A week ago it appeared crude oil, West Texas Intermediate, was trying to stabilize at the $75 level. Today, not so much. Earlier this week price fell from $74 to $69.55 today. This seems odd given the success the Yemen Houthis have had disrupting shipping from entering the Suez Canal. On the other hand, a scan of business news reveals world weakness. Energy ETF XLE looks toppy but remains above its moving averages.
Last week I heard the term wage price spiral for the first time in decades. The Longshoremen raised their wage offers from 25 to
62% over the next few years. Boeing machinists are on strike now. Stellanits is suing its Union. The term means that in an inflationary period, organized labor demands and gets higher raises. This feed on itself as companies raise prices to pay those higher wages. And then another round of wage demands raises wages and then prices.
China is starting to look like Japan in 1989. For two decades the Japanese expansion was a world-wide wonder. Prices of homes in Hawaii soared as the money that never sleeps found a new home. But stock prices topped. Japan believes in a government that covers for its business sector. The reluctance to write off bad loans led to lost decades.’
China has become the new manufacturing hub for the US. But its one child policy now imperils a reliable growing work force. Some 90 million home units now sit vacant. Evergrande and China garden, former big developers, are in serious trouble. This weakness spills over into the demand for energy. And Iran is probably happy to provide the energy China needs. GM is exiting its Chinese EV bets. Ford pulls back on its EV F 150 production. Luxury good sales in China falter.
Dow Industrials have soared 1,000 points beyond what appeared to be a top. Goldman Sachs maintains many indicators. Oe is their Bull Bear Market Indicator. Over the last 50 years it has reliably called six market tops. It is now approaching those same levels again. It is easy to sell on the way up-. It is hard to do so when all are crowding out the same small door.
The FED was supposed to have eased rates. But the three month T Bill has already risen from 4.5% to 4.65 %. The market does not believe. Inflation is conquered, not one bit. As Boeing fears a downgrade to junk status, that fear of default stalks the markets. This is another reason rates are rising. The market wants more return for betting most will pay their debts.
Dennis [email protected]
