And the Biggest Financial Loser Is…

“The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation.”

— Attributed to Vladimir Lenin

Addison WigginDear Reader,

Consumer spending was up in February… but not as much as analysts were expecting. Apparently they’re surprised that when things cost more, people buy less.

Meanwhile, the International Energy Agency is warning that taking Russian oil out of the global fuel equation could create the “biggest supply crisis in decades.” Expect to see that reflected in even higher prices for gas near you. The average price, nationally, for a gallon of the cheap stuff is already up 22% in the past two weeks; it’s now $4.43.

Of course, the stage was set for higher energy prices long before Vladimir Putin’s “peacekeepers” began streaming into Ukraine. In fact, our first Wiggin Session with Mark Moss back in November touched upon the “Not-So-Hidden Energy Crisis.”

Joel Bowman said much the same thing in our latest Session, posted yesterday.

“We were doing everything to hamper ourselves — and by ourselves I mean those in the West,” he tells me, “long before Mr. Putin came along.” He continues:

We’ve already seen very, very tight energy markets, both in the U.S. and in Europe as a result of many years of misguided policy seeking to wean the West off of its hydrocarbon based economy toward a kind of greener so-called renewable energies.

Basically, he says, “this is a deep trench that we’ve dug ourselves into.”

Energy is just the start of it, too. Russia and Ukraine together comprise 30% of the world’s wheat exports. We’re all going to learn very quickly what consumers who are gluten-intolerant have known for a long time. There aren’t very many processed foods that don’t contain some form of wheat derivative. Gluten is the sticky wheat goo that binds Twinkies and Cheetos together.

Consumers of electronic products are in for an eye-opener, too. Unwilling to sully their pristine countryside with things like ugly mines, the nations of the West rely on less high-minded nations to deliver the raw materials of the modern world.

As we’ve mentioned before, a lot of the raw materials for our iPhones, Samsung widescreens and Teslas come from Russia. The list includes “things like industrial metals, titanium, nickel” and other rare earths.

Prices for those commodities have swung so wildly that they may force China to take a stance on the Russian invasion, as Jim Rickards explained in yesterday’s Daily Proof:

Initially, it seemed that China might be the big winner because they could just sit back and watch the West and Russia tear each other apart. But in a stunning example of global interconnectedness, Chinese interests have emerged as major losers also.

Jim references a Yahoo! Finance article providing details on a Chinese bank looking at huge losses in nickel derivative contracts — the complicated financial transactions that cause trouble whenever the economy goes cattywampus. The bank failed to pay millions of dollars thanks to margin calls, likely due to clients losing their shirts.

China is now asking banks to report how much they stand to lose from commodity swings. Jim calls the country the “first major loser in the financial war.” We suspect they will neither be the last, nor the biggest loser.

Follow your bliss,

Addison Wiggin

Addison Wiggin
Founder, The Wiggin Sessions

P.S. It’s been a minute since an audience greater than traders and market analysts have anticipated the Fed’s announcement as anxiously as today. Higher prices at the pump and in the grocery store have a funny way of getting folks’ attention.

The Fed announced they are going to raise rates .25% to .50%, the first of what may be 7 or 8 rate hikes interspersed throughout this year.

“It’s perverse,” a talking head on MSNBC said soon after the announcement was made. “You have to kill the economy slowly, in order to save it.” Such is a day in the life of a central banker. Who loses most? We’ll let you answer that.

Either way, the Fed announcement is exactly in line with Jim’s forecast in Countdown to Crisis.

P.P.S. Tomorrow, we’ll have more analysis on the effect of raising rates during a time of war and supply chain disruptions.

We’ll also be checking in with media entrepreneur Demetri Kofinas, host of the podcast Hidden Forces. Demetri and I met a decade ago while he was a producer at Russia Today (RT). He and his crew often stalked our conferences and events. Our editors were regulars on his show.

RT, as you know, was deplatformed soon after the state-sponsored network’s home country began shelling its European neighbor. Demetri has interesting things to say about “truth” from RT’s perspective… stay tuned.

Addison Wiggin

Addison Wiggin

Addison Wiggin is founder and executive publisher of Agora Financial LLC, an independent economic forecasting and financial research firm. He and Bill Bonner began writing the firm’s flagship Daily Reckoning in the midst of the tech boom and bust. It was one of the first widely distributed email newsletters on the Internet. The publication’s critical eye on finance and economics continues today. He’s also creator and editorial director of Agora Financial’s daily missive The 5 Min. Forecast.

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