Today, we explore global energy through the lens of Russia, the world’s largest exporter of oil and gas. And to the west is Europe, which is heavily reliant on Russian gas supplies. According to some estimates, Russia is earning roughly $500 million per day on oil and another $400 million on gas all together.

But gas flows from Russia to Europe were already declining into the Q4 heating season last year. Flows flattened out earlier this year, and are  now ticking downward.

To help us understand the Russia/EU gas market, we turn to Nadia Kazakova, an analyst at Renaissance Energy Advisors (REA). Nadia is an expert in this field with prior roles at JP Morgan and Saxo Bank. She also provides in depth analysis on operating stats from Gazprom, Russia’s majority state-owned energy company.

On this show, we discussed:

• Russia’s importance in the global and EU oil and gas markets
• The buildup of gas fields and a vast pipeline network from Siberia and throughout Eastern Europe
• Gazprom's growing influence on EU gas supply, and its efforts to go downstream to capture additional margin
• The significance of Gazprom's November export cut to the EU, stemming from the Nordstream pipeline debacle
• Supply mix from Norway, Algeria and US LNG
• Expectations for further export reductions from Gazprom, below its annual output target
• The new system of ruble payments – its complexity and implications for sanctions and long-term contracts
• New evidence that Gazprom is already cutting back volumes to non-compliant customers
• Future price stabilization or volatility, and what to monitor going forward

Most price signals have extended into overbought territory, although pullbacks could be temporary over the next quarter. Elsewhere, metals have stabilized and  oversold signals could present buying opportunities. 

Trading performance was positive in Q1, built on the success of Q4. Short palladium and long soybean oil were the  best performing trades, while sharp moves in wheat and oil detracted from overall gains. At times, volatility can lead to frequent or contradictory signals. 

Evidently, returns across commodities are not equal. At times, there is wide divergence between sectors such as oil/gas, agriculture and metals. That means the risk of a core long position can be offset with tactical long/short positions in specific commodities.

​For now, here is our base-case into Q2:

• The copper/gold ratio, a gauge for risk-on/risk-off, is stuck in a resistance range, similar to what occurred in 2017-2018 when market volatility increased.
• WTI Crude Oil broke above a decade-long resistance level at $105/bbl and faces stronger resistance near the 2008 price high at $147/bbl-$150/bbl.
• The recent decline in stocks relative to commodities is starting to stabilize, although failure to hold a decade-long uptrend indicates further downside in the ratio, especially if bond yields continue to rise.

Visit www.danteesoutlook.com for more info.

In the December podcast, we warned that 2022 could resemble 2018 – a year when the Federal Reserve tried to taper, which triggered a mini stock market crash. And now, we start the year with great turbulence. This time, however, a mix of macroeconomic and geopolitical risk emanating from Russia and Ukraine have kept investors on edge.  

And of course, the threat of rising inflation lingers. Supply chain disruptions and record low inventories contributed to a surge in prices. But fighting inflation by raising rates comes at the expense of slowing economic growth. 

To help us unpack these developments, we turn to Lev Borodovsky, the editor of The Daily Shot newsletter. Geopolitics

​Topics discussed:

• Update on the Russia-Ukraine conflict, and its impact on markets
• European energy crisis
• ECB response and inflation expectations
• Commodity price outlook
• Fed policy and inflation/growth
• Expected returns: equities and Treasury hedge

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Feel free to reach out to learn more about Dantes Outlook and our investment strategies here.

Tim explains that carry trades (borrowing at low interest rates to finance higher-yield investments, and assuming market stability), are behind recurring booms and busts. Tim and his fellow authors argue that market crashes are not the result of economic recessions – rather, market crashes cause recessions. 

Currently, there is risk of another carry crash, which was in development before the Russia-Ukraine crisis.

Commodity rally appears overbought, expect some pullbacks

The commodity price rally appears to be slowing, which could point to lower returns this year. Several overbought signals were confirmed over the past few months, especially in natural gas, which declined more than 30% in Q4. As expected, the dispersion in commodity returns narrowed over the past quarter as earlier declines in metals and agriculture stabilized. The US dollar remains a wildcard, which has strengthened along with commodities over the past few months. Meanwhile, commodity currencies such as the Australian and Canadian dollar have lagged the upside in commodities. 

Trading performance was positive in Q4, which made up for some losses in Q3. Short natural gas was the best performing trade, while a short-term buy in soybean oil detracted from gains. Overall performance in 2021 was positive, although most of the strategy’s gains were realized in the fourth quarter of 2020 around the start of the commodity rally. Recent volatility has led to choppy trading conditions, which means the strategy will be more selective with positions.

Read the full report here

FM Capital Group website

Twitter: faithmight 

Lydia's LinkedIn

Show notes

• We discussed Lydia's background in computer science and how she pivoted into trading and investing.
• Lydia started blogging and engaged with a community of traders online.
• She eventually started her own investment advisory firm, FM Capital Group, to apply her analysis and make investment decisions on behalf of clients.
• We discussed the importance of investor suitability and how FM Capital Group blends private and public markets to build  client portfolios.
• Lydia talked about her hands-on process to align client expectations with portfolio performance over the long-term.
• Opportunities in Africa's expanding middle class and the robust secondary market, which is often misunderstood. 
  • "Go into private markets with the aim of making more than one investment in companies that can create tremendous value over the next 10 years," Lydia said. Local investors are already active, and global players are entering the ecosystem. 

Katie spent more than 20 years on Wall Street providing technical research and advice to institutional investors. She is the managing partner of Fairlead Strategies, a technical research firm. Here is a brief rundown of our conversation. 

• Started with a strong affinity for mathematics given the need for concise analysis – a binary takeaway that can be applied to markets.
• Technical analysis provides a visual element to help understand the markets, driven solely by price action.
• Worked as an analyst under mentors who taught her about different indicators and tools, which she combined in order to provide value as a trader and then later as a researcher. Consistency is key.
• Fairlead uses a collection of indicators to provide buy and sell signals. The real upside is in the uptrend, although certain momentum gauges can determine when trends are accelerating or ending. 
• Katie is monitoring initial signs of upside exhaustion in the S&P 500 despite positive seasonal influences at the moment. A higher volatility regime could unfold next year, similar to 2018, a rangebound year which benefitted investors with a more intermediate-term timeframe. 

João is a graduate of Babson College where he concentrated in finance. He also completed a venture capital program at the UC Berkeley Haas School of Business. João worked in investment banking at Itau BBA and worked in financial planning at Kraft Heinz. And before Z1, he co-founded Vereda, a start-up providing low-cost, high-quality K-12 education for Brazil’s middle class.

We discussed the origins of Z1 and the importance of financial inclusion, especially for young adults. João also talks about his growth plans for Z1 after a series of fundraising. 

WEBSITE: https://z1.app