Originally published at: Investor Complacency Amid an Energy Shock – Peak Prosperity
Welcome to another Finance U episode, where Paul Kiker and I dissect the current market conditions using plain language. What a time to be alive and discussing the markets!
The Iranian war has not yet even been remotely priced in by US, Japanese, and European markets. Especially for oil. The disconnect between the placid oil prices for WTI (US) and Brent (global) as compared to the stark news flow out of the Middle East is so profound as to be disorienting.
Naturally, many suspect that the pricing is being ‘managed’ by Western interests to maintain an illusion.
Here’s that illusion put all the way into play, with fictitiously mispriced oil translated all the way into a message to retail stock buyers that “all is fine!”
But the reality is that the globe is suddenly missing 20% of LNG exports and ~12%-14% of daily global crude oil production (which equals closer to 35% of all exported crude oil).
That’s a severe oil energy shock. The likes of which we’ve not seen since the early 1970’s.
Europe and many Asian countries are now just days away from experiencing a severe lack of natural gas. They will soon have to begin triaging its distribution, with heavy industry the first on the chopping block.
US equities are puzzlingly complacent at the moment, with strong support coming from ‘somewhere’ as is typical of US equities when a war breaks out. I consider that one of the functions of the Fed and Plunge Protection Team – keep stocks well bid as a means of signaling to the populace that ‘the markets’ approve of the actions, or at least aren’t worried.
But energy shocks are very real and not subject to spin and cannot be ‘papered over’ forever. While history may not repeat, it sure looks like it’s about to perfectly rhyme.
An energy shock at this point will tip the world back into an inflationary shock, leading to a dreaded ‘double hump’ inflationary outcome -exactly the same as in the 1970’s – 1980’s.
China is far more prepared for this situation than the US. It’s been stockpiling crude oil in strategic reserves for 15+ years, and is thought to have some 1.3 billion barrels in reserve. That provides China with more than 200+ days of buffer. Many other countries have practically no buffer, while the US drew down its SPR heavily under Biden for political purposes and has not meaningfully begun the process of refilling the SPR caverns.
In other words, things are about to get very chaotic and volatile over the next few days, weeks, and months. Now is the time to have a cautious and risk-managed approach to shepherding and protecting one’s wealth.
Is everything fine as Cramer says? Not based on the actual facts as we know them from the Middle East. Will peace break out soon? We have no indication of that; in fact, both sides are saying “prepare for a long fight.”
Timestamps
00:00 The Energy Crisis Unfolds
10:53 Market Reactions and Complacency
20:58 Inflationary Pressures and Global Implications
27:58 Navigating Arrogance and Complacency in Leadership
29:16 The Unfolding of Global Conflicts
31:06 China’s Strategic Stockpiling and Preparedness
32:57 Building Personal Resilience and Emergency Funds
35:19 Market Glitches and Regulatory Failures
39:21 The Importance of Rule of Law in Markets
41:52 The Fragility of Current Economic Systems
44:56 Risk Management and Portfolio Strategies
50:00 Prudence in Uncertain Times
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