Stretched like a rubber band

Disclaimer:  Nothing in this post or in any other post should be construed as personal investment advice.  It's for my own amusement, nothing more.  If you want investment advice, hire a financial advisor. 

 

 

It's been quite a month for financial markets.  Oil has pulled back from its war-related spike, and stocks have shot up as a result.  (Stocks were oversold, too, so they only needed a nudge to begin rallying.)  Now the stock market is in "overbought" condition.

 

 

 The equal-weighted version, however, has started to pull back a bit:

 

 

And the transports, after a bullish parabolic spike, have pulled back considerably:

 

 

Due to the transports pulling back and the broader market in overbought territory, I'm expecting a pullback soon regardless of what happens in the Middle East. 

There was a strange decoupling between precious metals and oil.  When oil went up, gold and silver went down, and when oil was down, gold and silver were up.  This probably has something to do with the Fed and expectations regarding the next chairman and interest rate decisions, but I don't really have an explanation for it.  Usually, commodities move somewhat together as a result of dollar strength or weakness.

All I know is that oil is the 800-pound gorilla in the room right now.  Some things to consider:

1.)  As a result of oil traffic in and out of the Persian Gulf being interrupted, Asia and Europe have begun to turn more to other sources of oil.  This is good for oil-producing companies that operate in the Western Hemisphere--lots more tankers are already en route to the U.S.--and it's advantageous for the U.S. on the geopolitical level.  "He who controls the spice controls the universe."

2.)  Europe is in a particularly unfortunate pickle when it comes to energy.  By cutting off Russian gas and going all in on the "green" agenda at the expense of hydrocarbons, they've rendered their societies energy-starved.  They're buying natural gas from America at premium prices in addition to the extra oil they will soon be buying from us.  If I didn't know better, I'd say that the motive behind this whole Iran business in the first place actually had nothing to do with Iran but rather was to cripple Europe and force them to get in line with whatever Washington wants them to do.

3.)  The world runs on oil, and if supply disruptions go on for too much longer, shortages will become commonplace.  It won't just be the gasoline you put in your car's fuel tank, but also motor oil and bunker fuel and lubricants and greases of all kinds.  It will also affect the price of plastics, and plastic is in almost everything nowadays.  Oil is a bigger deal than most people think.  This whole Persian Gulf thing really needs to wrap up soon so that shipping can get back to normal.

4.)  Fertilizer.  A significant amount of fertilizer comes from ships exiting the Persian Gulf.  We've already got drought conditions in some places in America--including right here in Georgia, a major agricultural state--and a fertilizer shortage on top of that can only hurt crop production further.  We like to think that famine is a largely a thing of the past, but we're actually more vulnerable to it than ever.

So there you go.  If the Gulf thing wraps up soon, then perhaps things can get back to normal before they get too bad.  If not, then global catastrophe isn't off the table.