Ukraine Reaps The Whirlwind

The Sevastopol restaurant “Mackenzie 1783” commemorates the founding of the Crimean port city by the Russian-Scottish Rear Admiral Thomas Mackenzie in 1783.

Sowing The Wind

Many Western commenters on the war in Ukraine–including, unfortunately, American Congressmen–seem unfamiliar with what led up to it. A key precursor was the color revolution in 2014 that removed the Ukraine’s elected President Viktor Yanukovych. Yanukovych had extended Russia’s lease on the home port of its Black Sea Fleet in Crimea, Sevastopol. With Yanukovych deposed, and its access to the naval base and city it had founded in 1783 at risk, Russia annexed Crimea, which was populated mostly by ethnic Russians.

In response, the new government of Ukraine dammed the North Crimean Canal, cutting off 90% of Crimea’s fresh water supply. Current Ukrainian President and then-comedian Vladimir Zelensky joked about Crimea’s fresh water shortage in the TV skit below in 2015.

In it, Zelensky played a Crimean tourist visiting Kiev who is obsessed with a pitcher of fresh water.

One of Russia’s first acts after invading Ukraine in February was to blow up the North Crimean Canal Dam, restoring fresh water to Crimea.

Reaping The Whirlwind

Fast forward to this week, and Kiev residents and other Ukrainians are waiting in long lines for water, due to recent Russian strikes on Ukrainian infrastructure.

In Case You Missed It

For the last few months, I’ve been writing about the big picture in the markets, as I see it: higher inflation and higher rates are bullish for energy but bearish for bonds and technology companies still trading at multiples more suited to a zero interest rate environment.

In that post, I included our system’s top names that week:

Long Energy, Short Treasuries and Tech

Our system doesn’t consider the macro picture when selecting its top names. Instead, it gauges stock and options market sentiment to estimate which securities are likely to perform the best over the next six months. Nevertheless, that bottoms-up approach painted a fairly clear picture in our top ten names as of Tuesday’s close: 

  • Long Energy: ProShares Ultra Bloomberg Natural Gas (BOIL), Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 2X Shares (GUSH), Valero Energy Corp. (VLO), Comstock Resources, Inc. (CRK).
  • Short Treasuries: Direxion Daily 20+ Year Treasury Bear 3X Shares (TMV), ProShares UltraPro Short 20+ Year Treasury (TTT).
  • Short Tech: Direxion Daily Dow Jones Internet Bear 3X Shares (WEBS)

Screen capture via Portfolio Armor on 7/19/2022.

Here’s how those top names have done as of Wednesday’s close, following the Fed meeting: our top ten was +15.95% on average since July 19th, while the SPDR S&P 500 Trust (SPY) was -4.04%.

So far, focusing on the big picture has paid off.

If You Want To Stay In Touch

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