Monday, April 20, 2020


What happened to oil today is a harbinger of what is coming for every asset class that can be bought and sold. In summary, the bailouts are NOT working...

It turns out that my ultra-bearish weekend prediction for oil was not bearish enough. That is how I view my blog right now - Not bearish enough to convey current risks, and yet 10x more bearish than everyone else. AND thoroughly ignored. Which illustrates the depth of today's denial. 

As expected, the front month expiring U.S. crude future contract went bidless today ahead of tomorrow delivery. At last quote, deeply negative. Meaning that long holders of crude were willing to pay someone to take it off their hands, since they have nowhere to store it. Cushing is full. 

THIS is the "inflation" that the hyperinflationists have been warning us about on Zerohedge and various other purveyors of bullshit.

What happened today was merely a warning for what is coming to every asset class that can be bought and sold. NO BUYERS.

Everything that can be owned, from fine art to used cars is about to go down in price. The unemployed masses are sitting on a glut of everything that is about to hit the market on Ebay and Craigslist. Desperate people will sell anything to raise cash.

Contrary to what we read on Zerohedge, a shortage of meat will not manifest in a general increase in prices:

"...what drives inflation is lack of supply. And I see supply chain disruption everywhere. I also see falling investment in the supply chain everywhere."

What drives inflation are wages that are going up faster than the growth rate of the economy. We do not have that problem currently. We have the exact opposite problem - a collapse in employment income, offset by imaginary bailouts. Temporary shortages of various commodities do not comprise sustained inflation. Money spent on higher meat costs will mean less money to spend on everything else. Zerohedge should know this, but they are 100% wed to the inflation hypothesis. Which proves my caveat that no matter how bright you are and how many PhDs to your name, if you can't handle the truth, you're not that bright.

We live in a society run by Ivy League idiots who can't handle the truth. Because to accept the truth would prove they have always been dunces masquerading as geniuses. Their day of reckoning is at hand. Their inherent lack of reality is their fatal weakness.

The noose is getting tighter by the day. Collateral damage from the oil market will now filter out to Emerging market currencies and junk bonds. Oil services firms will reduce their orders for new materials and equipment. Drillers will lay off workers and shutter wells en masse. Inflation expectations will collapse, further taking down banks. Orders for commercial airplanes will collapse as airlines no longer see a need for increased fuel efficiency. And yes, even the green energy sector will be imploded by the fact that Energy is virtually free now.

Deflation begets more deflation.

The borrowed fantasy of energy independence paid for with cheap money and environmental desecration, has officially imploded.

The good news is that Trump got his wish for lower oil prices.

The Fed has a real problem now, because as inflation expectations turn negative, that means that fixed interest rates are rising in real terms. The Fed has already said they are against negative interest rates (paying people to borrow money) so extreme deflation portends an ever rising cost of capital.

Conventional monetary policy with respect to the economy is now effectively tightening.

The next "step" for monetary policy will be to conjoin the Treasury and Federal Reserve to pump money into the middle class. That is not a step that Republicans are willing to take. They need more "inducement". Time will tell if they cross the inflationary Rubicon ahead of the election. Or not. 

In the meantime, deflation is now officially out of control. The Fed doesn't have control, they have the delusion of control. And they have the copious dunces who follow them into the deflationary abyss. Buying the dip all the way down. 

The May contract was $60 in December:

In summary, Trump always gets what he wants, he's just not bright enough to figure out it's not what he should want in the first place.

Among the downsides of having a dunce for president.