Tag: The Week Ahead

The Week Ahead – 11 Jul 2022: Energy Backwardation

Post author By admin
Post date July 9, 2022

We had a pretty volatile week last week, with crude selling off pretty sharply early in the week. In this episode, we looked at energy backwardation, and Tracy educated us on what’s happening in those markets.

We also had some comments from Putin about a multipolar world. Albert talked through that.

And then on Friday, unfortunately, we saw the assassination of Japan’s former Prime Minister Abe. We talked about the Japan post-Abe and what that means for the region.

Key themes:

Energy backwardation
Putin’s Multi-Polar world
Japan post-Abe
What’s ahead for next week?

This is the 25th 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 experts on Twitter:

Tony: https://twitter.com/TonyNashNerd
Tracy: https://twitter.com/chigrl
Albert: https://twitter.com/amlivemon/

Time Stamps

0:00 Start
0:54 Key Themes for the week
1:28 Catalyst of the energy sell-off on Tuesday
5:44 Will we see more action in energy prices?
6:57 Is it cost-ineffective to make hydrogen with natgas prices?
8:11 Diesel
9:20 Vladimir Putin’s multipolar world.
13:44 Japan post-Abe
20:29 What’s for the week ahead?

Listen to the podcast version on Spotify here:

Transcript

TN: Hi. Welcome to the Week Ahead. I’m Tony Nash. Thanks for joining us. I’m with Tracy and Albert today. Sam is away, but we are talking about a pretty volatile week this week. Before we get started, actually, please like and subscribe. Please ask any questions below, make any comments. We want to make sure this is interesting for you, so just let us know any additional info you want or comments. We’re happy to address those.

We had a pretty volatile week this week with crude selling off pretty sharply early in the week. So we’re going to look at energy backwardation, and Tracy is going to educate us all on what’s happening in those markets. We also had some comments out of Putin about a multipolar world. We’re going to have Albert talk through that. And then on Friday, unfortunately, we saw the assassination of Japan’s former Prime Minister Abe. So we’re going to talk about the Japan post Abe and what that means for Japan and the region.

So first let’s get into energy. Tracy, obviously, we had a big sell off in energy early in the week, and then we saw it come back later. What was really the catalyst for that energy sell off on Tuesday?

TS: What happened is that we started on July 5, right? We opened with low liquidity in the market in general. Then we saw a sell off in the general markets and commodities and risky assets that kind of exacerbated that trade. And then on the 6th, we saw a liquidation of a couple of very large positions in that market. And so fundamentally, basically, there is no reason for this sell off other than technicalities.

In fact, if we’re looking at this market, this spreads, the calendar spreads, which means month to month, were exploding higher during this entire move. That implies that the physical market at least, is very tight right now because you’re seeing backwardation increase significantly when we’re seeing a $10 move in ZZ, which is crazy.

TN: Can you tell us what that means? A $10 move in ZZ. What does that mean for the rest of us?

TS: If you’re talking about calendar schedule, we’re talking about monthly. So we can talk about the current front month is August. So we look at August, September, September to October, October to November, et cetera, et cetera. And once these spreads start exploding higher, that means that we’re seeing people want to dump oil in the front month market because that’s more lucrative than keeping it in storage.

So if I’m an investor and I’m looking and I want to invest in a backwardated market, I’m looking at a convex market that goes from right to left, and I’m going to invest in, say, a back month, and I want my investment to move higher…

TN: I’m investing further in the future.

TS: Right. That’s what it backwards. If you’re in a contangable market, we’re looking at the opposite situation, where you’re looking at a convex structure going from right to left, whereas if I invest in December, by the time my investment reaches Frontline X free, I’m losing money. I’m losing value in my investment.

TN: Right.

TS: And so that’s how we kind of have to look at that situation.

TN: Yes. You had a great tweet this week explaining that with visuals.

TS: I did. It’s on Twitter, if anyone wants to see it.

TN: Exactly. We saw this in crude. We also saw it in a natural gas. Right?

TS: Yes. We’re kind of seeing a major pullback in many of the commodities markets. Right. We’re seeing a little bit of a bounce this week because we’re looking at China. China has recently announced we have one last announcement with $200 billion bond sale rate. So we’re looking at a lot of stimulus out of China that’s giving commodities the boost. Right now, we have to see I think the markets are still going to wait on, particularly the industrial and base medical markets are going to wait until we actually see some action in China to really see investment back into these markets after this huge goal.

TN: So nobody believes the China stimulus story right now. It’s kind of a show me the money period. Right. But once they do start to show the money, do you think we’ll see much more action in energy prices?

TS: I think you’ll see more action in metal prices than you will equity prices.

TN: Copper’s way off compared to, say, the last 18 months. But it’s not way off, given historical copper prices. If we go back before, say, Q1 of 2020, it’s kind of where it had been previously in the ballpark, at least. Right. So we haven’t necessarily reverted back to pre-COVID, necessarily. We’re just in the start-stop manufacturing world, and that’s what’s affecting base metals like copper. Is that fair to say?

TS: Oh, absolutely. If you look at, like, a monthly chart rather than looking at a five-minute chart, and the market has kind of just been consolidating, really, for the last two years, until we see a really big break above, say, $5, a really big break below $3, we’re still kind of in that consolidation zone.

TN: 3.50 to 4.50 kind of range. Interesting. Okay. Sorry, Albert.

AM: Yeah. I got a question for Tracy. Nat gas, as we’re talking, since we discussed it a little bit, that’s used to make hydrogen, if I’m not mistaken, and since the nat gas price seems to be elevated, isn’t that going to be a little bit too cost-ineffective to make hydrogen, which causes a diesel problem, if I’m not mistaken? I’m not sure about that. That’s what I’m asking.

TS: No, absolutely. I think that would be a problem. Looking forward. I think there’s a lot of problems if we’re looking at the hydrogen market. There’s still a lot of problems when we’re talking about taking this idea to actual fruition. Right. Because if you look at the hydrogen market, there’s like a rainbow of green hydrogen, blue hydrogen, this hydrogen, this hydrogen. But we really haven’t gotten to the point that can overtake, not gas the allure of the situation is that you can take hydrogen, mix it with nat gas, you can send it down the same pipeline, and that saves a lot of money.

AM: Yeah.

TS: The situation is this is not a great idea in theory, but we’re just not there yet.

TN: Okay, got you. Albert’s, question about diesel. Diesel is not any less tight than it was a week or two ago. Right? In fact, that’s just as tight or tighter than it was, say, a couple of weeks ago or a month ago.

TS: Yeah, I think the diesel market is still very tight.

TN: Right.

AM: Maintenance season starts, isn’t it? From September to November?

TS: Yes, we will start maintenance seasons.

TN: Okay.

TS: I would actually look for some of these refineries to maybe put off maintenance season. So that’s what I would watch to the maintenance season happen. And it’s happened before. If we have it such a tight market, we could see them putting off maintenance seasons. It’s not unheard of.

TN: Okay, so hurricane season and maintenance season are upon us, but we may see at least maintenance season for all of us.

TS: Oh, not I just moved to Florida.

TN: Good luck with that. I’m in Texas. We don’t get as many of you, but it’ll be a fun season for you.

Okay, let’s move on, guys, to some comments out of Putin this week. Vladimir Putin had some comments about us, the multipolar world becoming more and more of reality. We heard this ten years ago. We heard this 20 years ago, and it came up again this week. So, Albert, can you kind of let us know what’s going on there?

AM: Tony, I’ve used this multipolar example for the US. Dollar dominance I got for years now. And the fact of the matter is, we are not in a multipolar world. We are not even going into multipolar world.

People are confusing a little bit of weakness in the US. Leadership and errors and decision making, foreign policy for multipolars, it’s just a multipolarity, and it’s just not the case for the world to be in a multipolar scenario, you would need multiple countries with equal militaries and economies. We are nowhere near that.

The Russian economy is 2.5 trillion. The American economy is pushing 30 trillion. This is just a joke by Vladimir Putin. Simply undermine the US dominance both in the world stage and the dollar.

TN: Aside from some dumpster pundits who write for The Atlantic or whatever, who believes that nonsense?

AM: A lot of Europhiles that want to see the United States take a step down, they can do it. A lot of crypto guys, a lot of gold guys. These guys have to make that argument, because without multipolarity, you cannot have a neutral reserve asset to settle trade. And that’s just the fact of the matter.

The problem becomes, if you have a multipolar world, you’re on the verge of another world war, because there always has to be one alpha that takes hold of the system. You just can’t have equal people.

TN: And the cost of the transaction? Cost? The cost of trade, everything goes up. If you have multiple rights go up, everything goes up.

AM: It’s completely unstable.

TS: Inflation from other countries to other countries.

AM: Yeah.

TN: The world is built on China exporting deflation. Has been for 15, 20 years. And it will continue. If they could just keep their ports open, it will continue. And it makes people happy. Right.

AM: No, you’re right. That’s just the way our system works right now, with the dollar underpinning all of it. It’s the lifeblood that makes trade work. And people are not going to like it. But I promise you, no one alive today is going to see anything other.

TN: So let me just take a step back. Who does he think the polls are? Russia, China and the US? Or Germany or something?

AM: He’s trying to make an assumption to say that Russia and China are the new contenders to the United States. The problem with that is they don’t have military power projection globally like the United States does. They can’t even invade Ukraine. China can’t even invade Taiwan. Otherwise they would have taken it if they’ve it could have. This is the world we live.

TN: Yeah. Russia can stir up problems in Libya or the Middle East or whatever.

AM: There’s no question that they can stir up problems and they can fill in gap vacuums that we leave right, unintentionally, unintentionally. But they cannot hold that territory. They cannot force changes in governments like the United States did.

TN: And every time I hear somebody talk about the Belt and Road as a sign of China’s dominance, it reminds me of Napoleon’s march to Russia. Right? I mean, they’re spreading themselves so thin. They can’t keep that up.

AM: They can’t. That’s perfect example to do that, to make that thing actually successful, you need to back that up to secure your trade line, trade with the military. Right. China has like, what, two military bases outside of China? Like one in Djibouti and something else. I mean, they can’t send ships over to their armor.

TN: Myanmar.

AM: Yeah. This is beyond a joke to me. I don’t take anybody seriously that even brings this part up, right. Vladimir Putin included.

TN: That’s good. So anybody watching this, if you have an alternative view, let us know in the comments. Honestly, we’d love to hear it. We just want to hear some credible.

TS: Put your notes in the comments.

TN: Yes, absolutely. Okay. Now, finally today I woke up in the US to the really tragic news of Japan’s foreign Prime Minister Abe, being assassinated.

I saw Abe in his first stint as PM in the mid 2000s. And then when he came back in, in 2013, and with the Abenomics plan, which was really difficult to pull off, ultimately successfully. The guy was smart. He was all about Japan. He’s all about Japan recovering, all about Japan being competitive. I put a picture up of Abe shaking hands with Prime Minister Modi of India. Japan and India were very tight. A lot of Japanese investment going to India, a lot of partnership across those two countries and in Africa, both to defend against China in Asia and other parts of the world. So Prime Minister Abe will be missed.

I think what Abe did partly was bring back Japan’s ability to defend itself by passing a constitutional change that allowed the Japanese military to defend itself where previously it wasn’t even allowed to do that. So there’s a lot of dignity that Japan kind of got back, and we can rub Japan’s nose in World War II for eternity, but it’s not going to be constructive. What happened, happened. They’ve paid their dues, and that’s kind of what Abe said, look, we paid our dues, we’re going to move on now and join the 21st century. And that’s what Japan did.

So I’m just curious to get your thoughts, guys, on Japan post Abe. What do you see as of course they moved on to another prime minister. Japan has already moved on from the Abe government. He wasn’t a sitting prime minister. But what do you see kind of the challenges of Japan’s role in Asia particularly, but also in the world post Abe?

AM: I think the most pressing issue for Japan would be contending with China, both militarily and economically. Abe was, like you said, brilliant statesman and patriot for the Japanese people. So he’s going to be sorely missed. And it’s not just he’s going to be missed, but his cabinet and the people that his network is going to be missed because they’re losing a big part of what he brought to the table in terms of strategy and ideology. It was a big shift.

I think that the Japanese are probably going to struggle for strategy in the next five to ten years. And it’s a sad thing, but I’m sure the Japanese, they’re resilient people and they’ll move on and they’ll recover.

TN: Tracy?

TS: No, I absolutely agree with what Albert said. I think the thing is that people are painting him, the media right now, in particular the Western media, painting them with some villain, which is very interesting to me. And I think that people should really just look at his legacy and respect what he’s done instead of jumping on the bandwagon.

TN: So they’re portraying him as some ultra nationalist, but he’s as ultra nationalist as Modi as in India, or Jokowi is in Indonesia, or Lee is in Singapore, you name it. Tsai Ing-wen in Taiwan. It’s an Asian direction now. Right. And has been for the last ten to 15 years.

AM: Yeah. The media also, Tony, is desperate to not allow any center right or even right nationalist figures be murderers or looked up upon. They just can’t stomach it. They just can’t help themselves to demonize a person that is absolutely unjustifiably demonized by being called an ultra-nationalist and even worse, by the NPR.

NPR had two other headlines that they had to delete because it was just so atrocious. This is a.. And Modi, Abe, I don’t want to put Victor Orban into that, but all these right leaning leaders just get attacked and the media can’t help it.

TN: Right, yeah. I think from an economic plan, if we look at what Abe did with Abenomics, of course, the Japanese Central Bank is kind of “independent,” right. But they really took the JPY from kind of 76 to the dollar to, say, 120 to the dollar, and it really allowed Japanese manufacturing to be competitive again. Right.

And it took somebody with that clarity of economic vision, as well as the clarity of, say, the military vision and political vision, to be able to pull off what they did. And in terms of, say, energy sustainability under Abe, they also created much deeper relationships in the Middle East with places like Qatar, UAE.

TS: And they also looked forward to nuclear, where you looked at the west was looking to shut things down, Abe was looking to invest in nuclear projects. You’re looking for energy security, energy going forward. There are a lot of things that he did to advance that sector in Japan, which is admirable.

TN: Right. Albert if we take a US perspective on this? The US has worked hard to kind of hold a line against China. Do you think with the mediocre leadership we have in the US right now, do you think it’s possible that some of that US say coalition falls apart a little bit? Or do you think we just kind of take a breather and then it resumes based on the institutional stamina of parts of the Japanese government?

AM: That’s a great question, Tony. That’s actually a really good question. And I think where we have to look for we have to separate the Biden foreign policy cabinet with the Pentagon. Because the Pentagon is actually leading this charge for the Pacific with Japan and Australia in charge. I really don’t think that the Japanese are going to take a step back or the US is going to take a step back. I think the system is pretty much, the train has already left the station and it’s rolling.

There might be an argument from the opposition in Japan, but I don’t think. That it’s going to take hold to derail this new initiative by the US and the Pacific.

TN: Great, that’s good to hear. Okay, guys. Hey, on that somber note, we’ll end it, but let’s look at the week ahead. Guys, what are you looking for in the week ahead? We’ve had this real turnaround this week. What do you see going into next week? Do you see things calming a bit?

We saw it coming into Friday. Things really turn up in US markets and in commodity markets. Do we see things stabilizing a bit going into the Fed meeting after we’ve had some Fed comments late this week?

AM: I want to see the comments of where they might signal a 50 basis point rate hike versus a 75. I absolutely believe 75 points is coming just from the jobs data that they posted. It was obviously massaged a little bit.

TN: Just a little bit.

AM: Of course it is. Yeah, but this was a good one. And then the revision too, and it just seems to me that they want another 75 basis point rate hike.

TN: To really kill it?

AM: They got to tackle inflation. I mean, they’re looking at 8.8 on the next CPI, which is just.. And you’re staring on the barrel at 9% and 9.2 and 9.3 in the coming months, which is absolutely a political nuclear bomb that goes off.

TN: Okay, Tracy, what are you looking for in the next week especially in commodities?

TS: Yeah, I mean, I agree we probably will see 75 after non farm payroll this week, which I was looking for a clue kind of are we going to get 50, are we going to get 75? It looks like 75 for sure.

So looking in the coming weeks, I’m really looking to China right now and to see what comes to fruition with these sort of stimulus plans. What does that do to the base in industrial medals markets? And I think those are the two things that you should be focusing on right now, particularly if you’re invested in commodities markets.

TN: Very good. Okay. Yeah. I’m kind of hoping they give in to 50, but I’m not hopeful. I do think they’ll on the kind of conservative hawkish side and go 75. But if they can pick up the bat phone and talk to China, and the China guys will unload a dump truck of cash over the next week or so, then I think they’ll be a little bit lighter and do 50 basis points. But I think a lot of it depends on China ECB. They can’t get their act together, so there’s nothing ECB can do to really help.

And Europe is in so much trouble that it doesn’t really matter what they do. They have huge problems anyway. So. I think you’re right. And tell me what you think about this. But I don’t necessarily think we see massive chop. I think we see just a lot of fairly sideways moved for the next week or so.

AM: I would be wary if we jumped up to 4000 or even, like, 3970. I think a rug pull would be in an order right after that. That’s what they do. They bowl everybody up and then pull the rug out.

TN: Tracy?

TS: Yeah. After this big move down in the oil market, in particular, because we did have sort of a flow event coupled with a couple of large funds kind of workforce to liquidate. So I could see that we still could go a little bit higher next week. Sideways to higher next week.

TN: Very good. Okay, guys, be interesting to see. Thanks for joining us. Thanks very much. Have a great weekend. And have a great week ahead.

TN: Very good. Thank you, guys.

AM: I struggle with the headache through that whole thing.

Week Ahead

The Week Ahead – 27 Jun 2022: The “R” Word

Post author By admin
Post date June 25, 2022

Get 3 months FREE of CI Futures: https://www.completeintel.com/2022Promo

Powell was out saying “I don’t think a recession is inevitable” but also admitted that rate hikes may be one of many factors that push the economy into recession. All of this while bank credit continues to grow, which we saw flatten in 2020 and decline in 2008. What’s happening? Is a recession inevitable at this point?

We talked about the dollar two weeks ago and the strength is still there. Are we pushing higher so commodities feel a bit cheaper to Americans? Is this temporary – mainly so Americans talk about cheaper gasoline over the July 4th holiday weekend? How far and how long do you expect the dollar to go? Why?

Can crude continue to rally into a recession?

Key themes:

The “R” Word
Geopolitical fallout
Crude 💪 or 👎/ Dollar 🚀
What’s ahead for next week?

This is the 23rd 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 experts on Twitter:

Tony: https://twitter.com/TonyNashNerd
Sam: https://twitter.com/SamuelRines
Tracy: https://twitter.com/chigrl
Albert: https://twitter.com/amlivemon/

Time Stamps

0:00 Start
1:03 Key themes for the week
1:48 Powell’s recession call
3:48 The catalysts that could whip growth
6:58 Geopolitics in EMs and related to the US
8:35 Is the ECB a risk as well?
11:00 Crude and the Dollar
16:00 Where do you expect the dollar to go?
19:00 The week ahead

Listen on Spotify:

Transcript

TN: Hi, everybody, and welcome to The Week Ahead. I’m Tony Nash. We’re joined as always, by Tracy, Sam, and Albert. Thanks, guys, for joining us. Before we get started, please, like, please subscribe, please comment. We read all of them and try to respond to all of them. So please go ahead and do that while you’re here. Also, we are running a summer promo for CI Futures. This is our market forecast subscription product. You get three free months, so please go to completeintel.com/2022Promo and learn all about it.

So this week there’s a lot going on, a lot politically in markets, other stuff. We’re talking about three main themes this week. First is the R word. Second is geopolitical fallout of the R word. And third is crude and dollar activity. So I ran a poll earlier this week asking what is the most widely held consensus view that people are seeing right now? And that’s on screen, of course. So first is recession. People are seeing recession as a consensus view all over the place. Next is equities lower, followed by crude higher, followed by a stronger dollar. So we’re going to talk about all these things today.

Sam, let’s talk about that recession call. That recession consensus call. Powell is out this week saying, I don’t think a recession is inevitable after being really hawkish last week and driving people kind of to the edge of this. So what’s actually happening right now? We’re seeing credit continue to grow. And I know I showed you earlier this week. Bank credit continues to grow. Is that meaningful? And what are you looking at to know if we’re going into recession or not?

SR: Yeah, I mean, bank credit, is meh. But at the same time, are we going into a recession? Meh. I don’t really think so. It’s a booming summer. You have hotels full, you have bars and restaurants full. You have airlines unable to keep up with demand. I mean, that sounds like a small subset of the economy, but at the same time, that is a massive portion of the summer economy. It’s massive. So do I think we’re imminently in a recession? No. I actually think that’s one of the big narratives that kind of misses the bigger point, right? Do we make goods? No, we don’t make anything. What we do is we have services. That’s it. So we’re a service based economy. If services are booming, you’re not going into a recession. You’re unlikely to see some sort of huge move in unemployment because a recession technically is down on growth, down on employment.

If you don’t have the down on employment, you don’t have a recession. So maybe you have a slowing of growth. That’s somewhat probable. But a recession, no, not in the cards, at least until the back half this year. In the back half of this year, you have a number of catalysts which could really whip things the other way in terms of both growth.

TN: Okay, so what are some of those catalysts. And when you say back, you’re talking about October? November?

SR: Yes, October. November.

TN: My thinking is if we’re going to see it, we’re going to start seeing it maybe late September, October or something like that. But what are some of those catalysts you’re talking about? A couple of them?

SR: The catalysts then are actually to the gross side, which I think is where I’ll take the opposite side of a lot of people. Those catalysts are called a devolving of the Ukraine conflict. Number one, while that doesn’t take off sanctions in the near term, it does take off the incremental oops.

Then you have the beginning of the reopening of China, which is a big boost to growth in Europe, and secondarily, LatAm and the United States. So you put those pieces together and all of a sudden you’re looking at a back half of the year that has more upside catalysts, potentially. And it’s not like you can reset down China and it’s going to be a negative callus. It’s already in the numbers. It’s not like you can have another war in Ukraine that’s already in the numbers. If you begin to have those two come together, guess what? That’s positive. So I would say the rest of this year is shaping up to be oddly positive.

TN: Yes, but no, I’m kidding. Everyone’s so negative right now. Everyone wants to just find the downside. Russia is going to invade finland or something like that, right?

SR: Yeah. Here’s the play. I would say 3600 is a lot less likely than 43.

TN: I like that.

SR: On the S&P.

TS: I think what we’re going to see is kind of like a balance, right? Where we see services really big this summer, especially in the travel industry, hospitality industry, which we will see taper off this fall, which is not unusual. That always tapers off this fall. But we also see airline prices increasing, so people have booked their summer vacations in Q1. Those people are going to fall off. So I think we’ll see a push. We’ll see a pullback in that industry, but we could see growth in industries that Sam is mentioning.

TN: Great.

SR: Just to throw in there, we have to remember that at some point we have to refill supply chains on the drivable stuff, and those supply chains are at bone zero right now. It will require a whole bunch of employment, a whole bunch of production, and will actually have a fairly significant thrust to GDP. Our production has been zero.

TN: That’s great. My poll is wrong, which is awesome. I love that.

SR: I would bet against every single thing that your poll said.

TN: Perfect. I love that. Okay, so if you’re in the US, that holds. But let’s switch, Albert, to kind of say geopolitical risk and some other things. Obviously, Sri Lanka two months ago started falling apart and not started, but really fell apart. We’ve seen Ecuador and other places really start falling apart.

Albert, what are you seeing, geopolitically, and what are you seeing in EMs related to what’s happening in the US?

AM: I don’t really like focusing on EMs at this moment just because they’re not big enough to really cause a problem in the markets. In my opinion. I’m looking squarely at the European Union right now.

It’s suspicious that we come out with US bank tests and then we come out with EU bank tests and then literally a day later, the Germans come out and say, we could have a Lehman moment across the economy just because of these gas shortages that are happening.

TN: By the way, your tweet about the German Lehman moment up.

AM: Yeah. And this goes back to just the topic we were just talking about, recession. You really need some kind of catalyst or something to break. And the only thing that I could even contemplate of breaking and causing a “recession” would be the European Union going through another financial crisis. You have a contagion that probably leaks over to the United States financial markets and the Putin price hikes become a thing again, justifies any kind of QE that the Federal want to do, probably in Q four this year. Geopolitically, the EU is my target right now to look at.

TN: Okay. It’s energy supply chains. Is the ECB a risk as well? Is there a risk that they tighten too fast or too much or anything?

AM: How are they going to have to I mean, the inflation over there is climbing just as fast as the United States and it’s causing problems across the board.

SR: I would double down on that and say that Qatar, right after we had the train go down in Corpus Christi, came out and said, yeah, we’ll send gas to the European Union. Just sign a 20 year deal.

TN: Right. And they did. Right?

SR: European Union is not going to do that. I mean, nobody in Europe is going to do that. It was kind of like, we got your back, but give us a long term agreement and we’ll do it.

The irony of it is that you have a crisis going on in Europe. There was a dragon moment of do whatever right, anything.

TN: Sorry, Tracy. What’s that?

TS: Self imposed crisis? Their energy crisis is literally self imposed.

TN: Yeah. Okay.

AM: There’s no question that is self imposed. The European Union’s leadership has been atrocious. I mean, they’ve had the worst energy policy you could possibly think of that hampers their economic engine for the last two, three decades. I mean, you can just throw a dart at the board and pick whatever policy they’ve come up with. It has been an absolute disaster.

TN: Why is that? Why are they making such stupid well.

AM: They’ve made such a big swing to the left, the leftist voters, and they’re just climate Nazis. They won’t even discuss nuclear.

SR: We’re literally talking.

AM: They won’t even discuss nuclear power, which is absurd. They’re like, what if something goes bad like Fukushima? Oh, yeah. What if a dam breaks? Or what if a coal plant blows up? Or, God forbid, what if 10,000 Germans freeze to death because you don’t have gas stored because you didn’t have any proper management? I mean, they’re really bad at managing what’s going on without the United States holding their hand and directing what to do.

TN: Well said. Fantastic. Okay, so since we focus a little bit on energy there, Tracy, let’s swing to talk about crude and the dollar. So, our friend Josh Young posted something about kind of energy could potentially outperform this sort of stuff and really kind of looking back to the 1970s.

So it really looked like we were heading there until this week, and then we saw things really come down this week, in terms of, say, WTI, natural gas, other things. What’s going on there?

TS: I think it depends on what you’re looking at. If you were looking at frontline crude oil price, that’s one thing where a lot of speculators are involved in. If you’re looking at the spreads, it’s you’re looking at the crack spreads that are still exploding. If you’re looking at calendar spreads that are up again this week, that pretty much tells you that we put a floor under front month crude price, regardless of who is involved in what specs are involved in the industry right now. Because the spreads are really what I consider will tell you really where things are going. Right.

So we kind of have a floor night. Yes, oil had a bad week. We saw a lot of selling on downtime in markets and things of that nature. I don’t think that doesn’t change the overall fundamentals of the market. Right? I mean, we’re still fundamentally structurally undersupplied.

TN: So I’m going to ask a really dumb question here. I’m sorry if I may hear it.

SR: But we know.

TN: So are we seeing a short term sell off? Is it politically driven so that when Americans get together on July 4, they can say, gosh, gas is really down this week, and then you have a three day weekend where people are talking about that and then it rocket ships up after the fourth?

TS: Well, I think it’s a combination of most things. I think this week recession scares, we’re really the big driver for that market because everybody’s thinking we’re going to have a recession.

SR: That and the potential of having an export ban.

TS: Right.

TN: Recession, export ban, and July 4th.

TS: An export ban. That said, and I kind of tweeted this out, having an export ban, especially a fuel export ban, would make things obviously worse.

First of all, it’ll raise prices for the EU prices abroad, which after all of this with Ukraine, do we really want to hurt the EU that much? Because we supply them with one to 1.3, 1.5 million barrels per day of diesel, which they are having a huge problem. So really, are we going to abandon the you at this point? Also…

TN: My Texas friends would love to have more diesel to power their ram trucks.

TS: But the thing is that what happens is the fuel flows get so disrupted is that we’re going to have to see refineries cut run significantly in the US. Which is going to ultimately raise prices. We may see deepen prices initially, but you’re going to see higher prices ultimately.

SR: I’ll push back on that because you have a lot of storage, but you didn’t have a lot of storage before. So you don’t have to cut back on runs. You can put into storage at a pretty profitable rate because of forward selling basically all of your inventory right now. I would push back on you have to cut runs at this point.

TS: And I’m going to push back on that. We have to look at the east coast. Right. And so that’s looking at gasoline runs to make a barrel. Diesel requires a lot more oil than it does say to make gasoline. And so if we see a diesel problem, we’re going to have to cut back on this runs. I think it depends on what coast you’re looking at and what area you’re looking at.

TN: All we care about is Texas and Florida. Right.

SR: You have a lot of places to store gasoline. I mean, it’s not like we have an oversupply gasoline at the moment.

TN: It’s true. Our bob’s down this week too, right. So it’s tight.

AM: It’s interesting, Tony, it’s funny. One thing that you said July 4 and one thing that Tracy said, thinly traded is that hilariously every time we need a rally in the market during the thinly traded holiday hours, crude goes down, dollar goes down and the market goes up almost by magic on the thinly traded holiday hours. Something you should watch.

SR: University of Michigan. Come on.

TN: It’s a big driver. University of Michigan. Okay, so let’s move on. You mentioned the dollar, Albert, and so if we look at the dollar, obviously it’s near highs for the decade and that’s great if you’re in the US buying dollar denominated commodities. But elsewhere in the world it’s really hard. Right. So where do you expect the dollar to go? I can’t remember what you’ve said your expected target is. Possibly? 110. Possibly 120. So if it hits 120, Japanese Yen is at what, like 160? 170? something like that?

AM: 163,164? My calculation… This is something Yellen has done in 2012. It’s nothing new. She’s driven the dollar up. She’s out into Europe talking that she’s going to take the dollar up to 110. So this is nothing new. Everyone knows what’s going to happen. Everyone’s watching it. So we’re at 104 something today, just sitting there and hasn’t really done anything. Last day or so. Another 5% up is not a big deal for the dollar.

TN: So you see Yellen driving a stronger dollar. Sam, what do you see?

SR: I would say that I hate taking the other side. I’m going to take the other side.

TN: Great.

SR: I’m going to say that Yellen’s ability to control the dollar is de minimis at this point, mostly because the Fed is tapped out. But you already had a 4% terminal rate for Fed funds priced in two weeks ago. Today you’re sitting at basically 3.65%. So you’ve got the peak, in my opinion, priced in for the FOMC hiking cycle and now you’re on the other side of that. So I would say JPY, you’re probably looking at above 10.

TN: Oh, wow, okay, great.

SR: And you’re probably looking at a Euro at 108. 109. And it doesn’t really matter if they go into a recession because they’re… Right. The US is going to back off in incremental steps the long end of the hiking cycle and…

TN: Perfect.

SR: The dollar prices is long end of the hiking cycle and Yellen can do a lot of things. What she can’t do is increase the internal rate.

TN: That’s great.

AM: The thing is, the treasury sets USD policy, so she can certainly drive it up. I don’t know how much ammo she has left because it’s gone up. But we’ll see.

TN: Okay, perfect. That’s great. So we’ve covered almost everything in that survey and almost everything was wrong.

SR: I told you everything was I would take the other side of every single one of those.

TN: Perfect. Okay, let’s talk about the week ahead. We have month end and quarter end coming next week, right? So what does that mean for the week ahead? Everyone else.

TS: Can I go?

TN: Yes, you go Tracy.

TS: I don’t know. What I’m looking at for the week ahead is the last week of the month. Of the month and the quarter. Right. So we have roughly about $100 billion of US equities that need to be purchased over the next five trading sessions. We have a rebalance in the RTY. So we should see a lot of inflows, roughly 5.98 point billion of inflows into the US equity markets just because of the rebalance factor.

We should probably see outflows in the bond market and then that’s walking into a backdrop of negative dealer gamma. So we have the potential of a shot higher in the market.

TN: Sam? Sam?

SR: Yeah. I would say everything Tracy said in terms of the risk seems to be to the upside. I would also say it looks pretty scary when you walk into the end of the month in terms of the way the dollar chart looks right now.

You walk into the end of the month with a dollar chart looking like it’s ready, looking ready to gap down, and you have oil where it’s at. You could have a very interesting quarter end in terms of risk assets. You have a weaker dollar. You have a big buy on SPY, RTX, et cetera, or SPX, not SPY. You begin to put those pieces together and you begin to have a pretty risk on into the quarter that could be very interesting very quickly.

You get any positive headlines out of China in terms of lockdowns, you get any positive headlines out of Ukraine in terms of ceasefires, whatever BS they want to leak. Then all of a sudden you’re more upside. So I would say skewed to the upside through the beginning of July.

TN: Sam, you’re optimistic today. That’s amazing.

SR: I know. And contrarian.

TN: Optimistic and contrarian. I love it. Okay.

AM: Yeah, I mean, I agree mostly with Sam. I think just because the market is so thinly traded, the dollar should be chopping around probably on the downside a little bit, just for the week up until July 4 weekend, so long as the Europeans don’t come out and start saying any more Lehman things, Lehman crash things and all of a sudden dollar shoots up just because of fear factor out of the European side. But I don’t think that’s going to materialize over the next week, probably next couple of weeks.

After that, I think 30 days, we’re starting to look at possibly something that happened in the European Union. But for the week ahead.

TN: Fantastic. So the past three days carries into the next week. Fantastic.

AM: Yeah.

TN: Okay, guys, thank you very much. Thanks for your time. Thanks for all the stuff you passed along, and have a great week ahead. Thank you.

AM: All right, thanks.

TS, SR: Thank you.

Tags China, ci futures, complete intelligence, Corpus Christi, dollar, ecb, Ecuador, emerging markets, Europe, european union, Fed, Fukushima, GDP, geopolitical, German, nazi, November, October, powell second term, Qatar, rtx, Russia, spy, texas, The Week Ahead, tony nash, University of Michigan, US, us dollar, USD, week ahead, WTI, yellen, Yen

Week Ahead

The Week Ahead – 13 Jun 2022: CPI & “Peak Inflation”

Post author By admin
Post date June 12, 2022

We had a chop last week. And towards the end of the week, we had the CPI print, which put a damper on markets. In this episode, we’ll talk about CPI and peak inflation, which people have been talking about for months, but we haven’t quite hit it yet.

Of course, we’re going to talk about the hot dollar, and we’re going to talk about fuel inflation and things like refining capacity and even a nat gas plant explosion that happened here in Texas last week.

And then finally, what is going on in the week ahead?

Key themes:

CPI & “Peak Inflation” – Core CPE, hand off from goods to services, Fed policy and markets.
Hot dollar – DXY has only been higher in Feb 1985 and Jan 2002. Fed, Dollar, Yellen, etc.
Fuel Inflation – Refining capacity, natgas explosion.

This is the 22nd 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 experts on Twitter:

Tony: https://twitter.com/TonyNashNerd
Sam: https://twitter.com/SamuelRines
Tracy: https://twitter.com/chigrl

Listen to the podcast version on Spotify here:

Transcript

TN: Hi everybody. And welcome to The Week Ahead. My name is Tony Nash. We are with Tracy and Sam today. Albert is in an undisclosed location, so he won’t be joining. But we’ll have a good show anyway. So before we get started, please like and subscribe. And as importantly, please comment. We really appreciate those. We respond to all of them. And it’s great to have the engagement.

This week. We had chop, as Sam talked about. And towards the end of the week, we had the CPI print, which really put a damper on markets. So we’re going to talk about a few things. First, CPI and peak inflation, which people have been talking about for months, but we haven’t quite hit it yet. Of course, we’re going to talk about the hot dollar, and we’re going to talk about fuel inflation and things like refining capacity and even a natgas plant explosion that happened here in Texas last week. And then finally, what is going on in the week ahead?

So first, CPE was all of the focus for the last half of the week. Sam put out an amazing note, a couple of amazing notes this week talking about inflation and what the Fed will do. So we’re looking at a chart right now on core CPI. And Sam, can you walk us through why the core matters and what’s happening there?

SR: Sure. The core matters because it strips out food and energy, and that’s what the Fed likes to look at. Right. That’s what the market looks at for underlying inflation dynamics generally. It’s kind of a quick and easy number. Luckily, it’s accelerated by some marginal amount on a month over month, year over year basis. Cool. Nobody should really care about that, because when you break apart the actual numbers, the entirety of the deceleration and core inflation was in the good side. We know that goods are coming down, particularly on a year over year basis. They want skyrocket and to the right, that’s just not sustainable.

TN: Is that because of the inventories that were accumulated at retailers and other folks.

SR: That’s part of it. Used cars as well. There’s airline fares are in there, too. So that’s going to be somewhat of a problem as we move forward.

The interesting thing to me is when you actually dig into it. Yeah. Core goods accelerated, but core services, which are far stickier and far more difficult for the Fed to kind of get a hold of accelerated.

TN: Right. So let’s put that up now and then. Yeah. So we’ve got your chart up now about the commodities, less food and energy and then services, less energy. So can you help us understand what that means?

SR: Yeah, sure. That’s just call it the core CPI broken into services and goods. Right. So it strips out food and energy from both of them. And then you kind of get a more of a feel of what’s really happening in the underlying economy. And there was always this big debate among economists about when this hand off from goods to services was going to happen and how that was going to affect the economy. And unfortunately for the Fed and for market participants, that hand off is happening.

You can see it in the data and you can see it in the inflation data in particular. It’s happening. The problem is that you don’t have goods coming down fast enough and you have services moving up way too quickly. And those two components are unlikely to give the Fed any sort of comfort in the next six to nine months.

TN: Okay. With services moving up, does that mean that wages, say on the lower end around things like hospitality and restaurants, does it mean that those wages are going up?

SR: Not directly. There’s some implied probability that you’re beginning to see some movement there, but you’ve seen quite a bit of movement at a leisure and hospitality in particular in terms of the wage gains there.

Unfortunately, the wage gains can be pretty large in magnitude, a 5 to 9 percent type acceleration year over year in leisure and hospitality wages. But it doesn’t really move the needle in terms of overall wage gains because those tend to be the lower end of the income scale.

TN: Okay. So I saw some data this week looking at credit capacity, and it looks like US consumers put record amounts on credit cards in April and May. Does that make you nervous? And I’m not talking about the high end of consumers. I’m talking about the middle and lower end of consumers because there’s a lot more of them. Right. Does that make you nervous?

SR: Yes. And it goes to the conversation that Tracy and I are going to have in a little bit here. A lot of it is due to gasoline. Right. You don’t go to a pump and typically pay with cash. I mean, you did that 10, 15, 20 years ago. You typically go to the pump and pay with a credit card.

So when you begin to have prices like this, move this quickly on the pump side of things and grocery side of things, you tend to have a move up in credit card usage that’s translating to debt because you simply don’t have wages keeping up. Yes, wages are ticking higher, but they’re not keeping up. So the lower end of the consumption, called the lower two quartiles, they are struggling with this, and that is going directly on the credit cards.

TN: I’ve talked to a few people this week about how wages in developed economies work. And if we were in an emerging economy, middle income economy, there would be more flexibility on wages because wages rise faster generally in those economies. But in, say, the US, wages really don’t rise fast.

So on some level, it’s a bit hard for people to understand that wages in the US are generally inflexible, especially at the lower and middle ends. And so it is kind of zero sum. Right. So as gas and food prices rise, that takes away consumption from other areas, right?

SR: It does. And the other thing that it leads to is more of a trend towards unionization and other forms of labor activism. And you’re going to continue to see labor activism if wages continue to trail this far behind inflation. That is an underlying trend that I think is going to be somewhat important for understanding how markets react because labor was fairly cheap, give or take for US businesses in particular.

If you begin to have more unionization, if you begin to have more of an activist labor movement, that is going to be a thing to corporate earnings, not just for the next year. That’s going to be a thing for corporate earnings going forward.

TN: Okay. So let’s talk about corporate earnings. As we look at, say, Q2 corporate earnings, it doesn’t look good, right? I mean, generally the expectation is that their margin compression, all this other stuff really starts to sting in Q2 Is that right?

TS: It depends on the industry as well, because what we’re seeing and what I’m hearing as far as obviously oil companies are going to do extremely well so are refiners right now. But we are also seeing the hospitality industry do extremely well as far as travel is concerned, because we’re seeing a lot of pent up demand where people are not spending retail spending, but they’re still spending for trips.

If we look at US air bookings, for example, there are 93% of 2019 levels for Europe. We’re at 95% for South America. We’re at over what we were in 2019 to the Caribbean. And we’re also seeing soaring hotel bookings right now, even with cost pushing higher and ticket prices higher. So I think that Q2 is going to be very good actually, for, say, oil and gas and the hotel industry. But then as we move into Q3, I think we’re going to see a big hangover in that area in the fall.

SR: And to Tracy’s point, hotel bookings are above 2019 levels and the average price of those rooms through the roof. So you multiply those two together to get your average room rate and Occupancy, those are some big numbers that we’re going to see over the summer. To Tracy’s point, there’s going to be a lot of people that blow it out of the water in terms of earnings, and there’s going to be a lot of people that surprise the downside.

If you were a work from home darling, that was expecting work from home and those dynamics to be permanent and you’re in trouble. Right. That’s the target problem. People aren’t buying goods. They’re going places. And the bifurcation there is going to become stark as we move through the second quarter and probably into the third quarter.

TN: Really interesting. Okay. And then I guess the question that is probably overanalyzed, but people are waiting for is what does this mean for the Fed? They’re still on target for 50 in June, 50 in July and 50 in September. Is that your assessment? And maybe 25 in November? I think.

SR: 50 in November, 50 in December.

TN: 50 in November, 50 in December? Wow. So we’re going back to the 90s.

SR: Basically fully priced in the market.

TN: Is there any chance that they will accelerate beyond 50? Like, would they front load any of that just to shock the system?

SR: No, because I don’t think they want to shock the system. The Fed already has a credibility problem. If you move from 50 to 75, you create more of a credibility problem because you forward guided 50-50, and now all of a sudden you’re telling the market you’re doing 75, the market is just going to stop believing and they’re going to push the Fed and they’re just going to push back and it’s going to be a huge problem.

So I don’t think they’re surprised on that front. They may tweak the balance sheet. That’s a little bit of an easier move to make. Right. You can speed up the MBS role. You can pick up a little bit of the front end roll on US Treasuries, you can tighten that way and have it not be as much of a shock to the system.

TN: Okay.

SR: But have it be pretty interesting on the tightening front.

TN: Okay. But let’s dig into that, though. I’m sorry to spend too much time on our first topic, but if they accelerate the MBS stuff, housing is already kind of at a standstill over a two month period. Two to three month period.

A lot of people have had wealth effects because of the rapidly inflated house prices. So if they accelerate MBS, that perception of housing wealth collapses even more. Right. And so does that have relatively like a multiplier effect on the deceleration of consumption?

SR: It does. But that transmission is pretty slow generally, and you had a significant amount of call it front running against the housing market to take out equity. So I would push back a little bit on a collapse in transactions is going to have a big effect. What you really need to see is pricing actually coming down because it’s about pricing.

TN: Pricing coming down.

SR: Yeah. And pricing. The data is so delayed that it’s almost worthless.

TN: Nominal housing prices.

SR: Yes. But you’re still seeing housing prices hold up pretty well for most of the country. So until you really begin to see a crack there, I don’t think the wealth effect really takes hold from houses.

But you’re probably talking about a September, October type time frame for home prices to be weighing on people’s minds.

TN: Okay. It feels like over the past few months things have changed pretty dramatically. Expectations and these sorts of things. I know you’ve been talking about this for months, but I think the world is just catching up to it. And two months ago everyone said, oh, it’s all priced in. And then we get a day like Friday where obviously it’s not priced.

SR: I’ll stop after this but the interesting part about Friday was it wasn’t just call it the November December meetings getting priced higher for Fed rate hikes. It was March and May of next year that also saw pretty significant volumes and saw the pricing of the Fed movement get pushed pretty hard. So you’re seeing movement across a very long time horizon.

You’re talking twelve months out is kind of what people are pushing on now. So that really creates a different dynamic. But it’s a different dynamic to have eight or ten basis points priced in in September or November. It’s a bigger deal to have quite a bit of tightening priced in for December and March. Those are some out months those begin to really move markets on the margin.

TN: All of this in a midterm year. All of this in the midterm election year.

SR: It’s really painful all around, right? It’s painful all around. But I think the Fed kind of plays second fiddle to Tracy’s point on energy and how that flows through the consumer and the consumer psyche because that is critical at this point.

TN: Okay. So speaking of second fiddle let’s move on to the hot dollar and Fed playing second fiddle to Janet Yellen as Tracy has said before. We’re looking. At DXY that is the third highest it’s been ever it was very high in the mid eighty s it was very high in I think February 2002.

We’ve got that chart up now and now it’s hitting rates that it hasn’t hit for years so we have the Fed doing certain things to tame but we also have things like crude and other commodities that are rising in dollars. Terms. And it looks like the dollar is being pushed up to fend off some of that. So, Tracy, can you talk us a little bit through your view of kind of Yellen and her dollar bias and then impacts that you expect to see.

TS: She said since the beginning she wanted a strong dollar. Right. The problem is that right now this is a disastrous recipe for emerging markets right now with high energy prices and high dollar. And it’s no wonder we’re seeing huge outflows in emerging markets right now as far as investments are concerned. And so really that’s who’s going to feel the pain the most that could throw us to a global recession, for sure.

TN: Right.

SR: To that point, Europe is in a lot of trouble, and the Dixie is basically a measurement of euros and yen. That’s right. If you want to talk about a central bank that’s lost credibility, there’s none better than the ECB and Madame Lagarde and that wonderfully stupid speech that she gave this week, it was spectacularly bad.

TN: It’s what happens when you have a lawyer running monetary policy.

SR: They’re raising rates, and we have them, too. Anyway, moving on. So there is an interesting kind of dynamic there where you basically had the ECB for the first time in forever, say we’re going to raise rates like they just told us straight up they were going to do it and they got the wrong reaction across markets.

The currency didn’t go up. The currency didn’t strip. The currency looked pretty ugly that day. And then you’ve got yen sitting at 135 because they’re still doing yield curve control and it doesn’t look like they’re ever going to end it. So you have the Fed going in the exact opposite direction or much quicker than the rest of the world. In the DM world in particular.

That’s a recipe for a stronger dollar. And until you either get the ECB to smarten up or you get YCC brackets moved, yield curve control brackets moved by the bank of Japan, there’s no stopping the Dixie from moving higher. Right. It’s a two currency, two currencies basis.

TN: Remember Abenomics, when they were fighting to get 2% inflation in Japan.

SR: Yes.

TS: They’re still fighting. That’s why you can’t see inflation, it’s incredible.

TN: Yeah. Tracy, if we continue to see the dollar strengthen, do you think that has much impact on, say, crude prices and fuel prices?

TS: I know that everybody likes to think it’s a one to one correlation. Right. We think stronger dollar commodities. But it’s really not a one to one correlation, especially when you’re talking when you have actual supply demand issues. Right. Like we have a supply deficit across. So a stronger dollar is not going to hurt oil prices when you have real supply demand issues. Whereas if you look at something more like gold, the stronger dollar is not necessarily great for gold right now.

TN: Yeah. So I love it when people like talking about correlations of oil and dollar because many of them don’t realize that actually the positive correlation between oil and dollar is more frequent than many people want to admit, and it’s more persistent than many people want to admit.

So the kind of go to there’s a negative .9% correlation between oil and the dollar. It’s just not true. It’s a fiction.

SR: And the dynamic changed when the US became a major producer of oil.

TN: Right.

SR: That completely changed the dynamic. So if you’re not paying attention to the structural breaking system where the US became the world’s largest producer of hydrocarbons, you don’t know what you’re doing.

TN: Right. So who hurts the most? I think we mentioned EMs, but kind of who hurts the most, aside from Sri Lanka, which we already know? Is it like North Africa, those types of places? Is it Southeast Asia? Just off the top of your head, we didn’t rehearse this, so I’m just curious, what do you think hurts the most?

TS: I think you’re going to see a lot of problems in Africa for certain only because a lot of the OPEC producers there are struggling themselves already. Right. All of those people are the ones that are contributing majorly to the quota misses right now. So I think you’re going to see real pain there over Asia, I would say.

TN: Okay, Sam?

SR: Yeah, I would agree with Tracy. North Africa, East Africa, those look very vulnerable, particularly when you combine food costs with gasoline costs and oil. It’s kind of a toxic mix because if you have oil at 125 Brent, there’s an incentive that you want to pump and the people expect you to pump and buy them food. And if you can’t pump and buy food, then you’re basically an illegitimate government in North Africa.

TN: Right. Which is just trembling all around. Okay, let’s move on to energy prices and gasoline and petrol prices. Of course, we just hit this week again, I think three or four times this week we hit record prices for gasoline. And of course, that’s happening all around the world.

I think in the UK it’s £2 a liter or something like that. In the US, it broke $5 a gallon on average. I think 5.01 this morning, Patrick Dejan was saying that. Tracy, can you walk us through? We’ve mentioned this a couple of weeks ago, but in a bit more detail about what’s happening with refining capacity in the US and why this is such a big deal?

TS: Right. The last largest Greenfield project that we had was 1977. We’ve had a lot of brownfield projects, meaning adding to capacity to already existing refining facilities. However, right now we sort of peaked in 2018 and 19 as far as refining capacity is. And now we’re starting to come down again because we’re starting to see more closures, we’re seeing more unplanned outages.

These facilities are very old. So the operable capacity has been on the decline for the last few years. And if you look at Europe and Europe, it’s even worse. Right. So, I mean, Europe already has a problem, too, and that’s why they buy most of their diesel from Russia, which is going to affect them, because the diesel that they buy from them is seaborne. Right. All of it, which it falls under sanctions.

TN: And they can’t get insurance for those vessels.

TS: Yeah. And so they’re going to have a lot of problem. just to put a little tangible example, there’s a news here in Houston this week that I think it’s a Lyondell refinery that’s being closed, and that refinery is over 100 years old. Yes, our refineries are old. They’re aging facilities. They need a lot of maintenance. And we just really haven’t built out enough capacity for the amount that is coming offline over the last few years.

TN: So, Tracy, I know this is a little bit of a request, but we’re sending $40 billion to countries around the world to do different things. Would it not make sense to have some sort of government incentive for midstream companies to actually build refineries?

TS: Well, yeah, absolutely. I mean, infrastructure projects as far as the oil industry is concerned. If you look at the government’s complaining about oil companies are making so much money. However, where were they when they were in the red and racking up the debt? They were nowhere. How many times do we bail out the Airlines and the auto industry? The oil industry never got any help.

TN: Because they’re bad, tracy, oil companies are bad. They’re all my neighbors. But you would think they’re all bad, evil people.

TS: This is causing… Where our refinery operable at capacity? We’re at 94.2% refining right now, which is off the charts. Good. That means good news for your refining stocks if you own any. But we’re pushing it. We’re using it as much as we’re producing. Right.

TN: Let’s say somehow people came to their senses and said, look, we need to incentivize new refineries. How much just off the top of your head? Ten, $20 billion. Is it $100 billion? Just to get things started? How much do you think that would cost? Since we’re throwing money around.

TS: Since we’re throwing money around, I think if you could throw 10 billion, 20 billion at it, you could get some good projects going or tax incentives or something like that for current refineries to be able to build out or upgrade things of that nature. There’s a lot of things the government could do to help boost refining capacity.

TN: Okay. So while we’re throwing money around, would it make sense to reconfigure some of those refineries to refine light sweet Texas crude instead of, say, I don’t know, Venezuelan crude?

SR: Yes, it’s pretty simple. We built the right type of refining for a certain point, but we didn’t build the right type of refining for now. Yes, we would need to upgrade all of them, and it’s going to be a pretty significant issue.

The other really important thing that I think gets overlooked a lot is that even if you begin these projects now. It’s not a solution for several more years. By several more years, three to four at a minimum, kind of where you would expect these to begin to come online.

And the question is, what does the oil market look like at that point? What kind of mix do we have? So you have to make some fairly large assumptions about what your input mix is going to be down the road. So, yeah, I do think that it would be worthwhile to at least upgrade the current refineries, but I think that’s kind of a pipe dream.

TN: Okay. So while we’re throwing $40 billion overseas, we could take half of that and build new refineries and reconfigure refineries with American crude oil. Am I misunderstanding this?

SR: No.

TN: I just want to hammer the point home again. Okay, great. Thank you, guys. We had a really choppy week. We had a lot of kind of bad news come out. What are we looking forward to next week? Is it kind of more the same? Are we still in a really rough place and the Fed meetings this week, some announcements. I don’t think it’s going to surprise anybody, but what else are you looking for this week?

TS: Pretty much the same. I think we’re kind of stuck in this market low for a while now. So I figure you still see chop, you probably see oil sideways to up again. I expect that trend to pretty much continue into the summer until we really start to see some demand destruction, which we’re just not seeing enough yet.

So I think headed into fall, we have a better chance of seeing oil prices come down because again, I think that we’re sort of going to have a travel hangover and everybody’s going to get home and they spend a bunch of money on their credit cards and the economy is not that great. So that’s what I’m looking at. And again, for the week ahead, I think more of the same.

TN: Sam?

SR: Yeah, you have a million meetings next week of central banks. I think that’s really what the markets are going to key off of. And it really depends who says the most dumb stuff. And it’s going to be a competition because you have Powell and then you have the Bank of Japan. So we’ll see if maybe you get a little bit of a bracket move on yield curve control that would make things a little more spicy across markets. And we’ll see what Powell is capable of messing up when it comes to forward guidance during the press conference.

So I would say it’s more the same, but there’s a likelihood that markets are about as hawkish as they can be going into the meeting and that Powell doesn’t want to push markets more. So there may be a little bit of a rally off Powell just not being an uberhawk, and that might be positive, but I would say you’re in for some serious chop, particularly across the rates markets, currency markets.

And when it comes to equity markets, I think it’s going to be exactly what Tracy and I talked about earlier. It’s going to be the story of travel over retail.

TN: Okay? So next week, let’s talk about who said the stupidest central bank statement. Okay?

SR: Perfect.

TN: You got it.

SR: Does that work?

TN: Very good. Okay. Thanks, guys. Thank you very much. Have a great weekend. And have a great weekend.

SR: You, too. Tony.

Tags Caribbean, complete intelligence, CPE, cpi, dollar, DXY, ecb, Europe, Greenfield, Inflation, Lyondell, MBS, North america, powell, Russia, South America, Sri Lanka, The Week Ahead, tony nash, us dollar, USD, Venezuelan, week ahead, YCC, yellen

Week Ahead

The Week Ahead – 06 Jun 2022: Is India a geopolitical trend setter?

Post author By admin
Post date June 5, 2022

This past week, we had a flat S&P 500. Nasdaq was up slightly. Bond yields were up slightly. It was a summer stall this week. Not a lot happening from the beginning to the end of the week. In this episode, we’re going to focus on geopolitics.

Key themes:

Is India a geopolitical trendsetter?
China, MBS & Biden – BFFs?
What does Turkey get out of halting NATO expansion?
What’s ahead for next week?

This is the 21st 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 experts on Twitter:

Tony: https://twitter.com/TonyNashNerd
Sam: https://twitter.com/SamuelRines
Albert: https://twitter.com/amlivemon
Tracy: https://twitter.com/chigrl

Time Stamps

0:00 Start
1:36 India as a geopolitical trendsetter now?
3:55 US is frustrated with India? What’s going?
7:35 Is India being ridiculously nationalistic?
8:00 China, MBS, and Biden as BFFs?
10:08 How does MBS look at Biden with China opening up?
11:31 Awkward and Desperate: Is the US-Saudi a short-term diplomatic issue?
14:45 Is there any place they can go for energy supply?
16:00 What does Turkey get out of halting the NATA expansion?
20:20 What impacts on some countries by opening the Bosphorus.
21:22 What is DC thinking and do out of the gun discussions?
24:24 What to expect for the week ahead?

Listen to the podcast version on Spotify here:

Transcript

TN: Hi, and welcome to The Week Ahead. I’m Tony Nash. And as always, we’re joined by Sam, Albert, and Tracy. Before we get started, could you please like and subscribe? It’s very important. But here’s what’s more important today. If you could comment on the episode, we would appreciate it. We check that stuff every week. If you disagree with us, if you think we’re full of it, let us know and let us know why. Okay.

So this week, this past week, we had a flat S&P 500. Nasdaq was up slightly. Bond yields were up slightly. Kind of a summer stall this week. Not a lot happening from beginning to end of the week. So we’re going to focus on geopolitics this week.

We’re looking at a few things. Is India a geopolitical trendsetter now? That’ll be a really interesting discussion. Second, we have China, MBS, and Biden as BFFs. So let’s see what’s there. What does Turkey get out of halting NATO expansion? Really, Turkey becoming a real geopolitical linchpin. And then we’ll have a quick chat on what we expect for the week ahead.

So first is India as a geopolitical trendsetter. India recently has halted some commodity exports. They’ve done some deals with Russia for energy, and they’ve been really independent. And India’s typically independent with foreign policy. But I’m curious if we can look at, say, the energy deals first, Tracy, can you help us understand a little bit about that, and what is India doing there?

TS: Well, I mean, absolutely. First of all, India has been complaining about oil price and saying that it’s unsustainable for them for months now, right. As we’ve been over $100. And so when they were typically not really buying anything from Russia.

However, after the Ukraine invasion, then we had that discount. The Euro to Brent discount fell to almost $40 at one point. So India started buying a lot of oil from Russia, obviously, because it’s less expensive. And they said outright energy security is more important to us right now than anything else because they are also having issues with coal. And whatnot really that’s their focus right now.

And so what we think is that likely they’ll probably become a semi permanent customer of them and probably will take in about 500,000 barrels per day going forward. So what is coming off of the European market is actually going to India and China.

TN: A lot of Westerners don’t understand that India and Russia or the former Soviet Union have had a long political ties, longtime political ties, and those long term political ties tend to come up when people need friends. There is a connection between India and Russia that a lot of Westerners don’t understand.

Albert. I guess the US tends to do this very binary. You’re with us or against us. And I would imagine that the White House and State Department, if we actually have a State Department, that they’re a little bit frustrated with India. What’s going through the US’s mind with the India relationship right now?

AM: Well, this is basically goes back to Obama, actually, with his animosity towards Modi. But the Biden, State Department and the DoD just have this naive idea of how things work in the world. India, like you said, the Russian ties with India are long standing because they use them as a counterbalance against the Chinese aggression. Right.

If you look at a map, because I always say this on Twitter, look at a map before you start talking about geopolitics. India’s surrounded by Pakistan, China, all these other proxies to China and Russia. So they can’t afford they can’t afford to sit there and poke the Hornets nest in the region because it’ll just come back at them. I mean, Pakistanika starts things in Kashmir.

The Chinese have been building mountaintop air bases to stress India over the watershed in the Himalayas. There’s so many issues that the Indians have to deal with and balance that with their Western counterparts, animosity with the dealings with Russia. It’s not that complex if you sit there and talk about it for 15 minutes. But for some reason, our State Department just can’t come to grips with that. And it’s actually causing quite the damage of the state relations of United States and India right now.

And you can talk about the Chinese component and how they stress India because they’re a major competitor in the manufacturing sector.

TN: Right.

SR: And not to mention that India has always been a very large importer of energy. And it’s a critical part of their development going forward. And they’re a 1.1 billion population. If you begin to have significant problems with energy prices and food prices, that’s a big problem for a democracy in that part of the world.

And not to mention, I think it’s somewhat hypocritical for the US government to be so mad about them buying 500,000 barrels a day when you still have Europe buying oil and gas every single day and being like, well, maybe we’ll be done by the end of the year.

TN: Right.

SR: The number of hypocrites that just keep coming out. Is India really our friend? It’s like, well, it’s Germany, it’s France, Italy.

TN: Those are valid questions.

SR: I mean, to me, it’s a little bit insincere for us to continuously be pounding on India for trying to survive as a democracy. It doesn’t make a lot of sense.

TN: Well, you conveniently overlook the fact that India regularly imports energy from Iran. Korea places like Korea regularly import energy from Iran. The State Department and White House regularly just overlook things conveniently because they want to. Right. But when it comes to Russia, for some reason, it’s a major issue.

So one quick thing I want to talk about with regard to India, and this has happened with some other Asian countries where India stopped exporting sugar and a few other commodities. We saw Indonesia stopped exporting, say, palm oil and a few other things. So this has been kind of painted as some sort of nationalistic action.

My contention has been, look, a nation state has the kind of obligation to look after their own people first. What do you guys think about that? Is India being ridiculously nationalistic by not exporting sugar and a few other things?

AM: Absolutely not. I mean, this is a case of survival, not just for India, but for multiple countries. Egypt recently, Morocco and all the other North African countries are following suit. I mean, they got to feed their own people. You can’t have your own citizens miss meals because pitchforks and torches start coming out.

TN: Yes, I think that’s a perfect way to say it. Okay, let’s move on to kind of a little bit of a crazily, delicately balanced series of relationships with China, MBS in Saudi Arabia, and Joe Biden. There’s been talk of a trip of a Biden trip to Saudi Arabia, which is a little bit awkward given the fact that MBS wouldn’t take his phone call last month. And then we’ve got China as energy importer. There are a number of levers there.

So, Sam, actually, Tracy, can you take us down that path a little bit on the energy side of what happens there and why that is so important?

TS: Well, I mean, I think it’s a thing. Relations have already been strained. Right. So I think it’s too little, too late. And second of all, to go ahead and think that Saudi Arabia or OPEC, for that matter, can lower oil prices in the US or lower gasoline prices in the US is completely misguided. We should be focusing domestically on what we can be doing here instead of banking other countries.

TN: Let me stop you right there and ask the refinery capacity is like the highest it’s been in 20 years or something, right? 92.4% or something.

TS: Yeah, it was 92.7% this week. The prior week was we were at 93.4%. So we’re pretty much at we’re cranking it out. We definitely need more refining capacity going forward. We haven’t had a major refinery built since 1977. Brownfield projects, but not real Greenfield projects.

TN: Okay. Going back to the Biden-Saudi visit, Sam, what are your thoughts on that? And if you can throw a little bit of China analysis, if China is actually opening up. How does MBS look at Biden with the potential of China opening up more aggressively?

SR: I think he looks at it as a little bit desperate. Right. And probably wants quite a bit out of doing anything. And to begin with, Sunny doesn’t have that much fair capacity. There’s not a whole lot they can do very quickly, maybe release some stocks, et cetera, but there’s not a whole lot they can do to get oil on the market quickly. And there’s a lot less that they can do to magically make diesel.

We don’t have the amount of diesel out there that we need. And we are building a refinery, and a refinery takes three to five years to build. So good luck with that. So I think it’s going to smack is a little bit desperate to MBS, and I think there’s going to be a pretty good bargaining spot for him to be in, given that China has largely shut down for a month and a half to two months, maybe reopening, and that’s going to be another tailwind to oil consumption.

And if you all of a sudden have higher oil consumption coming out of China, that’s going to be a problem for oil prices, even from $1.20, $1.15 where we’re sitting right now. That’s a tailwind that I think MBS kind of has a little bit of a grin on his face saying, hey, nothing I can do here.

TN: Right? And tell me a little bit more about the political dynamics there. Does the US and Saudi Arabia, is this kind of a short-term, say, diplomatic issue, or is it something longer term?

AM: Well, you and Sam said two key words, “awkward” and “desperate.” At the moment, Biden going to Saudi Arabia to meet with the King, which was rejected, so they’re actually pushing them off to MBS is such a black eye to the United States foreign policy. Unbelievable. I mean, at this point, you’re going to have Joe Biden go meet with MBS, who Biden’s cabinet brought up Khashoggi not too long ago, which prompted the phone call to be not even taken by the Saudi, leader of a US President. I can’t even remember when last time US President was ignored by the Saudi Arabians. I mean, it’s a disaster in the making that will probably take a good ten to 15 years to rectify.

The Saudis, what are they really going to do? A couple of hundred thousand barrels extra in a pump just to make Joe Biden happy? It’s not going to do anything. I mean, swallowed up by demand almost instantly. But when it comes to the political stuff, you have a realignment between Saudi Arabia, Russia and China happening right under our noses. And it seems to be just completely missed by the State Department of Biden administration.

SR: And to Albert’s point here, and I think it’s an extremely, extremely important point. Saudi doesn’t need the US anymore. Saudi needed the US for a while. We were their biggest customer. We are not their largest customer by a mile, and we’re unlikely to be their largest customer ever again.

So their pivot towards Asia and away from the US makes strategic sense for them. And that, to me, is an understated long term fundamental issue facing the US-Saudi relationship.

AM: That’s exactly right, Sam. And the only other component that actually contradicts that is because of the security situation between Iran and Saudi Arabia, the Saudis need US armaments, they need the relationship with Israel, and they need to re-mend relationships with Turkey. But if Russia at this point, if they’re not poking the Iranians to mess with the Saudis, there’s really no real desperate need by the Saudis for the US defense umbrella at the moment and they can just be free to sell to the Chinese, the Asians and whoever else. And remember that Biden attempted to go to Venezuela to try to get them to pump more, but then realized that while their refinery is broken down and can’t really produce anything at the moment.

SR: So the Arabians went to fix it.

TN: Yeah.

AM: There’s a lot of hypocrisy and a lot of awkward things that’s coming out of the Biden administration right now for geopolitical issues concerning the Saudis.

TN: It’s amateur hour, guys. Lincoln is a joke, often as a joke. I can’t believe it’s embarrassing where we are right now. Tracy, is there any place else they can go for supply right now?

TS: If you look at OPEC, OPEC can’t even produce what their current quote is, right? Because you have too many, too many laggards. So it doesn’t really matter. I mean, they’re 2 million barrels plus below quota last month. So it doesn’t matter if they keep raising or not. They just don’t have the spare capacity. And a lot of the smaller countries are having problems with production.

There’s nowhere else to go. Right. Especially if you’re trying to push Russia out, which is, depending on the month, the second or third largest producer. Right.

TN: Okay. And I think we can all agree that if we just buy electric cars, that would solve everything.

TS: Oh, absolutely. With the announcement that we’re going to have rolling blackouts in the Midwest this summer, I’m sure that rush right out and get EVs should help us.

TN: Right? Exactly. Okay. Let’s move on to Turkey and get really interested in the power dynamics with Turkey right now and their veto power over NATO expansion and some of their control of energy going through the Bosphorus. Turkey has really emerged as a real regional power.

I remember reading about this with George what’s his name’s book the next 100 years, reading that Turkey would be really powerful. This was a 20 year old book. Right. George Freedman. Right. And so it hasn’t happened exactly as he thought. But at the time I thought, “no, Turkey can’t reemerge.” And it’s happening right now. Right.

Albert, can you talk us through what does Turkey get out of halting NATO expansion?

AM: Well, a few things actually, quite. They really want to stop the Kurdish money system support system coming out of the Scandinavian countries because that’s where a lot of the money and support groups based themselves out of Stockholm and parts of the Baltic area. So they really want to stop that. Right. But that’s not really what they’re after because the Scandinavians put a block on their sales of arms. Right. So the Turks obviously want to sell their drones.

They want to sell some military equipment to the EU and to other players in the region. The Turks, they have a big economic problem. Right. And so they’re using every point of leverage they possibly can use. They’re trying to press the EU to give more loans, trying to stress the refugee situation, trying to stress the energy situation, trying to stress the food situation through the Bosphors. And I’ll let Sam and Tracy touch on that.

But for them right now, if you look at it like I said, with India, look at a map. Turkey right now is arguably the most geostrategic position in the entire world right now with concerns to wheat, gas, oil, refugee status. You can just pick a topic and Turkey is pretty much top five.

TN: Okay. Sam talked us through kind of from a macro perspective. What does that mean? What opportunities does that bring up?

SR: I mean, it brings leverage, right? It brings incredible amount of leverage, particularly as you begin to have Sri Lankan type issues. Go to North Africa. The easiest way for North Africa to solve its problems is for Turkey to solve the problems very quickly by opening the Bosphorus or doing something along those lines. So I think from a macro perspective, it’s really about leverage and what type of leverage they want. Right.

They actually manufacture really good, fairly cheap drones. That’s a pretty easy thing for NATO, the EU, to kind of give them a pound on the back and say, okay, yeah, go. Right. That’s something that they can actually do. And quite frankly, if you’re Sweden and Finland, guess what? You don’t really have a choice.

Turkey is going to be selling drones. Turkey is going to have some leverage on what they get to do, and you’re not going to be able to veto it or you’re going to be sitting there like a sitting duck for the next time that Putin decides he wants a little extra territory.

TN: Right. Okay.

AM: And to expand on that, Tony, the Turks, in sort of cooperation with the Iranians and the Russians, have been moving into Africa using old Ottoman trading post colonies, I mean, through West Africa, North Africa, Horn of Africa, everywhere. And there’s been absolutely no talk about it, no counteraction against it. They’re acting as if they were a major superpower with no one really putting them in their place.

TN: Well, this potentially could turn into I don’t know how much you guys know about Ottoman history 1860s, 18870s, debt load that the Turks had and the refinancing that the British and French came in to do it. And I wonder if that’s where we’ll be in five or ten years. It’s really interesting to see how that Ottoman history played through and see if that happens again with Turkey. I hope it doesn’t, because that ended up leading to World War One. But this could be really interesting.

Tracy, they opened the Bosphorus. What impact does that have on some of these countries, like Egypt and North African countries and say, Lebanon and some of these other countries that are really desperately waiting for some things out of Russia and Ukraine?

TS: Yeah. I mean, obviously that’s going to help. We’re going to get some wheat out. It looks like that is going to happen and that we are starting to see shipments flow that’s obviously going to ease tensions. Hungry people tend to revolt. So something needed to be done, in other words. And so it looks like that’s starting to happen, which is obviously a good thing.

TN: Great. Okay. I want to spring a kind of a surprise topic on you guys just really quickly. It’s a big debate in the US since we’re talking geopolitics. Guns on top of everyone’s mind. Some shootings in the States over the past few weeks.

Albert, I know, you know, DC probably better than all of us. So can you walk us through really quickly? Excuse me, what is DC thinking? What will likely happen in DC out of all of the gun discussions?

AM: Well, because it’s an election year, probably nothing. And I’ll tell you what. In politics, you cannot take a singular issue, isolate it and solve the problem. It doesn’t work like that. So, for instance, and this is something I always stress about. When you look at guns, you have to look at it as what voters intentions are and feelings are with the guns because they’re electing their members. Right.

When you have guns, they’re typically rural Americans that are religious, that have views on abortion and are farmers. Right. What’s under farmlands? Oil. So not only do you have to tackle the religious voter, the anti abortion voter, the rural farm voter, but then also big oil that actually funds all these people. So you can’t take guns alone and say, I’m going to solve it without agitating another 40 million Americans and Senate races are completely dependent on rural voters, not so much urban because that tends to go Democratic anyways. But there is actually swing cities and swing areas on top of the conservative areas that there’s a political calculation and numbers game that has to be played.

So for this year, I don’t see anything happening with guns at all. Maybe something extremely minor, but nothing that would actually be effective.

TN: For people who are non Americans, what do people outside of America not understand about the gun discussion in the US?

AM: It’s a cultural thing. The United States prides itself on being a system of checks and balances. Right. And for guns, Americans tend to think we are not going to let our government intrude and overtake us. That’s our checks and balances to dictatorships. Right. Authoritarian systems.

As other issues come up from the left and come up from the right, just everyone’s going to get more pulverized on this. There’s never going to be 100% solution. The Europeans are definitely not going to understand why Americans love their guns. But it’s just…

TN: Europeans, Australians, Asians, they don’t actually some in Asia get it.

AM: Some in Asia get it. The Swiss hilariously get it. They’re mandatory. They have Pentagon, everyone’s. And it’s unfair for the rest of the world to compare a small country of like, say, 10 million people statistically to the United States that has 350,000,000 plus people out there, the giant system.

TN: Yeah.

AM: We’re doing our best and nothing is a perfect system and we’re getting towards it. But it’ll take decades.

TN: Yes. Okay, good. I just wanted to cover that off since it’s been such a big topic lately. Okay, guys, the week ahead. We had a kind of a lackluster week this week. Tracy, what do you see happening in the week ahead? Crude actually had a fantastic week. What do you see going on next week in, say, energy and commodities?

TS: I’m still bullish energy and commodities. From a technical standpoint, we broke out of a technical pattern. Right. I don’t see anything changing, in other words, in the physical landscape, I mean, markets are tight. We have a structural deficit. The whole complex is in bacridation. So I expect energy prices to stay high. Really? I don’t think Biden’s meeting is going to do anything.

TN: Right. Okay. Very good. Shannon, what are you looking for?

SR: More chop. A lot more chop. I think the jobs report on Friday, there was a quote that it was goldilocks-ish it was not goldilocks-ish if you’re the Fed. The Fed saw a lot of jobs created. It’s a participation tick up and it’s average hourly earnings still sitting at 5.5% for everyone on a year over year basis. Those are three things that they don’t really want to see sitting that high.

TN: Right.

SR: It’s that simple. They would be much happier with 100,000 jobs created or lower. I think they want a couple of negative prints. An average hourly earnings that’s closer to 2% year over year. That means that the wage price spiral isn’t happening. And they really want an awful lot of call it pain in the inflation space. So you’re not really seeing anything to knock the Fed off of its current path. And if anything, you probably gave it a little bit of a tailwind to some more hawkish rhetoric.

Brainard being a Hawk? That should scare everyone. Because when Brainard comes out as a Hawk, that’s a signal.

TN: That’s weird.

SR: That’s a signal that they’re going and they’re going hard.

TN: Yeah, that’s upside down world weird. And then was it May said out yesterday saying they could do another fifty in September?

SR: Yeah. After the print on Friday, guess what, this is the best part about the Brainard statement is she said in order to have a better balance in the labor market, they need to see job openings decline.

This is critical, though. Job openings are reported a month lagged to everything else. Right. So in September, they’re going to be looking at maybe August.

TN: Let me ask you this. Elon Musk was out this week saying, hey, if you’re not going to come back to the office, we’re going to consider that you resigned. Are we going to see more CEOs do that? And could that potentially have an impact on the jobs numbers?

SR: Not really. One, Musk, then he said we’re over staffed by 10% across salaried workers. So the statement for Musk was probably more to get some natural attrition. So we didn’t have to actually lay off people because it’s a lot cheaper when people quit than it is when people get laid off. And Musk needs a couple of headlines because his Twitter deal was a really dumb idea.

TN: Yeah. And also I kind of preempted Musk by two years. I told my staff in June of 2020, but if you don’t show up, you could resign. So I was early on that boat. So Albert, what do you expect in the week ahead.

AM: Everyone saw Yellen come out and say I missed the inflation and how bad it’s going to be. That’s her getting ahead of the CPI print. It’s going to be a bad one. I think it actually could get close to 9% which would be not good for the markets.

On top of that Opex Fed minute coming up, I think we’re going to be like Sam said, I think there’s going to be some chop. They’re doing their best to keep this thing above 4200. So I think we’re going to be looking at probably push 4250 which is a bull bear line this week until CPI print comes in and then Armageddon.

TN: That’s what you said last week.

AM: That’s a 4200 on that Monday on futures.

TN: Okay.

AM: They tried but they sold it. Everyone’s just selling.

TN: Okay. So we have another chance this week.

AM: Yes.

TN: Great guys. Thank you very much. This has been a great discussion. Thanks so much and I really appreciate this. Have a great week ahead.

AM, SR, TS: Thank you. Bye.

Tags Bosphorus, Chinese, complete intelligence, cpi, Dc, Egypt, Elon Musk, Europe, Fed, India, Israel, Korea, MBS, Morocco, Musk, NATO, opec, Pakistan, Pentagon, Russia, saudi arabia, The Week Ahead, tony nash, Turkey, Twitter, US, Washington DC, week ahead

Week Ahead

The Week Ahead – 30 May 2022: Does this relief rally have legs?

Post author By admin
Post date May 28, 2022

We’ve had a big week in markets. The S&P is up 5 percent. We’re looking at whether this rally has legs, where’s the volatility, and if the recession is canceled? Also, we have a shorter trading week next week due to Memorial Day on Monday in the US. What’s to expect in 4 days?

Key themes:

Does this relief rally have legs?
Where’s the volatility?
Is the recession canceled?
What’s ahead for next week?

This is the 20th 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 experts on Twitter:

Tony: https://twitter.com/TonyNashNerd
Sam: https://twitter.com/SamuelRines
Albert: https://twitter.com/amlivemon

Time Stamps

0:00 Start
1:10 Does this rally have legs?
1:58 When will the tail end?
2:40 Crypto has no participation in the rally
3:31 Why tech is still weak?
3:52 Why tech is so subdued?
5:00 What to expect in the options market in the next 4 weeks?
6:42 Durable goods chart from Sam’s newsletter.
8:52 Layoffs in tech, will it continue?
11:30 Will investors and analysts become tougher on companies as we normalize?
13:55 Will we have a recalibration of valuation expectation if there is no recession?
14:34 What to watch out in the 4-day trading week?

Listen on Spotify:

Transcript

TN: Hi, everyone, and welcome to The Week Ahead. This is Tony Nash and I’m joined by Sam Rines and Albert Marko today. We’ve had a big week in markets. The S&P is up 5 percent.

So we’re going to look at a few topics today. First, does the relief rally have legs? We’re also going to take a look at volatility and the recession. Is the recession canceled? What’s happening there? We’ve heard a lot of talk about that. And finally, we’re going to look at the week ahead. So what do we expect for the short week ahead in the US? We have a holiday here in the US on Monday. So what do we expect for Tuesday to Friday in US trading?

So let’s go to you with this relief rally. What’s your thought on this? Does this relief rally have legs?

AM: In short? No, not really. The Fed uses many tools to produce rallies. A lot of it is coming. This week was short covering. Previously, what you’ve seen, especially when during a holiday season, holiday hours, whereas like when I was trading, a lot of liquidity out there is they actually serve the market. They did this over Thanksgiving. They did this over Christmas. If you go back and look at the charts, those 4800 prints were done over holiday trading hours. It’s easy for them to do it. Does it have legs? Probably not.

TN: So legs. Does the tail of this last few days next week, or is Friday the last kind of really interesting day we see for a while?

AM: Well, they have a tendency to figure out what the Bull bear line is, and I think it’s at 4250. Don’t be surprised if Tuesday we’re in the 4200 pushing that line. That’s when the put options are absolutely just completely obliterated after today, for sure, by Tuesday. And then people start getting bulled up. Once they get bulled up, they just pulled the rug.

TN: Sam, what do you think?

SR: Well, I think it’s really interesting that you saw this rally and you had basically no participation in crypto. Crypto tends to be tip of the spear type risk. If you really want to put some significant risk on in a portfolio, you go ahead and buy crypto. That’s just what you do.

So I think that’s a fairly telling sign that, yes, there is a rally underway. And if you look at it, oil is ripping right now, particularly some of the smaller producers. So you are getting some of the underlying stuff moving, but you’re really not having that tip of the spear, real risk type move that you would really want to see for some sort of sustained long-term risk-on type rally.

TN: And we saw guys in Nvidia really take a hit this week. Granted, it’s coming back a little bit, but tech is still weak. And so we’re not seeing some of those risk names really come back.

AM: Yeah. What’s interesting and this goes into the next topic is how are they rallying the market if tech’s not running.

TN: Right. So let’s talk about that. Why is volatility so subdued? I’m not really sure. So we’ve got a chart for the VIX up on the screen. So can you talk us through it’s the lowest point it’s been since Covid. So what’s going on there?

AM: Yeah. So the question is how could it be at a three-year low with such bad news out in the market? Raising rates, Fed sitting there talking Armageddon when it comes to the markets, bad news, bad earnings, everything is going wrong. How possibly could this thing be at the three or low?

Well, they keep it there on purpose to sit there and subdue the VIX. Well, now the VIX is at what, 28? I believe it is right now. But really, they could probably take this to 22 and use that to rally the market rather than tech. But, man, I’ll tell you what, you got to be very careful because the VIX at 22, and if they start rallying the market at that point, 4250 is could be the tip of the iceberg. You know what I mean?

TN: Oh, yeah. I guess my question, Albert, is the VIX measures S&P options for the next 30 days. Right. And so what it’s telling me is that the options over the next four weeks aren’t expecting a dramatic downward move. So are they just playing in that options market to make sure that it looks pretty orderly or what exactly is happening?

AM: Oh, yeah. They’re creating a story. They’re creating a narrative and tell you, hey, it’s time for you guys to get bulled up. Okay. Their objective is to erase excess money out the system and to give us a soft landing. They have said this much to Sam’s point, which he’ll talk about is they said we’re going to raise rates and we’re going to let off when we have to let off. They’re giving you all these signals to get bulled up.

TN: Yeah. I just want to make it clear because I think there’s a misconception out there about the VIX. I think a lot of people believe that the VIX reflects volatility in the market today. And that’s not at all it. I just want to make clear as we talk about it, that we’re looking at the options market over the next 30 days and how the Fed potentially is playing in that options market to make things look like a soft landing. Right?

AM: Yeah. They’ve erased trillions of dollars in the past OPEXes, and they’re just lining everybody up for another one. I mean, I think at one time it was 9 trillion. Another instance was 11 trillion. Just obliterated options.

TN: There’s a lot of opportunity in this. Right. I mean, if you see what’s coming, it can be really interesting.

AM: Well, this is a pattern thing. People do what they know. They’re creatures of habit. Fed is no different.

TN: That’s right. Very good. So on that note, Sam, you had an interesting newsletter out this week looking at kind of the recession. And one of the interesting charts which you have now is looking at durable goods, all durable goods and durable goods, excluding transportation.

Can you talk us through that a little bit and help us understand what that means for kind of the recession that we hear talked about so much over the past few weeks?

SR: Yeah, certainly. It’s pretty straightforward. Right. If you look at a combination of same-store sales across for retailers across all of them and not just a few big ones that made headlines, things were fine. Then you look at durable goods.

Durable goods skyrocketed coming out of COVID. And guess what? They’re continuing to make new COVID highs. Yeah. They just put it on a month-over-month basis. But it’s pretty aggressive to say that while they’re still growing and still ex-autos above anything that you can get back into the 80s. That’s a pretty big figure there.

It’s very hard to say, hey, we’re in the middle of or entering a recession when you have jobless claims sitting at 210, 215 thousand a week and you have durable goods sitting that high, the Red book same-store sales are in the low teens. That is an absolutely stunning figure for any time outside of call it COVID. Right. I mean, normally you’re very pleased with a 5% figure.

So it’s very difficult to get to the whole recession narrative unless you’re looking for something to really break here in a major way. We’ve already seen a housing break. I mean, we called that out a long time ago, but at the end of the day, if you don’t have people defaulting on their homes, which they’re not, and you don’t have a significant number of layoffs in the construction industry, which we haven’t seen, you can have a slowdown in home building and home builders and home buying and not really have it be systemically important to the US economy.

TN: Right. And we’ve had some layouts in Tech, which you talked about a couple of weeks ago, but a lot of those are bodies that people kind of panic bought. Right. They overbought headcount and now they’re shedding that headcount that they overbought.

I don’t know if that’s isolated to Tech or if that’s just happened across a service industry generally, but it seems like we’re starting to see a narrative that there’s a lot of layouts happening and a lot more coming. Do you see much of that, or are you seeing much of that outside of Tech?

SR: No, not really. It’s a San Francisco problem, not a San Diego problem. That’s the way I like to frame it is. Yeah. You overhired a lot of people in tech.

TN: And paid a huge amount of money for them.

SR: And paid a premium. And when you paid a premium and figured out that COVID wasn’t forever and the COVID demand wasn’t forever, if you want to realign your cost structure with your revenue outlook, you’ve got to take some head count down. But to be honest, you’re really not seeing it be something that’s systemic to say the entirety of the labor market by any stretch. West Texas isn’t laying people off on the oil drilling front. They still need.

TN: I’ve two friends who’ve just been hired to go out on rigs in the past two months. I mean, that is still building up.

SR: It’s still building up. And there’s nowhere near enough labor to do it. And you don’t have enough labor and leisure, right?

TN: Yeah.

SR: I really do think that we’re going to see the summer of vacations at any price. And if you look at leisure and hospitality, they are well understaffed. And that’s going to continue to be a problem. This is San Francisco problem, not a San Diego problem.

TN: Okay. So let me ask you guys, and I’ve been running through this, bouncing this off a couple of people over the past couple of weeks. But through the COVID period, banking analysts and investors have been pretty lenient on management teams. Hey, just make it through. Just keep running your business. Yes. We can tolerate a lot of kind of variability. They’re very forgiving on things.

Now that we’re normalizing, and I heard someone say this week something like only 7% of the workforce is actually working from home. I don’t know if that’s accurate or not, but I heard somebody say that maybe it was 17, but I think it was seven.

But now that we’re kind of normalizing, will those investors and analysts become tougher on companies on those management teams? Because it seems like they’ve been very loose, giving them huge birth to do whatever they want just to keep the business together over COVID? Are those expectations tightening down?

AM: I would have to say absolutely. I mean, in the past two years, you’re talking about just companies treading water, navigating the turbulent water of the market. Now you need actual leadership to figure out what’s going on with the supply chains, how to get workers working at a productive rate, getting supply and so on and so forth.

It’s crunch time now because although we can talk about a recession not happening, and I think that’s accurate. Look at the retail numbers that just keep coming out. We even said don’t short retail do that. The piper has got to be paid and management has to step up right now. 100%.

SR: Yeah. And step down. I think that’s a completely relevant one. And a lot of it is concentrated in VC.

TN: Right.

SR: A lot of it is things that you don’t get the AK on. These are private companies that raised at ridiculous multiples during COVID. Those are going to continue to see some downroads here.

TN: Right. But not just in private companies. Do you think that because of the change expectations post COVID, do you think we’ll see some management turnover in some large companies?

SR: Yeah. You’ve already seen Jack Dorsey out, right? You’ve seen that kind of called the Elon effect on that front? Yes. You’re going to see a lot of them.

In particular, I would say you’re probably going to see give it six to nine months when the body is washed up on shore from the downturn in DC, there’s going to be a lot of people that went over their toes there and they’re going to be axed.

AM: Yeah. Not just that, Sam. Not just that being pressured but also there’s going to be a lot of companies out there looking for merges and acquisitions that are going to force these.

TN: So if we don’t have a recession, we’ll still have a recalibration of, say, valuation expectations. Is that fair to say?

AM: I would say so. I mean, talking about recession, it’s a numbers thing. It’s a perception of what numbers is being displayed by the Fed and the Treasury. I mean, they can just fabricate those for however long they have to. So you won’t technically be in recession, but wage inflation, inflation is going out of control.

TN: You kind of rolled your eyes when I said that, but what were you thinking?

SR: I don’t know.

TN: That’s a good answer. What do you expect for next week? We’ve got four trading days next week. What’s going through your mind and what are you thinking about as you go into the holiday weekend?

AM: Bull bear line, 4250. I expect them to at least try to come close to that. But there’s going to be a lot of sellers out there trying to get whatever they can figuring out that OPEX and the Fed minutes are coming out next month with more rate hikes.

TN: Okay, 4250 on the S&P. Sam, what are you thinking?

SR: I’ll be watching the dollar really closely. If you continue to see a lot less pressure underneath the dollar here, oil is going to moon. So I’m watching oil very closely, mostly due to the dollar and some downward pressure on longer term rates. As we continue to see the narrative of the fed go fast then backtrack call it 1994 with 2001 characteristics.

TN: Interesting. It’ll be great to see. It’d be really interesting to see it, guys. Have a great holiday weekend. Thanks very much and have a great week ahead. Thank you.

AM: Thanks.

SR: Thank you, Tony.

Tags Bull, Christmas, covid, Crypto, Fed, Jack Dorsey, Nvidia, OpEX, San Diego, San Francisco, The Week Ahead, US, vc, VIX, week ahead

Week Ahead

The Week Ahead – 23 May 2022

Post author By admin
Post date May 21, 2022

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The SPX was down 4%, WTI was up 2.8%, and the 10-year yield was down 2.9%. Intraday vol has been an issue all week. What’s going thru an institutional trader’s mind in this market? Sam Rines explains.

On the commodities market, wheat was down 6% this week. Corn ended this week down about 1%. We’ll help you understand ag and fertilizer markets with Tracy Shuchart.

The dollar (DXY) is down a bit this week, about half a percent. Are global central bankers worried about a rising dollar and is there anything they can do about it? Albert Marko gives his insights on this.

Key themes:

1. How are institutions trading the intraday vol?

2. Ags and fertilizer: Demand Destruction vs Supply Shortages

3. $USD 💪 – 🙂 or ☹️

———————————————————————

This is the 19th 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 experts on Twitter:

Tony: https://twitter.com/TonyNashNerd

Sam: https://twitter.com/SamuelRines

Albert: https://twitter.com/amlivemon

Tracy: https://twitter.com/chigrl

Listen on Spotify:

Transcript

TN: Hi everyone, and welcome to The Week Ahead. I’m Tony Nash, joined as always by Sam Rines,

Albert Marko, and Tracy Shuchart. Before we get into it, please, please like and subscribe. Please like and subscribe.

Also, we just started our new CI Futures promo. You get your first three months free. Get global markets, currencies commodities economics with CI Futures. Check it out at completeintel.com/2022Promo

So guys, this week S&P was down 4%. So I think some people are relieved it wasn’t down more. WTI was up almost 3% and the 10-year yield was down 2.9%. So I think it was a little more tame, at least by the end of the week than some people thought it might be, which probably not helpful to everybody, but I think it helped people a little bit, just kind of get a grip on things.

So our key themes this week, first, how are institutions trading this market and more specifically kind of Intraday Vol?

For AGS and Fertilizer. Is it demand destruction or supply shortages or both? How are those playing out?

And for the US dollar strength? Are global central banks happy about it or sad about it?

So today for our first segment, Sam, if you can help us understand this. Intraday vol has been an issue all week and for the past couple of weeks. What’s going through an institutional traders mind in this market We’ve got a tweet and there was a great thread from Kris Sidial. I definitely recommend reading it. So can you walk us through that a little bit, Sam, what they’re thinking about and what institutional traders are doing?

SR: Sure. I would say what they’re thinking about is not losing money, particularly after you had the target earnings, Walmart earnings. There were some landmines out there in individual retail land. That brought up some call it concerns about the consumer. It brought volatility into places you hadn’t really seen volatility recently. So staples began to really get a little more volatile. In particular, they were more volatile than the S&P500 for the back half of the week. So you began to see call it the volatility spread on underlying issuer basis, but not necessarily really spiking at the headline index level.

TN: So traders are trying to keep it flat, right?

SR: They’re keeping their risk very tight. There’s quite a bit of blood in the streets, so to speak, particularly those trading rates and individual equity names. So yeah, I would say it didn’t look like it was that volatile, but the intraday vol was incredible and it took a lot of the risk out of the system. It’s worth noting that a lot of the risk managers out there aren’t looking at day to day vol. They’re looking at Intraday Vols, PNLs. So you’re likely to get a shoulder tap Intraday if you’re playing these markets with too much leverage.

TN: You tap out at like 2:00 PM or something because of your positions? Is that what happens?

SR: Or you just have to unwind one that you like. Right. If you put on a S&P future trade early in the morning and you get 100 point move Intraday in the S&P, you’re going to get blown out of that position pretty quickly. Right. You have to have really tight stop loss limits. That’s it.

TN: Albert, what are you seeing?

AM: Well, the Fed has done a marvelous job of erasing excess wealth out there, excess money. Not just from retail. Retail is dead in the water right now. But even institutional wise, a lot of funds just been obliterated for the past month and a half now? The problem becomes liquidity. And where is it? I’m looking at the order book on the e-minis, and it’s just there’s nothing there. There’s nothing on the buy side,

nothing on the… Nothing. So these massive 100 point moves, I mean, of course, we’ve never seen anything like this, but if you look at the problem with liquidity there, it makes perfect sense.

TN: So, Albert, from a hedge fund world perspective, do you think we’re going to see some hedge funds cleaned out? Obviously, Melvin, we know that story. But are we going to see some issues there with some funds?

AM: Without question, you’ll see a lot of them unwinding by the end of the year. I know a few personally that have closed up shop or in the process of closing up shop. And I can’t imagine there’s at least 25% more that’s out there that are in some serious trouble. I mean, redemptions will start taking off clients that were sold, big tech names in a zero rate economy, they’re gonna be calling every single day what’s

going on for returns, and there’s none to be found right now.

TN: Yeah.It’s tough to get things out right now. Okay, good. Thanks for that. Let’s move on to our second topic.

Tracy, wheat was down 6% this week. Corn ended down about 1%. We got an interesting viewer question from Thomas Sieckmann, who’s a regular viewer. Can you help us understand AG and fertilizer markets. Thomas is saying, “love to hearyour thoughts on AG commodities. Demand destruction versus supply shortages, fertilizer prices and shortages, drought, lots of cross currents.” Can you help us understand kind of those markets a bit better?

TS: Sure. Well, first, I don’t think you’re going to see demand destruction even at higher prices,

because people need to eat. Right.

TN: Eating is good. Yeah, right. We can agree on that.

TS: The thing is what I think we’re going to see a structural shift in the market, whereas you’re going to see different crops being produced over other crops. In other words, if we look at, say, wheat, for example, what’s happening right now is that wheat crops are being produced more because it’s easier to do, less energy intensive, and that’s going to make a problem on the corn market. Not necessarily in the United States. I would single out the United States as it is kind of a different market altogether?

But if we look at the global markets, where I think this is headed. We’re going to see shortages in areas where you didn’t think so. Right.

We’re all scared about wheat because of obviously Ukraine and Russia and then being major producers, et cetera. But that is going to, in turn, affect the corn market, global production and what those crops are, what crops are being produced globally, if that makes sense. I think that’s what we need to be on a lookout for.

And things like rough rice. Rice. Rice is going to, because nobody wants to put wheat and corn into, say, animal food anymore. Right. Rice is much cheaper. So I would look for rice to go much higher because

they’re going to use that to replace something like animal feed.

TN: Interesting. Okay.

So we’ve seen political instability in Sri Lanka, especially over the past couple of weeks, and part of that is just terrible government. Part of that is weak currency and food affordability. How far do you think this goes? Does it get extended to a lot of other countries, or is there a few other countries that this gets exposed to? Both you and maybe Albert, if you guys can both jump in on this.

TS: Yes, I think it extends. We’re already seeing that name around. Right. We’re already seeing protests in Iran, and I think that this is going to continue, especially in emerging markets. Right. So I think this is nothing new. I think we should expect more of this and be reminded of when we saw the Arab Spring. It all started because of food. Right. So that’s something that we need to pay attention to, in my opinion.

AM: Yeah, I agree with Tracy. Some of the emerging markets are going to be the most hardest hit. It’s funny, because four or five months ago when my client and I were sitting there discussing what countries to look at to invest in, and one of the key components is which ones are stable in their food supply.

I mean, the United States. But France is actually quite stable. I think that they can actually make quite a play for the European Union’s leadership over Germany going forward, specifically because they’ve got enough food to sustain themselves.

As for the other countries…

TN: That’s a good point, Albert. I hadn’t thought about that. But that’s a really good point about France.

AM: Yeah. Well, I mean, they got their own food. They have a big agricultural industry, they’re

top in the world, and they’re self sufficient. And they have water from the Alps, too. So they have everything they need for themselves. So they’re pretty isolated from this.

But you look at Spain, they’re in trouble. North Africa, they’re in significant trouble. Sri Lanka won’t be the first looking for at least a dozen more instances of that happening around the world.

TN: So we have a summer of new government.

TS: I’m looking towards Brazil and Argentina, even though everybody kind of hates those markets right now, is if we look at their agriculture? Their agriculture is robust. And so I think that in the end, that will serve them from an investment standpoint if you’re looking to invest in.

AM: But the only problem with Argentina is so I mean, their government is just absolutely atrocious. And then the Brazilian. High risk. And Brazilians have a big election coming up, and that’s going to be extremely contentious. So I would stay away from those two until after those elections happen and whatnot.

But yeah, I mean, Brazil, they have fertilizer, they have fruits, they have sugar cane, a lot

of chicken, a lot of soybeans, a lot of meat.

TN: Okay, perfect. Let’s move on to the next topic. Albert, we got a question from Gary

Haubold, who’s a regular viewer. He’s talking about the dollar and how central banks. There’s gossip that central banks are getting nervous about a strong dollar. So dollars up or down, sorry, a little bit this week, but how worried are global central banks about the dollar?

Of course, you have, say, the North African or Brazilian or other kind of fairly shaky monetary markets. But if you look to, say, European or developed Asia or some of those other markets, how worried are those central bankers about a strong dollar?

AM: Well, I just want to isolate this between just the United States and Europe right now, because that’s only really what matters to the market back in the United States. A strong dollar for the Europeans is not good. It’s just absolutely not good. It would be good if the Euro was falling. They had exports to send to China, but they don’t have that anymore. So now they have dollar liabilities that are getting out of control. And I think that the Europeans, I’ve heard whispers inside the Fed and treasury that they’re worried about a European financial crisis. And it makes perfect sense. If they want to get the markets down, blow up Europe, that’s the best way to do it.

TN: But I thought we’ve had a financial crisis in Europe since about 2012.

AM: Yes, but we have it every five or ten years because Europe is a welfare state. It’s a welfare state that lives on Fed swaps. Right. That’s all it is. And I don’t want to insult the Europeans on here, but let’s just get real here. Without Chinese exports, they’ve got nothing.

TN: Sam, what do you think about that?

SR: Yeah. If China doesn’t open up soon, it is going to be extremely problematic for Europe. That would be the saving grace in a lot of ways to Europe for a strong dollar. Other than that, there’s going to have to be some sort of interesting talk down to the dollar, either from treasury or some hawkish comments coming out of the ECB. And you’d begun to hear the ECB be a little bit more hawkish recently. If they really want the dollar to abate, they’re going to have to get more hawkish.

TN: Yes, for sure. And on your China point, I saw a story this week that the Shanghai Port was at about a 90% capacity at some point this week. Whether that’s true or not, I don’t know. But I saw it in a legitimate newspaper so let’s see how long that lasts.

TS: I was going to ask you, Tony. From a China perspective, how do you look at this opening? Do you think Shanghai is really opening like they say it is or is this hearsay or, can you give us a little bit of insight on kind of the China situation right now because that makes a huge difference in demand for energy and materials?

TN: Sure. Absolutely. So I sure want it to open because I want both China and the rest of the world to thrive but because of a lot of domestic considerations, COVID or monkey pox or whatever it is. I don’t know. They’re just lifting it slowly.

But we talked about this in detail on last week’s show but I really don’t think they’re going to open to any interesting degree until mid summer. Maybe later. I wish they would open tomorrow but they won’t. I think for a lot of reasons they’re kind of getting in their own way and I’ve said this many times China needs to be saved from China. It’s just such terrible management of the country and has been for 50 or more years

and they’re potentially going back into the great famine type of environment which I worry about a lot and that would be detrimental to everybody around the world.

TS: That makes sense.

TN: So on that happy note, thanks so much for taking time for the show, guys. Really appreciate that. Have a great week ahead. Thank you very much.

Week Ahead

The Week Ahead – 16 May 2022

Post author By admin
Post date May 14, 2022

The number one issue for Americans is inflation. As long as this is a top consideration, the pressure will be on the Fed to bring it down. Sam has been pretty consistent with 3 x 50 rate hikes in May, June, and July. What changed in trading today? Is everyone still bearish? Samuel Rines explains.

Also, what’s next for crypto? Luna fell from $90 last Thursday to $0.00005952 on Friday. Their circulation went from 4 billion yesterday to 6.5 trillion today. Watching the crypto fallout is terrible – lots of people have lost lots of money in this supposedly immutable “currency”. Albert Marko explains what happens next.

Lastly, is China really falling apart? We’ve seen some unsettling posts over the past several weeks out of China. From lockdowns to port closures to gossip that Xi Jinping has been sidelined.

Key themes:

Is everyone a bear now?
What’s next for crypto?
Is China really falling apart?

This is the 18th 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 experts on Twitter:

Tony: https://twitter.com/TonyNashNerd
Sam: https://twitter.com/SamuelRines
Albert: https://twitter.com/amlivemon

Listen to this episode on Spotify:

Transcript

TN: Hi and welcome to the Week Ahead. I’m Tony Nash, and as usual, we have our team, Sam Rines and Albert Marko. Tracy, who’s not with us today.

Before we get started, I’d like to ask you to subscribe to our YouTube channel. It helps us a lot get visibility, and it really helps you get reminded when a new episode is out so you don’t miss anything.

Gosh. Big week for everyone. I wish I had fallen asleep a week ago and just woken up now after Friday’s trading. But it’s been a big week all around for everyone.

Guys, we really have a lot to talk about this week. We’re covering the markets. Is everyone a bear now? That’s one of our big topics that we’ll have Sam lean on. Next is what’s next for crypto? A lot of action on crypto, a lot of scary things happening with crypto and then some news out of China or speculation out of China. We’re asking, is China falling apart?

So Sam, let’s start with you first. I guess one of the most relevant items I’ve seen circulating and it was in your newsletter today is the top issues for Americans on the screen right now.

It’s clearly inflation. As long as that’s a top consideration. The pressure on the Fed to bring inflation down is huge. So you’ve been pretty consistent with three times 50 basis point hikes for May, June and July. What’s really changed in trading today? And is everyone still bearish?

SR: Yeah. I mean, everyone still seems to kind of be floating a little bearish, but I kind of like to go back to the number one concern is inflation. We shot ourselves in the foot and then the second one is getting shot in the head, right. It’s violent crime and crime. You add those two together and it’s even larger portion of inflation. So it’s safety and food. Right.

People like to eat and they want to be able to eat and they want to feel safe. I think it’s that simple. Those should be the top two concerns in this type of environment when you have the data pointing towards continuing higher inflation numbers and continuing crime.

On the is everyone a bear front? I think it’s a little complicated, right.

Because if you look at the flows into and out of indices and into and out of fixed income, and when you look at the flows, it’s easy to kind of say everyone’s a bear. Right. Pouring money into Treasuries, taking money out of indices. But at the same time, underneath the surface, you really want to be careful on what you’re a bear on and what you’re not.

There’s a lot of things that can still make money in this environment, oil, food, etc. can still make money. And there’s a lot of things that are probably still going to get torched. Anything that’s a little high beta is probably not the place you want to be for the whole time. Tradable but unlikely to be a long-term type trade.

TN: Like, I noticed some of the techs coming back today, and that’s great. And I hope people don’t lose more there. But is that something that you would consider kind of be careful if you’re going back in type of trade?

SR: Some of it. Not all of it. There’s a lot of tech that actually looks fairly attractive here, whether it’s from a valuation perspective or whether it’s from a very long term perspective.

A lot of stuff re-rated, re-rated fast, and it looks attractive. And there’s a lot of stuff that looks like it’s probably going bankrupt. Right. I wouldn’t be trying to bottom tick Carvana.

AM: Actually to expand on that, Sam, about who’s a bear and bears or Bulls or whatnot. I kind of think that we have to separate the higher great institutions versus the retail dip buyers that are just looking for that get rich, quick return. Many of the institutions, the ones I’ve talked to, are absolutely still bearish. They don’t see real value in this economy until the market until 3700.

Coincidentally, one of the hedge fund guys told me at 3500, you have an actual financial crisis in the United States just because everything’s leveraged up. So I don’t think that the Fed was even going to want to afford or going down past the 38, 3700, in my opinion.

SR: In 100% of that, Albert. Right. You have to separate those two teams of people. Right. The dip buyers are going to try every single time to get rich quick. Real long term allocators are going to take their time here. They’re not going to rush and, those are very large positions they have to take. And they don’t get to move in and call it for two or three weeks. They have to move in for very long periods of time.

So it’s Albert’s point. I don’t think that should be underrated, period.

AM: You can just look at the valuations of some of these companies that are still out in the stratosphere, like one of the ones I’ve recommended, Mosaic, Tight and Tire. They’re just ten fold of what they were in 2020. How do you buy these things? You can’t buy these things.

TN: Right. We’ve seen a lot of chatter about margin calls over the past week and a half. Obviously, that’s been scary for the first wave of kind of people going in. But when that second wave hits, when does that start to hit that second wave? Once we go 3800 or lower? So is that when things get really scary?

AM: Actually, I think part of the margin calls happened this week, today, actually Friday. I think a lot of guys had a liquidate positions and cover shorts and whatnot. And we got a little bit of a squeeze of a rally. I didn’t really feel like a Fed was pumping just thought like people short covers and people trying to get stuff off the board.

TN: Right.

SR: 100%. That’s where I think. I don’t think you want to be in front of a wave of liquidation for let’s call it sun and Ark, right? You do not want to be in front of either one of those two right now, period.

TN: Yeah, it was nice to have a Green Day, but it didn’t necessarily feel like a strong Green Day.

Okay, guys, let’s move on to crypto. Albert, I think you’re the man here. You’ve talked about crypto for a long time. It’s bad. This week is bad. And we’ve got a chart for Luna.

Luna fell from $90 last Thursday to 5, 10 thousand of a cent today, I think. Their circulation went from 4 billion yesterday to 6.5 trillion today. So it doesn’t sound very immutable to me. So the watching crypto fallout, it’s been pretty terrible. Lots of people have lost lots of money and people are questioning and cynical about words like immutable now.

This is something that I think experienced people have expected. But what happens next? Do we have a clearing out of some of these currencies? Do people just hold at 5, 10 thousand of a cents? Do we see some of these actually become currencies or is it all just going to get regulated and kind of thrown out the window?

AM: Well, are they going to be currencies? No, they’ll never be currencies. The dollar is going to be the currency of the world status for trade for the remainder of our lifetimes, whoever is alive today. That’s just the basic fundamental fact that you have to come to grips with.

This is like part one of the closing call for cryptos in my opinion. They got a good dose of the reality that when things need to get liquidated, you’re not liquidating residential towers in Miami on your portfolio. You’re liquidating some Ponzi scheme cryptos that are in your pocket that your clients really made you get into to begin with.

From the retail side, as much as I want to gloat, because I’ve been saying that this was going to happen for years, it’s really not that funny because you had guys out there pushing these crypto things and saying the dollar is dying, gold is dying, digital future, blah, blah, blah. Look at this chart, look at that chart. But the reality is there are nothing but pump and dump schemes. And people lost a lot of money.

I had a friend that goes to school, his daughter goes to school with my daughter. And he told me months ago I put everything to Litecoin for the College fund. I tried to reason with this guy.

TN: Please don’t do that.

AM: Yeah, well, community college for that kid.

TN: Albert, they’re following the lead of some, analysts are credible. They have a credible history and they’ve really started pushing this stuff. Now they’ve dialed it back. But some people who had previously been credible analysts were pushing this stuff.

AM: They’re liars. They’re all liars.

SR: Had been.

AM: They’re trying to get services sold and people to watch their YouTube channels and get subscriptions up. So of course you’re going to go and sit there and try to pump crypto to the retail crowd because they don’t know any better, right?

SR: And anyone who looked if you really dug into the Luna situation, you could understand very quickly how that could unwind in a way that was dramatic. This wasn’t even constructed as well as a pre 2008 money market fund. At least you knew what the money market fund held behind it and how it was going to actually return money to you.

With Tether, it’s supposed to be a crypto ish money market fund. We still don’t know what that actually holds. The whole thing to me is regrettable to Albert’s point, right. The two of us kind of got picked on when we giggled off paying for oil in crypto earlier this year. But the two of us have been kind of like, “no, not so much.” So while it’s tempting to kind of have that little bit of a cocky grin.

It’s a really sad situation and there’s a lot of money that got shredded very quickly there.

TN: Very quickly in less than a week. It’s insane how much money. If anybody who follows me on Twitter knows that I invest in some Doge last year, stuck with it for a few months, got out I did it because it was a joke of a coin. Everyone knew it was a joke of a coin. I wanted to be on part of the joke, and I made some money at it. And that’s it, right? That’s it. You can’t necessarily think of this stuff as a serious investment because it’s so highly unregulated and people engage in this pump and dump stuff.

AM: Yeah. We can have a conversation on this for hours. This is actually at the heart of the problem of the US economy at the moment. All these gig employee, all these gig employees service industry and jobs and whatnot, they left work got into crypto. Got stimulus checks, sat at home, kept getting unemployment, not going to work, and now we’re stuck with the labor shortage in reality. I don’t care what the Fed says and what Yellen says about the market. The labor market is good. The labor market is absolute trash right now. We have no workers anywhere right now. And because. Yeah, this is part of it.

TN: So that’s a good question. With crypto, kind of at least temporarily, maybe permanently dying, does that help the employment picture? Does that help people come back to market even a little bit?

AM: People had tens of thousands of dollars in a Coinbase account that are now $500. They’re going to have to go back to their jobs. And that’s just the reality of it. If you want me to go even a step further, this is probably the intent of the Fed and the treasury is to start eliminating this excess money, forcing people back to work.

SR: Yeah. Oh, 100%. In one of my notes this week that Tony, I think you saw, I sent out the video from SNL of Jimmy Carter saying, hey, get 8% of your money out of your account and light on fire. Guess what? The Fed just did that for millennials.

TN: Yeah.

SR: It’s that simple. The Fed just lit at least 8% of millennial money on fire, generally. Right. And it’s unlikely to come back that quickly. And I think if it wasn’t a direct policy, it was a side effect that the Fed sitting there going, oh, well, that works.

AM: I guarantee I talk to a lot of people. It was a direct policy. I don’t care. I’ll throw the Fed under the bus. They deserve to be thrown under the bus anyways.

TN: Well, yeah, it is where it is. And I would assume more regulations coming at some point because people will scream, especially with Coinbase.

I think it’s Coinbase or one of the exchanges saying that they’re going to undo a lot of the trades over the last two or three days.

AM: Okay.

TN: There are no regulations at all.

SR: Just call them the LME.

TN: Yeah, exactly. So crypto is the LME now, and it’s insane. So a lot of consumer protections are going to be talked about. A lot of regulations going to come in. I think that party is pretty much over.

AM: Yeah. Once the regulations started coming in from Congress and different governments in the world, they’re going to see how false their idea of decentralization really was.

TN: Yeah. Okay, guys, let’s move on to China. We’ve seen a lot over the past few weeks and really gossipy stuff about China. But today I saw a note from Mike Green on Twitter, which is on screen talking about Xi Jinping and Li Kaqiang, and Xi basically being sidelined on May 4.

I also saw another tweet yesterday, a guy going through Shanghai during the lockdown. If you haven’t seen it, the first of the thread is on the screen now. Check it out. It’s really interesting.

China is empty and it’s really sad.

So we’ve seen these really unsettling posts over the past several weeks out of China, from lockdowns to port closures to gossiping Xi as sidelined. So to you guys, what does that all mean? Is it something you’re taking seriously? Do you think it’s something that will have immediate effects? What does that look like to you?

AM: China. China is a big quagmire in itself. It’s such a large country. You’re going to have all sorts of rumors of Xi being sidelined and unrest in different cities like Shanghai and whatnot. But the Chinese are pretty pragmatic. They know that things are not going really well. So they’re going to have to lift off they’re going to have to lift off some of these just draconian policies with locking down people because it’s going to really hurt their economy. And part of it’s probably because they’re fighting inflation, too. They’re trying to cut down demand until supplies catch up. I mean, they got problems over there with inflationary issues.

TN: Also with the deval, with the port closures, with a lot of other stuff that’s happening there, their economy is already host. Right. They’re definitely not hitting 5.5, which is their target this year. And I think they’ll be lucky to have a zero growth year.

But I think Albert, on the political side, a lot of this kind of theater that we’re seeing play out on Weibo and Twitter and other things. Do you think this is plausible?

AM: Of course it’s plausible. I mean, you have the vultures circuit around Xi right now. They want him out. You have one elite group keeping him in power. But most likely have three or four other elite groups within the CCP that want him out. There’s no question about that. He can’t even go out in public.

TN: That’s an important thing that many people don’t think about is there are parties within the party. The CCP is not a unified party. There are factions within the party. Many Westerners don’t understand that. There are definitely factions within the party, and they’ll stab each other in the back in a second.

AM: There’s factions everywhere you go. People try to, China as a one rule or one party, one system, but even the United States, you have the Tea Party, the Freedom Caucus, the Progressive, so on and so forth. I mean, it’s all fragmented no matter what you do.

TN: Yeah, Sam. So China is second largest economy, ports closed, people in their houses, all of that stuff. So how long can they do this before it affects everybody or has it already started doing?

SR: Oh, it’s already affecting everything. The supply chains are already completely ruined because of it. There’s no question about that. I think the real question is what happens when they reopen, right?

We’ve got oil sitting at $109 and half a China is shut down. That is something that doesn’t, I mean, it’s kind of scary, right? You have a bunch of people that aren’t using as much as they should be right now. You begin to spin that back up. That could be a really interesting scenario overall. I don’t know.

AM: You know, Sam, that actually loops back to what you were talking about the Fed trying to fight inflation. No matter what policy they come up with, there’s still supply chain shortages and labor and everything that no matter what they do, they can’t fix.

SR: Their host. It’s an amazing world where you have half the Chinese, let’s just click through. Half the Chinese economy is shut down. You have the US dollar sitting at 105, 106 somewhere in there, and you have oil sitting at 110. Anybody who’s saying oil prices look a little toppy here might want to look at what happens when the dollar falls and China’s going.

AM: That’s what we’re going to have inflation in the five to 7% range for the next 18 months. I can’t say lower than that.

TN: 18 months, you say?

AM: 18 months. How are they going to get it lowered? China opens and then what? You know what I mean? And then you still have shortages everywhere. I mean, go to some of the stores. They have baby formula shortages.

On any given day, you have small materials you need from the home short. Everywhere. That’s going to create artificial inflation. On top of that, you have wage inflation. How do you get that down?

SR: The only way you get it down is having less employees. Look at Silicon Valley. Silicon Valley has started laying people off, and that’s not getting enough. It’s more than just Carvana.

AM: And then that’s the thing. Later in this year, Democrats and Joe Biden can have a real big problem unemployment numbers, starting to creep up. They can’t hide that forever with the BLS manipulation.

SR: Look at the household number. The household number is already not looking great. And that’s the one that they choose not to hide for a reason. Yeah, sure, the establishment is up, but you look at that household number and it’s printing negative already, guys.

TN: Yeah. One more thing I want to cover is this has to do with China shut down and it has to do with the possibility of political instability in China. So there are two separate issues. The newsletter today talked about reshoring.

So these things seem to provide more instability and a lack of reliability of Chinese sourcing. So what are you seeing to support the reshoring argument?

SR: Oh, lots of things. I mean, you have Hyundai. That’s likely to announce a pretty big factory next week in Georgia. You have everyone from Micron to a bunch of other call it higher tech firms beginning to announce that they’re moving back here. They’re building here and they’re going to manufacture here or they’re going to manufacture in Mexico. One of the other.

If you want to have China like characteristics without supply chain issues, you go to Mexico and that re regionalization trend. That’s the theme of mine. Is beginning to pick up steam and it’s going to pick up much more steam, in my opinion.

North America is going to be basically, in my opinion is going back to being the world’s, not manufacturing hub, but the world’s high end manufacturing hub. If you want something that it’ll be like big Germany.

AM: Yeah, I mean that’s just the most logical thing to do is to start putting your supply chains closer to your luxury consumers and you have to do that. But I’ve been high on the Canadian economy and the North American economy.

I think Europe absolutely they’re in deep trouble at the moment. So is Asia. But Europe especially.

TN: On the reshoring note, guys, if Germany can’t get power, will we start to see some German manufacturing firms potentially moving to the US?

SR: You already make AMGs here. Mercedez Ben’s AMGs.

TN: Yeah.

SR: They’re made in Alabama. But they’re made in Alabama.

AM: Yes. But Tony to your question, actually, I do have a colleague that works for Austrian driven outfit and they have been buying factories in the United States specifically for this reason. It’s the only place that people are going to be buying things or has money at the moment. Their entire export industry in China is dead and they’ve sat there and been lackadaisical and never sat there and tried to put their networks back into Africa where the real emerging market should be focused on Africa. It’s going to be bigger than Asia anyway.

SR: Let’s also be honest, they just got done pulling out of Africa in some ways. A couple of decades ago. They missed that boat.

TN: They did. And so did the Americans. So. Hey guys, thank you very much. Really appreciate this. If you’re watching please like and subscribe have a great weekend and have a great week ahead. Thank you.

AM: Thanks, Tony.

SR: Thanks, Tony.

Week Ahead

The Week Ahead – 28 Mar 2022

Post author By admin
Post date March 26, 2022

‼️SPECIAL OFFER FOR THE WEEK AHEAD VIEWERS: $50/MO ON CI FUTURES SUBSCRIPTION. ‼️

We’ve seen so much about oil for rubles, gas for bitcoin, etc this week. Does it represent a fundamental shift for energy markets? And is the dollar dead? The yen fell pretty hard versus the dollar this week. Why is that happening, especially if the dollar is dead? Bonds spike pretty hard this week, especially the 5-year. What’s going on there and what does it mean?

Key themes from last week:

Oil for rubles (death of the Dollar?)
Rapidly depreciating JPY
Hawkish Fed and the soaring 5-year

Key themes for The Week Ahead:

New stimulus coming to help pay for energy. Inflationary?
How hawkish can the Fed go?
What’s ahead for equity markets?

This is the 12th episode of The Week Ahead in collaboration of Complete Intelligence with Intelligence Quarterly, where experts talk about the week that just happened and what will most likely happen in the coming week.

Listen on Spotify:

https://open.spotify.com/episode/0twcBeGGELUrzdyMS0o37U?si=4dab69b94c3e4ec9

Follow The Week Ahead experts on Twitter:

Tony: https://twitter.com/TonyNashNerd
Sam: https://twitter.com/SamuelRines
Tracy: https://twitter.com/chigrl
Albert: https://twitter.com/amlivemon

Time Stamps

0:00 Start
0:34 CI Futures
1:22 Key themes this week
1:48 Oil for rubles (death of the Dollar?)
3:15 Acceptance of cryptocurrency?
5:34 Petrodollar Petroyuan?
7:32 Rapidly depreciating JPY
10:12 Hawkish Fed and the soaring 5-year
11:58 Housing is done?
13:10 Stimulus for energy
15:53 How hawkish can the Fed go?
17:34 What’s ahead for equity markets?

Transcript

TN: Hi, everyone, and welcome to The Week Ahead. My name is Tony Nash. I’m here with Albert Marko, Sam Rines, and Tracy Shuchart. Before we get started, please, if you can like and subscribe to our YouTube channel, we would really appreciate it.

Also, before we get started, I want to talk a little bit about Complete Intelligence. Complete Intelligence, automates budgeting processes and improves forecasting results for companies globally. CI Futures is our market data and forecast platform. CI Futures forecasts approximately 900 assets across commodities, currencies and equity indices, and a couple of thousand economic variables for the top 50 economies. CI Futures tracks forecast error for accountable performance. Users can see exactly how CI Futures have performed historically with one and three month forward intervals. We’re now offering a special promotion of CI Futures for $50 a month. You can find out more at completeintel.com/promo.

Okay, this week we had a couple of key themes. The first is oil for rubles and somewhat cynically, the death of the dollar. Next is the rapidly depreciating Japanese yen, which is somewhat related to the first. But it’s a big, big story, at least in Asia. We also have the hawkish Fed and the soaring five-year bond. So let’s just jump right into it. Tracy, we’ve seen so much about oil for rubles and Bitcoin and other things over the past week. Can you walk us through it? And is this a fundamental shift in energy markets? Is it desperation on Russia’s behalf? Is the dollar dead? Can you just walk us through those?

TS: All right, so no, the dollar is not dead. First, what people have to realize is that there’s a difference. Oil is still priced in USD. It doesn’t matter the currency that you choose to trade in because you see, in markets, local markets trade gasoline in all currencies. Different partners have traded oil in different currencies. But what it comes down to is it doesn’t matter because oil is still priced in dollars. And even if you trade it in, say, the ruble or the yuan, those are all pegged to the dollar. Right. And so you have to take dollar pricing, transfer it to that currency. And so it really doesn’t matter.

And the currency is used to price oil needs three main factors, liquidity, relative stability, and global acceptability. And right now, USD is the only one that possesses all three characteristics.

TN: Okay, so two different questions here. One is on the acceptance of cryptocurrency. Okay. I think they specifically said Bitcoin. Is that real? Is that happening? And second, if that is happening and maybe, Albert, you can comment on this a little bit, too. Is that simply a way to get the PLA in China to spend their cryptocurrency to fuel their army for cheap? Is that possibly what’s happening there?

TS: It could be. Russia came out and said, we’ll accept Bitcoin from friendly countries. Mostly, they were referring to Hungary and to China. Right. And I don’t think that is a replacement for USD no matter what because not every country except for perhaps China really accepts or El Salvador really accepts Bitcoin or would actually trade in Bitcoin. Right.

TN: In Venezuela, by the way. I think. Right. So on a sovereign basis. Okay. So Sam and Albert, do you guys have anything on there in terms of Bitcoin traded for energy? Do you have any observations there?

AM: No, this is a little bit of… This is even a serious conversation they’re having? With El Salvador going to be like the global hub for Russian oil now because they can use Bitcoin?

TN: That would be really interesting.

AM: But this is just silly talk. Every time there’s some kind of problem geopolitically and they start talking about gold for oil or wine or whatever you want to throw out, they start talking about the US dollar dying and whatnot.

I mean, like Tracy, I don’t want to reiterate what Tracy said, but her three points were correct. On top of that, we’re the only global superpower.

TN: Okay.

AM: That’s it.

SR: Yeah. My two cent is whatever on Bitcoin for a while.

TN: Right.

SR: Cool.

TN: I think that all makes sense now since we’re here because we’re already here because we all hear about the death of the petrodollar and the rise of the petroyuan and all this stuff. So can we go there a little bit? Does this mean that the petrodollar is dead? I know that what you said earlier is all oil is priced in dollars. So that would seem to be at odds with the death of the petrodollar.

AM: Well, Tony, in my perspective, the petrodollar is a relic of the 1970s. Right. Okay. Today it’s the Euro dollar. It’s not the petrodollar that makes the American economy run like God on Earth at the moment. It’s the Euro dollar. Forget about Petro dollar. Right. Because it’s not simply just oil that’s priced in it in dollars. It’s every single piece of commodity globally that’s priced in dollars.

TN: And Albert, just for viewers who may not understand what a Euro dollar is, can you quickly help them understand what a Euro dollar is?

AM: They’re just dollars deposited in overseas banks outside the United States system. That’s all it is.

TN: Okay with that. Very good.

SR: And the global economy runs on them. Full stop.

AM: It’s the blood of the global economy.

TN: So the death of the petrodollar, rise of the petroyuan and all that stuff, we can kind of brush that aside. Is that fair?

TS: Yeah. I mean, even if you look at say, you know, China started their own Yuan contract rights, oil contract and Yuan futures contract. But that still pegged to the price of the Dubai contracts. Right. That are priced in dollars.

TN: Let’s be clear, the CNY and crude are both relative to dollars. Right?

TS: Right.

TN: You have two things that are relative to dollars trying to circumvent dollars to buy that thing. The whole thing is silly.

TS: Exactly.

AM: Yeah, of course. Because Tony, the thing is, if China decides to sell all their dollars and all their trade or whatever, everything they’ve got, they risk hyperinflation. What happens to the Renminbi and then what happens in the world? Contracts trying to get priced right.

TN: Exactly. It’s a good point. Okay. This is a great discussion.

Now, Albert, while we’re on currencies, The Japanese yuan fell pretty hard versus the dollar this week. Do you mind talking through that a little bit and helping us understand what’s going on there?

AM: Yeah, I got a real simple explanation. The Federal Reserve most likely green light in Japan To devalue their yen to be able to show up the manufacturing sector in case China decides to get into a bigger global geopolitical spat with the United States. Simple as that.

TN: Great. Okay. So that’s good. This is really good. And I want people to understand that currencies are very relevant to geopolitics or the other way around. Right. Whenever you see currency movements, there’s typically a geopolitical connection there.

AM: Of course. And on top of that, if it was any other time and they started to devalue the currency like this, the Federal Reserve where the President would start calling the currency manipulators. And there’d be page headlines on the financial times.

TN: Right.

AM: And because that didn’t happen, It’s an automatic signal to me that this is what’s happening at the moment. Right.

What’s also interesting to me, Albert, is we’ve seen last week we saw Japan approach the Saudis and the Emiratis about oil contracts. We saw Japan call. There’s a meeting in Japan next week, I think, with China. So Japan is becoming this kind of foreign policy arm, whether we want to admit it or not, they’re kind of becoming foreign policy arm for the US. Because the US is not well respected right now. Is that fair to say?

AM: It’s more than fair to say, I believe Biden’s conference with South Asian leaders was just canceled on top of everything else.

TS: Sorry. And we saw this week Japan and India just signed, like, a $42 billion trade deal. So it kind of seems like they’re smoothing over the rough edges because the United States kind of came after India a little bit earlier about two weeks ago.

TN: Yeah, that’s a good call, Tracy. I think Japan and India have had a long, positive relationship. It’s especially intensified over the past, say, seven or eight years as China has tried to invest in India and the Japanese have kind of countered them and giving the Indians very favorable terms for investment and for loans. And so this is kind of a second part of that investment that was, I think, announced in, say, 2014 or 2015, something like that. And again, as we talked about it’s, Japan intervening to help the US out and obviously help Japan out at the same time. Thanks for that.

Now, Sam. We saw bonds spike pretty hard this week, especially the five year. I’ve got a Trading View source up there on the five year up on the screen right now. So can you walk us through what’s happening with US bonds right now, especially the five year?

SR: Sure. I mean, it’s pretty straightforward. The Fed is getting very hawkish and the market is adopting it rather quickly. And I don’t know how forcefully to say this. The current assumption coming from city is four straight 50 basis point hikes and then ending the year with just a couple of 25. That is a pretty incredibly fast off zero move time, some quantitative tightening, and you’re somewhere around three and a half percent to 4% worth of tightening in a year. That’s a pretty fast move.

So the two year to five years reflecting that the Fed is moving very quickly, you’re likely having the long end of the curve is lagging a little bit. You saw flattening, not steepening this week. The long end of the curve is telling you that the terminal rate may, in fact, actually be at least somewhat sticky around two and a half and might actually be moving a little bit higher. And that terminal rate is really important because that is how high the Fed can go and then stay there. It is also how fast the Fed can get there and how much above it the Fed is willing to go. So I think there’s a lot of things that happened on the curve this week.

TN: Okay. Albert, what’s in on those? Yes, go ahead, Albert.

AM: Oh, I’ve heard whispers that the long bond is going to 2.8% and maybe even 3%. That’s what the whispers have been telling me about that, which is going to absolutely devastate housing.

TN: But that was my actual idea.

SR: Oh, yeah. Housing is done. I mean, you saw pending home sales were supposed to be up a point and down 4%. That’s the first signal. The next signal will be when lumber goes back to $300.

TN: Okay. It seems to me you’re saying by say Q3 of this year we’re going to see real downside in the housing market. Is that fair to say?

SR: Oh, in Q2, you’re going to see real downside in the housing market. Yeah.

TN: Wow.

SR: Pending sales are, I think, one of the most important indicators of how the housing market is going. Right. It’s a semi forward looking indicator. If you begin to see a whole bunch of these homes in the ground stay as homes that are not being built. Right. So if you begin to see just a bunch of pads out there, it’s going to become a significant problem considering a lot of people have already bought the materials to build it off. And you’re going to begin to have some really interesting spirals that go back into some of the commodity markets that have been on fire on the housing front.

TN: Wow. Okay. That’s a big call. I love this discussion. Okay, good. Okay. So let’s move on to the week ahead. Tracy, we’ve had some stimulus announced to help pay for energy. Can you help us understand? Do you expect we’ve seen California and some other things come out? Are more States going to do this or more countries going to do this, and what does that do to the inflation picture?

TS: Well, absolutely. We saw California, Delaware, Germany, Italy talking about it. Japan already. They’re coming out of the woodwork right now. There’s actually too many to list. It’s just that we’re just now this week just starting to see the US kind of joining this on a state to state basis. The problem is that this is not going to help inflation whatsoever. You’re literally creating more demand and we still do not have the supply online. So all of these policies are going to have the opposite of the intended effect that they are doing. Right. It’s just more stimulus in the market.

TN: Do we think there’s going to be some federal energy stimulus coming?

TS: They’ve talked about different options. I mean, really, the only thing that they could do right now is get rid of the federal excise tax, but that’s only really a few cents. And they kind of don’t want to do that because that goes towards repairing roads, et cetera. That doesn’t fit into their plan that they just passed back in the fall. Right. We had infrastructure plan, so they need to pay for that. That’s already passed. So they probably won’t do that.

The other options that they have that they’re weighing are more SPR release, which is ridiculous at this point because they could release it all and it would still not have a long lasting effect on the market. And that’s our national security. It’s a national security issue. And we’re experiencing all these geopolitical events right now. We have bombs in Saudi Arabia. We’ve got Russia, Ukraine. So I think that’s like a poor move altogether.

TN: So if more States are going to come in, is it suspects like Massachusetts, New York, Illinois, those types of places?

TS: Yes.

TN: Okay. So all inflationary, it’s going in the wrong direction.

TS: It’s going to create demand, which is going to drive oil prices higher because we still don’t have the supply on the market.

TN: Okay. Wow. Thanks for that. Sam. As we look forward, you mentioned a little bit about how hawkish the Fed would be. But what are you looking at say in the bond market for the next week or so? Do we expect more activity there, or do you think we’re kind of stabilizing for now?

SR: We’re going into month end. So I would doubt that we’re going to stabilize in any meaningful way as portfolios either head towards rebalancing or begin to rebalance into quarter end. So I don’t think you’re going to see stabilization. And I think some of the signals might be a little suspect. But I do think back to the housing front. I’m going to be watching how housing stocks react, how the dialogue there really reacts, probably watching lumber very closely, a fairly good indicator of how tight things are or aren’t on the housing front.

And then paying a little bit of attention to what the market is telling us about that terminal rate. If the terminal rate keeps moving higher, to Albert’s point, that’s going to be a big problem for housing, but it’s going to be a big problem for a number of things as we begin to kind of spiral through, what the consequences of that are. It will be for the first time in a very long time.

TN: Okay. So it’s interesting. We have, say, energy commodities rising. We have, say, housing related commodities potentially falling, and we have food commodities rising. Right. It seems like something’s off. Some of it’s shortages based, and some of it is really demand push based. So energy stuff seems to be stimulus based or potentially so some interesting divergence in some of those sectors.

Okay. And then, Albert, what’s ahead for equity markets? We’ve seen equity markets continue to push higher. How much further can they go?

AM: Last week they eliminated, I think, up to about $9 trillion inputs, short squeeze, VIX crush. I mean, they went all out these last two weeks. It’s absolutely stunning. From my calculations, I think they expanded the balance sheet another $150 billion. Forget about this tapering talk. There’s no tapering. They just keep on going. How high can they go? That’s anybody’s guess right now. I think we’re like 6% off all time highs. On no news.

TN: So potentially another 6% higher?

AM: Honestly, I know that there’s hedge funds waiting, salivating at 4650. Just salivating to short it there. So I don’t think they can even get close to that, to be honest with you. So I don’t know, maybe 4590 early in the week before they start coming down.

TN: Okay. Interesting. So you think early next week we’ll see a change in direction?

AM: Yeah, we’re going to have to this has been an epic run, like I said, 90% short squeeze, 10% fixed crush. You don’t see this very often. Okay, Sam, what do you think, Sam? Similar?

SR: On equities, I like going into the rip higher. I’m kind of with Albert, but a little less bearish. I think you chop sideways from here looking for a catalyst in either direction. Bonds ripping higher today, yields ripping higher today. Bond prices plummeting. That I thought was going to be a catalyst for equities to move lower. It wasn’t. That kind of gives me a little bit of pause on being too bearish here, but it’s hard for me to get bullish.

TN: Okay.

TS: What’s interesting? I’ll just throw in like, Bama, weekly flows. We actually saw an outflow from equities for the first time in weeks. It wasn’t a lot 1.9 billion. But that says to me people are getting a little nervous up here. Profit taking, as they say on CNBC.

TN: All right, guys. Hey, thank you very much. Really appreciate the insight. Have a great week ahead.

AM, TS: Thanks.

SR: You too, Tony.

TN: Fabulous. Look. I’m married. I’m a man. I don’t notice anything. I noticed the other guys laughed at that. Uncomfortably. That’s great. Okay. I’m just going to start that over, guys. And we’re going to end it.

Week Ahead

The Week Ahead – 28 Feb 2022

Post author By admin
Post date February 27, 2022

Last week’s big news is Ukraine and Russia. So in this episode, we want to talk you through some context and what this means for markets in the near term. First, the guys talked about the most surprising thing that happened and then we moved on to answer a few viewer questions like what’s the implication of Russia being disconnected from SWIFT? Will anything change between Europe and China? Will the Russia-Ukraine inspire China to actually invade Taiwan? How disrupted the energy markets will be? And finally, what happens to the world economy – Fed, QE, QT, consumers, etc.?

Listen to this episode on Spotify

https://open.spotify.com/episode/6ynTFaOtWF6rl1xNKX1Cnq?si=439f4977cb3743fd

Follow The Week Ahead experts on Twitter:

Tony: https://twitter.com/TonyNashNerd
Sam: https://twitter.com/SamuelRines
Albert: https://twitter.com/amlivemon
Tracy: https://twitter.com/chigrl

Transcript

TN: Hello. Welcome to The Week Ahead. I’m Tony Nash. And I’m joined by Tracy Shuchart, Albert Marko, and Sam Rines. Before we get started, I’d like to ask you to subscribe to our YouTube channel. And like this video. It helps us with visibility and you get reminded when a new episode is out. So thanks for doing that right now.

We had a lot on this week, especially around Ukraine. So today we’re really focused on Ukraine. We want you to understand the context around Ukraine. We want you to understand what it means for markets. And we’re going to take a lot of your questions that we’ve been gathering off of Twitter.

So just a quick recap of what we said last week. Coming out of last week’s episode, we said it’s not a time to make big decisions. We said to keep risk tight and be careful of volatility. And we said that crude markets would move sideways. So we did kind of come into this assuming risk would be there this week. And obviously, we saw that.

So first, guys, can you walk us through some of your observations of the past week? What are you seeing directly in and around Ukraine or Ukraine, and how is that affecting markets? And as each one of you talk, Albert, I want to start with you, but name something that surprised you most in the past week in markets. Okay. Can you give us a quick overview? I know you’ve got deep networks in that region. So can you talk to us a little bit about what you’re hearing and seeing there?

AM: Well, I mean, concerning Ukraine and the markets. What I was most surprised and a little bit taken aback by was the amount of mainstream media just decorations of World War Three and whatnot then how much it affected the markets? So much so that you have to look at the markets and say what is going on?

Because this is just not normal behavior for markets to respond to a situation in the Ukraine that’s really kind of not really attached to the United States market at the moment. I mean, it isn’t commodities and that’s something Tracy will get into. But it was an overabundance of bad news, just an overdrive. And that’s what actually really took me aback.

TN: Good opportunities out there.

AM: There is absolutely good opportunities. But the problem is the volatility goes way up higher. The VIX exploded. You can’t get into options because they’re just far too expensive. You’re going to get burned doing that. And what do you do? Maybe sitting on your hands is the proper thing to do until things stabilize. But yes, there were actually great opportunities.

TN: What are you hearing on the ground, Albert? I know you’re really close to that part of the world. So what are you hearing on the ground?

AM: Well, the situation is really fluid and really tense at the moment. I think the Russians were taken aback. I know that the Russians were taken aback about the actual veracity of defense by the Ukrainians. Their main objective is to take Mariupol and then take Odessa. That is their number one and number two objective. Their next objective is to take not really to take you because I don’t think they can actually do it unless they want to do some kind of redo of the Chech and guerrilla warfare and just start massacring people. They’re not in that business at the moment. The world’s eyes are on it.

So I think political change, maybe snap elections is what they’re probably going for in Kiev just to surround it, stress the city, stress the residents, force a change where Western governments can’t get a bigger say in the matter on a nation that’s right on the doorstep.

TN: Okay, so I’m seeing on say on social media like TikTok videos of burned out Russian tanks and all these things, and I think it seems to me that Russia is losing the PR war right now and that’s really important in the early days and with different demographics even within Russia. Do you think Russia or Putin kind of underappreciated the impact that social media would have, at least on the early days of this?

AM: Of course, Russia has a vast network globally of PR campaigns in the west. So for him, it’s definitely a concern where you have negative images of Russia, Russia’s military trying to enact power projection. It’s a little bit daunting for him at the moment.

However, from a military strategic point of view, we don’t know exactly what their exact strategy is. Whereas they’re just trying to expand Ukrainian defenses, trying to get the best of their defenses out already. So they have a shortage of supply later on. That’s what most professionals would say is happening.

So we really have to see over the weekend to see what kind of resources have been expended by the Russians trying to take back Mariupol and Odessa.

TN: Do you think the Ukrainians can get stuff resupplied? Do you think they would have any difficulty getting stuff resupplied from the west?

AM: It’s totally up to the west and what they’re going to supply them and how they’re going to supply them. I’m sure that the west have Special Forces sprinkled without inside of Kiev assisting as advisers to the defense forces there. So it just depends on the will of the Europeans at the moment.

TN: Okay, Sam, what have you seen this week in markets that’s kind of gotten your attention or surprise you?

SR: I would say what really caught my attention were two things. One, how quickly Wheat went up and how far it went up and then how quickly Wheat went down and how far it went down.

There were two days where Wheat was just skyrocketing. I think it was 5.5% day followed by negative. I forget where it closed, but a significant negative day in the six to range at a minimum. That really caught my attention.

Ukraine is incredibly important on the wheat front. That’s a pretty important one. And then I would say how quickly and how far gold went. Right. Gold was almost $2,000, and now it’s below where it was prior to the invasion, and it did that all in a day. I mean, that was an incredible move in my book and somewhat shocking. And I think it was kind of interesting when people caught on that if you cut off Russia from being able to really sell, call it dollars, Euros, et cetera, on the market openly, it’s going to potentially have to sell gold if this thing drags out.

So you have an overhang of gold in a war scenario. Not necessarily, I call it a tailwind. I thought that was a really interesting call it knee jerk reaction up in gold, and then kind of a realization of, oh, crap, this might not be the thing to own here.

And then the final thing and I’ll make this one quick is crypto and how war was supposed to be great for crypto. And as the war started, you saw crypto sell off pretty hard. I think it’s interesting on two fronts. One, there’s a significant amount of crypto activity in Ukraine and Russia.

Russia is the second largest country when it comes to providing hash rate to the market for Bitcoin. And if there’s any sort of disruption there, all of a sudden the US could become 50% of the hash rate awfully quickly, which could become an interesting scenario there.

TN: How does the hash rate for people who aren’t crypto experts? How does the hash rate equate to say, the crypto price?

SR: It makes it, call it’s basically an efficiency mechanism where you can either do transactions more quickly, more efficiently, and somewhat of a lower cost. That’s basically what you do.

So if you lower the hash rate, you increase the cost of doing transactions and slow the general system down.

TN: Okay, great.

AM: This is interesting, Tony, because this actually leads into a lot of my arguments against crypto being decentralized, saying, hey, when push comes to shove, governments have control of the networks and the financial system. You can’t get away from that.

TN: Yeah. And if you cut off the electricity supply, it becomes even more difficult.

AM: Nearly impossible. Puerto Rico.

TS: And if you’re Russia that has control of the entire Internet, you can cut off whatever sites that you want. Right?

TN: Right.

SR: Yeah, that’s right. Yeah. It was interesting. There was something floating around yesterday where it appeared that Russia was at least partially geofencing their country from the rest of the world. And if it does that, that could become problematic if it does it in a meaningful way for crypto.

TN: Sure. And taking down the RT site doesn’t help their paranoia there. Right. Tracy, what happened for you over the week? What’s one of your observations that really kind of surprised you?

TS: Well, I mean, to be honest, because I’m focused on the commodity side of everything, pretty much how I saw the markets going or how I pretty much thought how the markets were going to go. Right. I posted a bunch of stuff on Twitter.

TN: You saw all this coming?

TS: No. Well, I didn’t do this. I don’t want to sound like arrogant. I focus on energy, metals, materials, agriculture. And because Ukraine and Russia are such large hubs for all of these commodities, wasn’t really surprising to me that we saw a jump in all of these.

TN: Yeah. Were you surprised the magnitude of the jump?

TS: Yes. And in some respects, I actually expected Palladium to have a bigger jump than it did because Rush is 43% of that global markets and wheat went far beyond bonkers that I thought it was going to go.

Was I surprised about oil? No. On the upside and on the downside today.

TN: Great. Okay, very good. Let’s jump into some of these viewer questions. You guys know that we saw a lot of viewer questions at the start of this.

So the first one I’m going to read out is from Keith Snyder. It’s @snyderkr0822. He says, what would the implications be of disconnecting Russia from SWIFT?

I’ve inspired your knowledge and have to be informed. So there’s been a lot of talk about SWIFT over the past few days. Sam, do you have some insight there on what would happen if Russia was taken out of the SWIFT network?

SR: It would be less bad than it would have been call it three years ago. Russia has somewhat insulated themselves from SWIFT, but not entirely by no means. Right. The SWIFT system can cut you off from dollar denominated, at least dollar denominated transactions.

That’s a pretty important thing, particularly when you’re selling a lot of things that are denominated in dollars. Right. Oil, et cetera. That becomes somewhat problematic. I would say that would be a very significant hit to Russia.

And it would also be a significant hit. And by significant hit, I mean that’s putting you on par with Iran and Cuba. Right. That’s basically putting you at Code E country without saying it. That’s Iran, your Cuba, see you later, bye.

I think that what I would be paying very close attention to is the reaction of European banks. That’s $330 billion worth of Russian liabilities assets on their books. So you’ve got to figure something out there pretty quickly because those books are going to get smacked if you can’t actually get on the SWIFT system.

TN: Okay. And Tracy, if they were taken off a SWIFT on Friday, Germany said that they would be okay with imposing that sanction, how would Germany pay for its electricity?

TS: I mean, Germany said that with a caveat, let’s say, because they did say we’re going to look at this, but we need to look at the implications of this. So obviously the problem there in lies that if you take a Rush off SWIFT, then Europe is screwed energy wise. Right? Unless they choose to scramble and make long term contracts with, say, the United States.

They could go through the United States. They could go through Azerbaijan on the Tap pipeline. They could go through Israel and Egypt if they wanted to, through the Southern gas quarter. I mean, there are options for them.

The problem is that they should have been looking at long term contracts this summer when we already knew that Nordstream Two was going to be delayed.

TN: Four, three, four years ago. I mean, they’ve had this optionality on the table for a long time.

TS: But those options are still on the table for them. But by delaying SWIFT, if you cut Rush off SWIFT, the big problem Europe has to decide is do we cut off SWIFT and hurt ourselves or do we hurt Russia more? And I could argue that both ways. Anybody could argue that both ways. But that’s a big decision that they have to make.

TN: Well, everybody hurts, right? That would not be a sanction that would be pain free for anybody.

TS: Right. Except maybe the US.

AM: Well, Tony, despite the rogue status of Russia, it’s still well attached to the Western financial system. It’s not seen as able or even as aggressive as the Chinese are and detach it from the financial system.

There would be a lot of problems if they were banned from SWIFT. But it’s certainly a valid deterrent if the west wants to actually use it. They keep a lot of their bank and central bank money in the Euro dollar market. So no SWIFT would mean no more Treasuries, but they’d just move into the Euro dollars itself.

Maybe that’s why they were buying gold because of this tension that they saw coming. It’s a risk to their global market.

TN: Sure. Okay, let’s move to China now. We’ve got a few questions on China. We’ve got one from @NathanDallon. He says, does anything in Europe change the situation with China?

There’s another one from Ritesh @chorSipahi, he says question for Samuel Rines and Albert, Ritesh. I’m not taking offense at this. What is the deterrence for China not to invade Taiwan or now to invade Taiwan?

And then we’ve got another one from Rich @rm_ua09. How could China benefit the most out of the Russia Ukraine situation? A, supporting Ukraine in some manner, B, remaining neutral, or C, taking measures to whether Putin.

So there’s a broad spectrum of questions there, guys.

TS: Take the first one, I think, Tony.

TN: Okay, let’s go for it. What happens in Europe?

AM: Well, Europe. I think that the Europeans are going to be actually more dependent on China trade after this because they’re seeing a problem with the Russians politically.

You can’t sit there and tell me that they’re going to be able to support the Russians like they were in trade, whether it’s commodities or whatnot on steel. I mean, name your commodity. Name your.

TN: Chinese already own like 70% of the global steel market. So is it going to make that much of a difference?

AM: It’s, well, I mean, they still diversify. They’re still going to have to play ball in the global trade. So I think at this point, politically, Russia’s poisonous, and then you’re going to have to steer even more towards China.

TN: Right. So, yeah, it seems to me that China could actually use this as an opportunity to distance itself from Russia. Right. If it goes bad, China is very silent right now. And if it goes bad, they could distance themselves from Russia and make some really tight allies in Europe at Russia’s expense. Does that make sense to you guys?

AM: It does to me.

SR: 100%. I think that would be the spare play from China in a lot of ways, because you get two things. You’re going to get tighter ties to Europe, which diversifies you somewhat away from the US even more. It gives you call it a barrier to the United States and whatever the US wants to do, and it also, to a certain extent, raises your profile on the international stage. Right.

TN: That’s key. China really wants to be seen as a credible diplomatic player and I think there’s still a bit of a chip on their shoulder about not being seen as an equal with a lot of the larger Western Nations. So I think your last point is really important.

There seems to be a view that Russia invading Ukraine somehow enables China to invade Taiwan. What are your thoughts on that?

AM: I absolutely disagree with that wholeheartedly. I think the two situations are nothing alike at the moment. I mean, Ukraine is in Russia’s eyes, it’s own territory. Same as is China views Taiwan.

However, Taiwan has a much more active defense military force and more of a backing from not only the US, but Australia, Japan, India. That’s a problem for the Chinese, too. So I think the two. I don’t like to draw a comparison between the two. I don’t think there is anything related to it.

TN: Sam?

SR: I have almost nothing to add beyond that. And I think the one country that’s really interesting in there is India, because India did not step up on the Ukrainian front and India would step up on the Taiwan front.

AM: Yeah. And on top of that, on top of that, let’s just be realistic here. We know that the Chinese probably have military observers inside of Ukraine watching and taking notes.

TN: Sure. How to conduct right now. If you’re a Chinese PLA officer and you’re looking at what’s happening in Russia versus what the United States did in Iraq, what would be your assessment? Russia gives us nothing against the United States.

The United States is a juggernaut. That’s what I think nobody’s even talking about.

TN: Yeah. If Russia didn’t just roll into Ukraine and take it over in 24 hours, what kind of model are they for China?

AM: And that’s on their border, Tony, that’s on their border.

TN: Exactly. No, exactly. So logistically, Russia’s logistic supply chain for their military, it seems like it’s pretty horrific. Their intelligence, like everything. It just seems like a mishmash of let’s just go get them.

AM: They are a professional military force. They have budget problems. That’s what. If they really wanted to go into Ukraine and just smash the place, they could. But the problem is you’d have to kill many civilians in the meantime, which they can’t do that.

So the Chinese are sitting there probably looking at like, what do we do here? Who is this military partner that we’re actually partnering up against the United States? It’s not sufficient.

TN: Yeah. It seems to me that on some level, going back to the social media comment I made, Russia is kind of embarrassing itself. China doesn’t want to be seen allied with someone who’s embarrassing themselves. Right. They’re happy to.

TS: That’s why they’ve been so quiet. They haven’t said nothing.

TN: Yes. And I think China is always looking also looking at how unified is the world’s response against Ukraine. Right. So if they were to go after Taiwan, how unified would the response be?

So going back to what I said earlier, I think China has a real opportunity here to distance itself from Russia, to play nice on Taiwan and really benefit from trade and finance and diplomatic relationships.

AM: 100%.

TN: Tracy, do you have anything else on that on China? Any other thoughts?

TS: No. I think you guys…

TN: Awesome. Okay, very good. Let’s go to the next ones. Okay. Tracy, these are all energy related. So primarily, if we look at this @DaveRubin15, he says, what are the energy implications if Ukraine has no choice but to make this a war of attrition rather than surrender, bleeding Russia out from exposure and can this catalyze an energy super cycle? Okay.

And then we’ve got another one from Giovanni Ponzetto asking, assuming that gas from Russia is kept flowing at the same rate of the past couple of months, will the EU be able to restock gas reserve? So, Tracy, you’re the expert here. Take it away.

TS: All right. So for the first one, there are two extreme scenarios that could happen. Either somebody blows up a pipeline by accident or somebody blows it up on purpose and blames the other side. And if you look at the chart that’s on the screen right now, you can see the choke points where this could easily happen to really hurt gas flows into Europe.

That said, if we look at the role of Ukraine in the gas markets, they’re much smaller today than they were in the 1990s. Right. There was a time when 90% of gas that came from Russia to Europe went through Ukraine. And now it’s about less than a quarter percent.

The other extreme is that Russia just cuts off gas flows entirely. Right. And that hurts EU way more than it hurts Russia because they don’t really actually make that much money selling gas. They make way more money selling oil. They have $640 billion in reserves. They could live without the gas for a few months. And that’s kind of why the US has had problems getting the Europeans on board with sanctions against existing flows from Europe.

In addition, Europe also has other options. They can go again to the United States, Azerbaijan or Israel and Europe.

Now there are about 2.9 million barrels at risk of oil exports that are exported from Russia to the United States and Europe, which is about 30% of their exports. And that would be much more catastrophic than, say, natural gas in the oil markets. But as far as oil flows through Ukraine, it’s very limited. Again, you can see the map.

TN: Okay.

TS: The second question.

AM: Sorry about that. I had a related question for you. How possible is it or how necessary do you think it would be for the Italians to take the initiative and become Europe’s energy hub?

TS: Actually, they really could with Greece. Right. And I’ve been talking about the Southern gas border for a very long time, which branches off, you could go Cypress into Greece and then you could go straight into Italy from the Southern gas corridor.

I think that region is really something you really want to keep an eye on right now. And I’ve kind of been talking about this for a couple of years right now because there’s just so much supply. And although people say that region is geopolitically unstable, so is everywhere. But that’s never really stopped oil and gas flows.

Personally, I think as an investor, I would be looking at that particular area of the world because they really have a lot of gas supply. And now we have pipelines built, and I think it’s more stable than, say, Ukraine, Azerbaijan, that have had a lot.

AM: You know what’s funny, though, Tracy, is every time the Libyans or Egyptians or whoever try to export gas and oil and whatnot, the Russian Wagner conveniently shows up.

TS: Conveniently shows up. Right. Exactly.

AM: Here we are, guys.

TS: Exactly. For the second question, as far as, I think that you were asking about gas flows, if Europe could restock. Absolutely. They can restock because of the things that, because of the alternative sources that I mentioned before, and we’re headed into a season that we don’t need as much. So I think that as we head into summer, it will not be as dire as the dead of winter.

TN: Very good. Okay. Thanks for that.

Sam, let’s look at some economic questions now. We’re looking at from @_0001337 probability of rate hikes and tightening now. We just let inflation run amok. When we see price controls. That’s one question. There’s another one, wondering how North America will go about continuing to grow consumerism, things like cuts on gas taxes, that sort of thing.

And there was another question about gold, which you covered a little bit at first from @Mercerandgrand looking at gold prices. So if you don’t mind, let’s talk a little bit about kind of Fed options now. Are we still expecting given the volatility, are still expecting the Fed to act in March? Are they going to continue to are they going to stop QE? Will they hike? Is QT still on the table for June?

SR: Yes, 25 is going to happen. They will end QE, and QT is still on the table, at least a runoff, not a sale. They’re not going to go over their skis here and start selling mortgage backs or do anything along those lines.

TN: Okay.

SR: But they will continue with their tightening path. I think the broader question here is just how far they actually can go this year. I do think that the limiting factor of highly volatile energy prices at the pump, which is something that monetary policy just can’t solve. Right.

Tightening 5100 basis points isn’t going to push the cost of oil down unless you somehow spark a recession or something. So I think it’s going to be interesting to see how their language evolves around future hikes. I think we kind of know that it’s 25 basis points. 50 is simply not priced in enough for them to do that.

And how we see and how they see monetary policy evolving, call it in the September and onward is going to be really important with the midterms coming up, et cetera. So I think that’s important.

On the consumer front, maybe you see call it a gas tax holiday or something along those lines to lower gas prices at the pump. That could happen. But generally the consumer is not in horrible shape. The consumer is not great, but it’s not in horrible shape. So I don’t really think they have to do much there. And I don’t see any point in buying gold here with the type of move you’ve seen over the past week. I think that if you had narratives that went from invasion of Ukraine to World War Three and you only got it to $2,000 and you couldn’t hold, I think that’s a little bit of a problem for the gold narrative.

TN: Sure. Okay, great. So let’s wrap it up and let’s start looking at the week ahead. What do you guys expect to see the week ahead? Albert, I guess we’ll start with you. Part of it is what do you expect to see on the ground in the week ahead in Ukraine? I expect that to impact markets.

AM: I think that we’re going to get a little bit more bloody, a little bit more daunting headlines. It’s going to affect the markets. I think we probably start shooting a little bit lower depending on how low we go. I think that’s going to make a big impact of what the fed does. I agree with Sam. I think it’s going to be 25 basis points. If the news is okay out of Ukraine, I think they even go 50 basis points.

TN: Wow. Okay. Tracy, what do you expect to see in the week ahead?

TS: I’m looking at the equity markets in particular. So just came out and global flows despite the fact that equities are coming off globally, we’re still seeing people pile into equities, right. We’re still seeing flows into equity markets.

So that to me says that the current situation with Ukraine in Russia is likely to be temporary and that perhaps the big funds and managers are thinking that we’re going to see less of a rate hike in March than most anticipate because they’re still selling bonds and they’re still buying equities.

TN: Okay. Interesting. Sam?

SR: I think you’re looking at a lot of chop here as we transition from as pointed out a moment ago, as you transition from Ukraine grabbing all the headlines to the Fed getting back in the headlines that’s going to be a choppy hand off. When the fed was in the headlines. It wasn’t exactly great for markets and a little bit of a relief rally here off of world war three going into.

TS: Sorry to interrupt. I think that’s a bit of a little bit of end of month rebalancing too, right? What we’re seeing right now.

TN: It could be. Yes, that’s right.

SR: Yeah. Definitely. But I think the hand off from Ukraine headlines back to the Fed headlines creates a lot of chop and probably some downside bias across asset classes or at least we’re assessing.

TN: Sounds like a very interesting week ahead, guys. Thank you. You so much. I really appreciate this. Have a great week ahead. Thank you.

SR, AM, TS: Thank you.

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Week Ahead

The Week Ahead – 31 Jan 2022

Post author By admin
Post date January 30, 2022

We’re dissecting Jerome Powell’s latest announcement — what does that mean to markets this coming week? Will we see Powell’s inner Volcker this year? What are we expecting to happen in the energy markets considering the geopolitical risks in Russia and Ukraine? Has the White House and Treasury told the Fed to fight inflation as its top priority?

This is the fourth episode of The Week Ahead in collaboration of Complete Intelligence with Intelligence Quarterly, where experts talk about the week that just happened and what will most likely happen in the coming week.

https://open.spotify.com/episode/1CgJgSFPcqQ5VMuopN9S2h?si=212cd6f83928481a

For those who prefer to listen to this episode, here’s the podcast version for you.

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Show Notes

TN: Hi, everyone, and welcome to The Week Ahead. I’m Tony Nash. And I’m joined by Nick Glinsman, Albert Marko, and Tracy Shuchart. Before we get started, I’d like to ask you to subscribe to our YouTube channel. It helps us with visibility, helps you get reminded of our new episode. So please do that.

While you’re thinking about it, this week was all about the Fed. Of course, we expected Monday and Tuesday to be choppy. We told you that on our last Week Ahead, which they were. We talked about it last week. We talked about the said meeting last week. And as Wednesday got closer, it appeared that Powell would be more bearish. And that seems to be exactly what we got.

So today we’d love to focus on a few things. Nick, let’s start with you. What were your main takeaways from the Fed?

NG: Okay, I’ve got three takeaways, most of which came after the Fed. Okay. The statement was sort of bland, almost appalling in terms of, it felt like it was leaving the risk markets to determine the Fed’s policy. And then, boy, Powell come out hawkish. He refused to give any direct answers but never denied any of the points and the questions such as how many rates, how many it takes?

So what was interesting is today, we had the first Fed Speaker, Neil Kashkari, the Uberdam for the FOMC.

TN: That’s right.

NG: And he basically came out and said whatever it takes, we’ve got to get inflation. I mean, shocking. Now where Powell got confirmed in his hawkishness came today with the ECI data. The base figure was slightly less than expected. But lift the bedsheets up and you are seeing major wage pressures.

If you look at some of the increases in wages and salaries, four and a half percent for all civilian workers, 5% for private sector workers, up from 4.2 and 4.6% respectively. If you go deeper, hospitality, health care, you’re looking at 7% and 8% increases.

TN: Nurses in many cases are making as much as doctors now in a number of cases.

NG: Exactly. So that basically confirmed Powell’s words of a rapid pace of wage grip. Okay. And I think that was a very key piece of data, which in fact, a Bongi like me would have been waiting for. Right now.

TN: We don’t see them bonds today, did we?

NG: What’s that?

TN: We didn’t see the action in bonds today, did we?

NG: They were down initially and then after the day, they rallied a bit. But I think that was more to do with reversing a very successful week of your well positioned. And what’s interesting, though, this came after that hawkish press conference. So typically what you have is the yoke of mutually reinforces the relationship with the Fed’s monetary policy. So simplistically, when an economy is strong and in danger of overheating, you are going to see the yield curve steeper. Long end, higher rates relative to the short end.

Now that then reflects that the rates have to rise, that’s the historical perspective. What was interesting this time was the curve was bare flat, and it was headed towards an inversion, the consensus. That’s a really bad signal of an approaching recession.

What it’s basically suggesting at that point, historically, the bond market tends to suggest Fed’s tighten too much. We’re going to get a recession. It needs to stop. Reassess, perhaps even cut. So what’s startling about this whole move is you got yield curve flat, bear flattening, coming so soon before the Fed has even started raising rates.

TN: Right.

NG: So if you have a Swift move to inversion, it’s going to be slightly, somewhat harder for the Fed to carry out its hiking program over time. That tells me that you’re going to have it front loaded. It also suggests to me, which is what you got from Powell’s press conference, it may not be 25 basis points each hike. It may be 350s. Right. Especially with this inflation.

He was all about inflation risks to the upside and a very strong labor market.

TN: 350 basis point hikes. I just want to make sure we make sure that we know what you said.

NG: Yes. Basically the Yoker is suggesting that. But some of his comments were this is a labor market that’s rocketing. This is inflation that still has risk. The upside. We saw a bit of that today. He also said supply chains are not going to get resolved this year. We’re going to have to wait till next year.

TN: Okay. Let’s stop there, because I want to ask you something, and this may be an overly simplistic way of asking the question and Albert and Tracy jump in here.

But it seems to me that kind of what he’s saying indirectly is, hey, there are supply side inflation, okay. And we as the Fed can’t control the supply side, we can only control the demand side to some extent. And so what we’re going to do is we’re going to put a stopper on demand so that demand can come down to match up with the available supply. And that’s how we’re going to we don’t have the tools to put the kibosh on the supply side inflation. So we’re going to bring the demand down.

First of all, does that seem to be what he’s saying?

NG: I think that’s probably what he’s trying to say. I would add one other point. So we were all thinking that after the big rise in crude oil and energy prices last year, we would get some beneficial payback by the comparison, but we’re not oil still going up, so we’re not getting that.

And the most extreme version is, for example, Europe. These have all got to feed through from wholesale to retail.

AM: Yeah.

NG: I think it was 95% of surveyed American CEOs. I can’t remember the sort of survey, but I can dig it out. Are expecting to raise prices.

AM: Yeah. The problem with them trying to limit demand, though, is it’s going to start affecting jobs. Labor market’s certainly going to weaken if demand starts to fall off. Because wage inflation is going nowhere. I’ll tell you that right now. Wage inflation is here to stay politically is absolutely just not going to ever come back down. So that’s going to be sticky for quite a while.

NG: But I think Powell was implying that where he basically said the labor market is super strong. So I don’t disagree with it will dampen it. The question is whether it turns around.

Remember, we’re getting all these people retiring and dropping out. Yes, that was your data, Albert.

TS: He kept reiterating the labor market is super strong. But the labor market really, if you look under the hood of it, it’s not really super strong. We all know that.

TN: That’s true.

NG: Yeah. Agreed. But it’s perceptions. Remember, these guys are basing their work off their forecasts. One of their forecasts have ever been right. Okay. Even worse in Europe. So the point I’m making is they have their parameters. They have the data that they look at and monitor and whether we agree with that data or not. And I mean, I would always disagree with the way the Fed measures, the BLS measures CPI, but it was impacted by Arthur Burns of the Fed in 1970s. Right.

So the point to be made is they have their data sets that they watch, and according to those data sets, they may be wrong. I don’t disagree.

TN: So just yes or no, because you’re implying some things that two weeks ago we talked about or last week we talked about, yes or no. Will we see J. Powell’s innver Volcker this year?

NG: Yes.

TN: We will?

NG: In the short term.

TN: Albert, what do you think? Yes or no? Will we see J. Powell’s inner Volcker?

NG: Mini Volcker.

AM: Mini Volcker, I agree with. One and done Volcker, a one week Volcker, yes, I agree with.

NG: If he does the one and done, the bond market will riot. If you look at the Fed meeting. But look at the statement. That statement said, basically risk assets will determine the level of Fed funds, right?

AM: Yeah.

NG: Bond market’s sold off. Hold on. The bond market’s sold off, aggressively. Sold off all across the curve and particularly the long end. It didn’t start to flatten in a bare manner until that press conference.

TN: Sorry, guys, let me stop you both just for a second. Tracy, will J. Powell show his inner mini Volcker this year?

TS: I said this last week. I’m in the one and done camp, maybe two, but I’m cutting it out there. I know Bank of America came out today and said seven. They said the “seven” yes, today, which I think I don’t know what they’re smoking exactly. But I’ll go with max two on this one, even though I said one and done. I’ll stretch that out.

Maybe one more, but that’s where I stand on that one.

TN: Okay. So while we’re with you, Tracy, can you give us a quick view on what did markets get right and wrong this week from your perspective? What do you think is a little bit out of whack?

TS: Well, I mean, I think energy markets obviously remain elevated because of the Russia-Ukraine risk, right? Because Russia’s 10 million barrels per day, they produce a lot of gas. That’s here with us to say we have a northeastern so that kept a bid under at least the energy markets, right. I think last week we were talking about continued volatility all around in, say, the indices and obviously that trend is continued and probably likely will continue into next week.

Again, looking ahead to next week, I expect that probably we’ll still keep a bid under oil, but we did go kind of sideways this week. Even though we got new highs, I still think we’ll stay in that $82 to $87 range, probably for the next week or so, and then probably get a little bit. If nothing happens with Russian and Ukraine, we’ll get a little bit of pullback there. But still looking at the overall fundamentals of the market, they remain very strong. So I don’t think we’ll see any kind of material.

TN: Okay. This is on the commodity side. On the commodity side. Okay. What about the equity side?

TS: Well, it’s. Far as equities indices are concerned, I think that we’re again going to see continued volatility. What I think is very interesting. As long as the market is pricing in rate hikes, that’s going to put pressure on growth versus value. Right.

And so I think that trend will continue. I think we’re in for a rough note. Until that March meeting, until we actually hear an actual decision, we could be setting up for another volatile month in February.

TN: Okay. That’s fun. Right. Okay. So let’s take that and let’s swing over to geopolitics for a minute. And Albert, I want to ask you a couple of things about geopolitics. Tracy mentioned Kazakhstan, which we’ll get to in a minute. But has the White House told the Fed and treasury that inflation is a top priority? Is that what you’re hearing out of DC? Are they getting political pressure to make inflation their top priority?

AM: Oh, absolutely. Inflation is a nuclear bomb for politicians. I mean, gas prices rising, food prices rising. The job market is they can say it’s strong, but it’s not. I mean, realistically talking about 15%, 20% unemployment, so it’s not strong. So, yeah, inflation is absolutely priority number one for the next couple of months.

TN: Right. Okay. And then as we move into a little bit more on geopolitics, so we got a viewer question from at 77, Psycho Economics. He says, has Russia’s stabilization of Kazakhstan increased their influence over energy exports to Europe?

So give us a little bit of kind of overview of what you see happening in Kazakhstan. And then if you and Tracy can help us understand what’s happening with the energy exports to Europe, that would be really helpful.

AM: Yeah. Kazakhstan has been stuck between Russia and China for a couple of years now. But realistically, that’s Russia’s backyard. They control the area. Ever since the United States was booted out of Uzbekistan, they’ve lost a lot of sway in the region. So the energy sector from Kazakhstan all the way to Turkey and into the Mediterranean is pretty well dominated by the Russians right now.

TS: And I would agree with that. I would also like to mention just as an energy producer, I mean, Kazakhstan doesn’t produce all that much.

So if you’re looking at the commodity side, I would say Ukraine would have more of a dent because of how much they’re involved in the cereals markets. How much do they export in the cereals markets, how much they export in the uranium market. So that’s definitely more commodities heavy area that I would be concerned about then Kazakhstan, just from the energy standpoint.

AM: Yeah. And when you’re looking at Russia and talking about energy, it’s not necessarily you don’t single out just Russia’s energy production. They go out and they meddle everywhere they possibly can, whether it be Libya, Kazakhstan, Turkey, everywhere they can to sit there and depress those energy exports so they can pump out there. So that’s what I mean by Russian dominance in the sectors. Sure.

NG: Will Russia attack the Ukraine?

AM: You’re looking at maybe 1020 thousand conscripts that Russia probably hasn’t paid in a while to go and loot the countryside of Ukraine where it’s already Russian dominated speakers.

Biden comes out and talks about sacking Kiev as if it’s Hannibal on the gates of Rome. This is just absurdity. Russia has no military, nor does he want to go into Kiev and hold it. What’s the point of bombing the thing? Of course, they can go in and destroy Kia if they wanted to overnight, but that serves absolutely zero purpose. So are they going to invade? Yeah. I mean, I would give it a 60 70% chance, but would it be something some big kind of issue at. No, the market is looking at this issue as World War II. And it’s just nothing more than a little bit of a skirmish that’s kind of kinetic.

TN: But they’ve already invaded the economy. They’ve already invaded any investors who want to go into Ukraine, that nobody’s going to touch Ukraine for at least the next year. Right.

AM: Well, Tony, listen, I’ve been to that region, worked there for years in Georgia and Ukraine. I mean, Ukraine has corruption issues, of course, aside from the Russian problem. Right. They’ve got legal framework problems and corruption problems that it makes investing there quite difficult.

TN: Right. Okay, so you’re saying no, not going to happen. You’re saying maybe some looting in Eastern Ukraine.

AM: But they’ll reinvent the same areas that they did in 2014. They’ll make Biden and the west look inept, and that’s their goal. That’s it.

TN: Great. Okay. Sounds fun. As we look ahead, what milestones are you looking for? The week ahead, Nick, what are you expecting to see next week in markets?

NG: I’m fascinated to see the next bunch of Fed speakers come out. If we had the Uber Dove, very hawkish. That’s as hawkish as he’s ever spoken, Kashkari. I’m fascinated to see what the others are going to say.

What I can’t get a handle on is whether this is a genuine bear market inversion or flattening going on the bomb market. I still maintain the point that you’ve got to look at the market and watch what’s going on. Okay.

So I’ll be interested to see whether that continues. If it doesn’t continue, that tells me that it was actually a bit half partly people reversing bad positions on the Euro curve because really traditionally we should be having your curve deepening.

And then next week, well, we’ve got unemployment coming out on the Friday, so that’s going to be pretty fascinating. And then we’ll have the following week, all that inflation data starting to come through, and we won’t have the favorable comparisons from a year ago.

The banks have all jumped on like Tracy said, bank of America seven hikes. Goldman is four to five hikes. They are jumping on this. This did surprise the banking community, with maybe the exception of Goldman, who came out beforehand and said this is what I was thinking. So it’s a pull and push between what we’ve just been discussing. How many heights have we got a minivolk building up here in the Fed? If he’s got the support of the White House and treasury, then maybe we have. Right. I think he had to have that before he came out with that sort of speech.

So the question I mean, I looked at today’s equity market. To me that started off as a okay, let’s cover the shorts because we’ve had a good week and there’s no liquidity. So the market just carried on popping up be interesting to see what happens on Monday. And remember, we have holiday, new lunar year, holiday in the Far East. So the forest is shut, as it were, even less liquid.

TN: Right. So, Tracy, you’ve said for a long time that Yellen is a strong dollar Treasury Secretary. And so what Nick is saying about the Fed and the treasury and the White House being in sync, it seems to make sense if they’re tightening that that is certainly something that Yellen might want.

TS: Obviously, you’re going to see a strong dollar. The Feds raising rates, they’re taking liquidity out of the dollar market. Right. So in that environment, we are going to see a rising dollar. What we should be looking at, though, is emerging markets. Right that nobody’s really talking about. How does this affect emerging markets? Emerging market debt that’s denominated in USC as a dollar gets higher, that puts pressure on emerging markets, even though a lot of banks came out and said emerging markets should do better this year than DM markets, but in my opinion, not in an environment where we see a rising US dollar. So that’s something to look forward to.

TN: In the biggest emerging market. We saw the Euro really taken to the shorts this week. Right. So the Euro is really problematic and it’s probably the newest of the emerging markets, in my view. So they’ve got real problems. But yeah, I think watching emerging market currencies is something that we really need to do over the next probably month to see how dramatic will the shift that we saw this week, will that remain? Will that get even more dire? I think it will. Yeah.

And Albert, what are you watching for the next week?

AM: I have to reiterate what Tracy just said. Literally, it’s the US dollar in the first half of the week and then this bonds the second half of the week.

I think if the US dollar gets over 98, it’s a real problem for emerging markets.

TN: Yeah.

AM: Especially the Europeans. You’re talking about the Euro. But the Europeans like the Euro suppressed right here because it’s boosting the manufacturing sector. So it’s like it’s a give and take with them. But yes, the dollar gets over 98. Start looking at problems.

TN: Well, and my big question is when will the CNT break? When will they finally say uncle and I’ve been saying for a while it’ll happen after lunar new year. They just can’t keep this up. And with an appreciated dollar, it becomes even harder for them to keep that CNY at six point 35 or whatever it is right now.

NG: Did we see a few little twitches of weakness today and yesterday?

TN: We did, yes.

AM: Just remember, Tony, October is a big meeting for the party in China and they are going to stimulate that economy sometime this year. It’s just a matter of when it starts and when you’re talking about the currency. Yeah. That’s going to be a problem that we have to tackle pretty quickly.

TN: Well, it’s monetary policy. Q one, Q two and it’s a lot of spending in Q two. Q three, right?

AM: Absolutely.

TN: They’re going to play with the currency in Q one. Q two and play with the triple R and all this other stuff in Q one, Q two. And then spending is going to rip starting in June.

AM: Oh, yeah. Full disclosure. I’m building big position in China names as we go here.

TS: And commodities will benefit from that as well. They start spending right. And you’re going to see commodities rip as well, which also hurts the inflation picture.

NG: I was going to say that will be a negative for the bond market.

TN: Okay, guys. On that note, thank you very much. It’s been great and have a great weekend. Thank you.

TS: Thank you.

NG: Thank you, Bernie.

TN: Okay. Good one, guy.

NG: That was my feet.

TS: That was good. I liked.

Tags American, BLS, China, CNT, cny, complete intelligence, cpi, Dc, ECI, Euro, Europe, Fed, FOMC, Goldman, Hannibal, Kazakhstan, Kiev, March, Monday, powell, Swift, The Week Ahead, tony nash, Uber Dove, Ukraine, United States, USC, Uzbekistan, Volcker, Yoker

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