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Week Ahead

The End of the USD Era? How Natgas Prices, The Fed, and a Multipolar World are Changing the Game?

⚠️ The Inflation Buster Sale is extended until Jan. 7th only! Learn more: 👈

Natgas is down 63% from its high in late August. The average price before Q2 ’21 was $2-3, so we only have 7% more to fall to below $3. While we saw Natgas rise – along with every other commodity – in 2021, prices had begun to fall until Russia invaded Ukraine.

Russia and Ukraine are still at war, but we have this issue with the restart of the LNG terminal. Tracy Shuchart tells us what’s behind the fall in Natgas prices and what she’d look for before expecting prices to stop falling.

The Fed pivot has been wishful thinking for quite a while and Sam Rines has been repeating this for months or so. As the Fed’s minutes were released last week, Sam pointed out that NO MEMBER saw the need for a rate rise in 2023. He stated many times that the Fed has been very clear about its indicators. We see this so often that it seems obvious. Why is this so difficult for some people to see? Sam Rines explains that in this episode.

This week, Sam also made the point that the Fed is maybe “stuck in the middle”. Literally, employment in the middle of the US could be a factor that keeps the Fed from slowing down. Sam explains why the middle is so important.

We’ve seen a lot of chatter in research notes, op-eds, and tweets over the last week stating that the future is a multipolar world. This seems largely based on a call for the decline of the USD and the rise of the petroyuan, etc. Albert Marko walks us through this.

Key themes:

1. Natgas sub $3?
2. The Fed Pivot is Dead
3. Multipolar, Post-USD World

This is the 48th episode of The Week Ahead, where experts talk about the week that just happened and what will most likely happen in the coming week.

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Hi, everyone, and welcome to the Week Ahead. I’m Tony Nash. This week we are joined by Tracy Shuchart, Albert Marko, and Sam Rines. Thank you guys for taking the time to join us this week.

It’s been a pretty volatile short week, and there are a number of things we’re talking about. First is Natgas. We’ve seen Natgas come off pretty dramatically this week, and we’re going to talk to Tracy about whether or not we’re going to see Natgas below $3 soon. Also the Fed pivot. There’s been a lot of statements from the Fed, and Sam’s covered that in detail, so it looks pretty dead. But we want to find out from Sam what’s going on. And we’ve also seen a lot of coverage of or a lot of commentary about a multipolar world in the last week or two, which sounds like 2006 era rhetoric or something, but we’re seeing a lot of that kind of rear its head again, and we want to talk through that with Albert. Thanks, guys. Tracy, let’s jump into it with with Natgas. Natgas is down something like 63% from its high in late August. I’ve got a price chart on the screen right now.

The average price before Q two of 21 was in the two to $3 range, 260 or something like that. So I only have 7% more to fall below $3. So we’ve seen it rise with every other commodity in 2021. But of course, with Russia invading Ukraine, we saw that spike up. So Russia and Ukraine are obviously still at war. And then we have this issue with an LNG terminal in Texas with Freeport. So we’ve got that story from Bloomberg up on the screen right now.

Can you tell us what is behind that Nat gas price fall, and what are you looking for in that market for that to stop?


Well, first, again, Freeport, since you already put that up right, which went down in August, and people have been waiting for that facility to reopen because it’s an export facility. What happens is that since that facility is shut down, that landlocked US. Nat gas or that pushed downward pressure on US. Nat gas. Originally they were supposed to reopen in October. Then it was November, then it was December, and now it’s mid January. So that does contribute to a lot of problems. We’re also seeing warmer weather right now in the EU, and stocks are full in the EU. This market has become very complacent. That said, if we’re looking forward, there is a cold front coming in, I think January 22 to the EU. It’s supposed to be really cold for a few weeks. So what traders will be watching is to see how much does their build bring down during that time. But again, yes, the markets have become very complacent. They think that they’re indicative that this crisis is over, but that’s not necessarily true. We’ll have to see this winter how much stock is brought down in Europe due to cold weather.


And you have to remember that in 2022, half of their storage came from cheap Russian gas pipeline. Right. So looking forward to when we have to refill this, they’re going to have more expensive LNG coming in, and that takes longer and it’s more expensive. And then we look at US. Export capacity. It’s still not built out enough for the contracts that we actually signed with the EU. So that may put pressure on US. Nat gas, but that would put upward pressure on European nat gas.


So does that pressure, does it drive the price up or does it just hold the price steady? Is there a mean reversion at some point where we go to, say, 260 or 270 on average and kind of some of these weather issues and Restocking just kind of maintains it? Or do you expect things to go back up to $9 or whatever?


I think we could see a spike. Again, there’s a lot of mitigating factors in this market right now, and we really have to see how much is pulled from storage in Europe at this point. And hopefully Freeport is supposed to open mid January. We’ll see if that happens.




But that would really leave a lot of the downward pressure on prices in the US. Market because it would open us up to being able to export that.


We also saw the Japanese buying a US. Nacas company this past week. Right. Can you talk to us a little bit about that?


Yeah, which makes sense. I mean, Japan has been one of the largest natural gas importers in the world, and they’re very concerned right now about energy security, as most countries are, particularly in Asia. They’ve had some problems with their deal with Russia because they have a joint project together, and due to sanctions, there are some problems involved in that. And so I think that was a very smart move, again, for Japan to kind of secure energy. I mean, they’re looking forward, much more forward than I would say Europe is.


Okay. Very good. So it sounds to me that there’s not really anything decisive coming up in the near term to change the direction, but the magnitude may slow.


Is that yeah, technically speaking, we are very oversold at this point. That said, what we really are going to have to be looking at, or what traders should be looking at moving forward is do we have this reopening of Freeport mid January and this cold front coming in? If it does, traders will be looking at how much draw is is going to happen in in Europe or Bill stock? Okay.


Not to mention, Tony, that planting season for 2020, late 2023 and 2024 is coming up in Fertilizer. You need that gas fertilizer. So that’s that’s something else to look at. I’m not sure exactly how much it weighs on it or a bullish case from that gas by any means, but something will keep your eye on.




But we have had some fertilizer volatility over the past couple of years, right? Oh, yeah. Russian invasion.


Yeah, I’ve been a big mosaic fan, which is a phosphate play, but also nat gas is the other component on the other side for the fertilizers that they use.


Great. Tracy, what’s your thought on fertilizer?


Yeah, absolutely. I mean, I think we’ve seen that obviously pull back, but we’re heading into planting season again starting in the spring. So again, that’s going to be another factor as far as not gas is concerned. And the fertilizer analysts that I’ve talked to say they expect another price spike coming into about March.


Yeah, I believe also there’s going to be a price spike on the fertilizer front because the soil that the farmers haven’t used can’t sit as from what I’m told, can’t sit around not being used for too long. So 23,024 they’ll have to be replanting, those fields.


Interesting. Okay, well, good to know. Thanks for all of that. So let’s move on to the Fed. Sam, you’ve put out a few notes this week about the Fed and the Fed Pivot. Obviously, you’ve been saying for about nine months that the Fed Pivot is kind of wishful thinking. You’ve said it over and over and over again and there haven’t been hasn’t been a lot of kind of listening to it or people really haven’t heeded that necessarily as we see kind of run ups and and hope that we’ll see a pivot. But Fed minutes were released this week and you pointed out no member saw a need to raise rates in 2023. So that from your newsletter is on the screen right now.

So you’ve stated many times that the Fed has been very clear what their indicators are. And honestly, we’re seeing what you’ve said many times, that it’s vu and nominal wages. So vacancies and unemployment as well as nominal wages as well as core services, excluding shelter inflation.

And those have been very clearly stated by the Fed chair in his briefings. So why is it so difficult for people to see these things that seem to be very clearly stated by the Fed?


It’s personal preference. Right. The presuppositions and the initial conditions that you want based on the way you’re positioned. Right. So our brains really like to be correct. So if we can convince ourselves that the Fed is doing the wrong thing and should do something else and ignore the Fed will do something different, then it makes us feel a little bit better. So I think that’s part of it. But I do think that there’s something to be said for when no member of the FOMC sees the need to cut rates in 2023. That should be heated. That’s a pretty one sided trade. And you listen to some of the members of the Fed this week, bostic, who could be considered one of the more dovish individuals. He was still somewhat indeterminate between hiking 25 and 50 at the next meeting. When the most dovish member that I can kind of come up with or one of them doesn’t know if they’re going 25 or 50, that’s, that’s problematic. Right? That’s, that’s something that I think people are somewhat ignoring, particularly market participants, is that the Fed is not the Fed is not pivoting towards being dovish at this point.

Right. That the narrative that they have put out for the last six months has not changed. It has been very consistent and it has been very clear that vacancies to unemployment is a problem because one, when you poach people, you have to pay them a lot more money. So instead of call it the ADP report is really intriguing because they release what the pay rates are for people who aren’t switching jobs. It’s somewhere in the seven percentage range and the people who are switching jobs are getting 15% pay bumps. So the differential there is somewhat stark and somewhat shocking. I think that is somewhat underestimated by people when they look at what’s going on in the labor market. We have had a very good year for job creation and we just finished it off with a number that was well above expectations. And, you know, you can kind of nitpick and say, well, the average hourly wage was only up 30, basis points 0.3%. And you know, that’s that’s a positive for the Fed. Well, yeah, it’s only going to be up .3% because the vast majority of jobs were created in lower paying industries.

When you create jobs in leisure and hospitality, those are below the median. So you’re going to drag down the wage growth just naturally on that front. So I think a lot of it is going to be evolutionary for the Fed, right. They’re going to have to evolve their rhetoric at some point, but they’re not going to do it yet and they’re certainly not going to do it before the February FOMC meeting and they’re probably not going to do it until after the March 1. And that to me is probably not priced in at this point. And what’s really not priced in is the Fed just not really caring about the data until sometime in early 2024.


So you mentioned that in one of your newsletters, I think it was yesterday, talking about on Thursday most recent employment report. You talked about the Fed being stuck in the middle and literally you put some maps, which I put on screen.

Employment in the middle of the US could be a factor that keeps the Fed from slowing rate rises or at least from kind of pivoting. So why is the middle so important? We get so much coverage of what’s happening in Silicon Valley or New York or whatever, but why is the middle so important? And why is the Fed paying so much attention to the middle?


Sure, so the regions to the west were the only ones that lost jobs, according to the ADP report, which is pretty interesting. And the rest of the country made up for it and made up for it in spades. So while all the tech layoffs get a lot of headlines, you never really hear about the opening of XYZ plant in Kentucky or Tennessee, or the building of a plant in Tennessee, right? Those don’t get the headlines that Facebook laying off a few thousand people get. Quite frankly, who cares about a bunch of people getting laid off from Facebook? They probably shouldn’t have had jobs in the first place. Even say I’ll say it about alphabet. I’ll say it about all the tech companies. They overhired and they overhired in the wrong area, and now they’re laying them off. I mean, that’s what happens. It’s called the tech cycle. It’s not that difficult. But middle America is more than making up for it, and it’s making up for it in spades. And I think the Fed actually might be getting caught by the middle of the country. And it’s kind of the revenge of middle America, right?

Middle America always takes the brunt of the BS from the coast in terms of being dominated on monetary policy, being dominated on economic policy, and now they’re the ones kind of driving the ship. And I think that’s really underestimated within people’s frameworks that when we’re isolated to New York and California and see people getting laid off, that doesn’t really matter to the Fed as long as it’s being made up for by people in the middle. And people in the middle are making more money and they continue to spend. And there’s a lot of states in the Midwest and call it just flyover states. There’s a lot of states with a two handle on unemployment. A two handle. So if you want to hire people in middle America, guess what? You’re going to have to pay up if you want to hire a tech worker on the West Coast. Maybe you don’t, but that’s what’s going to get the headlines. But you’re going to have to pay up in the middle.


Well, you may not have to in terms of the rise on the West Coast, but the wages there aren’t necessarily coming down, are they, on the West Coast?


No, they’re not coming down, but it’s all about wage growth at this point. As long as you have a pretty sharp deceleration, you have some people on the market to hire. That’s important, right? Nevada and California have two of the highest unemployment rates in the country.


So is it fair to say that the middle is not say perfectly, but in some extent kind of catching up with the coast in terms of, say, real wages or something or no. No. Okay, so it’s still pretty cheap, but still just wage growth. Okay, very good. What else are we missing? Because look, you have been consistent on all of this. And you have for anybody who’s either listened to us or read your stuff for the last nine months could have seen this play out pretty much exactly as you’ve laid out. So what are people missing? I think the Fed has been fairly boringly, consistent, and you’ve said they would be, and that’s what’s happened. So are there any lines to read between that we should be looking at right now?


Yeah, so I laid it out about a week ago that I think what you really want to look for is the Fed going from a hawk to a grackle, hawkish to grackleish. And if you live in Texas, have lived in Texas, grackles are the worst birds ever because all they do is squawk. They wake you up and you can’t shoot them. They’re not like dubs, so play that all the way through there. But Grackles are an incredibly annoying creature. And when the Fed goes from being pure hawkish to really starting to grackle up its communication, squawk, squawk, squawk. You have no idea what they’re looking at. You have no idea what the metrics are. That’s when they’re getting ready to pause and pivot. And frankly, we have seen none of that right. Until the Fed process is not hawk to dove or dove to hawk, it’s dove, grackle, hawk, hawk, grackle, dove. And until they really begin to confuse their messages, they’re not changing shape. That we simply haven’t seen them begin to change shape. I do think that sometime this year, probably in the call, it the May to June time frame. That’s when you’re really going to begin to see the Grackles come out.

And a lot of confusing language about what they’re watching. A lot of confusing talk about the balance sheet. A lot of confusing talk about the future, the path of Fed Funds rates. And that’s really when I’ll get a little more bulled up on a Fed pause in the length and the structure of the potential to pivot. I don’t think there is a reasonable case to be made at this point. The Fed is going to cut in 2023. If there is a credible argument, it’s that the Fed breaks something and has to cut a lot. Right. So it’s it’s a little bit of a call. It a convex play here that if the Fed does cut, it’s not it’s not cutting 50 basis points, it’s cutting two or 300. And if and on the other side, you know, if nothing bad happens or nothing very bad happens, the Fed is just going to hold it there. So I think there’s a little bit of skew here.




Okay, thank you. I have one question. Yesterday we had, like, Fed george came out and said the Fed, quote unquote, Fed, still has a lot to learn about how balance sheet policy works. Can you explain that to the audience? And would that not be one of your grackle birds? What is it called?


No, I think it was actually George just being honest. I think we had this convers we had this conversation a few weeks ago, Tony and I, with a guest that the Fed really doesn’t understand or doesn’t have quite the concept to pinpoint exactly how much tightening or additional tightening to Fed funds. Quantitative tightening does that’s, that’s what George was getting at. She’s a little bit behind the curve there. The Fed does have a proxy rate that I pointed out earlier this week in a, in a note. The Fed has a proxy rate that they publish that’s sitting at about 6.4%, give or take. So it’s about a 260 basis point spread, 2.6% spread to the current Fed funds rate. I think that’s something to kind of pay attention to, is that the Fed does have measures. I think it’s more that if you’re out there talking all the time, it’s difficult to get into the math.


They’re not stupid, they’re just annoying at times.


Exactly. They’re not stupid. They’re really not stupid. They know how tight they are. They know they’re sitting at about six and a half percent, 6.4% on an overall tightening basis. They don’t care that’s number one. They don’t care that it’s that tight. Number two, they’re going to continue to do it until they actually achieve their mission. Right. And it’s a multipronged process. And as long as markets seem to be fixated on what’s going on with the Fed funds rate and not going on with the entirety of tightening, that’s going to continue to be an issue for them. Like today, when everybody’s like, oh, look, we printed 223,000 jobs. Maybe this gives them reason to pause because average hourly earnings didn’t go up that much. Guess what? I mean, you can’t rip markets 2% and have financial conditions loosen like that and have the Fed go, yeah, I think we’re accomplishing our mission. Inflation is still high and unemployment is at 3.5%. Yeah, it sounds like a great time to pivot. Yeah, that’s the dumbest thing I’ve ever heard.


Right? Yeah. Okay, that’s great. Speaking of stupid not you, Sam. Albert, let’s talk about multipolarity.


One of my favorite.


Yeah, so we’ve had a lot of op eds and research notes and tweets over the past week or two stating that the future is a multipolar world. And this seems to be based on a lot of talk about the decline of the US dollar or the rise of the petrieon or something like that, around Chinese crude purchases from the Middle East or whatever. So, Albert, you put a series of tweets out, which I’m showing right now on screen about this very diplomatic, as you always are.

So can you walk us through this and help us understand what’s going on? And I’m going to try to play devil’s advocate as you lay.


No, that’s fine. I mean, you can play devil’s advocate if you want, but when it comes to multipolarity, it’s not simply a financial or economic thing that you need to look at. There’s multiple variables, including legal frameworks of the nation that is the currency issuer, the military strength of the reserve currency issuer. There’s multiple, multiple variables for it. And for some reason we have these economists that come out and say, oh well, the petroleum is coming into effect and that’s going to destroy the petro dollar and therefore the dollar is going to fall and blah, blah, blah. I’ll let Tracy get into the petrowan stupidity, but the dollar is simply the lifeblood of all trade in the financial system. You’re talking about for me, it’s like taking out your blood into Transfusion and putting in Mountain Dew and saying, oh yeah, everything’s healthy, you’re going to be fine. The whole system is raring to go. It’s a dumb argument. It just boggles my mind how people can sit there and even claim multipleity when there’s literally no alternative on a global scale for anyone to be thrown.


So let’s take this bit by bit. Okay? So a lot of these people are saying that the CNY will become more powerful partly on the back of crude coming out of the Middle East and crude coming out of Europe that could be denominated in CNY. Okay, so let’s take that. Tracy, can you talk to us about the Shanghai benchmark for crude? How successful has that been?


Not at all. Even the futures market hasn’t been successful.


What percent of world order oil, just as a wild guess, do you think is traded on the Shanghai benchmark?




2%. Okay. And it’s been around for how long? Two years?


Yes. And if you look at their futures market, which has been around since 2016, we’re still only saying that domestically traded, you’re not seeing big players come in and hedge like they do with WTI or bread. So that aside, China came to Saudi Arabia with a suggestion after this new summit, the latest summit that they just had, and said, yeah, we would love for you to we could trade this on Shanghai and this could be traded in yuan. Saudi Arabia still has not yet come back with an answer. And so everybody jumped to conclusion saying it’s a petrol. Saudi Arabia is giving up dollar denominated oil. This is not true. I’ve talked to a lot of people in Saudi Arabia about this. I’ve talked to a lot of journalists. I actually had a spaces about it. So this is not true. And even if Saudi Arabia did decide to sell some oil in yuan on the Shanghai exchange, for whatever reason, all that would happen is they would be paid in yuan and instantly changes into dollars. Nobody wants you.


Wait a minute, let’s dig into that. Why does nobody want CMY?


Well, because it’s not globally traded like the dollar is. Everybody wants dollars. People don’t want you on it.


Not freely convertible.


Right. At all. Right. And especially if you’re in a merging market with USD denominated debt. You on. Nobody wants you on. Nobody wants you on. Right. And it’s not really free floating, right?


It’s not at all. We talk about crude and the ability for the Chinese purchase crude. We talk about their currency, CNY. But behind the CNY and the lack of convertibility is the PDOC, right. China central bank. So ultimately, if you trust a currency, you ultimately trust their central bank. So is there a basis for people globally to trust the PBOC? That’s a sincere question. It’s not a cynical question.


No, I think people are not trusting central banks anywhere, but especially in China right now. People don’t believe what’s going on in China right now. People haven’t believed the data in China right now. And so, again, there will be a small amount of oil traded globally in yuan if China wants to do so and another country chooses to do that. Right? Russia has india was brought up for them, but that’s a very small 1% to 2% of globally traded oil, which is certainly not going to put the U on in a position to overtake the dollar in traded markets.


And something I’ll point out is the PBOC has literally, at times, used numerology to determine their benchmark rate. Okay? For people who go down this path, that the CNY is a rising currency. If you’re going to trust a currency, first of all, it has to be convertible. But second of all, you have to trust the central bank. And you can’t have people using numerology. I know we all complain about the Fed, right? But at least there’s a standard approach and there is a level of transparency as to the way decisions are made, right? Everybody knows what the Fed says, what minutes are released and all that stuff. But when you have a central bank that has at times and it’s rare, but at times use numerology by raising by anything that ends in eight or whatever, something like that, I mean, this is just stupid. And it’s not a credible central bank when those sorts of things are happening. Okay, let’s go on to multiplarity, to have defense. Okay? So is there a defense to enforce decisions that are made? So does China or whatever other multipolar places that these people are talking about have the ability to enforce their decisions overseas?


No, none. None whatsoever. I mean, even to take the Saudis as an example, right? The Saudis rolled out the red carpet for the Chinese, and the Petrowan argument started coming out all over research papers. But what will happen when Iran decides to press the Saudis once again in Yemen, or just through airspace violations and threatening missiles? Do you think that Riyadh is going to run to the Chinese? Are they going to run to Moscow? Or are they going to call up the Pentagon and say, hey, we need more, you know, Patriot missile batteries, you know, we need your support.


You tell me why. I think I know the answer, but I want to understand why.


The US. Has the most advanced military hardware there is on Earth by far.




But why would they not call, let’s say the Chinese.


Do you want an effective defense system? What are the Chinese have for defense system? Are the Chinese able to put Chinese troops to defend against Iran if something happens or against the Yemenis? I mean, they failed in every single aspect of China.


Just some basic questions. Does the PLA have the logistical capability to get their resources to Yemen if needed?


Zero. They couldn’t even invade Albania if they wanted to. That’s how ridiculous it is.


I’m sorry.


How are you going to move 250,000 troops across the world, right? You have no ability. The Russians can’t even barely invade Ukraine. That’s on their border, and we’re sitting there talking about multipolarity. For an example, is the United States took out Manuel Noriega. That’s because he was in the Panama Canal area and he was screwing around. If that situation happened, do you think the Chinese or the Russians did hop on over there and take it out? They cut it.


Noriega fell out of a building, which is plausible.


Well, that’s the Russian way to fix things. But, I mean, this is just a silly conversation. I have no idea where this multiplarity is coming from unless it’s investment banks putting their analysts out there to help their clients get out of gold or get out of crypto or something. We know with the whole death of the dollar thing coming, what are we.


Missing on multi polarity? Is there something that we’re missing from this discussion on either side?


I don’t think we’re missing much. I mean, there’s always the want for multipolarity if you’re not the United States, right? Everybody wants it, but to the point. You have to have a credible currency, you have to have an open account, you have to be willing to have a deficit, trade deficit, period. And you have to have incredible military and defense. And guess what? In this world, the only country that ticks those boxes is the US. And if Europe ever got its act together, maybe it could have the military part, but that’s it. China simply does not have the capability to be a global offsetter to the US dominance. That’s simply what I would call fantasy, at least for the foreseeable future. Could it become one down the line?




We were all concerned about Japan 20 years ago. Look how that worked out. Then we were concerned about the Euro. Look how that worked out. I mean, it happens. Yeah, it happens on a cyclical basis. Every 20 years, we come up with a new thing to be concerned about on the multiplayer front, and every single time, nobody has the willingness to do what the US does. Somebody call it the exorbitant privilege. Right? It’s not. It is. Actually a pretty big load to bear, particularly on the military and spending front. So I think that’s wildly overlooked. And I think the other thing that’s overlooked is oil for dollars will persist for a meaningful amount of time. Nobody wants oil for Trinkets.




And another thing I have to mention, does China even want to open up enough to be the world? They like to be shrouded in kind of secrecy, right? And they have to be secret. Whatever. If you’re world current reserve currency, you have to be completely open to the world, and they don’t seem to like that.


Well, part of it is they don’t want to be embarrassed. They don’t want to be seen to be making a mistake. It’s easier to point out other people’s mistakes. If they had transparency and they made a mistake, it’s embarrassing. If you remember, in 2015, they tried to devalue a little bit, they messed up and they way overshot, and it was really embarrassing. And then they did nothing for, like, four years. So they don’t want to be embarrassed. That’s a huge issue.


These are all complexities that have to be taken into account. And like Sam said, there’s only one nation at the moment that ticks the box. And listen, I’d be the first one to throw out warnings, red flags. If there was a competitor stepping up in the US’s shadow, they’d be the first person to say this, but just not right now. None of the components are there at the moment.


Right? And I mean, having said all this, I don’t want this to sound super pro American. Like, we’re all Americans, and I think we can all agree that the US is kind of a lumbering idiot around the US at times. Well, this is not trying to say raw, raw US. We’re just saying the Pragmatism of the moment is this.


Yeah, there’s so many different details that have to be looked at. And I spoke with Mike Green on this in our podcast and our spaces. It’s like the United States has water, has geography, is isolated from the rest of the world, has a military, has this, has that. It’s nothing to do about RA America. It’s just the way things have been laid out at the moment.


We’re lucky in that.


So if anybody’s watching and has a counter argument, please let us know. Honestly, we want to hear it and put it down there, and I’ll try to talk to Albert and see if he can come back to you. You may be careful what you wish for, but we’ll try to get Albert to come back to you. But let us know seriously, if there are valid counterarguments that encompass all these issues, just let us know in the comments, and we’d love to engage. So, guys, thank you very much. Really appreciate your time and all the thought you put into this. And have a great weekend. Thank you.


Thank you.


Thank you.

Week Ahead

US Policy for Small Businesses: The Week Ahead – 17 Oct 2022

Learn more about CI Futures here.

We’ve had several policies that have hurt small businesses, especially since the advent of Covid. The US administration just implemented a policy to move gig/independent workers to employee status. How does this hurt small businesses? Carol Roth, our special guest for this episode, discussed that in this Week Ahead.

Also, we’ve seen a lot of negative news this week with producer prices, wages, consumer prices rising. One Twitter user asked what would Carol do if she was in charge? What would she do and how does she think it’d help?

Albert helped us look at the Fed and is the dovish Fed dead? We’ve known this for some time, and there were hopes for a pivot, but that seems to be over.

Tracy also talked about diesel inventories, which she talked about for a very long time. She helped us dig into that in this episode.

Key themes
1. US policy punishing small businesses
2. The dovish Fed is dead
3. Diesel inventories
4. The Week Ahead

This is the 38th episode of The Week Ahead, where experts talk about the week that just happened and what will most likely happen in the coming week.

Follow The Week Ahead panel on Twitter:

Time Stamp:
0:48 Key themes for this week ahead
2:43 US policy on gig workers
7:48 Is this to slow down job creation?
10:00 What other things will make things uncompetitive for small businesses?
12:07 What adjustments would Carol Roth do if she’s with the Fed?
16:47 Debt buying and the Fed
19:00 Forecasts for some currencies
20:00 Does the Fed understand that this is a supply-induced inflation?
23:50 They’re not thinking through the political fallout
25:25 Is diesel priced in dollars globally? And what’s the impact?
28:00 How long does the diesel shortage last?
31:34 What’s for the week ahead?


Tony Nash: Hi, everybody, and welcome to the week Ahead. I’m Tony Nash. Today we are joined by Carol Roth. Carol is from Chicago. She’s the author of the War on small business. She’s got an amazing Twitter following an amazing Twitter presence. Carol, thanks so much for joining us. Really looking forward to getting your perspectives today. 

We also have Albert and Tracy and I’m looking forward to getting their views on the Fed and on energy today as well. The key themes today we’re looking first at US policies punishing small business. Carol has a really unique perspective, obviously a book on the broader implications of this, but there are some recent policies that she’s been focusing on that will talk about some of those things. 

Next. Albert will help us dig into the Fed. And are we looking at the end of the Dovish Fed? I think we’ve known this for some time, but there’s always kind of been some hope that there’s going to be some sort of pivot and that seems to be over. 

Next we’ll look at diesel inventories. Tracy has been talking about this for a long, long time, but it really seems to be coming to a head. So we’ll dig into that today as well. Please take a look at our product CI Futures. It’s a forecast subscription product. It’s $99 a month. We cover a few thousand assets over a twelve month horizon economics, currencies, commodities, equity indices. So please take a look at that. The URL is on the screen. Thanks a lot for that.

Before we move on, please like this video, please subscribe to this video. You’ll be able to see all of them and we really want you to be able to see us every week as we bring these in.

So Carol, thank you very much for joining us. I know you’re busy, really demanding schedule. It means a lot to us that you could join us. So thank you very much.

Carol Roth: This is an amazing crew and I can’t believe you left out recovering investment banker out of my introduction because that’s really the most important part,

TN: Right, exactly. And a Raiders fan as we learned last week over Twitter as well. So we’ll forgive you for that. Anyway, thanks very much. I love the work you do on small business. And you’ve been talking about a recent policy and we’ve got a tweet of yours on the screen talking about the Bind regime pushing gig employees to be full time employee status with companies. Can you talk us through what that means for small businesses and why is that a competitive disadvantage?

CR: Yeah, I think the first thing that people really need to understand is how important small business is to the economy. Because I think a lot of people think, oh, it’s small, it’s just a little piece. Before COVID, small business was about half the GDP and about half the jobs. And at this point we have about 32 6 million small businesses in the US.

So if you’re somebody who believes in the concept of decentralization and that being important to economic freedom, this is the decentralized portion of the economy. This is very independent. It’s very spread out geographically via industries backgrounds. Whatnot by the way which is why big business, big governments and big special interests don’t like small businesses because they’re very hard to corral. If you look at the other half of the economy, it’s in the hands of 20 plus thousand big businesses. So it really is that sort of David versus Goliath battle but also this battle between decentralization and centralization. And we have seen all of these efforts over a long period of time to destabilize small businesses and to make competitive advantages to really tip the free market in favor of those big businesses.

And certainly the policies around COVID right, were the biggest example of that ever. It was an epic wealth transfer from Main Street to Wall Street done not based on data and science but based on political cloud and connections. So now that we kind of know what the story is in terms of this unholy triumvirate, if you will, the big business, the big special interest, big government attacking small businesses, you then look as to what else they can do to really make it harder for small businesses to compete.

So there’s this Department of labor ruling that’s come out. It’s followed something called AB Five in California. If anybody has heard or followed what was going on in California and then it has been and passed the House on a federal basis under the Pro Act. But basically the idea is they want to take gig workers and independent contractors which by the way the estimates, they number around 53 million people in the United States. 

So again, this is not a small number of people who are being affected and they want to say you can no longer have the freedom to decide how you work. We don’t want you to be able to enter into a contract in a way that works for you. We don’t want you to have that flexibility. You have to be an employee. Now this may sound like, oh well, that sounds great for people.

Why would they not want to be an employee? Well, there are a lot of reasons why you don’t want to be an employee. The first is you might not have that opportunity. And that’s the biggest issue because it is very difficult. And the government are the ones who have made this very difficult for a company to hire their first employee and also to keep them on an ongoing basis. 

If you hire somebody as an employee versus a contractor, you have to pay in a portion to Social Security. It affects interest. It can affect your 401K or step plans. It just kind of reverberates throughout your business and so it becomes very challenging and difficult. So if you are a small business who maybe gets busy during a certain season or need help just in certain areas, you tend to bring on independent contractors. Or if you’re creative, if you’re running a movie, you’re obviously not bringing everybody unnecessarily as an employee. You might have a caterer who comes in and feeds people, or if you’re a hairdresser, you may want to rent out a chair in a salon. And the salon doesn’t have the wherewithal to make these employees.

So they’re framing this as we’re trying to help the employees. This is going to really stick it to big business. But there are literally hundreds and hundreds of different categories of employees. Anybody who’s a 1099 employee and doesn’t have a business entity that this will threaten not only their economic freedom, the ability to work the way that they want to be flexible, but literally their livelihoods.

So if you believe in choice, it should be your work, your choice. And now the Department of labor wants to give another giveaway to all of those big special interests.

TN: So, Kara, when we’re in an environment right now where the Fed is trying to slow down job

creation, our small company is the largest portion of job creation as well. So is that another tool potentially, maybe unintended or not, I don’t know to slow down job creation? 

CR: Yeah, I mean, certainly if you think of the small companies, they’re the ones that don’t have the financial wherewithal or the fortress balance sheets. They have not been loading up on the cheap debt because they have to personally guarantee it and don’t have the same scale as the big companies. So it’s a challenge for them to survive an environment where the Fed is going, we’re going to destroy demand. It’s basically we’re going to destroy the little guys who can’t endure this pain. So that’s small business. And you’re right. Having the ability to be flexible going, well, maybe I can’t hire an employee, but maybe I can hire somebody as a contractor parttime, and when things get better, I can bring them on as an employee. Or maybe this is just a flexible way that we can work in the future so we can have different people and they can also work with different companies in a way that suits them.

Absolutely. This is going to be on the shoulders of small business. And as they always do, they say, oh, this is an attack on Uber and Lyft. When this happened in California, Uber and Lyft went out and they put it on the ballot. They got an exemption, but they didn’t take everybody else with them. They just got it for a handful of big industries. And all of the other small guys were basically screwed.

So the idea that this is somehow in an attack in the front against the big guys and the small guys are going to come out smelling like a rose is a joke. If you believe that. I’ve got a bridge to sell.

TN: You right. Okay. So we have small businesses that just barely made it through COVID. So that was really a regulatory way to suffocate small business. And my company is one of them that scraped through and now we have these full time employee regulations coming in from the Department of labor. Are there other things on the horizon that you’re seeing that could make it even more uncompetitive for small businesses?

CR: I mean, everything that they’ve done is making it noncompetitive for small business, whether it’s regulation. You think about all of these minimum wage regulations and how these big companies like Amazon and Walmart have shifted their position and decided to lobby for them. Well, why do you think that is? That’s because they know they’re going to pay that level anyway and they don’t want to have the flexibility for the smaller companies to be able to maneuver around.

That certainly a higher interest rate environment messing with the labor force in general, let alone having a rule like this. The supply chains, the decisions that were made, whether it was a direct you have to close your business down or these indirect issues that affected labor supply, whatnot they killed by mandate around seven figures worth of small businesses. And unfortunately, Tony, as you’ve shared personal stories, there are many others that are just scraping by to survive.

And it’s just this like, you know, you get knocked down, you get up again and then they just keep knocking you down and you keep knocking you down. If you wanted people to succeed, if you wanted people to pursue the American dream, if you wanted economic freedom, you would be working to remove

barriers, make it easier for people to work, make it easier for companies to hire in the way that makes sense for both parties, and make it easier to be a small business. And every single thing that comes out

of government at all levels, by the way, it’s not just federal, but state and local is doing the exact opposite.

TN: Yeah, it’s overwhelming. We could talk about just that alone for hours. Let’s move on to former investment banker Warden Grad. You know your way around the economy. There is a tweet put out a few days ago asking you, if you had the big chair, what adjustments would you make to the economy, monetary policy, whatever, to change the environment today to make things better? What are a few things that you would do if you were Chair Powell or Janet Yellen or something like that?

CR: Burn the fed down. I burned down the Federal Reserve. The very first order of business, I put myself out of a job. And I say that kind of jokingly, but I like to clarify. I would take away the Fed’s powers because as I’ve said to many people before, the only thing worse than the Fed making monetary policy decisions and meddling in the markets and doing things like printing money and whatnot would be Congress doing that? So you don’t want to have those if you get rid of the Fed, you don’t want to have somebody else take away the powers. We’re really getting at, you know, getting rid of those powers to interfere. So that would be the first thing I would do.

But obviously that would not solve what is going on. Now. This is not going to be a surprise to any of you, but what we’re dealing with right now is a supply side imbalance. And it has been. They stimulated demand, but they stimulated it into a supply constrained economy. And so we are under supplied, as I know Tracy tweets about all the time in energy, certainly in labor, as we’re talking about food, housing, other commodities. So I personally don’t believe that the Fed has the tools to solve this problem and attack it. And frankly, I think that they’re going to just cause a massive amount of destruction not only here in the US. But reverberating through the global economy, which then swings back and has an impact on the US.

So what needs to be done, again, are policies that remove barriers to supply. What we’ve been talking about, certainly on the energy front, anything that we could do to stimulate supply of energy, which again, do it here, where we do it more cleanly, and not let China and Venezuela and all these countries that don’t do it cleanly be the ones to do that. Because the last time I checked, we all share the same air. It’s not like you believe in a smoking section, right? Like, oh well, they’re just smoking over there, we’re great over here in the same restaurant. Like, that’s so stupid.

So we would obviously do a 180 on energy policy. The same thing with labor. All the things we’re talking about make it easier for companies to hire people to go to work in the way that they want to work and then we close that gap in the labor market, which is insane. 

The same thing in housing. The National Association of Home Builders did a study last year. $94,000 in regulatory costs are added to the cost of every new home from the government. I mean, that’s insane. The average house is almost 4000. So like 25% of the cost is in regulation. And I’m not saying we don’t need anything, but that’s certainly excessive and it’s gone up by something like 30% to 50% over a very short period of time. So it’s those kinds of things that the policies need to be focused on stimulating the supply and shrinking that supply, demand and balance by increasing supply, not by trying to kill the demand. And that’s just where I land on it.

Albert Marko: That’s exactly what I was tweeting last few months now. And actually on the show is they are trying to create demand destruction, but the problem is the supply disruption that they’re creating and they put themselves in a doom loop to where when demand comes back, there’s no supply. So you get a cycle of inflationary situations happening, and it’s bad here, it’s worse in Europe and it’s even worse in Asia. So we’re going to be stuck in this until the policies start changing, not just from the Fed, but it’s got to be political also because the governments are doing this COVID zero in Asia and the energy crisis in Europe, and they’re just making it worse. So until those policies change, we’re going to be stuck in this cycle.

TN: Yeah. So I respect both of you, but the Fed doesn’t. So they’re going to do whatever the hell they want. What’s really interesting to me is you guys may have seen today. The treasury was asking investment banks. Hey. Do we need to buy some of the debt off of you so that we can create some liquidity in debt markets. Just basically transfer some cash to you so we can take some of those assets off your balance sheet.

Whether it’s the Fed or the treasury or whatever is done. It just seems like the benefit is for the small circle of people. And when you talk about whether it’s interest rates or QT or whatever, it seems like interest rates are the bluntest instrument that hit the biggest number of people. Right. And it’s hard for me to understand why that’s absolutely necessary.

And Albert, we’re going to segue into your section on the death of the Davis Fed. If we look at interest rates, we’re looking at a terminal rate about around 5% now. Right. And so help me understand what is happening with the Fed, what you’re hearing, what you’re seeing and what you’re expecting for the next couple of months.

AM: Well, I mean, everything at this point well, it should have been for a year now, but everything from this point on is strictly to combat inflation. They are getting screamed at by literally everybody to get the 5.5%. Not just five, they’re going to get the 5.5%. They’re going to do 75 again on this next meeting and then another 75 after that. And their intention is demand destruction. That’s what they’re going to do. And they’re not going to be dovish anymore. But they’re have to walk a tightrope here because Europe, they’ve destroyed so much in the global market, specifically Europe that lost 30 trillion in the bond market, that it could be a systemic problem.

And they can’t have that, so they’ll do 70. Five to 75. Talk guidance extremely hawkish. They’re intent on trying to get inflation down until November and December.

TN: November and December.

AM: They’re going to do 75 both. And they’re just going to have to because their time is out and they have

no more tools left to hit. Inflation at JPY at. Euro will be at 90.

TN: And JPY will be what?

AM: I don’t know the correlation on that one off hand, but the euro is definitely going to go to 90. 90 to 90 on this. But it’s all $30 trillion, Tony. That’s a lot of money. The only people in the money. Yeah, it’s still a lot of money. So when the treasury starts talking about, do we need to buy debt back from banks? Is that the US. Banks or is that European banks? Because I guarantee there’s going to be some European banks in there.

TN: Oh, they have to be. Yeah.

AM: Like I said, they’re causing systemic problems and they can’t have your completely blow up. I mean, they’ll use them for a scapegoat to stop QT announce QT stop. But that’s where we’re at it right now.

TN: Okay, so does the Fed understand that this is largely supply induced inflation?

AM: No, they don’t. They don’t? No, because people do what they know, right? If you go back and you look at what Yelen did, when I say Fed, I just toss in the treasury at the same time because they’re one of the same. They talk. They talk, and they have correlating policies and whatnot. And if you look back in 2013, this is what Yellen did last time. She drove the dollar up, crushed the markets, and drove all the money back into the United States. Yes, the United States market looks all beautiful at 3600 to 3700, and people talking about Fed pivots and 3900 in the es, but it’s not real.

CR: Okay, so first of all, can we just discuss the fact that between the time that Janet Yellen was Fed chair and Treasury Secretary, the woman pulled down over $7 million in economic speeches when she didn’t know how to handle, you know, coming out of quantitative easing. She didn’t see inflation. She said that I think this was actually from you, Tracy, but she said that everything looked great in the treasury markets and then the next day went, oh, yeah, I’m worried about liquidity. I mean, clearly, I’m not sure she knows anything. 

And I want to know how to get in on that gig in terms of making that money for speeches for something that you know nothing about. But I find it hard to believe since everybody and their brother has been talking about all of the issues that are going to happen here. 

And maybe it’s my wart and bias, but I go along with Jeremy Siegel, noted finance professor who’s been out there hammering the Fed, saying, look, first of all, you not only do you not necessarily have the tools we’ve seen some elements of demand destruction in small places, and it takes a while to work through the system.

So if you go too fast, kind of like you didn’t see it on the front side, you’re going to do the same thing and you’re going to overshoot. But the bigger issue alluding to what Albert said is the potential to drag down the global economy. I mean, that the fact that you can end up with currency crises, with a treasury market crises, the whole slew of risk assets could be a massive sale of risk assets so that they

could get their hands on dollars because the Fed wants to keep raising interest rates.

It just seems to me it’s not a question of do they not know this? It’s a question of what’s their intention are. They trying to drag down the global economy so there is a financial reset, so they can introduce some sort of a central bank digital currency and have an excuse for it. It just seems to me to go, oh, they’re ignorant of what’s going on. When every single one of us sees this, you’ve got the IMF talking about it, you’ve got professors talking about it.

The fact that this hasn’t crossed their mind with the people that are involved yelling aside, but the Powells of the world and other folks there, that just seems not very likely to me.

AM: No, it’s not. A lot of it is political right there’s. U.S. Midterms, they don’t want Trump back, so they start throwing in these economic numbers to make Biden Democrats look good. And that screws up Fed

policy going forward. I mean, Yellen takes a dollar up, the Fed gets stuck, and then they have to go back and create a new crisis in Europe or Ukraine or whatever crisis they want to create sometime in the future to blame for everything. Yeah, I think the Fed guys are smart. I think they do know these are not stupid people, although certain people, they. Know they just don’t care.

TN: I think you’re right. I think they don’t care. But what I think they’re not thinking through is the political fallout we saw that Chancellor or the exchequer in the UK kicked out today after about two weeks in office or something. And that’s relatively light compared to what happened in Sri Lanka a few months ago and what’s happening in Africa, what’s happening in, say, Pakistan, Bangladesh, what’s happening in Latin America.

So I think we’ll see political fallout here as a result of the Fed’s inability to understand the implications. Where it will really hurt is if it hits Japan and you get minority party in Japan back in power. They’ll pay attention then. And if you see powers in Europe that aren’t favorable to the US. But that’s already kind of starting to see Czech Republic and Hungary, certainly we’ve. Already started to see this, and it’s just getting started. 

We thought we saw populism in 2016. I don’t think we’ve seen anything yet. I think we’re going to see

this in a big way globally.

AM: Yeah, Tony, you’re right. I mean, the Europeans are absolutely screaming at yelling about this because she straight up lied to them about the bond market. She can’t even talk to the Norwegians

or the Swiss at the moment. This is how bad it’s become.

TN: Yes, I believe it. Okay, so let’s move on to energy. Tracy, you’ve talked a lot about distillates for a reason, warned us for months about diesel shortages and diesel prices, and it seems like it’s really coming back. And as you talk about this, I want to understand, is diesel priced in dollars globally? And so is that going to hit supply chains in other countries as well because of the pricing basis of diesel. Coming out of refineries

Tracy Shuchart: diesel’s price in local currencies and trade in local currencies. Products are crude, obviously, prices in dollars and traded that way globally, except for some instances. But products are generally like Nat gas, it’s traded in different currencies. But really, I mean, we were having a diesel problem. This started back in 2021, so this is nothing new. I was tweeting about it summer of 2021. I was really worried about distalates. I started tweeting about that then because I saw our inventory slow down. It’s even worse now. 

But what’s come to a head all of a sudden, and what’s making this obviously 10 million times worse, is that Europe, for instance, mostly bought diesel from Russia, and they’re trying to lean off of that, right? And so in the meantime, the US. Is trying to supply Europe with diesel. But now over the last week, we’ve had three weeks of ongoing refinery strikes with total. So France has 2500 gas stations that have at least one product that is completely gone, and 2000 of them are shut down entirely. And then we just had a malfunction in the Netherlands and Shells Curtis refinery, which is the largest diesel refinery in all of Europe. 

So right now we have a massive global problem that is just getting worse. And if you see the diesel crackspreads have been they’re ridiculously flowing out. And backwardation is flying right now, which is kind of obscene. In the meantime, we’re still drawing these distills. We had a 9 million build and a 4 million draw in distance, and we’re headed into winter. So we’re going to have major problems here already in the United States, particularly in the Northeast, because they don’t have the refinery capacity there to really supply that area.

TN: Okay, so what does that mean? How long does this last? Does it last into spring? Does it last beyond spring? I’m curious about the magnitude of the impact on price, but I’m also curious about the duration, how long this is going to last.

TS: Well, you know, I mean, this has pretty much been gone ongoing since 2021. We’ve had times where it’s worse and times where it’s not. But it’s been over a year now, over a year and a half now. I don’t see that going away anytime soon because we don’t have the supply. We don’t have enough heavy oil to, you know, to make these products globally, especially when you’re cutting off Russia, because that’s what they produce is heavy oil. You’ve got Venezuela that’s producing 700K bpd. They’re not producing anything. And most of that’s going to China to pay for debts. We don’t have them. We’ve got Canada, but we don’t want to build pipelines right. For that. We can import more for that. So, I mean, we have kind of a global shortage of heavier oils. And sure, we get some from the Middle East.

That’s fine. We get some from Saudi Arabia. They own motiva here in the United States. And certainly they do produce diesel, but it’s still it’s still not enough. And especially when you’re talking about the west, it’s talking about, you know, we’re talking about a complete oil embargo on December 5 of Russian

oil and oil products.

TN: So this isn’t something that’s done by January. This has legs for quite a while.

TS: Yeah, absolutely. We’re already seeing prices rise. We’re at 518 a gallon for diesel here in the United States on a national average, which is higher than gasoline prices, by lots higher than the average. And the gasoline people that I talked to at Opus basically say, man, this is not even a safe level. This is going much, much higher.

CR: I have a question for you, Tracy. So it seems to me everyone seems to be focused on getting through the winter in Europe and the immediate impacts, as if there’s, like, some magic solution waiting on the other side as more of a layperson in this area. It seems to me that this massive under investments, this supplied depression that we’ve been having, there’s nothing coming online to help with that. So doesn’t that suggest that this is something that doesn’t get sorted out even though there may be some volatility, but, like years and years and years that we’re going to be dealing with?

TS: Yes, absolutely. I mean, we’ve got a problem for the next eight to ten years. Really? And if you look at, you know I know if we look at the natural gas situation in Europe, everybody’s thinking, oh, we’re at 95% full before winter, we’re going to be fine. If we just make it through winter, that’ll be fine. That’s great and all, but if you are not replacing that, you’re going to need it in the summer. You need to keep refilling that. So it’s not like, you know, unless they decide to stop using natural gas in March, end of story, we still have a problem. Right. And the next winter is probably going to get even worse.

TN: Great. Just so you know. Awesome. Okay, so let’s move into kind of the week ahead section. Albert, you want to get us started. What are you looking at going into the week ahead? What’s on your mind?

AM: Continuation of the Feds 100 basis point rate hike. I mean, they’re not going to do 100, but they’ll tell the market that they might start thinking about it and the market might start pricing it in. So we’ll definitely have a lot of weakness in the market going ahead in the next week, but it’s midterms, so you never know,

 they could defend the quote unquote Trumpl ine of 35, 40 so they don’t look like complete idiots and give them Fodder for the midterms. Do you still think we’re going to hit maybe 3200 or something eventually? I can guarantee you that by the end of the year for sure. The economic indicators across multiple data sets is just atrocious right now.

TN: Okay, great. Carol, I know you’re not really kind of in Marcus, but what are you keeping your eye on for the week ahead?

CR: So I do actually commentate on markets from a sort of a macro perspective, and much like Albert, I’m sort of in the camp that until the Fed tells us what is their intention, is this really just about the midterms? Are they feeling the pressure that it’s risk off from my perspective until we know what’s happening with them. So that’s been sort of my perspective.

TN: Great. Okay. Thanks, Tracy.

TS: On China next week, party congress looking at China, I want to see what they’re going to do policy wise because that’s definitely going to affect the commodities market. We all know that they’re looking for a five 5% GDP by the end of the year, which they’re not going to get. They’ll say they got it, but we all know that they’re not going to get it. So I want to look, an economy is suffering right now and we’re starting to see stirrings of unrest in China. Right. 

There was just that article where they had the people on the bridge with the signs that got scrubbed from China Internet. But I think that she is going to have to do something to stimulate that economy. So I’m kind of looking to see what his focus is on that and if they have any plans going forward to simulate the time. Because again, that’s going to affect the commodity markets and to see if he has a plan for the housing market. Oh, he’s got a plan.

TN: Central planners always have plans, don’t they?  That’s right. So if you talk to any China economist

for the bank, they’ll tell you that China is going to hit five 5% or maybe they live on the edge and say five three. Right. So as you said, we know they’re going to make it issh somewhere in the ballpark, but we know in reality you can’t have a zero code environment and make a growth rate that high. So my worry, I was just talking about this with somebody earlier in the week, my worry is that China really has made that transition to a slower growth environment for starting with demographic reasons, but also some structural reasons that they put in place.

And I think what she’s going to talk through next week, although not directly, but someone indirectly, is much more control, which will lead people to the conclusion that it’s not a safe place for foreign investment anymore, which will lead them to a slower growth environment economically. Because he’s basically talking about leveling people out. Right. And everyone has the same maybe not opportunity, but the same outcome. And you can’t necessarily do that in China with some of the economic outperformers that you’ve had, like Jack Ma and other people. You have to bring people down instead of push people up. And that’s what I’m expecting. 

Again, he’s not going to say he’s going to bring people down, but that’s what I expect is the main message coming out of next week’s meeting.

AM: Yeah, he has already done that, Tony. And there is a little bit of a power struggle with Wang. Yang is actually slated to be power sharing with him. All they’re trying to get him to do that, but all my sources have said that they’re locking down for code with zero until at least March, so we’ll see what kind of fake numbers they come out with.

CR: I will add that this all ties into their social credit system, which is the most advanced one in the world right now. And they really started the social credit on the business front, which is notable for the reasons you were saying. You can’t have that capitalism that’s leaked in a little bit over the past several decades and have these outperformers. So it’s an easy way to sort of bring those folks down a peg and then let that bleed into sort of the individual social credit. And it’s something we should be paying very close attention to as the Fed keeps talking about things like Central Bank, Digital Currencies, and as we see these companies going after people for misinformation, what part of that could leak here as well.

TN: Yep, very worries. So okay, guys, thank you so much for your time. Carol, I’m so grateful that you can join us today. Please come back anytime. Really appreciate this, guys, and have a great week ahead.

Week Ahead

The Week Ahead – 08 Aug 2022: Low energy prices, China tech & stimulus, equity upside?

Learn more about CI Futures here:

Energy has taken a huge downside hit this week, in the wake of the OPEC+ announcement, US refining capacity utilization declining, etc. What’s happening? Why are we seeing differences between physical and paper crude markets?

Also, there was talk months ago about a new energy supercycle. Is that real? With China-Taiwan-US tensions tighter than they’ve been for years, we’re seeing Chinese tech stocks just muddle through. We haven’t seen a major hit – as if China tech will see major fallout from these tensions – but we also haven’t seen a major bump – as if China is expected to stimulate out of this to win domestic hearts and minds.

Also, could possible government intervention to solve China’s mortgage credit crunch be holding back the broad stimulus we’ve all expected for a couple of quarters?

Key themes:

1. Low energy (prices)

2. China tech & stimulus

3. Equity upside?

4. What’s ahead for next week?

This is the 29th episode of The Week Ahead, where experts talk about the week that just happened and what will most likely happen in the coming week.

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Time Stamps

0:00 Start

0:30 Key themes for this Week Ahead episode

1:51 Moves we’re seeing in energy markets – why there’s a fall?

3:39 How much of the energy moves is seasonal?

6:58 EIA computer “glitch” problem

7:24 What happened in the refining capacity now at 91%?

8:30 Capacity utilization fall – is this a statement about the denominator or falling demand?

10:14 Is the commodities supercycle happening?

12:13 China and technology – KWEB is not falling or rising

14:00 Will the Chinese government help real estate developers? Will that take away from possible tech stimulus?

16:58 Viewer question: Is there still upside benefit to SPY?

22:18 How will be the start of the Fed pivot — 25 or 50 bps rise?

24:45 What’s for the week ahead? Listen to the podcast version on

Spotify here:


TN: Hi everyone. Welcome to The Week Ahead. I’m Tony Nash, and today we have Tracy Shuchart and Albert Marko joining us.

We’re going to walk through a number of topics today. First is energy prices, low energy prices. We want to understand why that’s happening and what’s around the corner. Next, we’re looking at China tech and potentially the stimulus in China and how that will impact tech.

Finally, we want to look at equities. What remaining upside is there in equities right now, given the environment we’re in? Before we get started, I would like to ask you to like and subscribe to the channel. Also give us your comments. We’re very active and respond to comments, so please let us know what you’re thinking. If there’s something else we should be covering, let us know.

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Okay, so guys, we’ve had a really weird week with the Pelosi visit to Taiwan, geopolitics and the risk associated with geopolitics is kind of back on. We’re not really sure exactly how that’s going to resolve, but I’m really interested in the moves we’re seeing in energy, Tracy, and we’ve seen energy really fall throughout the week and I’m curious why we’re seeing that, particularly with crude, as we’ve seen geopolitics dial up. I know there’s not a perfect correlation there, but we typically see crude prices rise a bit with geopolitics. 

TS: I think, it’s a combination of a lot of things. First of all, we’ve had which is ramped up to 200 million barrels being released to the SPR, which is fine initially, but we’re looking at the cummulative effect of this. In fact, we’re releasing so much so fast that now those barrels are actually finding their way overseas because we have nothing else to do with them. We can’t process that much right now.

And so we’re looking at that which is putting a damper kind of on the front end. We’re also looking at the fact that open interest is almost at the lowest in a decade, which means there’s nobody participating in this market. People are just not participating in this market.

In addition, we have physical traders that are completely nonexistent in this market anymore. They’re all trading via clear port on the OTC market as I’ve talked to actual physical traders, they don’t even want to be involved in this volatility.

And so that’s also taken a lot of open interest out of this contract. So this contract is easily pushed around because there’s just not of liquidity.

TN: How much of that is seasonal? How much of that is because it’s early August, late July, early August?

TS: It is seasonal. I will give you that because this summer is the summer lag. We generally see more participants in getting in September, and we’ll have to see how that kind of plays out.

But in general, the market is, this whole dive started in, was this market was factoring, we’re going to have this huge recession. Right? It’s going to be low berry session. Demand is going to go up.

And then we have this EIA discrepancy. The discrepancy was on gasoline demand. Actual gasoline demand versus what the DOE is reporting. Right? And ever since they had that “glitch,” where we had two weeks of no reporting whatsoever, those numbers suddenly changed.

And now they’re putting gasoline demand at below 2020 numbers at the height of COVID, which is to me,

not to sound conspiratorial, but to me, there’s just no way that we are below 2020 numbers. Right. And if you look at Gas Buddy demand, which is they look at a kind of a different look. What they look at is how

many gallons are being sold per station across the nation. And that’s how they kind of factor in what demand is. DOE is at the midpoint, right? So it’s like the midstream level. But those numbers should

eventually correlate. That discrepancy should eventually get together.

TN: So Gas Buddy is showing demand still growing, and DOE has it kind of caving. Is that correct? You know what I’m saying?

TS: Okay, yes. First of all, I think we need to look at the 914 numbers, the monthly numbers, which are definitely lagging. They’re too much behind, but they have been correct on production. Right? So I think they have weekly production at 12.1 million. Last 914 monthly report was at 11.6 million. So it is lagging information. But we have to start really looking at these weekly numbers and what the DOE is reporting and what they’re not reporting.

TN: If anything, what I’m seeing just observationally traffic seems to continue to grow. Like, I’m seeing more people going back into the office. I’m seeing more people take drives where they wouldn’t have taken long drives before. So what we’re seeing out of DOE doesn’t really match with what I’m seeing observationally. I could have selection bias, but it just doesn’t seem to match what we saw in April, May

of 2020. 

AM: Tracy is absolutely spot on on that. I actually had a few people note that the EIA computer “glitch” problems set all this thing off in the DOE inventory shenanigans. It’s starting to gain more traction with everybody. It just doesn’t add up. When things don’t add up, bad data comes in, and it’s politically advantageous for the moment try to get gasoline down, going into midterms. I mean, Tracy is absolutely 1000% spot on that assessment.

TN: So, Tracy, I want to ask you a couple of questions. We’ve got a chart on refinery capacity utilization, and it shows capacity utilization at about 91%. So last month we were talking about being at 94%. Now it’s at 91%. What’s happened? Has the Denominator going? 

TS: Well, that’s not actually a bad thing. Let me tell you that. Refineries operating at 94% 95% leads to a lot of problems. You’re going to see problems with maintenance, you’re stretching that capacity. Personally, I love anything over 90, 91. I’m much more comfortable with than 94 95%, which we got to, which is very stressing to me because you’re stressing those refineries, right. And that’s going to lead

to problems down the road. So for that to come down, it’s not a big deal to me, to be honest. Anything above 90, great. We’re good.

TN: Okay, so we’ve seen gasoline prices fall as we’ve seen capacity utilization fall. And so is that a statement about the, say, the denominator meaning the available capacity, or is that a statement about falling demand?

TS: I don’t think it’s a statement about necessarily anything. Okay. To be honest. Is the expectations around say that the gasoline price falling, is it expectations maybe around recession, but given the job numbers we got? Expectations about being around recession right when we’re seeing these prices fall. And I think we have a lack of participants in this market, especially lack of participants in the physical markets. The physical guys, like guys that trade for BP and Shell, which is where they’re just not in this market anymore because it’s too volatile, it’s too pulled around, and they can’t deal with that right now. So there’s nothing structurally changed about the physical markets right now.

You have to understand, too, is that the paper markets far outweigh the physical markets, meaning that there’s far more paper barrels traded than there are actual available physical barrels on the market

to be traded.

And when we look at a contract like WTI, which is actually physically deliverable, and we look at the market participants that are involved in deliverability, that is shrinking, shrinking margin, and then you look at something like the Brent contract, is completely just a financial contract.

So there’s a lot of hanky panky goingon in that market.

TN: Okay, now one last question while we’re on crude. Months and months ago, we kept hearing about this emerging commodities super cycle. And as we’ve seen commodities fall over the past few months, there have been some questions about is that really happening? So where are you? Do you think we’re in the early stages of another super cycle or do you think we’re just kind of modelling through?

TS: I actually think we’re still in the early stages of a super cycle. I mean, I think we’re kind of like I think my best comparison sake would be like, let’s look at the 1970s, right? And everybody’s looking at that ’73, ’74 when the oil embargo happened. But I actually think we’re closer to the ’67, ’69 era where we saw inflation kind of hit. Right. They tried to hide us into a recession, and then we had another peak in ’73, ’74 because issues with the market and then we have a third wave. So I actually think we’re only in this first wave of an inflationary cycle as far as commodities are concerned, okay.

Because we’re still in a structural supply deficit across not just the energy sector, but base metals, agriculture, et cetera. but you have to think your input cost for metals and for agriculture, it’s all energy.

So if energy is high to see inflation in energy costs, then you’re going to see inflation across all

of these commodities. We’re at $90. We were at negative $37 two and a half years ago. So to think that we’re crashing? You know.

TN: Okay, let’s switch over to China and technology and kind of talk through a few things with Albert. Obviously. Albert, we spoke earlier about Pelosi’s visit to Taiwan and US. China Taiwan affairs, and I’d recommend anybody view that that we published on Tuesday night US time. But I’m curious, Albert, as we look at and we’ve got KWEB up on the screen, which is an ETF of Chinese technology companies, it’s kind of middling. It’s not really falling. It’s not really rising. It seems like people are a little bit uncertain about what’s happening with Chinese tech. We have the closures of different cities. We have one of the big manufacturing cities that’s going zero COVID now.

And we obviously have the China Taiwan issues. What are your thoughts on China tech right now? And what should we expect over the next, say, two to three months?

AM: Well, over the next two to three months, I think China is going to be forced to stimulate. Once they stimulate names like KWEB, Alibaba actually, I really like Alibaba. There’s some good things happening there. I mean, the delisting stuff is a risk and it’s always been a risk, mainly because Gensler and Yellen have been trying to suppress the Chinese to stop stimulus because it hurts the United States and their plans to fight inflation.

So, yeah, I’m really bullish on KWEB. I really like it at 25 26 level. It’s not that far from where we are right

now. For the Chinese tech, it’s like, I don’t really think domestically, there’s too many problems domestically for KWEB. For me, it’s just all the delisting risk and that shot, the warning shot across the bow from the US. 

TN: Okay, so when you talk about stimulus, I want to understand a little bit of the substitutionality of stimulus. So if we have this big mortgage crisis in China where owners aren’t paying their mortgages,

and that’s even worse on the property developers, and there are trillions of dollars at risk there, do you think the Chinese government will intervene  and help those property developers? And if they do, will that take away from stimulus that could help technology companies?

AM: They will step in, but they’ll step in selectively for the most systemically important property developers. Not just the best connected, but the ones that touch the most debt and whatnot. So they don’t want things getting out of control. So for sure they will step in. I don’t think it will take away from the tech

sector at all. I think that the Chinese have been pretty pragmatic and diversifying how they get money into the system, whether it be other Asian countries, the US, Europe and whatnot. But they’re definitely in line right now to stimulate the economy going into the fall.

TN: Okay, great. If you’re trying right now and you’re talking about stimulus, that is to make up for kind of the COVID Zero close downs, but it’s also, I would assume, kind of winning some of those hearts and minds going into the big political meetings in November. Right, so you’ve whipped up nationalism with the Taiwan thing over the last couple of weeks and now you need bridge to get you to November. So you’re going to put out a bunch of stimulus to keep people fairly nationalistic and obedient. Is that fair to say?

AM: Yeah, that’s definitely fair to say. I think going even a little bit further than that is keeping the circle around Xi happy. That nexus of connected families that make money off the tech sector manufacturers. They need to be able to solidify it economically and stimulus will be targeted like that. And so when you say keep those families happy. You’re talking about skimming, you’re talking about sweet deals on contracts and that sort of thing.

TN: And I just want to make clear that doesn’t only happen in China. That happens in every country, right?

AM: Oh, every country you can imagine that happens. How politically connected with the donors, the political parties and so on and so forth. I just want to make clear to viewers. Like everybody. 

TN: Yeah, I just want to clear to viewers, we’re not just picking on China. This happens everywhere. 

AM: No, this is nothing negative towards China whatsoever. This literally happens in every country in every single country. Yeah.

TN: We had a question come in from a regular viewer talking about one of Sam’s calls. He’s not here, so he can talk behind his back today. The question was, Sam had talked about risks being to the upside a while ago for SPY, for the S&P 500. Now that we have had a mini rally, does he still see higher as the path of least resistance or is the risk reward fairly balanced here? I mean, we’ve seen a really nice uptick in the S&P and equities generally. Do you think there’s still upside benefit, or would you be a little bit hesitant in terms of the broad market?

AM: I’m bullish for a week, basically going a week, maybe two. I think that the CPI number is probably going a little bit lower than people think. And then all the peak inflation people are going to come out the woodwork and then they’re going to talk about Fed pivot, whether it’s real or not. I don’t think the Fed actually pivots. I think they just build a narrative of a pivot, if that makes sense, to rally the market.

But going forward, the economy is not a good footing. The job numbers are just not accurate. It’s a purely political headline for Biden going into the midterms. CPI is going to follow the same suit. They’ll probably have a 50 basis point rate hike in September and say that they’re slowing down. And whether it’s real or not. 

TN: I want to question you just to push back a little bit. When you say the economy is not on a good footing, what do you mean? Help me understand how it’s done on a good footing? 

AM: Well, the whole jobs? Listen, 20% of people don’t have a job. 19% of people have two jobs or more. You’re sitting there making this glorified headlines thatBiden is great for the job market and the economy, but it’s just not accurate. We have people that are struggling paycheck to paycheck more than any time in the last 20 or 30 years. So the underlying economy, forget about the top half that are millionaires that are buying whatever, the bottom half of the country is an absolute recession. So that’s what I’m saying the economy is not good.

TS: I mean, I totally agree with Albert. I mean, I’ll make a case for the bullish side. Let’s put it this way. So not a single trades work this year. Average hedge fund scrambling on how to salvage this year. There’s no other choice, really, but to get long. I mean, we have long going girlfriends been shell shocked. Font, shitty year. Value guys waiting to buy the dip in cyclicals. So I think that until when November comes and we have redemptions and these guys are faced with losing money from clients, I think that right now they have no other choice than to buy the dip, which is really interesting because that coincides with midterms. But not to put on my tinfoil hat there. So that’s my case for we may see a little bit higher than people that anticipate.

Even though I agree we’re still in a bear market. Albert makes a ton of good points, totally agree with

him 100% on that. But for the next few months, we may be looking at different kinds of things, especially because we also have the CTAs that are still super short.

So we have the possibility that we could see a short squeeze now if hedgies start

eating up the market and… This is exactly what the administration wants to see, because they want to see the S&P higher going into Midterm electric if it makes them look great. Of course.

AM: And Tracy is right. And this goes back into the oil numbers from the DOE and the EIA Shenanigans. They lower gas, they try to get inflation lower. They rally the market going into Midterms. It’s just the way it is. Now, going back to the economy, real quick, Tony, I see across the street the US consumer credit was $40 billion. I mean, people are spending and collecting debt like it’s going out of stock.

TN: That’s not a good number. You saw my tweet this last week about the $15 grapes. I mean, that sounds ridiculous, but people are having to. I talked to people about their electricity bills and they’re doubling and tripling over the last few months. And so people are having to do this. Rents are doubling in New York and so on and so forth. So it’s hitting everybody. And people are having to tap into consumer credit just to make ends meet.

AM: Just for the viewers, Tony, the forecast was 27 billion. It came in at 40.

TN: Wow. That’s a slightly overestimate, I would say. Let me ask you a quick question about the Fed pivot. Okay. You say the Fed is going to kind of act like they pivot but not actually pivot. So would that mean and I know everyone’s been on Twitter today or on social media saying, oh, the job’s number puts 75 basis points in focus again, all this stuff. But would the start of a pivot be 50 or 25 basis point rise?

AM: The start of a narrative of a pivot would be 50. But let’s just be honest. Inflation is not going away. They can fake a CPI number, maybe one, maybe two months. But come October, December, January, and inflation is raging, nine point whatever, 9.5%, 10%. They are going to have to keep going 75 basis points. 

TN: So when you talk about a pivot, you’re talking about the beginning of a pivot, maybe a 50 basis point rise in September or something just to kind of ease nerves off a little bit?

AM: Yeah, that’s exactly what it is. It’s just the beginning of a narrative to move the market. It’s all it is. 

TS: Okay, if we went 50 instead of or even 25 instead of 75, which the market is expecting, the barn market would freak out. 

TN: Now what happens to commodities in that case, Tracy, if we’re in September and we go 50? You’re

going higher.

AM: Okay, this is the problem I keep telling screaming people and why I didn’t think that’s why I didn’t think this rally was a good idea is because all of a sudden now you’re going to create this stupid pivot narrative and do 25 or 50 basis points. But then, like Tracy just mentioned, commodities are going to rip. What’s that going to happen then? We’re going to have stage two of inflation coming around in 2023. That’s going to make this like nothing.

TN: Yeah, but as long as it happens after November, I think. Everything’s fine. Right. No, seriously, we have to think we’re in that. We’re in those closures.

TS: You have to think everything is political right now. So every decision is political right now and you have to factor that into kind of your investment thesis right now.

AM: Tracy’s absolutely right. I was just talking to a client. I said I don’t want to hear anything after November of this year. This era is this era right now. After November is a different era. We’ll talk about that accordingly in the next month. But until now it’s just a pure political game.

TN: What are you guys watching in particular for the week ahead?

AM: CPI. I think the CPI comes in a little bit lower than people expect and will rally the market for another 100 points. Like a seven handle or something? I think it’ll be a seven handle.

TS: I mean, everybody is watching CPI, I agree. I’m watching CPI as well. I think what’s really interesting going into this next week is I would start looking at Basin Industrial Metals and miners at this point because I think that they are lagging crude, they have been lagging crude oil. But we’re kind of starting to see a little bit of turnaround. So my focus really is going to be on base and industrial metals.