When I wrote two day ago that I was concerned that credit and leveraged tech could be on for a walloping I really didn't expect you all to read that and smash the market the following open, But thank you. At this point I should publish a book and set up a hedge fund beginning with P and appear on CNBC every lunchtime because it is obvious that I am a guru and we can all ignore the fact that most of my calls are rubbish and I happen to have got lucky for once. It works for many 'gurus' out there so why not me.
The last bit of luck I had was back on March 17th when I wrote a post here suggesting that oil would base that day using clues in oil stocks. Luckily it did and it has taken 5 months to get back down to the levels seen then.
The psychology of oil prices feels very much Elliot 3rd wave, and 3rd waves are meant to drive to lows well below the wave 1 low, yet there has been an overwhelming capitulatory mood for the last couple of weeks. Supply supply supply. The story has even gone 'Ambrose Evans Prichard', with him moving on from Europe to waving his 'end of the world is nigh' banner over Saudi Arabia.
But now price actions are beginning to suggest another base may be in place. Yesterday saw dramatic falls in my dodgy oil stocks that looked capitulatory. But more interestingly the price action this morning is reflecting the pattern I last saw on March 17th with the stocks putting in healthy bounces.
Premier Oil vs Brent
BP vs Brent
Tullow vs brent
So, I am trading my luck from the credit /tech call and doubling up for a call on a base (for now) on oil.
Now call me old fashioned, but one thing I am having problems tallying in my brain is how we can have an environment of strong enough growth to produce interest rate rises yet weak enough growth to crater commodities. I know that there are ways we can explain it, but the explanations feel too complex. I am looking for a simple Grand Unification Theory formula of e=mc^2 simplicity, not the complexity of the proof of Fermat's last theorem which has to invoke jungle treks through diverse mathematical fields.
On the commodity side we have China and EM demand falling matched by increased supply (as @georgepearkes beat me up over). On the rates side we can say (as @M_C_Klein of the FT's Alphaville team kindly reminded me) that the US move is not inflation expecting but just normalisation. All true, but I still find it hard to marry the basics. If we have strong enough growth to justify rate rises then we shouldn't be seeing cataclysmic commodity sell offs. Either commodities are going to bounce from or we are heading for a Greenspan rate moment.
By the time you read this we will probably have had US NFPs, seen as the last clue for Sept US rate action, but I am completely bored by them.
NFP - NFI