The Oil Shock is Back Again. What it means for markets

[00:00:00]The black swan event that could happen, is the oil price.

[00:00:04]So, I tweeted about this today.

[00:00:08]You want to watch check out my tweet right here. So, oil oil right here.

[00:00:16]The average US gas prices have officially rise risen back above $4 per gallon. So, whenever oil rises, okay? Like this. It only takes like a couple weeks for it to reflect in your gas prices.

[00:00:31]If you drive, go out there today and fill up your gas tank, you will see the gas price being higher today compared to last week.

[00:00:41]I guarantee you. And then end of this week it will even be higher.

[00:00:46]Because the immediate effect on Brent crude reflects in gas prices very quickly.

[00:00:54]So, if you don't believe that inflation potentially could be coming back again, think again.

[00:01:00]And then my comments was this.

[00:01:03]Oil ripping so far is still okay because we are in this choppy zone.

[00:01:11]And technically, we are at resistance now, right around 92 bucks per barrel of Brent crude.

[00:01:19]So, if we get a rejection back down, that would be nice, okay? Something like this be really nice.

[00:01:27]But if we don't get this, and we go all the way to $100 per barrel of Brent crude, you better be careful because that will trigger the sentiment in the US stock market, the volatility to come back.

[00:01:45]And the main chart you want to watch is the VIX, the S&P volatility index from the CBOE.

[00:01:53]When the VIX goes above 20, it's when equities start to sell off. It's when risk off behavior shows up.

[00:02:02]So, what is that chart? You can just type up the VIX.

[00:02:06]I don't have it right here. VIX.

[00:02:09]Volatility S&P 500 Index.

[00:02:11]You see, so far not there yet.

[00:02:15]But, if we get above $100 per barrel Brent crude, it's going to do this. And the moment it does this, the S&P will sell off.

[00:02:26]And probably well, not go down at least go to here.

[00:02:32]Okay?

[00:02:33]And then it depends on what happens to oil next.

[00:02:36]So, this is always a possibility.

[00:02:40]You got to watch out for this.

[00:02:42]How does this relate to the Fed, which is in our discussion? Well, if we get Brent crude back above $100 again, that means the inflation chart will be very weird.

[00:02:58]So, you look at the um Let's take the core CPI, okay? This is something that has kind of cycled a little bit.

[00:03:11]So, you see beginning of the year the core CPI was 2.5, one of the inflation readings, and then by June, it went to 2.9. And then by July, it came back down to 2.6.

[00:03:23]Okay? So, this has already played out on the CPI and PPI. And on the core PCE, it's a little bit slower, but it will still have the slope where beginning of the year inflation was okay.

[00:03:34]And then by June inflation peaked because um oil price was high.

[00:03:43]Uh the highest it has been in May. So, 1 month after that, the quickest moving inflation indicators already peaked out and then it bottoms out.

[00:03:54]So that one month delay is the quickest turnaround.

[00:03:58]For slower moving indicators like the core core PCE, it's about two months.

[00:04:03]But the problem with this is if we get oil price back above 100, then what you will see is the whole thing reverses.

[00:04:14]So on the core CPI, it peaked in June, it bottoms out July and then August, but then by September it will go back up.

[00:04:23]And depending on when the peaks are, the Fed might have to hike rates again. Okay, so whatever comes next, okay, this right here is not affecting the short-term Fed decisions.

[00:04:40]The current Fed decision with one rate hike over next three months is a result of this past action on oil.

[00:04:53]And if we get this again up here, then that will lead to a future rate hike, probably in December or Q1 of next year.

[00:05:03]So this is what's ahead.

[00:05:07]What we don't know is what's going to happen to oil.

[00:05:12]And the reason why I want I want to watch this and see if this happens is because number one, it will trigger a short-term stock market risk-off behavior, stock market correction.

[00:05:22]And slightly longer term, it will decide whether we have a another rate hike by the end of the year or Q1 of next year or if we can actually start rate cuts.

[00:05:36]So that's this right here. So when you see this price movement on oil, don't think it doesn't matter if the Fed, let's say the Fed hikes rates in September and then you believe oh, the the Fed has already hiked so this oil spike it doesn't matter. No, it actually is delayed into the future.

[00:05:58]So you have to watch out for this for future sake.

[00:06:01]>> [gasps] >> Okay, so that's on oil and the Fed and that's about it.