Comment of the Day
Video commentary for April 5th 2022
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: Quantitative tightening creates deflation, stocks weak, bond yields soaring for now, jet fuel accelerating, gold and oil stable.
Brainard Says Fed to Shrink Balance Sheet Rapidly as Soon as May
This article from Bloomberg may be of interest to subscribers. Here is a section:
Federal Reserve Governor Lael Brainard called the task of reducing inflation pressures “paramount” and said the central bank will raise interest rates steadily while starting balance sheet reduction as soon as next month.
The Federal Open Market Committee “will continue tightening monetary policy methodically through a series of interest rate increases and by starting to reduce the balance sheet at a rapid pace as soon as our May meeting,” Brainard said on Tuesday in remarks prepared for a speech to the Minneapolis Fed.
“Given that the recovery has been considerably stronger and faster than in the previous cycle, I expect the balance sheet to shrink considerably more rapidly than in the previous recovery, with significantly larger caps and a much shorter period to phase in the maximum caps compared with 2017–19,” she added. Officials next meet May 3-4.
My view - Quantitative tightening causes deflation. Everywhere it has been tried, that has been the result. If you have an inflationary problem, sucking liquidity out of the system is a good way to get it under control. Arguably, it is much more effective than raising rates. In the process, demand will fall, and growth will deteriorate. It will also reduce the number of interest hikes that need to be enacted.
New York Jet Fuel Soars to New Height as Inventories Dwindle
This article from Bloomberg may be of interest to subscribers. Here it is in full:
Wholesale jet fuel prices in New York continue to soar unabated, touching a fresh record for the second consecutive trading day.
Jet fuel on the spot market added another 93 cents, surging to $7.61 a gallon on Monday, a new high since Bloomberg started publishing these prices in 1988. Regional stockpiles are at their lowest for this time of year since 2015.
For much of the pandemic, U.S. refiners prioritized making other fuels such as gasoline and diesel with air-travel demand lagging the pace of recovery in other oil markets. Fuel makers began raising jet fuel production in late March as prices suddenly soared above diesel for the first time since Jan. 2020. Fuel accounts for up to a third of operating costs for airlines. Some airlines were already cutting flights as a result of expensive fuel back in early March.
Potentially bringing some relief to East Coast inventories, a jet fuel cargo was diverted mid-voyage to New York from Spain with an estimated arrival next week. Wholesale jet fuel prices have more than doubled within the past month.
My view - Traders must be wondering whether it is advisable to simply buy every commodity contract that has not yet accelerated. Afterall, the number of commodities that have gone from quiescence to fame in the last year continues to grow.
Email of the day on gold, gold shares and Rolls Royce
Today, there is an unusual discrepancy between GDX (-1.43%) and GDXJ (-0.27%), usually it is the other way around. Gold futures are up 0.64%.
Is there something the "big money" (presumably in GDX) knows about upcoming developments in Gold or miners?
You have not talked about your position in RR? Just keeping indefinitely?
My view - Thank you for this email which may be of interest to subscribers. Gold continues to pause around the psychological $1900 level. In any range the bullish and bearish arguments return to equilibrium.
At present the competing arguments are that gold should do well because central banks have been backed into a corner by rampant money printing and will be unable to raise rates enough to fix the inflation issue. The competing negative view is gold faces an increasing headwind for rising yields.
Eoin's personal portfolio: stock market short initiated March 31st 2022
One of the questions subscribers as most often is how to find details of my open trades. To make it easier I will simply repost the latest summary daily until there is a change.
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