Oil is acting erratically this morning. I had crude futures up to $76.22 this morning before taking a tumble. As I send this out, it currently stands at $75.14. The oil market is really tight due to an influx of swing/momentum traders. I believe the current volatility is here to stay and should be taken advantage of. Big one day drops can be great opportunities to go long. Ultimately, we are going to be running into a large market deficit because of supply constraints, lack of new well development, and OPEC. Current rumors are flying around about OPEC’s meeting. Previous production deals could turn out to be less than previously advertised. Also, there is a rumor that the current production cut will be extended to the end of 2022 (it was going to end in April 2022). OPEC could be testing the waters here to see if shale producers will administer a healthy dose of self-control in the face of higher prices. If so, this will give the cartel a green-light to keep edging the price higher.
ISM put out their latest report on Manufacturing and it’s a wild ride. While the top number edged down (60.6 in June vs 61.2 in May), we are still in expansion mode (remember, anything above 50 indicates expansion). The number that really stood out to me was the change in price pressures which surged from 88 to 92.1. Now this data is considered “soft” data, as opposed to “hard” data. The difference being that soft data is based on surveys and hard data is based on actual numbers of sales or price changes. Still, this price pressures reading was the highest since July 1979.
Backlog of orders also decreased from 70.6 to 64.5. Inventories also kicked up 0.3 percentage points. This tells me that bottlenecks are starting to be alleviated.
Timothy Fiore, the Chair of the ISM Manufacturing Business Survey Committee had this to say about the report, “Business Survey Committee panelists reported that their companies and suppliers continue to struggle to meet increasing levels of demand. Record-long raw-material lead times, wide-scale shortages of critical basic materials, rising commodities prices and difficulties in transporting products are continuing to affect all segments of the manufacturing economy.”
This continues to play into the perpetual inflation thesis. It also leads to the investment thesis that shipping companies like Costamere (CMRE) are the place to be. I know a lot of the easy money has already been made in the shipping companies:
I don’t think the story on these guys is over yet. We are still seeing high prices for sea freight, port backlogs, and long lead times for new ships to be built.
Finally, I want to discuss the article in Zerohedge from last night, “Welcome To the Post-COVID Luxury Spending Boom”. This article dovetails nicely with Bank of America’s analysis of the US Personal Savings rate data. BoA examined the numbers and estimated that Americans were sitting on $2.3 to $3.5 trillion in excess savings.
All that stimulus money has been piling up in bank accounts. BofA explained it as consumers “saving for a sunny day”. Now that we are seeing more states opening up, sunny days are arriving. Robert Wenzel predicted this when he said that the real fireworks for the precious metals would be occurring shortly after the 4th of July fireworks. I’m keeping a close eye on some of my favorite luxury goods brands as they could provide an opportunity for a good trade.
Exclusive Email Subscriber Content
I posted some content today that was exclusive to those that subscribe through email. I do this from time to time but I expect it will become a more regular thing. If you don't want to feel left out, you can sign-up by clicking on the big red button on the upper-righthand corner of this website or by sending me an email.
No comments:
Post a Comment