Everything was up Thursday. In my non-traditional finance bro experience, that’s fairly unusual. In the past, we’ve generally seen some of those assets have an inverse correlation. For example, here’s the dollar index overlayed with gold futures going back a little over two years:
It’s been almost a perfect inverse. But yesterday, things were a little different:
S&P 500: +0.84%
Bitcoin: +1.17%
Oil: +2.06%
Gold: +0.12%
2 year yield: +0.91%
Dollar: +0.56%
Essentially, everything went up together… except foreign currencies, which went down. Oh and also Allied Gaming & Entertainment AGAE 0.00%^, that went down because it always goes down. Stonks down = AGAE down. Stonks up = AGAE down. AGAE is a shitcoin bad equity to hold. But back to the matter at hand…
It’s The Oil, Stupid
In my opinion, it’s very interesting that all of these things went up together. That probably shouldn’t happen. But it’s an indication to me that foreign currencies are falling against the dollar and that’s probably because we’re well into what has been an international currency war for a few years. Now I want to make it very clear that I’m not opposed to other interpretations of this; so if you have one, by all means, jump into the comments and drop some knowledge. But I see this as Brent Johnson’s dollar milkshake theory playing out in real time.
Like it or not, because the dollar is global reserve currency, it is still used for cross border settlement even though it’s very clear things like Bitcoin and a variety of other public blockchains offer a better solution to dollar hegemony. But beyond that, debts are generally denominated in dollars. So servicing those obligations requires holding or acquiring dollars. This doesn’t mean there aren’t global forces working to move away from the current model. It’s become a bit of a meme, but specifically the BRICS nations - they’re obviously working on something else.
And this is where Oil comes in. I think it is worth consideration that the US Crude SPR still has a long way to go before it gets back to where it was in 2020:
This is not good. In part, because the price of oil is already getting away from Biden administration and any legitimate attempt to replenish the SPR is likely going to send Oil even higher. Naturally, that will negatively impact inflation (among other things) and the Fed will be forced to keep rates higher for longer. This also happens to be in the face of production cuts internationally. Absolutely buried in this Reuters article about engine issues at Delta DAL 0.00%^ is the fact that the company is trimming margin expectations due to those foreign oil production cuts:
However, it slashed its quarterly forecasts for operating margin and profit as extended oil production cuts by Russia and Saudi Arabia drove the airline's fuel expenses higher.
And by the way, inflation is already moving up again:
After a year of declines in the CPI’s rate of change, inflation has moved back up for the second consecutive month. So the question then becomes, if rates stay high for longer or even move up higher from here to keep up with the inflation fight, what happens to the federal budget deficit as more of the public debt has to be rolled over at a higher borrow cost?
Look, I’m no Warren Buffett, but unless you hold collateral that isn’t anybody else’s liability, it’s difficult to envision this ending well for anybody. Unless you hold stonks, apparently.
Maybe it really is different this time.
Disclaimer: I’m not an investment advisor. I listen to Twitter Randos and enjoy songs about jpegs. This was originally posted to faybomb.substack.com
