systems being provided, The UK will be sending their StarReach anti-aircraft shoulder-launched missiles and anti-tank weapons, the US continues to provide anti-missile defense, the Czech Republic is sending tanks, Australia is providing additional transport systems, and finally, Slovakia will provide their own S-300 missile defense systems which the US will replace with Patriots. So, overall, some progress with much more needed.

Chart of the Week

The US Strategic Petroleum Reserve

U.S. strategic petroleum reserve (see chart below from the Wall Street Journal): Last week, the U.S. announced “the release of 1 million barrels a day (roughly 1% of global demand) from the Strategic Petroleum Reserve over the next six months, or 180 million barrels in total—the largest in its history. The announcement follows a swift meeting Thursday among members of the OPEC+ cartel, which decided not to hike its collective output beyond the planned 432,000-barrel-a-day increase scheduled for May. Taking an additional 180 million barrels out of the SPR, which is already somewhat depleted after two recent drawdowns, could leave around 300 million barrels in reserve, according to calculations from?RBC Capital Markets. That leaves no effective cushion. Because International Energy Agency member countries are required to hold 90 days of net import cover in reserves, the U.S. must hold 315 million barrels, the RBC report noted. The obvious concern about such a large drawdown is that the market’s attention could shift to an impending loss of this shock absorber. As much as the world looks to the OPEC Countries for additional production, there are only 2 million-2.5 million barrels a day of additional spare capacity in the group, according to RBC.”

Inverted curve yields excessive concerns

We believe that recent discussions of yield curve inversion as a predictor of recessionary risk have gotten ahead of the data and the economics. It’s important to remember that not all curves are created equal and we make the case that the real picture is telling a different story.

U.S. equity market performance and the evolution of earnings expectations

Stocks are on track to end the week lower for the first time in the last four. But we think it’s interesting to look at market valuations in light of earnings expectations.

Please take some time to review the?Global Insight Weekly.

Feel free to contact me with any questions and/or to discuss investment ideas.

Have a great weekend,

David Crotin, MASc, CIM

Investment Advisor

[email protected]

Phone: 416-733-5181

Cell: 416-720-9097

davidcrotin.com

5140 Yonge St. – Suite 1100

Toronto, ON M2N 6L7

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