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Talks of a looming stagflation in the European Union have intensified over the past month as the region suffers from what many describe as the worst conflict in the continent in decades, threatening skyrocketing inflation, supply shortages, job losses and famine.

Worst economic shock since WWII

Even before the Ukraine invasion began, European countries had already suffered the worst economic shock since World War II in 2020 when the disruptions caused by the COVID-19 pandemic led to a 6.4% drop in the EU’s real GDP. That was worse than the GDP drop during the global financial crisis.

The EU region rebounded in 2021, posting 14.09 trillion euros in GDP, up 5.3% from pandemic-hit 2020.

However, just as the EU’s economic recovery was gathering pace, the region could now plunge into recession, or worse a stagflation — a period of high inflation, elevated unemployment, and slow economic growth rate — as the region is caught in between the Russia-Ukraine conflict.

EU GDP growth

Worsening diesel shortage sparks rationing concerns

As the Ukraine invasion drags on, the global oil trade remains in disarray as sanctions against Russia have prevented it from selling crude to some of its overseas customers. Although oil prices have fallen in recent days due to upbeat developments surrounding peace talks between the two warring countries, oil prices remain high as the absence of Russian crude continues to be felt in global markets.

This sparked concerns of rationing in many markets, particularly in Europe, the top buyer of Russian oil, as many European leaders have scoffed at Vladimir Putin’s demand to pay for natural gas and oil in rubles.

"Governments have a very clear understanding that there is a clear link between diesel and GDP, because almost everything that goes into and out of a factory goes using diesel,” John Cooper, director general of Fuels Europe, a unit of the European Petroleum Refiners Association, was quoted by Reuters as saying.

Germany, Poland, Turkey, Britain, France and Spain are the countries that are most dependent on Russian diesel, the news outlet added, citing data from energy consultancy FGE.

Worst global food crisis since WWII

In addition to the shortage of oil, the Ukraine war has also exacerbated the global food shortage at a time when many countries are already struggling with poverty and hunger during the COVID-19 pandemic.

David Beasley, executive director of the UN World Food Program, on Tuesday warned that the war in Ukraine has led to “a catastrophe on top of a catastrophe,” that "will have a global impact beyond anything we’ve seen since World War II.”

In February, global food prices jumped to an all-time high, according to the FAO Food Price Index. Beasley said high prices mean more people globally will fall into hunger.

Pandemic’s impact on EU labor markets

Employment levels in the EU have declined since the start of the pandemic, while the total hours worked also slumped reflecting supply and demand factors, according to a recent report by the International Monetary Fund.

As economies reopened prior to the war, labor markets have recovered from the pandemic-induced slump, with the EU unemployment rate shrinking to a historical low of 6.8% in December 2021, the IMF noted.

However, as inflation continues to soar, wages will likely follow the trend, prompting more rate hikes by central banks.

EU unemployment

Playing down stagflation concerns

Against the many signs that point to a possible stagflation in the EU in the near term, Christine Lagarde, chief of the European Central Bank, said in a Wednesday conference that no data suggests Europe will fall into stagflation.

Although inflation will “no doubt” increase this year, conditions remain “quite fluid,” Lagarde was quoted by the Associated Press as saying.

Time to broaden your investments: Trade euros, energy, and food commodities

The nickel market has been in disarray in recent weeks as prices soared to unprecedented levels before going on a freefall amid supply concerns and an unexpected short-squeeze by one of the world’s largest steelmakers.

Nickel is one of the most common metal elements in the world used to make stainless steel, batteries, coins, and other metal applications.

How the Russia-Ukraine conflict drove nickel prices higher

Russia is one of the world’s largest producers of nickel, supplying about 20% of class 1 nickel that is mainly used in the production of stainless steel and electric vehicle batteries. Data from market research firm Statista showed that Russia was the world’s leading exporter of nickel and nickel products in 2020, shipping about $3.02 billion worth of the commodity.

The conflict between Russia and Ukraine sparked fears of a nickel supply crunch as Russia has been hit with a number of economic sanctions and as importers of other Russian commodities like oil avoid being impacted by sanctions.

The short-squeeze that sent prices skyrocketing

In addition to the supply concerns induced by the ongoing Ukraine conflict, a short-squeeze involving Tsingshan Holding Group, touted as the largest nickel producer in the world, was also behind soaring nickel prices.

The Chinese company took a nickel short position of 200,000 tons of nickel in the London Metal Exchange (LME) and as the price of nickel surged in the early days of the Ukraine crisis, the company’s short position was left in disarray, setting it up for a paper loss of about $8 billion.

Tsingshan recently inked a deal with banks to avoid further margin calls, buying it time to cut its nickel position as markets stabilize.

LME forced to halt trading

The short-squeeze and supply concerns sent nickel prices skyrocketing by more than 50% to $100,000 per tonne on March 8, significantly up from about $25,000 per tonne a week earlier.

The surge prompted the LME to suspend nickel trading and impose price limits to maintain stability.

Since the trade resumption, prices have been on a freefall over low trading volumes and concerns about the status of Tsingshan’s short position. The benchmark three-month nickel on the LME fell 2.2% on Tuesday at 10:30 a.m. GMT to $32,000 per tonne.

Nickel D1

What the volatility in nickel prices could mean for EV makers

Higher nickel prices could drive up the costs of electric vehicles even higher as nickel is one of the key materials used to produce EV batteries. Morgan Stanley auto analyst Adam Jonas had recently warned that EVs in the US could be $1,000 more expensive as nickel prices soar.

This could hurt electric carmakers’ profit margins and impede the growth of the burgeoning EV market at a time when markets like China, Europe, and the US transition to new-energy vehicles.

The shortage in nickel and skyrocketing prices of the metal have forced some EV makers like Tesla (NASDAQ:TSLA) to look for other battery materials. In late February, Tesla CEO Elon Musk tweeted that the Silicon Valley-based company’s biggest concern for scaling lithium-ion cell production is nickel.

“That’s why we are shifting standard range cars to an iron cathode,” Musk said. Tesla recently hiked the prices of its Model 3 and Model Y cars in the US and China, the world’s biggest car market, due to high raw material prices.

Its rivals in China including XPeng (NYSE:XPEV), Li Auto (NASDAQ:LI) and BYD (HKG:1211) also announced price hikes to counter rising raw material costs. However, NIO (NYSE:NIO), another local player, last week said it has no plans to raise prices at the moment after its sales have lagged behind its rivals XPeng and Li Auto for five straight months.

Sign up to BlackBull Markets to trade the world’s leader EV makers

A theory: Elon Musk will hand Tesla Inc (NASDAQ: TSLA) over to a successor when Tesla can no longer generate much fanfare. At least, not as much as they currently do. This point in time will come once legacy car manufactures are firmly entrenched in the EV space. It is likely General Motors Company (NYSE: GM), Stellantis NV (BIT: STLA), and the dominant Asian brands will outcompete Tesla on price, range, and looks. Consequently, Tesla will be relegated to a periphery player. If legacy car brands convert their production to EV as fast as they say they will, I expect Musk will move on to his next project before 2030.

Will Tesla have to pivot?

To stay in the game, Tesla will have to double down on its status as a luxury vehicle. I think this would be the right move for Tesla in the long run. Imagine this; Tesla becomes an electric equivalent of Ferrari, Lamborghini, or McLaren.

A new breed of Automobile CEO

Last week, Ferrari NV (BIT: RACE) announced Benedetto Vigna as its new CEO. The appointment of Vigna surprised the market as his background is in computer engineering rather than the automotive or luxury goods sector.

The appointment strongly indicates a new priority for vehicle manufacturers. Moving forward, the success of their respective businesses will be heavily dependent on their electronic and computing technology.

Who will replace Musk as the head of Tesla?

when will musk retire from tesla 1

Tesla's CFO (Master of Coin), Zachary Kirkhorn, easily fulfils the criteria to lead the Company. After all, Kirkhorn holds degrees in both economics and engineering. Tesla's Senior VP, Andrew Baglino, an electrical engineer, is an equally appropriate choice to head the Company.
However, Elon probably won't play by the industry rules. Instead, Elon may hand the reins over to his little brother, Kimbal Musk, a Tesla board member and a self-described chef, restauranteur, and philanthropist. I am not hinting that Kimbal's Directorship is undeserved. Rather, I am noting the unconventional choice in the same manner that his ascension to CEO would be unconventional.

While Kimbal Musk does not profess a penchant for electrical or computer engineering, he is very successful in his own right within the technology space. In addition to his culinary pursuits, Kimbal has co-founded and directed many of Elon's technology companies, including Zip2, SpaceX and X.com.

High Stakes Index Fund Investing; less risk, more reward?

Investors are currently embracing highly speculative investments. One example of this embrace is the explosion in the market cap of cryptocurrency. Another is the emergence of ‘meme’ stocks.

I am definitely a proponent of dedicating a small portion of an investment portfolio to high-risk, high return vehicles. These investments can serve many functions, including acting as educational experiences and, with some luck, as a genuine source of wealth.

risk invest

High-Risk Index funds

On a personal note, I include cryptocurrency and meme stocks in the high-stakes portion of my portfolio. Although, I don’t consider cryptocurrency and meme stocks as long-term investment options. For one, I think most cryptocurrencies will fail to fulfil their proposed use-cases (i.e. Internet Computer and Revain). Blockchain is a little oversold as a solution in my opinion. Similarly, Meme stocks are likely to come to nothing and I consider them just a bit of fun. In saying that, I think there is something to be said about the way retail investors revived and recapitalised GameStop Corp. This is an interesting and potentially serious finance topic. But I will save that for another day.

A long-term high-stakes vehicle I appreciate are index funds based on innovative themes. With these index funds, you get the benefit of potentially high returns with less risk and less constant price checking. Additionally, the index themes are inherently interesting, such as electric vehicles, biotechnology, cleantech, cybersecurity, and space exploration.

Kernel Wealth; making Index funds sexy again

Kernel Wealth is a managed fund provider in Auckland, New Zealand. They are going a long way in bringing managed index funds back into style. This is because some of the funds they offer have a speculative kick to them. This isn’t an advertisement for Kernel Wealth; I just like them. They can be thought of as New Zealand’s equivalent to the US-based ARK funds.

Kernel offers two index funds, of which I am a big fan.

Both funds consist of US companies identified as the most innovative early-stage companies within their respective fields. Kernel uses Kensho’s AI platform (A product that sprung from the labs at MIT and Harvard) to find these companies and adjust the fund's holdings periodically.

The Moonshots fund gives you exposure to seventeen futuristic sectors, including 3D printing, Virtual Reality, Genetic Engineering, and Robotics. These are innovative spaces that are just as exciting as cryptocurrency and meme stocks, but with less risk and volatility.

kernel wealth

Electric Vehicles; the sure bet?

In my opinion, the Electric Vehicle fund is perhaps one of the lowest risk high stakes investments around. This opinion is based on two critical facets. The first is the recent developments of governments worldwide bringing forward their respective restrictions on selling new combustion engine vehicles. The second is that legacy car manufacturers have unambiguously noted that they will be shifting a great deal of their resources to produce EVs per the forthcoming restrictions. Importantly, the EV innovation fund includes these legacy manufacturers as they will likely dominate the EV space.

Merging Lane Ahead! Why Tesla Might Have To Merge With Workhorse And Nikola Motors

Legacy car manufacturers are about to begin producing EVs in earnest. In response, I believe Tesla will have to do something drastic to meet shareholder expectations. The price of Tesla shares indicates that shareholders expect Tesla to become the dominant car manufacturer in the world.

Legacy car manufacturers pose a great risk to Tesla. For one, they are highly capitalized and already have the facilities to produce a diversified group of EVs. I suspect, the market is going to want a wider range of vehicles than Tesla currently offers.

To better compete in the near future, it would be prudent for Tesla to approach other native-EV manufacturers. Tesla would do well to consider a merger with their smaller competition. American EV companies would be the best partner for Tesla. Not only would they have a similar brand story, but the US EV industry could be strengthened as a whole. At least, it could help the country better compete with the competition coming out of China and Europe.

Read the full story at Benzinga.com