The War Drums No One Heard
- $83 oil today, $120 oil… Soon?
- At long last, a relief rally
- Amy Klobuchar, control freak and power tripper
- Li Keqiang, RIP
- Getting priorities straight
$83 Oil Today, $120 Oil… Soon?
The oil price is signaling the calm before the storm.
After the Hamas attack in Israel three weeks ago, a barrel of West Texas Intermediate climbed from $82.50 to $90.
As of this morning, most of those gains have been given all back — the price up about 50 cents on the day to $83.70.
“The uncertainty of the war has been enough to put a floor under oil prices for now. But prices have not soared as some expected when the war began,” Paradigm’s Jim Rickards wrote on Wednesday to his Situation Report readers.
“There are strong deflationary and disinflationary forces trying to push the oil price lower, including reduced gasoline consumption in the U.S. and the likelihood of a U.S. recession in the near future. The downward pull of disinflation and the upward push from the war have been kept in balance and the price of oil has remained relatively steady.
“That will change radically if the war escalates. Then oil prices of $120 per barrel or much higher are not out of the question,” Jim says.
Incredibly, Mr. Market has sunk back into the assumption that there’s no oil to speak of in Israel or Gaza — and thus no risk to global oil supply.
Even more incredibly, Mr. Market has discounted a dramatic escalation to the conflict that’s already happened.
Last night the Pentagon confirmed that it had launched airstrikes in eastern Syria targeting two locations “used by Iran’s Islamic Revolutionary Guard Corps (IRGC) and affiliated groups.”
Defense Secretary Lloyd Austin said the strikes were in response to rocket and drone attacks that began 10 days ago, targeting U.S. bases in Iraq and Syria. U.S. officials are blaming those attacks on “Iranian-backed militia groups.”
At this stage, it’s fair to ask what the hell purpose U.S. troops in Iraq and Syria are serving — aside from being a tripwire for war with Iran.
The Biden administration’s “logic” appears to be something along the lines of Welp, our Ukrainian adventure isn’t doing a damn thing to weaken Russia, so we’d better change the subject and kick some Eye-ranian ass instead.
Yeah, good luck with that. Here’s a dispatch from China’s state news agency Xinhua…
BISHKEK, Oct. 26 (Xinhua) — China will continue to firmly support Iran in safeguarding its national sovereignty, territorial integrity and national dignity, and will strongly oppose any external forces interfering in Iran's internal affairs, Chinese Premier Li Qiang said here Thursday.
Li made the remarks during his meeting with Iran's First Vice President Mohammad Mokhber on the sidelines of the 22nd Meeting of the Council of Heads of Government of the Shanghai Cooperation Organization (SCO) Member States.
The SCO is an informal military body — alliance is too strong a word, at least right now. It encompasses nine countries — most notably China, Russia and Iran.
From here, the potential for escalation is almost incalculable. For instance, imagine a Gulf of Tonkin-type “incident” in the coming days in the eastern Mediterranean, involving one of the many U.S. warships now assembling there.
Or imagine that Washington decides to attack Russia’s bases in Syria.
Worst case — an all-out conflict that ends with the Straits of Hormuz being blocked, disrupting oil shipments from the Gulf monarchies like Saudi Arabia.
“At that point,” says Jim Rickards, ”oil prices will easily go to $200 per barrel or higher.
“Western economies (including the U.S.) will immediately suffer a drastic recession worse than the 2020 pandemic crash and likely worse than the 2008 global financial crisis.”
Amid this harrowing backdrop, Jim just pinned a new post in his private “War Forum.” He’s been keeping in touch with a select group of readers like you ahead of his next online briefing — set for this Sunday at 6:30 p.m. EDT.
If it feels like World War III, Jim says you’re right. And even if the tanks or missiles never reach the United States, Americans will feel the impact of enormously powerful economic weapons — “weaponized supply chains, interest rate hikes, inflation, de-dollarization and central bank digital currencies.”
If you’ve skipped out on Jim’s live events so far this year, you really don’t want to miss this one. For instant access to the War Forum and automatic registration for Sunday evening’s briefing, simply follow this link.
At Long Last, a Relief Rally
Finally, Amazon has delivered the U.S. stock market the catalyst for an oversold bounce.
The ’Zon turned in its quarterly numbers after the closing bell yesterday, with Wall Street analysts’ eyes peeled on the figures for its AWS cloud computing unit. Recall that Google parent Alphabet was punished with a near-10% loss on Wednesday for missing analyst expectations for cloud revenue.
In the event, Amazon surprised to the upside; AMZN shares are up 8.5% as we write. And that’s helped lift the Nasdaq to a 1.3% gain on the day, now sitting at 12,762.
The impact on the S&P 500 is more muted — up 0.4% to 4,152. The Dow is slightly in the red at 32,714.
Not an especially convincing bounce, but it’s something. Going forward, we’re staring down binary outcomes, as Greg Guenthner wrote his Trading Desk readers yesterday: “We’re either getting hit with a huge washout that will shove enough of the bulls to the sideline to set up an end-of-year rally… or we’re in the beginning phases of a new thrust lower that will cause some serious pain into the year-end.
“I don’t really think there’s any in-between here… the averages have been flagging since midsummer. It’s time to put up or shut up.”
Elsewhere, spot gold is down four bucks to $1,981 while silver has shed 14 cents to $22.64. Bitcoin clings to the $34,000 level, albeit by closely cropped fingernails.
As far as the Federal Reserve is concerned, inflation is not yet “contained.”
The Commerce Department is out this morning with “core PCE” — the Fed’s preferred measure of inflation. The September figure registers 3.7% year-over-year.
That’s nowhere near the Fed’s 2% inflation target, but it’s been steadily declining for more than a year now — probably good enough for the Fed to pass on the opportunity to raise the fed funds rate at its meeting next Wednesday. At this time, futures traders are pricing in a 99.5% probability the Fed will stand pat.
Yeah, we’re gonna save this for future reference…
The huge rise in U.S. Treasury yields? It’s a reflection of the strong U.S. economy and absolutely not a reflection on the huge jump in Uncle Sam’s borrowing, according to Treasury Secretary Janet Yellen.
“I don’t think much of that is connected” to the budget deficit, she said during an event yesterday sponsored by Bloomberg. For the record, the final deficit for fiscal year 2023 was $1.7 trillion and the national debt totals $33.7 trillion.
The yield on a 10-year Treasury note is on track to end the week over 5% — levels last seen in 2007. Yes, we’re right on track to experience the miserable multiyear cycle we described last week.
Amy Klobuchar, Control Freak and Power Tripper
The feds are coming for two of the internet’s last bastions of free speech.
A few days ago, Sen. Amy Klobuchar (D-Minnesota) fired off a letter to Amazon founder Jeff Bezos. She was incensed that Amazon’s voice assistant Alexa spat out inaccuracies about the 2020 election. She demanded to know what he was doing about it.
[Uh, probably nothing — Bezos stepped aside as CEO in favor of Andy Jassy in 2021. But we digress…]
From Klobuchar’s letter: “According to public reports [specifically, a story published in Bezos’ Washington Post], when asked about the 2020 presidential election Amazon Alexa cited unvetted sources to make false claims about election fraud. While Alexa relies on a variety of sources to answer questions, when asked about the 2020 presidential election it appears that some answers were provided by contributors instead of verified news sources.”
“Unvetted sources”! “Contributors”! Someone fetch a fainting couch!
The Post’s coverage cited by Klobuchar identifies both the subscription-newsletter site Substack and the YouTube alternative Rumble as offending sources.
It’s all too much for journalist Matt Taibbi — who went independent with his own Substack service in 2020 after running afoul of center-left orthodoxy too many times at Rolling Stone.
“This senator-to-billionaire communique isn’t illegal because she didn’t phrase it as an order or voice the implied threat of regulation, among other things,” Taibbi allows.
“If Bezos ends up complying, however, I’ve half a mind to sue. Patience is wearing thin with the relentless determination of government figures... to weed out independent media from the digital landscape. It’s not enough to have 99% of the informational space? They need all of it?”
Sure looks like it — as we chronicled in our annual censorship issue in August.
➢ And yes, I’m aware of the irony that Paradigm Press launched a YouTube channel just this week. For better or worse, that’s where the most eyeballs are to be found — and so we’ll take a chance on playing in Google’s sandbox for the time being. But rest assured we will never censor ourselves for fear of offending Google’s gatekeepers.
Li Keqiang, RIP
The man who blew the lid off China’s “man-made” economic statistics is no more.
Only months after getting pushed out as Chinese premier, Li Keqiang is dead at age 68 — a heart attack, according to state media.
Li first came to the attention of Westerners in 2010 — before he ascended to the premier post. He turned up in one of the State Department cables pinched by Chelsea Manning and published by Julian Assange in 2010. The cable was dated 2007, when Li was still just the Communist Party chief in Liaoning province.
During a meeting with the U.S. ambassador to Beijing, Li said he considered most of China’s economic statistics to be “man-made” and unreliable. For the real deal, he looked at only three things — electricity consumption, rail cargo volume and bank lending.
“By looking at these three figures,” said the diplomatic cable, “Li said he can measure with relative accuracy the speed of economic growth. All other figures, especially GDP statistics, are 'for reference only,' he said smiling.”
During the early 2010s, a handful of economists and investment banks sought to construct a “Li Keqiang index” to measure the real health of China’s economy.
By 2015, however, the index was losing its allure, on the theory that it didn’t capture the growing role of technology and the service sector in Chinese economic activity.
But earlier this year we told you how according to the analysts at a firm called Sinolytics, COVID and massive stimulus from Beijing made it relevant again: “Under these conditions, the Keqiang index becomes again more powerful, reflecting the overall economic growth amid investment-driven recovery while largely avoiding potential data manipulation issues.”
As calculated by MacroMicro, the Li Keqiang index sat at 6.53 in July — much lower than the average in the three years before the onset of COVID in early 2020.
This figure affirms Jim Rickards’ assessment that China’s alleged rebound from the virus — much promoted by mainstream finance types — is vastly overblown.
In the wake of Li’s death, we understand that the Chinese leadership is cracking down on the use of VPNs — which is how everyday Chinese get around the internet firewalls erected by the Communist Party.
As the BBC’s correspondent in Beijing writes, “The Party doesn't want mourning for a popular, liberal, former No. 2 leader to generate wider criticism of the current administration, led by Xi Jinping.”
Getting Priorities Straight
A reader writes to take issue with something Zach Scheidt said here Wednesday, on the topic of subprime auto loan delinquencies.
Here’s what Zach said: “Typically, most families start by makfing sure their housing payment is covered with the family's car payment being a close second on the priority list. Once those two items are covered, families then divide the remaining income [among] other family expenses.”
And the reader replies: “If, in fact, that is the procedure, then things will always be in a sad state of affairs!
“Be practical... Put 10% of the gains to church tithe. Put 5% to a rainy day fund — savings. Then Have a dwelling payment that won't squeeze you in the worst of times. Now you can drive a 13-year-old car that you have had for a long time until you find some 'extra' cash along the way.
“Don't go by feelings or peer pressure and — all will be well.”
Dave responds: As it happens, data out from the Commerce Department this morning show the personal savings rate at a paltry 3.4% — the lowest in nine months.
Understand, Zach was merely describing what many people do — and teasing out the financial consequences. I suspect he would agree with your guidance!
Have a good weekend,
Managing editor, Paradigm Pressroom's 5 Bullets
P.S. The BRICS nations — Brazil, Russia, India, China, South Africa — have just launched the latest volley in their bid to knock the dollar off its perch as the globe’s reserve currency.
BRICS Pay went into operation earlier this week — a new system for seamless cross-border transactions.
As Jim Rickards accurately predicted over the summer, the BRICS will add six new member nations come the first of the year — including the country we mentioned prominently off the top of today’s issue, Iran.
Jim says what’s taking shape is “a whole new level of currency wars” — which is why he’s convening his most important online briefing of the year, set for Sunday at 6:30 p.m. EDT.
“If you want to know what really is happening in the world today,” he says, “from the real reason geopolitical tensions are flaring abroad… to the specific actions you need to take to protect your wealth during times of turmoil… then this is one event you’ll want to attend.”