Market Tides: The Ebb and Flow

As US policy makers fail to address the growing trade deficits, depleted manufacturing capacity, and divergence between the spiraling bond and ballooning stock markets (1), China stands out as the proverbial ”wiser man” who learns from the mistakes of others, with ongoing monetary policy tightening by gently guiding interest rates higher while increasing capital ratios of their banks (2).

With interest rates reluctant to corroborate the economic growth needed to support the ongoing rise in stock valuations (3), and when, like the dinosaurs of old, shorts have gone extinct (4), one is left wondering when the law of physics that states ”what goes up must come down” will come crashing in.

With the substantial decline in oil demand during the 2020 Covid crisis, inventories worldwide rose to the highest levels on record, resulting in benchmark prices crashing by roughly 60% and turned the WTI price negative. OPEC+ responded with the largest production cuts in history in an effort to stem further price deterioration (5).

The reduction in CAPEX coupled with reduced maintenance spending has the potential to permanently impact production, affecting future oil output capabilities, long term prices, and decimating US Shale (6). As its dependency on the US dollar poses a further detriment to Saudi’s oil market, Russia has emerged as the oil war’s victor (7).

Russia and Europe have remained determined to see the Nord Stream 2 project through, despite US sanctions, which now are being reported as ready to be lifted —provided certain conditions limiting Russian control are met (8).

With an increasing number of investors turning toward precious metals as a safe haven, experts caution that shortages in physical silver (9) may cause a massive collapse in that market, as paper silver has been oversold up to 1000x its physical capacity (10).

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References

1. The US Treasury as a death-spiral convertible bond

2. Chinese stocks face a monetary policy headwind

3. Stocks Versus Rates – Which One Is Most Likely Right?

4. As Shorts Go Extinct, All Market ”Sell Signals” Are Now Completely Useless

5. Gold & The Coming Oil Shortage – Part I

6. Gold & The Coming Oil Shortage - Part II

7. Market Friday: Russia Wins Oil War With Saudi Arabia

8. US Reportedly Signals Readiness to Lift Sanctions Against Nord Stream 2 if Certain Conditions Met

9. LBMA Acknowledges ”Buying Frenzy” In Silver Market And Silver Shortage Fears

10. Every Physical Silver Ounce Has Been Sold Up to 1000x