Is the Federal Reserve using High Oil Prices to Hide Inflation?This may be a bit of a controversial post, but if you choose not to go down the rabbit hole, you can at least check out my two technical ideas.
Oil is a trade we have been long since the break above $44.00. Our target was the major resistance/flip zone around $66.00 which we hit to the T:
Once price hits our major flip zone, we should expect a possibility of a reversal of the trend. Oil actually is beginning to develop our favorite reversal pattern: The Head and Shoulders pattern.
As you can see from the main chart of this post, $62.00 is where the right shoulder began forming. The trigger remains the breakdown. Meaning we need a daily BREAK and CLOSE below the neckline of the $57.00 zone. This would set us up for a new downtrend, with a move to $51.50. and even lower back below $50.
Alternatively, here is a 4 hour chart set up:
The $61.90-$62.00 zone remains key. We get a break and close above, and then we continue a move higher to $66.00, and if this breaks...Oil is moving much much higher. We should then be talking about $100 a barrel.
Our job is now to be patient and await for out trigger. On the 4 hour, you can see price ranging and coiling. The daily chart trumps the 4 hour, so I think the rabbit hole is what we need to look at for the trend and market structure to be manipulated.
Before I posted this idea, I have been thinking about this. Everyone is wondering where the inflation is from all the money printing.
First of all, I want to cover inflation from a classical standpoint. Inflation is when the fiat currency is weakening, where it now takes more of a weaker currency to buy something, hence price increases.
Recently, I have read German Economists Richard Werner's work titled "Princes of the Yen". Highly recommended for anyone wanting to understand central bank monetary policy, and economic history in general. His definition goes like this:
As long as new money/credit goes to productive investment, real wages will rise and there will be no inflation. How? If money goes to productive things, more goods and services will be created, which means the economy will be improving, which means the demand for money will increase which then warrants the money that has been created/printed.
The second case if more worrying...If new money/credit flows to UNPRODUCTIVE means, ie: investment in stock markets and real estate... a situation we have been seeing since 2008, there is danger for inflation because now there is more money chasing the same number of goods and services because of no increase in productivity.
In the past, I have spoken about why universal basic income will need to be matched with some sort of taxes. If you just give people more money, there is now a situation with more money competing for the same amount of goods and services. The way government can control this will be through taxation...the green kind. Where perhaps rather than $1000 bucks in UBI, 50-60% will be taxed for green taxes, which the government will then use for green infrastructure projects which hopefully will be productive.
So our situation currently focuses on number 2. Again, I have warned my followers about this. Stock Markets and other assets will continue moving higher even with the real economy dying because it is all about chasing yield. All central banks are attempting to weaken/kill their currencies in order to boost exports and keep asset prices higher. We have the worst of both worlds here.
Most of us have seen the prices of goods increase. The Federal Reserve and other Central banks say this is not the case according to their inflation measures. The Consumer Price Index, or the CPI, is the most famous way to measure inflation. It is a basket of goods and services that represents what the typical consumer purchases regularly.
Energy prices play a large part in this because many people fill up their vehicles to drive.
A key thing to remember is that the Fed has said that they will normalize their balance sheet, and increase interest rates when 2% inflation is steady and NOT 'transitory'. Here is where we go down the rabbit hole. Most of us know that interest rates cannot go higher. Too much debt out there now. Generally, when inflation is moving higher, central banks would increase interest rates. Oil prices moving higher can kill two birds with one stone.
If Oil moves higher, the Fed can mask inflation due to excess money by blaming Oil. Oil prices moving higher means transportation costs increase as well so it will affect food prices and other prices. CPI data will begin to reflect rising prices, but the Fed will blame Oil for this. Also, the Fed can say this inflation is 'transitory' hence why no rate hikes will follow, which means the Fed maintains confidence and saves face.
Let's go down the rabbit hole even further. But before I say this, I must say that I have seen 'events' like this occur many times when commodities are at major flip zones. We should expect some sort of event to cause Oil to spike.
Laugh all you will, but before I typed this post out, I have been saying this for a week or more to my private circle. What happened? The Houthi's began attacking Saudi Oil facilities with drones, the suez canal got blocked by a cargo ship, and an Indonesian oil refinery exploded because it got hit by lightning.
The Fed can then use this event as a way to mask inflation. "Oh inflation has spiked not due to our monetary policy, but because of Oil. But don't worry, we won't hike interest rates because this inflation is transitory. Money printing will continue". I think this is important because financial media is talking about rate hikes in the future...but most of us know this can never happen. We are likely to go into negative rates.
Suezcanal
Has CAD run out of gas?The Canadian dollar has reversed directions on Thursday. Currently, USD/CAD is trading at 1.2577, up 0.13% on the day.
Since the start of 2021, the Canadian dollar is up about one percent against its US cousin, but there are signs that the currency may have touched bottom.
The province of Ontario, the largest in Canada, is expected to announce an expansion of lockdown restrictions throughout the province. Ontario is expected to announce that the lockdown will be in force for 28 days, in a bid to curb soaring Covid rates. Canada's number of Covid cases has doubled compared to the beginning of March, but the vaccine rollout has been very slow, with only 2% of the population fully vaccinated.
Another factor is the oil prices hit their most recent peak on March 5th and have been on the decline, even with the spike due to the Suez Canal closing. The unexpectedly strong GDP gave the Canadian dollar a boost on Wednesday, but the negative impact of Covid on the economy and falling oil prices could mean a bumpy road ahead for the Canadian dollar.
Will US Nonfarm Payrolls crush the consensus?
The ADP Employment report for February came in at 517 thousand, shy of the estimate of 552 thousand but a huge rise from the previous read of 117 thousand. We'll get a look at official employment numbers on Friday, with nonfarm payrolls the highlight (12:30 GMT). The street consensus stands at 652 thousand, which would be a sharp rise from the January read of 379 thousand. However, given the impressive US recovery and an aggressive vaccine rollout, NFP could outperform by a wide margin. Barclays Bank sent a note with a forecast of 900 thousand, and some analysts are predicting a gain of above the one-million mark. If NFP is unexpectedly strong, we can expect some volatility from USD/CAD on Friday.
1.2641 has some breathing room in resistance after USD/CAD dropped considerably on Wednesday. This is followed by resistance at 1.2713. On the downside, there is support at 1.2486, followed by a support level is at 1.2403. Below, 1.2365 is both the 1-month low and the 52-week low.
Suez Canal FiascoWe've all heard about the big ass ship stuck in Egypt's Suez Canal last week. On Tuesday morning (3/23) the 'Ever-Given' vessel, leased by Taiwanese Company EVERGREEN; was caught up in a 'Darude-like' sandstorm causing over 10 billion in damages so far and unforetold shipping delays.
The Suez accounts for 30% of imports coming into Europe from Asia. There are currently 150+ container ships caught in this costly traffic jam, where the estimated costs of waiting are upwards of $400Million/hour according to various news sources.
Looking for ways to capitalize on News events? If you have access to Asian markets; take some shorts on lease owner EVERGREEN 2603. They had positive reported earning on Monday just one day before the shitstorm and there's a definite shift in momentum back to 30-lvl support.
Also consider short positions in the vessel owner; Japanese Shoei Kisen KK. UK P&I Club Insurance is meant to cover pollution and injury, not cover hundreds of lawsuits for this costly conundrum..
Let's get it!
static01.nyt.com
MACRO - USOIL - The Suez Canal - The Black Swan of 2021The current situation with Oil and the Suez Canal reminds me of an incident in Edwin Lefèvre's "Reminiscences of a Stock Operator"...
1917:
"There wasn't anything to do except to wait for the market to open the next day. I recall that at Gridley's that night one of the greatest captains of industry in the country was offering to sell any amount of United States Steel at five points below the closing price that afternoon. There were several Pittsburgh millionaires within hearing. Nobody took the big man's offer. They knew there was bound to be a whopping big break at the opening.
Sure enough, the next morning the stock and commodity markets were in an uproar, as you can imagine. Some stocks opened eight points below the previous night's close"
From CBC:
"About 10 per cent of the world's crude passes through the Suez canal every day, so if it is closed off for any length of time, the cost and difficulty or rerouting it will be borne by customers...
There were concerns that idling ships in the Red Sea could be targets after a series of attacks against shipping in the Mideast amid tensions between Iran and the U.S."
Speculation:
A. By chance, or not, this event may delay the inevitable in the US market's collapse by artificially inflating the price of oil through cutting off demand... It is obvious from aerial images that this will not easily be cleared up in a few days. However, oil stockpiles are full. China and Europe will not be buying, should the oil need to be unloaded. In fact, it would not be surprising if it was dumped into the sea!
B. Military tensions are at an high due to the Iran-Iraq-Syria/Israel-Greece-Cyprus pipeline dispute. Iran has a recent history of tanker seizures, and military conflict is likely in the nearest future.
A or B or a combination has a non-trivial probability of occurring here. We will soon have true price discovery of Oil... The last bastion of hope holding up the US market right now.
The Suez Canal Incident may go down in history as the Black Swan event which triggered the 2021 crash.
News is priced in when the trend favors it, and when the market is anxious and watching for any potential catalyst... This seems a good reversal event as any.
I have been short on the global market and long volatility.
Just my thoughts and speculations...
Economics and markets lead geopolitics, the world, and even natural events... Self-fulfilling prophecies or not, that's up to you to believe.
My previous Oil forecast:
GLHF
- DPT