Morning Comment: The Ukraine Crisis Will Be With Us a Long Time....Bitcoin Breakout

With just four days left in the quarter, the stock market continues to bounce off its mid-March lows. The futures are trading slightly higher this morning despite the fact that interest rates are moving higher. (The yield on the 10yr note actually is not moving much, but the 2yr and 5yr yields are indeed jumping higher.) We suppose that the fact that the stock market is still rising in the face of higher yields should not be overly surprising…given that this has been going of for two weeks now.

However, this is not something that can likely go on for very long. When yields rise in a meaningful way, it pretty much always has a negative impact on the stock market eventually. Heck, in 1987, the yield on the 10yr note rose 46% before it had a negative impact on the stock market…and this time around, that yield has risen 120%! Okay, okay…we readily admit that a rise above 10% (like we saw in ’87) is a MUCH bigger deal than a rise to 2.5% we have seen over the past 8 months...but we just wanted to highlight that the move since August has been an extremely significant one. Therefore, it’s something that should create headwinds for the stock market before too long……NO, we are NOT calling for another 1987-style crash. We’re just saying that those who think the stock market has already priced in such a large rise in yields…when the S&P 500 is trading at more than 20x forward earnings…are not looking at history correctly.

The market’s recent reaction (actually non-reaction) to the developments in Ukraine over the past few weeks is perplexing. Sure, the fact that Russia continues to struggle with their goal to taking control of Ukraine is good news…especially when we’re being generous when we say that Russia is merely “struggling” to reach this goal. However, even if Putin settles for merely gaining control over certain parts of eastern Ukraine and then declares victory, is that really something that will cause the West to revoke their sanctions? Will the West sit back and say it’s okay for Russia to blatantly takeover part of a sovereign country without ANY repercussions…especially after they have called Russia’s leader a “war criminal”???

As for the situation with Russia’s energy exports, there are some serious questions as to how quickly Europe can garner alternate sources of energy if the crisis continues to drag out…the way it certainly seems like it’s going to. Can they really get those floating LNG stations up and running by next year? MORE IMPORTANTLY, from what we can see, it’s going to be extremely difficult to increase the global production of oil and gas between now and next winter. Therefore, even if Europe CAN find alternative sources for their oil and gas needs, it’s going to take it from somebody else who needs it. Therefore, if the global supply/demand equation does not change, oil and gas prices will remain elevated…EVEN if Europe can gain the access they need. They will merely be spreading the pain around the world……Don’t get us wrong, we’ll be all for doing our share to help Europe, but it’s not going to cause energy prices to come back down…and thus it will not help the issue of higher inflation at all.

What we’re saying is that the financial issues that have resulted with the Russia/Ukraine War are not going to go away any time soon. EVEN IF THEY COME TO A CEASE FIRE AGREEMENT, the sanctions are going to remain in place. This means that Russian oil supply will remain constrained…(and it also means that supply chain problems will continue to be exacerbated). THAT is not something that bodes well for the chances that the stock market will rally back to all-time highs in the coming weeks and months.

We’ll finish today’ piece by reiterating out comments from our weekend piece about Bitcoin. Over the past two months, Bitcoin has formed an “ascending triangle” pattern…and this morning, it has broken out of that pattern by breaking above $45,000. We’ll want to see it hold this breakout throughout today and into tomorrow to confirm the breakout…but this is a very bullish move for Bitcoin. Given that it is trading well above that $45k level as we write this morning, the odds are quite high that this technical breakout move for the cryptocurrency will indeed hold. (We do admit that it’s getting a bit overbought on a very-short-term basis, so it could take a “breather” at some point this week, but this is still a very bullish development on the technical side of things.)

Matthew J. Maley

Chief Market Strategist

Miller Tabak + Co., LLC

Founder, The Maley Report

275 Grove St. Suite 2-400

Newton, MA 02466


Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.

Posted to The Maley Report on Mar 28, 2022 — 8:03 AM
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