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I believe we are at the start of a new bull market in oil. In the famous words of Dave Chappelle, “Oil? Oil? Who said anything about oil?” Isn’t the world swimming in oil right now? Isn’t every possible tanker and storage facility filled to the brim? Why on earth do I believe that oil is starting a new bull market? I’m glad you asked. Let’s take a look.
Since this is the one and only Slope of Hope, let’s begin by taking a look at some charts. After that we’ll examine the geopolitical and monetary fundamentals that I believe will also play a role.
Earlier this month Jesse Felder penned the article, “A Generational Opportunity in Commodities?” He discussed the idea that rising U.S. fiscal deficits is bearish for the U.S. dollar, with one of the consequences being a return to a commodities bull market. The chart that caught my attention the most in his article is the chart shown below. This chart compares the Commodity Stock Index vs. the Dow. As you can see, the last commodity bull market ended in 2008, and commodities have been in a bear market ever since. This data goes back to 1937, and commodities are now the most undervalued relative to the Dow in that time span.
Preface from Tim: I am usually very hesitant to do any posts like this. The last time I did one even remotely close, one reader wrote to grumble about how this is not why he comes to the site. OK, fine. Skip the post. But TNRevolution has been such an important Sloper, and his contributions so generous, I’m going to bend the rules. I appreciate his hard work here, and his openness.
Why do I care? Why do I care about the state of race relations in black America? I am white. For one, I am a human being. To be a healthy human being is to have a measure of empathy. I am no different. When I see people hurting, my initial instinct is to help. Whether it is tornadoes ripping through Nashville, Covid-19, or black Americans being abused, I want to be a part of the solution. Second, it’s personal.
I grew up in rural America, in the suburban country north of Nashville, TN. In the school I grew up in there was only one black kid. I only remember him ever being in one of my classes. Everyone I knew in my world was white. That changed rapidly as I left home to attend college. Students from around the world attend Georgia Tech, and living in downtown Atlanta was a dramatic counter to my all-white childhood. I loved it. As college passed, I met and made friends with people from all over the world. However, I didn’t have any black friends. Why was that?
I have noticed something about this rally off the crash low. It has a rhyme to it. I remember thinking to myself during the crash, and hearing other say, “It feels like the entire 2008 financial crisis is condensed into one month.”
We are seeing the something similar transpire with the bullish move off the crash low. The Fed is using the same playbook that launched the QE bull market, but at an accelerated pace.
First, let’s take a look at a chart of the history of QE that Tom McClellan posted to his Twitter feed on April 5th. You can see from the chart that the stock market nicely traced the path of QE up until 2017. Much of what transpired after 2017 was retraced during the crash.
Before I begin with what I want to say this weekend, let’s just stop and take a look and marvel at what we’ve just seen. For the next hundred years, students of the stock market will look back at the last three weeks and attempt to understand and learn from what we just experienced. A three week 27% crash in the S&P 500 straight off of all time highs. The Russell fell 35%. Amazing.