Hello Traders! At the end of a very busy week, I am reading the news out there. Here are some of the articles that caught my attention and my thoughts on them:
In the US:
- Another good read from zerohedge.com where we can see a clear path of smoothing out the field for the elections with not-so-real employment numbers in the US. I wonder what happens when the whole Jobs Bubble bursts and it needs to be reported. Taking into consideration that the FED relies on those numbers to decide or justify the rise of the interest rate. I guess when it all bursts and my guess will be sometime after the elections, then it will justify going back to a 0% interest rate. As you can see in the article, they used to do it before other elections, so it is not such a big surprise after all. Depending on who wins maybe will be a direct consequence of how fast the errors will be reported. Nevertheless, I am not looking into politics or conspiracy theories, but from a trader’s point of view, it is scary. It adds to my list of factors that will soon create a big crisis that will unravel affecting all of us globally.
- I am very interested in trading and investing in the energy markets and always looking to dig deeper into more info and details on it. Why? My primary reason is that energy markets were one of the best-performing asset classes during inflationary times and the present times just prove me right. Looking at the extraordinary returns the S&P Energy Index and the S&P Oil and Gas Exploration and Production Select Industry Index had so far till the end of OCT at around 56.89% combined. One of the best-performing asset classes out there and one that probably will keep on performing as long as this inflation issue persists. Taking into consideration the dependence on Oil as an energy source and the underinvestment in the sector for the last few years under the pretext of climate change, my guess is that it adds up to the factors influencing a bull trend for the next few years to come. Obviously if for some reason we invent something to replace Oil then of course things will change. Don`t get me wrong, I believe in a greener energy future, but unless you come up with a clear path and realistic materials to replace your main energy source, you wouldn’t suddenly try to stop using it (right, Europe!?). Anyway, the fact that the USA is pumping Oil from the SPR till elections and stops after, gives me another reason to believe that prices will rise on high demand and low supply. Not to mention the FEDs lost the battle with the OPEC countries where they try to destroy small economies around the world with the strong Dollar and thus destroying demand for Oil. And this reason is for the near future when the deficit of global Oil demand will rise to a probable level of 5 mil Bpd once economies like China open and taking into consideration the yearly demand growth for oil at 1.2mil Bpd from lower income economies who are looking to develop themselves. The failed battle will lead to higher prices for Oil since the demand will rise significantly and the supply will not be able to catch up with it. But more on this I recommend following Harris Kupperman, I also follow him. He has a great blog at https://adventuresincapitalism.com/ and also came up a few weeks ago on The Mab Faber Show and had a great hour of insights into the Oil markets https://youtu.be/aK_bxg9HEaI.
- If the Japan Pension Fund, one of the biggest of them all is suffering. I imagine what the others are doing. The truth is that at such a big size is very difficult to find performance and protection these days. These are all factors worth looking into. Factors that contribute to a bigger picture. Anyway, I have also viewed the pension system as a huge Ponzi scheme and looking at the law here in Japan where you are forced by law to pay into the system is very bad. The question is when they run out of youngsters to pay into the system, the fund is underperforming and the country can`t get any deeper into debt, where are they going to take the money to pay the people?
- This is a crazy thing from my own point of view. During high inflation giving out more stimulus is wrong. It is like the building is burning and they are throwing gasoline on it to put out the fire. And this is happening all over the world. Most of the major countries have some sort of stimulus in place to combat inflation, high energy prices or whatever. They will make the problem worse and have a short-term happy effect on the population but leave them more in debt for the long term. That`s how we got here in the first place.
- I want to state that the inflation in Japan is still low compared to other advanced economies at 3.0%. But it is rising very fast and has passed the BOJ target which they considered to reduce the ultra-loose policy. The inflation we can see for the JPY in comparison to other currencies mainly the USD where it has been devalued at more than 26% YTD alone, affecting businesses and consumers, because Japan relies mainly on importing goods, like prime materials and fossil fuels and exporting technology and finished products. It would have been nice if they had been relying on the second without the first, but as I said, expensive fuels and prime materials are affecting everyone and cutting into profits.
- During the pandemic, everyone cut down on hiring and expenses and now they must get back to hiring to cover rising demand because of opening the borders. Most of those employees previously laid off had to find other jobs or change careers and now are unavailable. The problem is that even foreigners won’t come to work anymore because of the weak Japanese Yen, so taking advantage of the reopening of borders is getting into a big problem for the government that tries to stimulate growth by bringing in tourists. Not only the inflated Yen comes as an issue here that needs to be dealt with but also the conditions of hiring in Japan. It got more difficult with the requirements of speaking Japanese at a native level, making it difficult for foreigners to get hired and thus making Japan lose talent. Here is an article on that issue https://asia.nikkei.com/Business/Business-trends/Foreign-students-in-Japan-shy-from-local-employers-on-language-fears.