Jonathan Garner 5.0 6 ideas

India has not only a high sensitivity relative to GDP versus other Asian countries... it has low inventories not only with gas but also oil, propane, and fertilizer. Those are around 30 days. India imports the vast majority of its energy. A sustained oil price above $100 per barrel will widen the country's current account deficit, weaken the Rupee, and force the central bank to maintain or tighten rates. This chokes off the cyclical economic recovery and compresses corporate earnings growth across the broader Indian equity market. AVOID because the macroeconomic backdrop for India deteriorates rapidly in a sustained global energy shock. If oil prices quickly retrace to the $70 level, India's cyclical growth story and strong domestic retail flows could drive a rapid equity market rebound.

The U.S. is self-sufficient in oil and gas so from a simple terms of trade perspective, the U.S. dollar should be relatively well supported in this more adverse scenario. Unlike Europe or emerging markets in Asia, the US does not rely on imported energy. As global energy prices spike, energy-importing nations see their terms of trade collapse and their currencies weaken, which mechanically drives the relative value of the US Dollar higher against a basket of global currencies. LONG because the US economy's energy independence provides a structural advantage and currency support during Middle East supply shocks. Aggressive interest rate cuts by the Federal Reserve or a coordinated global intervention to weaken the dollar could offset the terms of trade advantage.

In the sort of environment where energy prices are high, you might deal with shortfalls in supply in certain geographies and that feeds through to food. The last thing households are going to do is be engaged in consumer discretionary spending. High oil and gas prices act as a regressive tax on consumers globally. As households are forced to spend a larger percentage of their income on basic necessities like fuel and food, they will aggressively cut back on non-essential purchases, crushing the revenues of discretionary retailers and consumer goods companies. SHORT because consumer wallets are being squeezed by sticky inflation in non-discretionary categories. Government stimulus checks, targeted fuel subsidies, or a faster-than-expected drop in energy prices could revive consumer confidence and spending power.