In the Oil Wars, Biden 0 – OPEC+ 1

It was really no contest – Biden against the oil market and OPEC’s dominant role in it. Biden desperately wants cheaper gas (petrol) so that his poll ratings can improve enough to produce a Democratic win in next month’s mid-terms. But OPEC wants the oil price to lift off their line-in-the-sand $80 floor recently breached (prices dipped on reduced demand). Thus, OPEC acted rationally by agreeing a major cut in production to counter the recent drop in global consumption and thus spiking Biden’s guns. OPEC+ 1 – Biden 0.

And as Russia is the + in OPEC+, Biden had an ideological reason to oppose the cuts as higher oil prices helps Putin in its war effort. On the other hand, Biden is shipping the powerful and very effective Himars weapons to Ukraine which appear to be gaining the upper hand and pushing Russia back towards its borders.

Of course, either option for Putin is terrible. If he senses he is losing, he will bring forward his nuclear threat – and mean it. And if he somehow reverses his losses, he will have a permanently hostile Ukraine (with Western allies at their back) to fend off for years to come – clearly a major drain on his weakening economy. He is like the rest of us – caught between a rock and a hard place.

Oh, and a further irony just revealed – The US is dropping sanctions against Venezuela and begging for their oil just as Biden is about to ban all US offshore drilling to ‘fight climate change’. This is getting off-the-scale government stupidity. As I never tire of saying: Unless you are on the payroll, government is your enemy.

Thus, oil prices have had their best week in a while rising from £76 to $90 – a gain of 18.5% and a sure spur to another spike up in petrol/gas prices at the pump (to well over £2/litre in the UK?). That might finally set off a rebellion among drivers – and hasten the demise of a lot more businesses. Bleak times lie ahead.

All this while the eco zealots are doubling down with their usual mantra that to solve the problem of high energy prices we need more ‘cheap’ renewables, not fossil. I am quite sure we will see many more faces superglued to pavements soon.

But politicians are slowly but surely coming round to the realisation that promoting renewables and discouraging fossil fuel development will not solve the immediate problem of energy supply as we head into winter. That is the mother of all mis-allocated resources. If we do get another sharp spike in pump prices, they will be pressured to change tack PDQ.

And longer-term, a theoretical increase in renewables has its own major difficulty – no battery storage capacity for the grid. Already, warnings are being sounded of likely blackouts and energy rationing this winter. Energy companies are scrambling to lock in supplies of NatGas that may not be there given the ban on the plentiful Russian supplies.

This is surely demonstrating the truism that for politicians, when every losing idea has been tried, they eventually come around to the correct one. But we are running out of time. Meanwhile, much capital has been mis-directed, not to mention the vilification of the many who saw the madness of promoting ‘renewables’ long before the world was ready.

If only experienced engineers ruled the world, not career jobsworths!

Of course, many on the renewable gravy train are profiting handsomely, such as the subsidy-laden wind and solar farms that get paid to produce electricity when the wind blows and the sun shines – and also get paid when they don’t. Nice work if you can get it.

But such largesse is surely on its way out as the cost-of-living crisis is putting great strain on the public’s and nation’s finances. Big spending decisions must be made and this government has pledged to start that very bumpy process. Good luck with that. How many politicians get voted in on a platform of reducing benefits, reducing money for the NHS and cutting the tax take to lower public spending?

But politically, it makes a lot more sense to support citizens (lots of votes) at the expense of their pals the feather-bedded wind/solar farm owners (few votes) that have had it easy for so long.

And as reality is slowly dawning, I see that a heap of new oil/gas permits for the North Sea are to be soon auctioned in a vivid 180-degree change in policy. Naturally, this has the eco zealots such as Greenpeace up in arms. Of course, any fuel from these fields are many months away.

If a miracle low cost solution to battery storage for the grid is found, that too will be years away from application at scale.

So it seems we are caught between a rock and a hard place – exactly the situation I imagined that would be a major catalyst for the coming recession/depression. It is all about high energy costs that will cripple societies.

The bottom line: If we do get blackouts and rationing this winter with increasing energy prices, it will likely bring much social unrest with many more businesses going under – and collapsing stock markets. Oh, and there are only two fuels that can provide the energy for the grid that make sense – crude oil and uranium. Everything else has minuscule energy density.

Sentiment remains depressed – and this is a necessary backdrop to falling asset prices. Another aspect of bear markets is that societies become more divided with a proliferation of factions splitting from the main groups.

Incidentally, it is clear the world is splitting into various factions that are becoming even more hostile to each other. I can cite the gender ‘woke’ groups of the multiple labels we have today in a veritable alphabet soup of letters. No longer do we have just male and female and the gay/lesbian sub-groups, but now such as LBGQT and its derivatives.

I see that Scotland is now allowing anyone over 16 to legally self-identify as anything they want without any need for verification. Hmm.

Stocks are starting a devastating wave lower

Yesterday’s non-farms jobs report was pretty much as expected – and the Dow dropped 700 pips. Imagine what would have happened if the report had been bearish! That was a solid clue that stocks are on very shaky ground as they gird their loins facing the abyss of what third waves will destroy ahead.

This was the roadmap I posted to members yesterday morning as the four-day rally off Monday’s low was about to turn tail. The ideal top was to the 30,600 level and almost made it (it reached 30,450) but it started an all-day collapse and finished at 29,300 to conform to my HARD DOWN forecast.

Thus, we have started another major third wave down – and these are almost always long and strong. In fact, it has started third waves of several degrees. If correct, my initial target around 26,000 should be reached swiftly.

Because stocks front-run the economy, the bear trend will flag up – after a delay – contractions in the economy, some severe. And they are now starting to come into public consciousness, The housing market is slowing as mentioned last week (mortgage rates now above 6% pricing first time buyers out of the market) and now we hear that the expanding numbers of company workers that are on four day weeks face huge pay cuts. Now that’s what I call contraction!

And I see our government is being warned to cut the bloated public sector by an astonishing 200,000 jobs to meet spending plans. One estimate puts the public sector at about 6 million so that cut would be only 3% and I am quite sure there are a lot more non-jobs (management?) not on the front line that could easily go.

So shall we finally get a real Bonfire of the Quangos which was delayed from its initial 2008 Cameron-Clegg proposal in the Credit Crunch when stocks were plummeting?

So why not be truly radical – cut all of the non-jobs and award front line public workers a huge pay rise of 20% (especially NHS nurses, teachers and police which would boost their morale from the pits). Oh, and raise the personal tax allowance to £15,000. Does this government have the guts and strength to do it? If not, then the public services will disappear from sight.

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Stock investors – is there anywhere to hide?

We have started a deflationary contraction where most assets will decline in value including most shares. Most investors still cling to belief they should be invested in something (and shun cash, which is now a valid investment choice especially dollars). I believe cash will be increasingly seen as a safe haven.

For those who still want to stay invested, I have been extolling the virtues of holding inverse index ETFs for some time – here is the one I favour the short S&P ETF

It is tracing out excellent Elliott waves and is starting wave 5 of 3 up which should be an extended wave taking it well above $9.50 and perhaps to the $10 area before turning lower again in a large fourth wave (stocks bouncing).

Don’t fight the Fed?

This ancient mantra of the stock markets has generally been a rough guide to where shares are heading – with the proviso that the Fed follows the moves in interest rates, not leads them.

With the Dow off by more than 20% off its ATH and the Fed sounding more hawkish as prices drop, to most observers they seem to be orchestrating the decline in a deliberate act of wealth destruction. It appears they have decided to stomp on share values. Of course, this is a radical change from pre-January when they seems to have the backs of investors.

And that ‘deliberate act of destruction’ description could also be applied to the UK government’s recent decision to force the BoE to step in and buy gilts.

Such turmoil and interference in markets will become more common as the bear market progresses. Ministers will feel compelled to try to make things better – only to make them worse.

Sadly, long gone are the days when there was minimal interference with the public markets – the true reflectors of business conditions – and true price discovery. Now, everyone has to be protected against adverse moves and most markets do not reflect ‘true’ prices.

But for us, that’s good! It provides very volatile conditions that we can profit from (see or latest euro and sterling campaigns).

IPOs are sinking fast

During the great QE bull market post-2008, massive bubbles formed many of which took the form of mostly tech start-ups with ideas that attracted billions from Venture Capital firms. That mirrored the dotcom boom of the late 1990s.

Some achieved valuations of $1 Billion and more. These are known as Unicorns, supposedly because the valuations are as rare as the mythical beasts. But not so – they became very common with a total market cap of almost $300 Billion in 2021 which marked the ATH in the Nasdaq (tech driven)

The number started from a very low base in 2009 at the depths of the Credit Crunch when interest rates were much higher than today – and QE was only just getting started. In the years since, most of the QE dollars went into Wall Street and interest rates plummeted – and much flowed into these IPOs.

As the bullish mania reached a crescendo in late 2021, the scramble to list on a stock exchange reached its zenith. Now with rates zooming higher, fewer investors see the attractions of a very speculative investment in a falling market. As the market moves even lower, I foresee a complete vanishing of IPOs – with investors nursing very large losses. That is when the name Unicorn will truly reflect their nature – a rare mythical beast never seen in real life.

Small Business prospects appear fragile – and getting worse

Here is a devastating chart from the US showing the over 50-year low in morale that small business owners possess

Note that the outlook failed to make a new high late last year when the US indexes made their ATHs – conditions for small businesses were already deteriorating- and these are the bedrock of a nation’s economy. Look out below!