Brent crude’s meteoric 35% rise from $70 in early June to $95 as successive Saudi Arabian/Russian output cuts and a 3MBD supply deficit in the wet barrel market, have rewritten the monetary equations of global finance. This is a brutal tax on the global consumer that slams growth and boosts inflation at a time when China’s property crisis threatens a Japan style lost decade deflation, Europe’s industrial colossus Germany faces both stagflation and a credit crunch, dozens of emerging markets are on the precipice of sovereign default and even the US consumer, 70% of the $25 trillion dollar American GDP, faces stress now that the pandemic era fiscal lollipops have run out.
A capital market SOS? The spike in the 2 year US Treasury note to a 16 year high at 5.10% and the 10 year US Treasury note’s surge from 3.38% to 4.36%. The risk/reward calculus in the global tech trade flash red to me after Nvidia’s post earnings reversal from a $516 aftermarket high 3 weeks ago to $435 now. Whatever Powell says after the FOMC statement, I believe this reversal in Nasdaq’s bellwether megacap darling signals a bull market peak in Big Tech that is confirmed by the ominous double tops I see in the Homebuilders index XHB and the Philly Semiconductor index (SMH).
My bearishness on the Arm Holding IPO has also been vindicated by its free fall from its high at $65 on Friday to a tad below $54 last night. A 17% profit in three trading sessions makes Arm IPO my idea of short sale nirvana.
I have made no secret of my conviction that duration risk stank to high heavens since May and the only rational position on the 10 year Uncle Sam IOU was a short or a high delta put option on the TLT. The bond market was a disaster in 2022 but it will be an even bigger disaster in 2023 and 2024, unless a 2008/2020 scale global risk asset meltdown forces Wall Street to jump into the safe haven arms of Market Mommy, now defined as King Dollar and the Treasury bill/note market. Note that King Dollar has surged from 1.12 in July to 1.0680 now and sterling (cable) has dropped from 1.3140 to 1.2364 now. London Bridge is definitely falling down my fair Rishi.
The surge in Brent triggers obvious macro trades for me. The airlines tracker in New York has fallen 20% in the past 3 months. The Norwegian kroner has appreciated against the Swedish kroner and I would still be long Nokky, short Stocky in the inelegant language of the FX gnomes. Since 13% of the index weight of Britain’s Footsie 100 is energy and no less than 26% of its earnings, it also outperforms the German Dax and French CAC Quarante, both second derivatives of the Chinese economy during an oil shock.
I have been drilling for money gushers in Big Oil and West Texas wildcatters on the NYSE since May and now comes the time to redeem our Nehruvian triste with destiny. Viva SLB, HES and Noble.
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