The dollar and cash are among the most popular safe havens for investors as they face the risks of a recession with higher interest rates and higher inflation alongside a brutal war in Europe. But our call of the day from Warren Pies, co-founder and strategist at 3Fourteen Research, sees energy as the protective cover for any bad news in the making. As he notes, after years of moving in opposite directions, stocks and bonds are falling together.
“I think you have a lot more potential outcomes going forward now that stocks and bonds are positively correlated. There are very few assets that can offset the risks that are out there. And I think the energy is the perfect asset,” Pies said in an interview published last Friday with Real Vision. And while the Fed may try to raise until it lowers energy prices – a major reason for rising inflation – they may not succeed as they “can’t affect the main driver of oil right now” – geopolitics , Pies said. “If we go ahead with full sanctions on Russian oil and we actually break out of this impasse that’s happening right now and stand still, the world will be short of a lot of oil” and that will create “a good recession,” he said. “Oil will do its thing… That’s why you need to have exposure to oil through energy in your portfolio.” When it comes to oil company types, Pies advises keeping it simple. “You don’t have to take any kind of corporate risk or beta here. Buy the steeples, the big energy companies, the liquid energy companies. “If you want to be a little bit different or outside the benchmark, we still like Canadian large-cap producers because they have lower production costs and maintenance costs more or less,” he said. What he suggests to clients is a 10% to 20% energy position, given that the sector accounts for 5% of the S&P 500 SPX, +0.69% , and then reduce the rest of the portfolio to quality companies. “You’re just trying to bypass the unprofitable technology stuff,” Pies said. The strategist sees a similar setup to what happened after the last tech bubble between 2000 and 2005, when markets entered a new secular commodity bull market and quality plus energy lagged the market, especially in the tech space. He sees a similar setup happening next year. Weighing in on whether the stock market is looking down, Pies said if the S&P 500 hits the 3,600 neighborhood he would start buying. “We did it last time. On June 16th, we put out a report to our clients after being bearish all year, saying put 25% or 33% of your capital back into the market here. And if we get there again, then we would make the same move.” And at worst the S&P 500 falls to 3200? “We could still be 10% lower, but if you can’t manage a 10% drawdown in this business, you’re in the wrong business,” Pies said. Read: Stocks may be headed for more pain as second half of September historically ‘too bullish’ The markets Equity futures ES00, -0.59% YM00, -0.55% NQ00, -0.63% are lower, with bond yields TMUBMUSD02Y, 3.970% TMUBMUSD10Y , up 3.562% and oil prices CL. 1, +0.31% The dollar DXY, +0.35% is higher and bitcoin BTCUSD, -1.91% is hovering just above $19,000. Hear Ray Dalio at the Best New Ideas in Money Festival on September 21st and 22nd in New York. The hedge fund pioneer has strong views on where the economy is headed. The hum Ford F, +1.43% fell in the premarket after it warned that inflation has pushed up supply costs by $1 billion, with parts shortages leaving more cars unfinished, although the automaker stuck to its annual forecasts. SPAC ‘King’ Chamath Palihapitiya closes two vehicles IPOD, +0.20% IPOF, +0.10% after failing to find target companies in time. Home exercise bike maker Peloton PTON, +1.85% introduces a $3,195 rowing machine. Apple AAPL, +2.51% is raising the price of apps and in-app purchases in parts of Asia and any country that uses the euro. Stocks are sliding. The Swedish krona SEKUSD, -0.90% slips even after the Riksbank raised interest rates by a bigger-than-expected 1%. In addition to the Fed’s two-day meeting starting on Tuesday, the Bank of England, Swiss National Bank and Norges Bank will also meet this week. New data showed housing starts were strong in August, but building permits fell. The best of the web A new episode of the ‘Serial’ podcast is expected after Adnan Syed’s murder conviction is overturned President Biden says pandemic is over, but 400 to 500 people a day are still dying Brad Pitt and Nick Cave make their artistic debut in Finland. The chart “What would have been a major disaster a few months ago has proven to be manageable so far,” DWS strategists note, referring to high energy prices in Europe, especially Germany, since Russia has halted gas exports . They say this is for two reasons: Germany is increasing gas storage faster than expected, and consumption has fallen dramatically, as the chart below shows. While a tough winter or three may lie ahead, “we’re now seeing how adaptable Western industries are when they’re under extreme pressure,” says Martin Moryson, chief economist in Europe. DWS Read: Germany home. Minister says gas storage will be “empty” after winter Top indicators These were the most active tickers on MarketWatch as of 6am. 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