This article is excerpted from Tom Yeung’s Moonshot Investor newsletter. To be sure not to miss anything of Tom’s 100x potential picks, subscribe to his mailing list here.
America finds itself at an impasse
On Friday, I wrote about how stock markets ignored war. Retail investors took advantage of Thursday’s selloff to buy the dip, and the S&P500 the index would eventually end the week at 4,384 – precisely where it had ended the previous week.
This week will be different.
As the grim realities of the Russian-Ukrainian war emerge, Western governments will turn to increasingly punitive sanctions to prevent further bloodshed. And unfortunately, I foresee that these measures will also have significant costs for the West.
Sanctioning Russian energy exports (or imposing carbon taxes) will raise prices and worsen inflation in the short term. And the financial burden of sending physical supplies to the Ukrainian resistance will seem like a rounding error when compared to the cost of protecting the West from retaliatory cyberattacks.
Investors who focus on high-quality, long-term Moonshots will always be winners. Don’t expect a smooth ride to the top this time.
What to expect this week: 1. US steps up Russian sanctions
On Saturday, the United States and European countries agreed to separate several Russian banks from the global SWIFT network.
The effect was… well… fast (sorry). Footage on social media reportedly shows hundreds of people queuing at Russian ATMs to withdraw cash. And on Sunday, Russian President Vladimir Putin would put nuclear forces on high alert in response to “aggressive statements” from major NATO powers.
But the bank sanctions are just beginning. As money begins to flow into unsanctioned banks and cryptocurrencies, the West will find itself considering sanctions against Russia’s central bank.
“This would likely lead to massive bank runs and dollarization, with a sharp sell-off, a drain on reserves and, eventually, a total collapse of the Russian financial system,” noted Elina Ribakova, deputy chief economist of the Russian Federation. Institute of International Finance. .
So for those looking to buy the drop in battered stocks like Sberbank (OTCMKTS:SBRCY) Where Gazprom (OTCMKTS:OGZPY) today, I have a piece of advice:
2. Canadian energy production is accelerating
As energy prices rose, one swing producer emerged victorious:
In 2014, the marginal cost of producing Canadian oil sands was $90 a barrel, compared to $57 for deepwater drilling in the United States and $3 for Saudi Arabia onshore, according to the aggregation site Knoema data.
Today, the price of oil at $100 a barrel has created a resurgence in energy production in Canada. The number of platforms has increased by 60% to 224 since the start of the year and the stock prices of their backers are soaring. And if Russian energy sanctions materialize faster than expected this week, investors should expect the most operationally exploited sanctions to come to fruition. MEG Energy (OTCMKTS:MEGEF) for Cenovus Energy (NYSE:CVE) to climb even faster.
3. Electric vehicle companies report earnings
Meanwhile, alternative oil stocks will also make waves this week.
Monday, Lucid Engines (NASDAQ:LCID) will provide investors with a financial update after the market closes. Expectations vary wildly – analysts expect the company to generate between $36 million and $83 million in revenue, a gap of nearly $50 million.
Lucid has a high “wall of worry” to climb. The automaker has already announced a recall of 200 vehicles, sending shares down more than 5%. And growing competition in the space – from Porsche spin-offs to Lamborghini’s electric vehicle ambitions – is ringing alarm bells.
Two days later, Arrival (NASDAQ:ARVL) could positively surprise investors. Rivals of Battle horse (NASDAQ:WKHS) for Nicholas (NASDAQ:NKLA) stumbled, leaving only Rivian (NASDAQ:BANK) as its main competitor. If Arrival shows it’s converting pre-orders to cash, don’t be surprised if the stock price takes off.
4. Meme Actions Post Results
Meanwhile, Reddit investors will be busy with options this week.
AMC Entertainment (NYSE:CMA) is expected to announce its results on Tuesday. Retail investors are expecting a nice earnings surprise, thanks to blockbuster hits like Spider-Man: No Coming Home. Options traders will see a lot of money change hands, even if the long-term outlook for the theater is murkier.
Other r/WallStreetBets favorites should be flagged, including electric vehicle charging companies Charging point (NYSE:CHPT) and Volta (NYSE:VLTA), vaccine manufacturer Novavax (NASDAQ:NVAX) and sports retailer The 5 great sporting goods (NASDAQ:BGFV).
5. National Grammar Day
And finally, Friday marks National Grammar Day, a holiday coined to “help…students with their grammar in a lively and positive way.”
Most Internet users will obviously ignore the occasion. Sites like Reddit r/WallStreetBets have never exactly been bastions of eloquence. (The same could be said for 99% of content on the internet).
But the editors of InvestorPlace.com could take a well-deserved break. So if you see a comma splice, a misplaced modifier, or an unfinished sentence… [Editor’s Note: Actually, National Grammar Day means I will be even harder on Tom. Pity the Moonshot Investor who dares leave a dangling participle in his newsletter…]
The political calculation of sanctions
If there is a truism to conflict, it is this:
War hurts both sides.
Eliminate the world’s second largest oil exporter from the world economy? Expect a deficit of 5 billion barrels per day and a corresponding price increase. Delete them from the SWIFT network? A parallel financial system will eventually replace the status quo.
In other words, US sanctions against Russia have a cost.
Some embargoes will hurt less than others. According to the Semiconductor Industry Association (SIA), Russia accounts for just 0.1% of global chip purchases. Banning Russian telecommunications and IT infrastructure from using Western-designed chips will have an unbalanced effect on the country.
The targets so far have been “chosen carefully to maximize the impact on Russia and minimize the effect on EU countries”, according to an official US briefing with Bloomberg News.
But Western governments may eventually run out of soft targets. And if that happens, expect higher inflation – and possibly higher interest rates – to become the talk of the town.
PS Do you want to know more about cryptocurrencies? Penny stocks? Choice ? Drop me a note at [email protected] or connect with me on LinkedIn and let me know what you’d like to see.
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As of the date of publication, Tom Yeung had (neither directly nor indirectly) any position in the securities mentioned in this article.
Tom Yeung, CFA, is a Registered Investment Advisor on a mission to simplify the world of investing.