Tuesday, August 09, 2016

Fools, liars, and con men.

I am super surly right now. All of a sudden people are experts on shit they know nothing about. It's frankly gob smacking. So lets deal with this phony oil rally. Opec comes out and says they are going to freeze output and oil surges. It's the most blatant market manipulation ever, and if people don't see that I just have to shake my head. Oil is down by a lot! So OPEC is making less money. Why would they say - no big woop, lets just make even less money. These countries have no choice but to continue to pump oil. And anyone who doesn't think so is a fool.

Personally I'm happy that oil at Cushing is starting to take a leg down. But most of that is due to the temporary weaker dollar which has now almost recovered. Summer is almost over, and I would expect the builds to bump the glut right back up to record levels.

Also, the rest of the world is having huge problems. Which makes our dollar stronger. And oil is bought in petro dollars. When our dollar is strong - the rest of the world suffers reinforcing this feedback loop. If the rest of the world pays more to buy oil, that means they can buy less other stuff. Even oil.

So today I brought out a handy chart to show everyone how correlated the dollar was to the inventory build at cushing.

The top two charts are of the inventory at Cushing. The bottom two charts are of the dollar. In the summer of 2014 the dollar started to get dramatically stronger. I put the snippets of the time period close together so you can see this happened at pretty exactly the same time. The dollar strengthened, and the builds started. If I knew how to overlay these charts I bet they would line up quite nicely. When the dollar weakend a bit, the oil glut at cushing came down. They almost move in lockstep.

Why do I bring this up? Negative interest rates are infecting the whole world. And I don't see the dollar getting much weaker. They would have to start printing money for that to happen. And since the Fed comes out every two days and says they are raising rates - the dollar only stays strong.

A strong dollar is really the only thing we have going for us. Because a stable strong currency creates trust. But have no illusion. The dollar controls this train.

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