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February 21, 2024 | Weak US Demand and Rising Commercial Stocks Likely To Cause Near Term Term Correction in WTI Price

Josef Schachter

As a 40 year veteran of the Canadian Investment Management Industry, Josef Schachter has experienced several exceptional and turbulent global economic and stock market cycles. With his primary focus on the Energy Sector, Josef is able to weave global political, economic and monetary issues with current energy data into a compelling story of what's going on in the sector, what is to come, and why.


Mixed economic data in the US, with some indicators like manufacturing weakening are being offset by rising inflation after many months of declines. The Fed meeting notes out this week (from the last FOMC meeting) noted that they are concerned about lowering rates too quickly due to persistent price pressures. So the market desired pivot and 5-6 cuts this year now has moved to maybe three cuts with the earliest cut in June; if the data warrants a cut at that time. So far in February the yield on the 10-year Treasury has risen from 3.87% to 4.32% or by 45 BP.  If higher for longer and no cuts by the summer than the general stock market is quite overvalued. The AI love affair continues after the very robust results by NVIDIA. The key US averages have climbed to new highs led by the Magnificent Seven (M7).

So let’s go through the recent economic & political releases of significance.

  • US Core PPI rose 0.5%, much above the forecast of a 0.1% rise and last month’s decline of 0.1%. With crude prices up 15% (from US$68/b to US$79/b) over the last two months we can expect inflation numbers to get worse and not better in the coming months.
  • Housing starts in the US for January fell 14.8% to 1.33M from 1.56M in the prior month.
  • US Retail Sales fell 0.8% versus a forecast of a modest decline of 0.2% as consumer budgets are stretched.
  • US small banks are now under pressure from withdrawals versus last year’s problem in Regional banks. If this becomes widespread then a financial crisis could be seen again and the Fed and the FDIC will force mergers but guarantee all deposits once again.
  • Large bank leaders like Jamie Dimon of JP MorganChase are warning that the large federal deficits and financing requirements are crowding out other borrowers and are a drag on the US economy despite the US$2T deficits adding 6% to GDP. If official growth comes in at 2-3% then without the deficit spend the US economy would be in recession now. Does such large deficit spending make Bidenomics a good thing for the US economy on a long term basis? That is why his marketing of a strong economy does not get support from most Americans.
  • Japan and the UK both now have two negative quarters of economic performance meeting the technical definition of recession. With China still struggling there are quite a few soft spots around the world. Are we facing a mild recession in Europe?
  • Insiders are selling their stock holdings in record amounts which should be a warning signal to investors. Jeff Bezos sold US$8.5B of Amazon stock (50M shares). Warren Buffett’s favourite metric for assessing stock market valuations has hit a new record high of 221% of GDP. He loves to buy when under 100%. His company is now sitting on record cash.
  • US truckers are holding off driving into New York city with a boycott due to progressive restrictions. This could affect supply chains soon and add to the cost of daily consumables. FYI – truckers transport 70% of all freight in the US so this could be a big hit to NYC if it persists.
  • Canadian retail sales for December rose 0.9% but retailers like Canadian Tire reported horrible results in their fourth quarter of 2023. Profits in Q4/23 fell 68% while sales fell 6.8%.

On the wars front:

  • The Houthis announced today that they will increase their attacks on shipping despite the US seizing a ship from Iran that was loaded with missiles and drones. With the US using US$32M Reapers to observe Houthi attack sites they are firing US$20K drones provided by Iran to knock down the US drones. Great economics for the terrorists.
  • Egypt is building a wall enclosure (8-square-miles) to keep refugees from swarming across the Gaza border and causing a migrant crisis that they can ill afford due to their very weak economy.
  • The US carried out a cyberattack against the Iranian intelligence warship in the Red Sea used to target international shipping.
  • Russia is calling its seizure of the city of Avdiivka a major breakthrough and a disaster for Ukraine. Russia is keeping up the pressure as Ukraine’s munitions are running low due to no new supplies from the US. President Biden and President Zelensky are working tirelessly to get Congress to sign off on the bill.  However, the Republicans won’t concur unless Biden does something to stop the onslaught of migrants coming across the southern border.
  • Russia is now back on the offensive as it is planning to put in space a nuclear powered vehicle and maybe with nuclear weapons, as the space race picks up again. This weapon would be able to knock out communication satellites used by the US and NATO. This would blind them as they move more aggressively in Ukraine or other targets in the future.

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February 21st, 2024

Posted In: Schachter's Eye On Energy

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