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Duc's Daily Dozen

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Since Wordpress have essentially ended their free blog, I'll simply post here. Essentially a daily diary of stuff that I find important, limited to the max. of 12 charts. Sometimes this will be (far) less. On the w/e I kind of wrap up my thoughts (not enough time weekdays due to work commitments).

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Topping up the TGA creates a loss of liquidity. Due to falling remittances from the Fed (due to ongoing losses on a mark-to-market basis) the Treasury is going to need to sell by year's end a further $2T+ in debt. Taking the public debt to $35T (an increase of $2T in 6 mths +/-).

With Fed day tomorrow all eyes will be on Powell to hold rates. That is the significant concensus. If Powell raises against expectations, volatility will ramp up. See fff above: the Fed still is trying to sell to the public that higher rates have a positive effect in lowering inflation. Incorrect. Higher rates increase inflation due to increasing debt service costs. Lowering rates will also increase inflation.

Higher inflation on a secular basis is the most likely outcome. The lower probability outcome is that the Fed allows the Bond market to fail (default en mass).

jog on
duc
 
Focus on the USD today.

Starting with: https://www.wsj.com/finance/investi...rposig5g1sd&reflink=desktopwebshare_permalink

Oil News:

Low inquiry levels stemming from Saudi Arabia’s production cuts, reoccurring congestion in China, and seasonally declining demand have driven freight rates to their lowest since May 2022.

- Losing steam after their November 2022 peaks, freight rates from West Africa to East Asia have dropped to Worldscale 43.5, whilst Gulf-to-East Asia rates are even lower than that, with most recent deals done at w37.

- Saudi Arabia accounts for more than a quarter of VLCC deliveries, with more than 90% of Aramco exports taking place by means of VLCC tankers, hence the oversized impact of Saudi cuts on freight rates.

- Whilst the freight market expects depressed VLCC rates to recover later this year, so far there’s been little upside – quite the contrary with Suezmax tankers that bottomed out earlier this month and the Gulf-East Asia route strengthened from w75 to w90 over the past two weeks.

Market Movers

- UK oil major BP (NYSE:BP) intends to invest up to $11 billion in low-carbon fuels, renewables, and EV charging stations in Germany by 2030 as it seeks to expand in Europe’s largest economy.

- US refiner Valero Energy announced it had authorized a share repurchase of up to $2.5 billion, with no expiration date, in addition to the $2.5 billion already authorized earlier this February.

- French energy company TotalEnergies (NYSE:TTE) is reportedly in talks with Adani Green Energy to invest up to $700 million in the Indian firm’s clean energy projects, the first deal since Hindenburg Research’s short-selling recommendations.

Tuesday, September 19, 2023

News of shrinking US supply has only added bullish sentiment in oil markets, keeping ICE Brent and WTI around $95 and $93 per barrel, respectively. This week will bring about a flurry of macroeconomic news with central banks meeting in the United States, the United Kingdom, Japan, and other countries, potentially reminding the oil markets of the continued risk of a significant recession in Western economies.

Oil Majors Warn Peak Oil Demand Not Happening Soon. Defying the IEA’s calls of fossil fuel demand peaking by 2030, the CEOs of Saudi Aramco and ExxonMobil (NYSE:XOM) both said the energy transition will take longer than assumed and that oil and gas investment remained critical to stop prices soaring.

Geopolitical Risk Jumps As Azerbaijan Launches “Anti-Terrorist” Operations. The risk of a renewed conflict between Azerbaijan and Armenia has increased after Azerbaijan announced "anti-terrorist operations" in the Nagorno-Karabakh region. The move comes just days after Armenia's Prime Minister expressed doubt over Russia's ability to guarantee its security while struggling with its invasion of Ukraine.

IAEA Condemns Iran Ban on Nuclear Inspection. Iran’s nuclear program made headlines again after Tehran banned multiple IAEA inspectors assigned to the country, triggering an immediate condemnation from the UN watchdog as it investigates uranium traces at undeclared Iranian sites.

Chevron’s Australia Strikes Turn Real. Australia’s Offshore Alliance union of oil terminal workers said that workers at Chevron’s (NYSE:CVX) Gorgon and Wheatstone terminals had begun full-day strikes, with the government tribunal activated by the US major set to start hearings this Friday.

US Shale Output to Decline in October. According to the EIA’s Drilling Productivity Report, US shale output is on track to decline for the third month in a row in October, expected to come in at 9.393 million b/d, the lowest monthly level since May and some 85,000 b/d below the July peak.

China Needs New Import Quota Package. China’s private-sector refiners have started lobbying the Ministry of Commerce in Beijing to issue a fourth batch of crude import quotas, already running out of the 194-million-tonne allocation received in this year’s three quota allocations.

Saudi Arabia Buys Into Latin American Fuels. Saudi Arabia’s national oil company Saudi Aramco (TADAWUL:2222) agreed to purchase Chile’s main fuel distributor Esmax Distribucion, formerly known as Petrobras Chile, from private equity investor Southern Cross Group.

California Sues Oil Majors for Alleged Deception. The government of California sued five of the world’s top oil-producing companies – ExxonMobil, Shell, Chevron, BP, and ConocoPhillips – for allegedly covering up the truth about climate change, calling for the creation of an abatement fund.

Ireland Rejects LNG Terminal Plans. Ireland’s top planning body An Bord Pleanála has refused permission for a new liquefied natural gas terminal in county Kerry with a planned annual capacity of 8.25 bcm, saying the 700 million project would be contrary to the government’s net zero policy.

Prisoner Release Unfreezes Iran’s $6 Billion. In addition to higher oil prices and higher crude exports to China, the Iranian government finally tapped into the $6 billion of its funds frozen in South Korean banks after the US and Iran carried out their long-anticipated prisoner exchange this week.

Greenpeace Blocks Arrival of French LNG Unit. Activist group Greenpeace tried to prevent the Cape Ann tanker, refurbished as TotalEnergies’ (NYSE:TTE) latest FSRU to receive LNG cargoes off the coastal city of Le Havre, from entering the port, saying France needs to halt all new fossil fuel projects.

Australia’s Nuclear Switch Option Labelled a Fantasy. According to Australia’s Climate Change and Energy Minister Chris Bowen, the cost to replace the country’s coal-fuelled power plants with modular nuclear reactors would amount to $250 billion, alleviating calls for a swifter transition.

South African Drilling Delayed by Environment Appeals. Having hit multi-billion discoveries in neighboring Namibia, both TotalEnergies and Shell are unable to advance their offshore drilling in South Africa’s blocks 5, 6, and 7 after a series of appeals against their environmental authorization keep on stalling exploration drilling.

White House Wants Wider Pool of US Tankers. With the US fleet of commercial product tankers comprising a few dozen tankers that could be jeopardized in times of war, the US government-chartered 9 tankers so far this year to move oil products, paying up to $6 million per year for agreements that run until 2035.
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So I ended today with Mr flippe-floppe-flye, who touches indirectly on the important point concerning the USD.

The USD is now pretty much (re) correlated with the USD. Most (all) countries are energy importers. Most (except BRICS) pay for energy in USD. A higher WTI = higher demand for USD = USD chart heading higher.

A higher USD requires countries who don't earn USD in exports to sell their currencies and buy USD = higher USD.
Those that do earn USD via exports, Japan for example as a non-BRICK has to either (a) sell Yen buy USD or (b) sell UST.

It is the selling UST that is the big issue: this pushes yields on UST higher and with Yellen and the Treasury needing to sell $2.7T in debt this year, will cause Treasury market instability. Not good for stocks. Very bad.

jog on
duc
 
  • Federal funds rate target range between 5.25% and 5.5%.
  • Interest it pays the banks on reserves: 5.4%.
  • Interest it pays on overnight Reverse Repos (RRPs): 5.3%.
  • Interest it charges on overnight Repos: 5.5%.
  • Primary credit rate: 5.5% (what banks pay to borrow at the “Discount Window”).

  • 1 expects: 6.125% (two hikes in 2024)
  • 1 expects: 5.625% (no cuts in 2024)
  • 4 expect: 5.375% (1 cut)
  • 4 expect: 5.125% (2 cuts) = median
  • 4 expect 4.875% (3 cuts)
  • 3 expect 4.625 (4 cuts)
  • 2 expect 4.375 (5 cuts

Jamie Dimon:

Screen Shot 2023-09-22 at 6.20.15 AM.png

Rolling over $5T + $2T additional at current rates? That will cause bond market dysfunction even if the bond market survives until then.

Screen Shot 2023-09-22 at 6.15.29 AM.pngScreen Shot 2023-09-22 at 6.15.41 AM.png

Oil prices will continue to move higher. The result will be a scramble for USD. Japan et al will need to sell UST to obtain USD.

Screen Shot 2023-09-22 at 6.18.21 AM.png

China will be fine.

Screen Shot 2023-09-22 at 6.20.55 AM.png

Of course Hedge Funds will be in the thick of the issues within bond markets.

Big bond manager portfolios are 100% backwards.

Screen Shot 2023-09-22 at 6.23.14 AM.png


Inflation as we saw this week is now ratcheting higher and will (in my estimation) continue to do so driven by: (a) high interest rates (they are now inflationary due to fiscal dominance), (b) higher oil prices, (c) the Treasury (Yellen) needing a weaker USD to prevent widespread dumping of UST to obtain USD.

The above of course does not preclude another attack on the oil markets to try and drive the POO lower. It has already been tried earlier this year and is short term successful. With the SPR already at almost empty, any further attack is likely to fail even faster.

jog on
duc
 
With the SPR already at almost empty
... while trying to talk up a war with China a small inconvenient fact , now IF the US had of been maximizing exploration and development of fossil fuels , that might have got through nor can the US lean on the EU for extra fuel reserves

interesting times , indeed
 
  • Federal funds rate target range between 5.25% and 5.5%.
  • Interest it pays the banks on reserves: 5.4%.
  • Interest it pays on overnight Reverse Repos (RRPs): 5.3%.
  • Interest it charges on overnight Repos: 5.5%.
  • Primary credit rate: 5.5% (what banks pay to borrow at the “Discount Window”).

  • 1 expects: 6.125% (two hikes in 2024)
  • 1 expects: 5.625% (no cuts in 2024)
  • 4 expect: 5.375% (1 cut)
  • 4 expect: 5.125% (2 cuts) = median
  • 4 expect 4.875% (3 cuts)
  • 3 expect 4.625 (4 cuts)
  • 2 expect 4.375 (5 cuts

Jamie Dimon:

View attachment 162744

Rolling over $5T + $2T additional at current rates? That will cause bond market dysfunction even if the bond market survives until then.

View attachment 162747View attachment 162746

Oil prices will continue to move higher. The result will be a scramble for USD. Japan et al will need to sell UST to obtain USD.

View attachment 162745

China will be fine.

View attachment 162743

Of course Hedge Funds will be in the thick of the issues within bond markets.

Big bond manager portfolios are 100% backwards.

View attachment 162742


Inflation as we saw this week is now ratcheting higher and will (in my estimation) continue to do so driven by: (a) high interest rates (they are now inflationary due to fiscal dominance), (b) higher oil prices, (c) the Treasury (Yellen) needing a weaker USD to prevent widespread dumping of UST to obtain USD.

The above of course does not preclude another attack on the oil markets to try and drive the POO lower. It has already been tried earlier this year and is short term successful. With the SPR already at almost empty, any further attack is likely to fail even faster.

jog on
duc
Oil is one thing, but this bond market issue is what everyone should be buying spare undies over.
 
Oil is one thing, but this bond market issue is what everyone should be buying spare undies over.
well i have reduced my bond exposure to 'trivial ' currently via holding the LIC CAM and it's convertible note CAMG , but i do NOT expect to walk away 'with barely a scratch '

i just hope i have this strategy correct ( i have been tweaking away at it since late 2012 )

oil now MAYBE i will catch some upside there ( or maybe not )
 
Oil news:

Friday, September 22nd, 2023

Russia’s decision to ban fuel exports for an undetermined period boosted diesel prices again, with Europe seeing a whopping $45 per metric tonne day-to-day surge on its middle distillates. The rise in distillates also pushed oil prices higher, countering the downward pressure caused by economic concerns. While the US Fed reiterated its “higher for longer” interest rate policy, Europe is almost certain to head into contraction in Q3. The worsening macroeconomic outlook has kept oil prices largely unchanged compared to a week ago, with ICE Brent still hovering around $94 per barrel.

Russia Bans Fuel Exports. The Russian government has temporarily banned exports of gasoline and diesel to all countries apart from Belarus, Kazakhstan, Armenia, and Kyrgyzstan, in order to stabilize runaway fuel prices that have been hitting record highs almost every day in September.

Chevron Accepts Tribunal’s Brokered Deal. US oil major Chevron (NYSE:CVX) announced it had accepted recommendations from Australia’s labor arbitrage tribunal to end its dispute with trade unions at its Gorgon and Wheatstone LNG plants, as the regulator has the power to impose a deal.

Canadian Producers Want Guaranteed Carbon Prices. Canada’s largest carbon capture and storage project, the $12.5 billion Pathways Alliance consortium backed by most of the country’s oil producers, said it will only move forward if the federal government locks in future carbon prices.

Venezuela Decries Guyana’s Offshore Expansion. Venezuela’s government protested against Guyana’s most recent offshore oil bidding round, saying that whoever participates in the licensing of eight blocks will not have the right to explore the areas as they remain contested by Caracas.

UK Postpones Strict 2030 Car Mandates. The UK government delayed the country’s ban on new gasoline and diesel cars until 2035 from 2030 and backtracked on previous restrictions on heat pumps and insulation, citing “unacceptable costs” on British households from the hurried energy transition.

China Buys Big with LNG Megatender. Unipec, the trading arm of China’s state-owned oil firm Sinopec, purchased 23 LNG cargoes in a major spot tender that closed last week, securing at least five cargoes for both November and December with awarded prices some $0.20 per mmBtu above JKM.

Uranium Rally Might Soar Even Higher. Having soared to $66 per pound, the highest since the 2011 Fukushima disaster, uranium prices are set to continue their unprecedented price rally towards 75-$80/lb amidst supply-side concerns, with UxC predicting a 66 million pound deficit for 2023.

Asian Hydropower Generation Collapses. Hydropower output in Asia’s two largest hydro producers, China and India, has plunged at the fastest rate in decades amid erratic weather and low precipitation, with China down 16% year-on-year whilst India edged lower by 6% compared to 2022.

White House Ordered to Expand Gulf Auction. A US federal judge ordered the US Department of Interior to expand the area offered in this month’s Gulf of Mexico auctioning, saying the White House’s last-minute decision to cut the lease area by 6 million acres contradicts applicable laws.

Europe’s Power Grid Needs Modernizing. Europe’s power industry associations warn that the EU’s ambitious energy transition goals would require annual investments in electricity grids all the way to 2050 to be at least 85% higher than they are currently, arguing modernizing grids should have precedence over renewable buildouts.

Trinidad Clinches Exploration Deal with Majors. Oil majors BP (NYSE:BP) and Shell (LON:SHEL) have reached an agreement with Trinidad and Tobago to explore three completely untapped deepwater blocks – 25a, 25b, and 27 – seeking to ramp up gas supply for their joint Atlantic LNG export project.

EPA Questions Ethanol Utilization. The EPA’s Science Advisory Board questioned whether corn-based ethanol is better for the environment than conventional fossil fuels, with biofuel-dedicated crops gradually trimming down the amount of land dedicated to food crops since 2007.

Chinese Controls Bring Key Rare Metal Exports Down. After Chinese authorities introduced export controls on two key chip-making rare metals germanium and gallium, total exports of the two metals in August plunged to zero, compared with 13.78 metric tonnes in July.

US to Ban New Mexico Mining. The Biden administration is proposing to ban mining and oil drilling in northern New Mexico for the next 50 years as part of the White House’s efforts to protect Native American lands, with the Sandoval country having a track record of graphite, gold, and silver deposits.

Gundlach and DoubleLine

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In summary illustrating that the US has entered fiscal dominance and that future secular inflation is an absolute lock irrespective of what the Fed does/does not do.

Unemployment is starting to tick higher. From the inversion chart, the recession probably mid 2024.

jog on
duc
 
On basic economics, the USD should already be much lower and gold, resources, land and other real assets shooting up the stars, but this remains quite benign, inflation is hitting us sure but no where near as the expanded currencies should indicate so hum...
And I ultimately go back to my WEF "conspiracy" lol sided view.
USD and other western currencies will depreciate , ultimately collapse under inflation to give rise to a crypto CB money, leaving a clean slate and welcomed by the enslaved
populace that would have seen its wealth destroyed by inflation (savings, pensions), immigration (salaries,rent).
And I think for an Aussie or a NZ citizen, the USD will keep being better than the local currencies, for the simple reason that the west is turning into an artificial economy, isolating itself from the brics pole, the reality of economy twisted by rules and regulations: carbon taxes, EV incentives, universal income and taxes/levies and border tariffs.
Add a potential extra hot cold war with China, India keeping itself out ..And this will really be obvious
So by closing the borders, we as the west will end up the new Soviet block image: land and gold will be seized and or artificially priced openly.
And in a state economy, the USD will be priced at what the fed wants it to be, meaning it will remain strong against the vassals currencies Euros,pound, AUD, NZD, yen...
Time ..and I mean less than 10y will give us the answers.act appropriately ..
So in short,yes he is right but not for the reasons given, and pending a new CrytpoFedUsd
 
And, do you agree with George's conclusion?

Yes/No
Why?
NO , if the fiat currencies start to lose value ( suffer inflation) who is going to buy the sovereign bonds , the Central Banks ( like the BoJ in Japan or ECB in the EU ? )

several nations are stock-piling physical gold , but in reality any tangible commodity would be better ( salt , wheat , corn , oil , copper) than prolifically printed fiat ( or electronically created CBDCs ) which have become as useless as fly-buy points with a dishonest airline

now sure the government can seize tangible assets , but can you imagine say 20 farmers paying the taxes in live cattle ( or pigs ) or maybe those farmers just move overseas and leave the remaining citizens to fend for themselves ( that might be fun in the parliamentary canteen

remember governments need their minions to stay on and keep the machine running ( try that if you can't pay them )

once the citizens realize that ( fiat ) currency is just a promise from an untrustworthy source , your currency and government are done ( they need tax-payer productivity to give the illusion of an economy to 'manage' )
 
And, do you agree with George's conclusion?

A vested interest
Opinions are just that, opinions. As a trader and investor, I understand the importance of staying informed about market trends and predictions. However, when it comes to Jeff Gundlach's recent dollar prediction, I have some reservations. As the CEO of DoubleLine Capital, Gundlach has a vested interest in the performance of the dollar, and his opinion on the matter can't help but be influenced by his company's position.

While Gundlach's prediction that the dollar will weaken significantly in the near future may be based on certain charts and indicators, such as the increasing national debt and the strength of other currencies like the euro, it's important to remember that these predictions are merely speculative. The fact that Gundlach is betting against the dollar raises some red flags for me, as it's difficult to separate his personal interests from his professional opinions.

Furthermore, Gundlach's prediction isn't particularly surprising given his previous bearish stance on the dollar. It's important to consider the potential implications of a weakening dollar on the global economy and financial markets, but it's also important to keep in mind that predictions are not always accurate.

The video offers valuable insights from the presenter, who shares his opinions and perspectives on the matter, but it's essential to maintain a critical approach and consider diverse viewpoints before making any investment or trading decisions. Although the presenter provides facts and figures, it's important to recognise that these can be fleeting and open to interpretation, and may even contradict each other in different contexts.

Overall, while the video provides some interesting analysis of Jeff Gundlach's recent dollar prediction, it's important to take it with a grain of salt and remember that predictions are just that, "predictions".

And, do you agree with George's conclusion?

Yes / No
Why? - For the reasons I've outlined above.

Skate.
 
So going forward with a longer term look at markets:

This (and those who are into mechanical backtests etc can test this) is one of the most reliable timeframes linked with a signal: ie the 10 period SMA on monthly prices. Long when above, short when below.

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Mr Wang, for those of you unaware is a former Fed Bond (Open Market) Trader. As such his insights are often highly pertinent. The last couple of posts have highlighted the issue around Hedge Funds buying UST, particularly on the 'Basis Trade' trade.

Some issues:

If the USD continues higher then the foreign nations need to raise USD (Japan, Western Europe). Now the US NIIP is (-65% of US GDP) which means that there are $18T of US assets which include $7.5T of UST that can be sold to raise those USD.

Yellen needs to raise $2T yesterday (LOL) and roll another $5T next year (Jamie Dimon). That's $7T UST issue.

Treasury is going to issue $1.5T of that $2T before years end.

Screen Shot 2023-09-24 at 2.10.38 PM.png

US Banks are not buying. Their Balance Sheets are already underwater by hundreds of billions.

No individuals have the Balance Sheet capacity to absorb the level of UST issue required by the US.

Hedge Funds are subject to monthly return mandates. Which means if the trade goes (marginally against them) they are sellers (aggressively so).

So the Fed? Aware? Asleep at the wheel?

Screen Shot 2023-09-24 at 2.29.02 PM.png

Very aware. Ready to stand bye with another QE/YCC whatever.

Gold.

Screen Shot 2023-09-24 at 2.30.07 PM.png

Sensible players have been buying gold. Not your paper rubbish. Real, physical gold. More on this later in the week.

The markets that matter currently: UST, USD, Oil and Gold. Stocks will day-to-day blow in the wind until the UST market breaks and then much lower as the scramble for liquidity drives all assets to 1.0 (again). All you want to be holding at that stage is gold, oil and if you are brave BTC.

jog on
duc
 
All you want to be holding at that stage is gold, oil and if you are brave BTC.

i went for consumable commodities ( things i can use myself over time , or trade with neighbours ) i remember times where nations have seized gold , or made private ownership illegal

the trend seems to take control of YOUR assets by the powers that be , i just hope they don't expect loyalty in return from the 'slaves in slavelandia '

good luck on the decisions you make
 
This (and those who are into mechanical backtests etc can test this) is one of the most reliable timeframes linked with a signal: ie the 10 period SMA on monthly prices. Long when above, short when below.

@ducati916, that's a great suggestion and I'm sure you could build a simple trend-following system around your simple suggestion. I'm unable to do as you suggested as shorting is not possible in the ASX and most importantly I do not have the correct data set as my Norgate subscriptions lack usefulness in this area.

In the Dump It Here thread, @Skate said he had a lot of history during system development, but then dropped the history once his systems were developed.

Putting that all aside
What I can do is give you a simple comparison with the data available to me but switch up your suggestion to exit when the buy condition is no longer true. meaning we buy when the closing price is above the monthly 10-period SMA and sell when the close moves below the 10-period SMA it is below.

The backtest period
365 days (1 year) from today's date and 720 (2 years) & 1095 (3 years) respectively.

3 Year SMA Strategy.jpg

I'm sure someone will test out your suggestion and post the results as my backtest results are less than useful for all the reasons @Richard Dale has pointed out by using his Norgate Silver Subscription Data Set.

Skate.
 
Definitely worth a watch.



jog on
duc

Ahoy Brave and Loyal Crew, Family, Friends, Stowaways & Our Ever Expanding Silent Spectator Fleet



and YES I Agree The Bubble has Burst


Overall, I'm not a lover of lengthy YouTube videos but I'll make an exception in this case as both @Captain_Chaza and @ducati916 are recommending the content matter. The guest, Jeremy Grantham is a highly respected figure in the financial industry, known for his investment acumen, and his ability to identify market bubbles. His reputation as the "Bubble Historian" reflects his unique expertise in analysing market trends and identifying potential risks in the investment landscape.

Skate.
 
Today's dozen:

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The higher for longer mantra is supposed to kill inflation. It is now creating inflation because of fiscal dominance. The higher and longer they keep rates, the faster will inflation increase. Of course if they lower rates, they devalue the USD and inflation increases. This is fiscal dominance.

LEI which has a good track record = Recession.

As always, size matters.

jog on
duc
 
So Wednesday's are my early start at work:

The oil situation:

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Screen Shot 2023-09-27 at 1.30.46 AM.png

Oil, unless the US (who are negotiating with Iran and Venezuela to unlock oil exports see NYT and WSJ) can bring down the cost of oil are going to suffer the inflationary consequences of higher oil. The pressure is on.

Screen Shot 2023-09-26 at 10.51.07 AM.png

Meanwhile Central Banks around the world continue to hold increased amounts of gold.

Screen Shot 2023-09-27 at 1.20.01 AM.png

Something to do with October, fast rising rates and overvalued stock markets.

Screen Shot 2023-09-27 at 1.45.23 AM.png

The old rubric of improving liquidity. LOL.

The deepest, most liquid market in the world needs liquidity support. Of course it does. With $7T in bonds needing to be sold over the next year...who exactly other than the Fed is going to buy them?

The Fed has been making these noises for some time now, trying to make it appear that the UST market isn't blowing-the-f**k-up.

jog on
duc
 
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