2022-09-06
What will Europe do with no Russian gas?
We're about to experience a sovereign debt crisis caused by the Europe energy crisis, all a capstone on the 100 year fiat expirement.
— fejau (@fejau_inc) September 5, 2022
Here's how I think the next 6-8 months go down: pic.twitter.com/vxCkB2WSR4
This guy seems to have a compelling story. Democratic governments will have no option but to print money to give subsidies to consumers (residential and business) of energy. This will drag down the euro, and euro-area bonds. The spike in the dollar will crash emerging market economies, and cause defaults on their bonds. In the run-up, these governments will sell US Treasuries which will push up US yields even further, in the face of a rising dollar.
@fejau_inc also speculates that the Fed will do all it can to hold down the rise of the dollar by buying EUR and JPY via central bank swap lines. They are already worried about maintaining liquidity with commercial bank counterparties (see quoted tweet from @deltaone). The next step is complicated, as he concedes. Either the Fed will pivot, drive down rates to zero one more time and re-inflate the bond bubble, or we’ll get financial Armaggedon. He inclines to the latter course, but as Kashkari points out, the Fed can print infinite numbers of dollars, and people want them.
He also thinks that even though the dollar will go up, so will oil. Given the dire (downward) performance of oil prices lately, that’s a bold call. I can believe that oil priced in yen will spike, but in USD? I’m not so sure.
Wrap
The dollar strength seems to be the leitmotif of today. DXY was up another 0.6% to 110.22. This drove down everything, including nearly all equity markets and all commodities. (A few odd ones, like coal were up, but to a good first approx.) US yields were up, i.e. bonds were down, in spite of the tightening effect of a higher dollar on the US economy.
In the news
All from Oilprice.com Intelligence Report newsletter (free, daily):
Shell and Exxon Put Up Europe’s Largest Gas Field for Sale. The UK’s Shell (LON:SHEL) and U.S. major ExxonMobil (NYSE:XOM) decided to sell their jointly owned NAM venture in the Netherlands, among others operator of the supergiant Groningen gas field that is mandated to shut (by government decree) in 2024.
OPEC+ is reimagining its role in the oil markets and even though its promise of a tiny cut certainly does not impress outright, one should never underestimate the geopolitical symbolism of its actions. By signaling that the oil group is eager to make swift changes in case geopolitical realities change (ehm, Iran), the lower October production target is also a mirror into the Middle Eastern psyche – as oil started moving closer to the fiscal breakeven levels of Saudi Arabia or Iraq, maintaining crude prices within the $90-100 per barrel bandwidth will remain a top item on the OPEC+ agenda.
OPEC+ Brings End to Era of Production Hikes. OPEC+ agreed to cut collective output by 100,000 b/d, reversing the oil group’s decision from last month, marking the first month in more than two years when they curb production targets amidst unprecedented price volatility.
Iran Talks ‘In Danger’ Again. The EU’s chief negotiator in the nuclear talks with Iran, Josep Borrell, stated that the negotiations are in danger as Washington and Tehran started diverging on several contested points, most notably guarantees that the US cannot withdraw unilaterally again from the JCPOA.
Freerange rant
I love to read Rudy Havenstein. He despises the system which allows Wall Street to run the USA while the rest of the population thinks they have a say, like Truman Burbank in The Truman Show. His real bête noire is Jamie Dimon. Turn off your tape recorders.
It’s fun to read this stuff, but like the saying goes, “Don’t get mad. Get even!” Havenstein keeps pointing out how terrible this stuff is, but nobody is seriously proposing a revolution, which (surely) is the only way to change the system.
For what it’s worth, I don’t ascribe the sort of evil motives to people like Dimon and Blankfein and (Hank) Paulson. They just act rationally. The problem is that politics is so easy to manipulate that I am not sure any person in their position could resist the temptation to rig the system.
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