Fed Up With Inflation

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Erin go Bragh!

In case you missed it and are in danger of being pinched for not wearing green, it’s St. Patrick's Day 🍀, and we are all hoping the outlook is as green as the Chicago River will be today. Investors are adjusting to the new normal of whiplash and volatility as their attention is pulled in many different directions. Talk of progress on a Russia-Ukraine peace deal has boosted spirits and indexes, while cooling commodity prices (oil, gold, wheat, metals). However, shortages are still at the core of many new investing ideas bouncing around Wall Street, including raw materials needed for the green transition and…fertilizer? Add in further stress on the supply chain, the devastating impact of the war on the people of Ukraine, the continued reconfiguring of the world’s economy due to the Ukrainian invasion, and new Covid lockdowns in China, and watching the markets feels like being on an endless roller coaster.

That’s a lot of news to keep up with, and a good neck massage is in order for everyone, but the main financial focus of the week has been the decisions taken at 2051 Constitution Avenue NW in Washington, DC. The US Federal Reserve has finally raised interest rates by 0.25%, the first hike since 2018, to tackle inflation. (We explain how this works further down!) It said several more hikes will be necessary this year, and markets are on edge because the central bank has to be delicate as it pulls the levers of the economy. If it’s too aggressive and tries to reign in prices too quickly, it could tip the country into a recession. The Fed tried to keep investors calm, expressing confidence that the economy is strong enough to withstand these hikes. We will see if their tone had the intended soothing effect over the next few weeks.

ESG continues to be in the spotlight as investors wonder if the reaction to the Russian invasion is the kick the movement needed or whether it exposes it to greater scrutiny. FWIW subscribers learned a lot about ESG last week, but how it should be applied in practice with ESG-labeled and sustainable funds is being debated on several fronts. Among the issues analysts are debating: whether ESG funds should have had little/no exposure to Russia before the invasion and how the divestment from Russia and fossil fuels can create more ESG investing opportunities. Sustainable investing is evolving and the discussions we’ve seen lately are heartening signs that the community is getting closer to what it truly means to align your investments with your values. We’ll be following closely.

News you can use

• Searches for new and used electric vehicles on Cars.com accelerated 112% from Feb. 24 to March 8 as the Ukraine war escalated. A new Berkeley Haas study says a 40 cent per gallon increase in the price of gasoline increases the demand for EVs by 57%. Despite considerable savings at the pump, they’re still expensive upfront, with some producers, like Tesla and Rivian, announcing price increases.
  
• Would you want a chocolate milk or a box of cereal delivered to your doorstep in minutes? Ultrafast grocery delivery — with low fees, no minimum order size, and full-time employees instead of contractors — is the new courier business model being explored by heavy hitters like DoorDash, Uber, and Grubhub. But the demise of two startups in a week, not to mention the environmental and social costs and the many who have failed at this before (anyone remember Kozmo.com?), is leading many to question expansion plans.
  
• Strawberries are getting more sustainable and local just in time for springtime salads. Two vertical farming startups – Plenty and Bowery Farming – separately announced plans this week to add the berries to their offerings. Plenty is backed by Walmart and SoftBank, and Bowery Farming counts celebrity chefs Tom Colicchio and José Andrés among its investors. Indoor and vertical farming has attracted over $1.4 billion investments in the past year, according to Crunchbase, with strawberry production seen as lucrative, but hard to do.