Shorting Oil? — A Contrarian View

From the Desk of Don Yocham:           Oil markets have been on a tear. Over the last year, prices have traded from a low of $51 to as high as $87 earlier this week. The sharp rally has fueled inflation fears as another vital input, natural gas, has rallied right along with it. So too have the prices of nearly everything else, for that matter. Many point to easy money and trillion-dollar stimulus packages as the cause. No doubt, more money chasing the same goods ultimately pushes prices higher. In fact, this dynamic is the only way to make the phase transition from run-of-the-mill inflation to hyperinflation. But, for money to be the inflationary cause today, the money printed by the Federal Reserve must first enter the economy and then circulate feverishly. Not sit idly as bank deposits on its balance sheet. And while the monetary base indeed doubled since the onset of COVID-19 from $3 trillion to over $6 trillion, 65% of that – or $4.2 trillion – has never left the Fed's coffers. Nor is money circulating any faster since its velocity is as low as it has ever been. So, we're not seeing money-fueled inflation, which leaves only supply and demand as the culprit. And as the economy downshifts to much lower growth, high prices alongside surging supply could set you up for a sweet opportunity to short oil…  To your success, Disclaimer & Disclosures The information in this email is intended for informational purposes only and does not guarantee specific results as there is a high degree of risk involved with trading. Also, our traders are real traders and may have financial interests in the companies discussed.  Please see our Terms and Conditions for more information.

 

                                                           

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