This analysis effectively exposes the limits of monetary policy by showing that you cannot solve a physical resource shortage with digital currency. It serves as a blunt reminder that in a supply-constrained world, the only real cure for inflation is the painful reduction of consumption.
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Stagflation: Why You Can't Print Your Way Out of an Oil Shortage.Added:
Hey everyone, hopefully you're having a good day. My name's Andy, my channel's Finding Value.
Uh today we're going to go through Twitter, see what people are sharing on social media. I'll interject my financial opinions as we go through it together. Generally related to three different topics, wealth building, commodities, and or financial topics.
Let's dive right in, take a look, see what's going on today.
And if you want to follow me, it's @finding_finance. If you want to join our community, finding-value.com.
I dive deeper into all these different sectors looking for investment opportunities and sharing those opportunities with everybody in the community.
I also share uh what I've learned over the years, strategies, and uh big macro picture stuff.
Uh specials, the coupon code for the monthly membership ends up being $25 for the first month only to try the membership out. Uh you can also sign up to the yearly membership whenever you'd like. You can swap from the monthly to the yearly.
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Michael J. Kramer, that's some cup and handle forming on the 10-year. Uh unfortunately, cup and handle patterns are not bottoming patterns.
Uh technically, that is an inverted shoulder head shoulder with a uh flag pattern or pennant formation.
Uh or even an ascending triangle could be um I guess argue for, but a cup and handle pattern is a continuation pattern, not a bottoming pattern.
Um not that it matters, it's [clears throat] already bottomed, it's going to head higher either way.
But technically, a cup and handle is a continuation pattern, that's not that.
Doug Casey says, you should plan on severe energy shortages.
We're looking at something much worse than another lockdown as bad as that was.
We've already seen hints of this, four-day government work weeks, travel restrictions, remote schooling, scheduled power cuts, and flight cancellations.
There's already fuel rationing in the Philippines, Sri Lanka, Bangladesh, Pakistan, and Vietnam.
The US is shipping emergency gasoline and diesel to Australia, whose green government idiotically has made it impossible for them to refine any themselves.
Full article below and we're The reason I'm talking about this is I I don't know if the world has seen an energy shock this dramatic.
Um there's all these knock-on effects that I can't possibly imagine.
This isn't like 2008 where demand was increasing and squeezed the supply of oil.
This is like the opposite.
This is This is like um supply going to be an absolute hammer to demand where the supply isn't there and it could happen it could happen in a very dramatic way.
>> [clears throat] >> Like the timeline or the time frame for this to occur under is very accelerated compared to history.
So, generally, let's just walk through this real quick cuz I think it's important to understand.
Historically, the the the order of progress for a big, let's call it commodity bull market and or a >> [clears throat] >> squeeze on oil is the first step is money is created.
So, that's either fiscally created or generally historically, what we've seen in these commodity bull markets, is money coming from bank lending in the monetary side. So, monetary bank lending, that's commercial banks giving out new loans, generally against the real estate market, against residential real estate to be specific, against brand new homes being built.
That money comes into the system and that money is demand for oil and products and stuff like that.
So, that money creation creates demand for products and that demand squeezes the supply of oil, which is the number one master commodity. It's in everything.
So, that demand, which is money being created, puts oil into a shortage. It's aka inflation. Inflation is increased demand for things and the things, the supply, can't keep up.
So, number one is money's created, number two is supply constrained, and then you get your commodity bull market where the money being printed or the money um >> [clears throat] >> comes into the system, creates the demand, and then the supply can't grow fast enough for that demand, aka inflation.
That's the normal bull markets.
And we generally see these big commodity booms when there's been underinvestment in the commodities themselves and we get this demand.
What we've got with oil here is is different because supply is going to be massively constrained if the Strait of Hormuz stays shut.
We are losing a massive amount of oil, of fertilizers, of sulfur, of all these different things.
So, this is a shock to the system.
Now, generally, what they do is they increase interest rates to slow the demand or to slow the money printing, which is the demand side.
So, the demand side is what they've generally used to control through interest rates.
Interest rates going up would slow the money creation process in monetary bank lending, and it would it would kind of self uh balance with demand and supply through interest rates.
Now, what's coming here, this could get nasty because this is a supply-side shock where I don't know if interest rates can do anything about it.
So, let's walk through the current situation versus what historically has been in commodity bull markets.
This new This market coming up is massively supply constrained.
I don't think we have excess spare capacity in oil anywhere in the world, even in OPEC, we didn't have it.
I was investing in oil because I think that we are heading into a world where supply is going to be constrained, no matter what we do.
So, we can go offshore and and try to drill as much as we want, and all that's really going to do is offset declines.
So, I I I don't think we're going to see a substantial increase in production from the supply side.
I was thinking that we are doing fiscal spending and that government debt is going to be a problem, which means they're going to have problem with interest expense. So, fiscally and from the debt side, they're going to have to print money for the system to survive.
In order for these currency systems to survive, they need to print money.
If they print money into a supply-constrained world, you're going to get massive inflation.
Now, this shock to the system that Doug's talking about, which I agree with, they can't lower interest rates because you're you're short the supply of oil.
So, if you lower interest rates, what that's going to do is increase monetary bank lending.
So, there's going to be more bank lending coming into the system at the same time that you can't increase production of oil or some of these other goods like fertilizers, perhaps food, uh maybe even stuff like copper and metals because of the sulfur problem.
So, you can't lower rates, but then if you increase rates, that doesn't solve the problem either.
Because generally, what has occurred is when you increase interest rates, it kills monetary bank lending. And the monetary bank lending, for the most part, has been already kind of killed. That's why we've seen home sales drop so much. So, they killed monetary bank lending, but what's happening is fiscal spending, aka nothing stops this train, continues to spend.
And if you have increasing interest rates, which kills monetary bank lending, but monetary bank lending isn't the big driver here, it's fiscal spending.
They're going to increase fiscal spending because the interest expense goes up.
They're screwed.
You can't lower because of monetary bank lending, and you can't raise because of fiscal spend and the increased uh interest expense that's going to be that's going to be paid out.
And at the same time, you've got supply constrained on oil and and some of these other commodities and ultimately the metals could get constrained through the shortage of oil and diesel.
So, this is this is a jacked-up situation where I mean I'm just trying to figure out how would you decrease the price of oil and all these other things? You You're going to just going to have to kill demand until it matches the supply.
The problem is we have to kill a lot of demand.
And you guys have seen some of the some of the graphs where GDP per barrel of oil has declined. So, we're get we're we're becoming more efficient with GDP in relationship to oil, but here's the problem. If you need to kill 13 million barrels and you just got you became more efficient you need to kill a whole bunch of GDP to kill 13 million barrels or 10 million barrels or whatever it is right now that we are missing of oil production per day.
And we're just soaking it all up through inventories in the short term.
When inventories hit critical levels, then it's just straight supply to it's supply demand where demand needs to get destroyed to meet supply.
That's what has to happen.
And there's going to be a massive amount of demand destruction.
Like amounts that need to counter COVID.
Now, COVID was the exact opposite. We killed the demand and supply had to meet it. This is we've killed the supply.
Now, demand has to meet it. This is completely different.
I he says, "Look, gold and platinum have already broken out. Oil has not broken out yet but are heavily correlated to gold and platinum. 2026 could be a massive year for the oil sector. 100% agree with that.
That's where we're positioned on the website. We are positioned for oil to follow gold and platinum and oil is going to go next.
It's that simple, guys.
Uh so >> [clears throat] >> you get it if you get positioned before these moves you grab the the oil equities and energy service companies and uh whatever else and again, I I would go into the individual companies, not the ETFs.
And then you just wait. It's all coming right now.
Oil is going to is going to have a massive move higher.
Uh we're going to break out of this uh consolidation here. So, this here is your consolidation.
All that. Uh and this is a massive pattern.
Uh last time we did this, it was just like this. We went from uh $32 all the way to 150.
32 to 150.
So, let's let's look let's let's look at this.
Uh I'm going to do this on log because it's pretty pretty big deal here. So, uh we're going to do a percent price range here. So, we break from the top up to say here, it's 328% and then we're just going to put it on top.
Uh we're looking at $400 oil.
$400 oil uh is No, no, no, no, $513 oil. Sorry, $513 oil. It's a it's a $400 increase, roughly speaking.
So, a $400 increase, $513 oil is what the projection would be uh if we were to do the same exact breakout uh as last time.
So, we're going to get close to about $500 oil uh it would be my guess uh for the oil price.
And uh that would be this breaking out matching gold and platinum and previous bull markets. Um we could go even higher than that. Who knows? We'll we'll see what they do. If they do quantitative easing or or some sort of uh stimulus or lowering interest rates you're going to you're going to see the dollar drop and then oil is just going to go ballistic.
Wall Street's asleep at the wheel. Ray Dalio is sounding the alarm. We are in stagflation right now today.
Uh the CPI is 3.3%. OECD sees 4.2% coming.
Uh oil pressure building from Iran. Zero major central banks are cutting.
Trump still demanding warsh / rates in May. Dalio's verdict, you will lose your credibility.
The market is priced for a soft landing.
The data is screaming 1970s.
Who's right? Um 1970s is right.
We're entering wave three. This is going to be bigger than the 1970s.
Wave three is from Elliott Wave. Wave one was 1970s.
1980, 90, and 2000s, and 2010s was a consolidation in Elliott Wave speak and we started wave three, the bottom of wave three uh which is the end of wave two in 2020.
From 2020 all the way to some future date which is probably a long ways off we're going to go into a gigantic move of precious metals and commodities.
Oil is one of those commodities and and everything else is too. Palladium, platinum, oil, silver, gold. Uh they're all going way higher. Copper.
And that's the supply shortage. They're going to print money. That's what I was describing earlier.
And they're going to print that money into a supply shortage of all these materials.
And wave three is going to be gigantic.
Uh I I know a lot of people say, "Well, how are people going to afford?" Guys, I I don't care about that. You're You're asking the wrong question. That's short bus questions for short bus people.
The question you should be asking that is better is how low is the dollar going to go.
How supply squeezed are these commodities?
And how much money are they going to print? All it becomes is a ratio. It's just a ratio. What is the ratio? It's the ratio of how much money they print versus the supply of the commodities.
That's it. That's what the ratio you need to be worried about. It's not about affordability.
Affordability you're going to there's going to be a lot of people who get crushed in this. Crushed, decimated in my opinion.
It's like you're either on you know, on the train or you missed the train and you're getting decimated.
That's the way that I see it. It's like you're in assets that will appreciate or you are screwed.
Like it's going to separate.
And the FOMO here is going to be absolutely ridiculous.
Fear of missing out. People are going to be chasing things like mad.
The way that you want to play this in my opinion is you need to play this strategically. You find the setup first. You say, "Holy crap, this is all going to squeeze." And then you look at the printing side. They're going to have to print money in order for the system to survive.
And then you're going to get this big mismatch between the two which is going to be massively inflationary. Massively.
Just like Ray Dalio is talking about screaming the 1970s. This is worse than the 70s.
Way worse than the 70s.
70s is child's play compared to what I'm describing.
Then you're going to see a massive move higher. People are going to FOMO like you've never seen before. That just we're just early in this move. Maybe the FOMO happens in five years. Maybe it's one year. Maybe it's 10 years. I don't know the exact timing of it.
Where the massive FOMO kicks in and the herd psychology goes ballistic. In my opinion, it's when rates get above 5% and I think it could be pretty soon.
Maybe this year.
And then people are going to say, "Holy crap, we have a problem."
And that might take, you know, a year or two where people really start changing their mindset.
Uh North Star, you know, I'm glad to see other people are seeing this as well. It says it is highly unlikely that oil will remain below $200 a barrel in the years ahead.
Indeed, $300 plus oil is probable.
If you expect oil to stay below 200 a barrel for the next five to eight years, you're ignoring 150 years of evidence.
I I totally agree with this. He's looking at the same cycle that I'm looking at.
And we're coming to similar conclusions.
We're going higher than multi, you know $300 a barrel oil. We're going higher than that.
Now, a lot of people are going to say it's not possible. We're the demand destruction. Guys, your your mindset is is is is nowhere near where it needs to be in my opinion.
This is this is just dealing with cycles repeating over and over through history.
You're looking at today and extracting forward. You need to look at the dollar declining massively.
That's the driver of a lot of these things.
It's the situation that we are in that people haven't figured out yet.
You need to look ahead, not behind, and project what's behind forward. You need to look forward and say, "Hey look, we're going to get squeezed from supply and we're going to have problems with debt and that combination is what you're missing the link between those two in my opinion.
>> [clears throat] >> Says there's a giant sucking sound in the United States in just one week diesel inventories fell by 4% gasoline inventories fell by 3% and the SPR fell by 2% the battle for the barrel is on impending and inevitable record low inventories equal higher floor flight price for oil he says $80 I don't where's $80 coming from?
You mean like 180?
Guys when we get below this this isn't going to stop we're going to keep dropping this like a rock.
And you know what's even worse?
We are before summer driving season where demand really kicks up.
So we need to start killing it all here and you're going to see four five six seven eight nine $10 a gallon gas all over the place.
If we keep sucking it down like this I don't know this just seems this just seems so easy and obvious to me I don't understand it like even back in in the mid 2020s when I see this crude oil chart this just seems obvious to me like like it's a no-brainer we're going multi hundred and I figured that out in 2020.
The faster you figure it out the more opportunity you can extract from the situation you are in.
That's ultimately what it comes down to but ultimately what it comes down to is how fast can you identify opportunities and how quickly can you jump on it when the assets are undervalued and cheap.
That's the whole name of this game of investing.
What I see is a bunch of people who are waiting for confirmation you're waiting for confirmation stocks out the asymmetry.
So if you could buy oil here and here how can you figure out a way of a strategy to buy it in those circles that's the greatest maximal opportunity possible and there are other there are other opportunities outside of oil that are at these locations that are super super cheap.
And I'm not going to name those those sectors at this time on here I don't I that's that's meant for the members of the website.
But I mean this just seems so obvious I don't get it like like this just seems completely obvious and even if we grind sideways here you know this area here is now where where we're located.
If you were to use it as a strategic map and everyone's just like well it's people can't afford it it's like my god.
That's that's the same stupid crap that they would say here in this circle it's like the same people saying the same dumb stuff over and over and over it's like the short bus of 2002 and 2003 when the dollar dropped here the same short bus people are coming out oil can't go higher we're at the top we've got resistance here it's like oh my goodness.
Oh my goodness okay anyway what happened here let's let's go back for that particular case gold to oil ratio in that area there.
Let's go up.
So that we were we were far more expensive during that time frame but two 1998 we got to a ratio of 24 maybe up to 28 as a peak.
So there's the peak right there 27 was 1998 that was the beginning of the bull market. This is when commodities were cheap against stocks you invest money in oil here.
Then we we came all the way down and then in about 2000 here this is when all the doubters came they're like oil can't go up we're at the peak and then it compressed all the way down to six and then we came back up and did a double bottom at six again in 2008 we were at a one to six ratio against gold. One ounce of gold six barrels of oil in that particular bull market. Now this was a double bottom and we went into a bear market where where gold outperformed oil that's what this double bottom signifies and we went into this big move higher do you know what this is over here guys?
Guess what this is what do you think that is you know what that's called a double top.
Now what we're going to do and I'm going to just going to show you guys what I think is going to occur because I'm cool like that.
So there's your double bottom that's your double top right what's going to happen here is I need to flip this.
I think that's what I wanted to do.
Let's do a sorry let's do a mirror mirror is what I wanted yes mirror.
So what's going to happen now is this is going to it's going to do something on the lines and and this is just too small of a double bottom let me see.
It's going to do something like that right?
We're going to come all the way down I don't know if I have that drawn correctly but this this here is going to flip over so this double bottom is the double top and then this will work its way down like that and we'll probably get down to like six or 10 or something right?
When we go down to that level gold's going to be like you know we we can just do the the the math backwards too but if it's a one to 10 ratio gold this is going to be a big number. You know if it's 20,000 for gold and it it probably won't be the peak of the peak let's do 10,000 so 10,000 and then you multiply it by or divide it by 10 sorry it's a thousand.
Thousand so we're going to get like a thousand dollar a barrel oil if that were to repeat again and it and it will why will it repeat again because we are short oil and I don't think we can increase production meaningfully if they print money money has to go through all of the master commodity and it just transfers right into inflation.
All of the charts I look at the CPI to PPI ratio suggests that that could occur and we get massive rates of inflation.
The 45 year cup and handle pattern on silver would suggest that could occur the oil price in relationship to the S&P 500 going back all the way to the 1800s suggests something crazy like that could occur again and we get some massive move all the way up where oil outperforms the S&P maybe for the rest of my life.
This is the things where I've I've I've done the work I've looked at all these charts hundreds and hundreds of charts maybe even thousands of different ratios and combinations and I can't find anything that disagrees with what conclusion I've come to. Now could it be AI nullifies SPX and oil becomes very valuable that could also be the case too that's one other outcome that could be explainable for the squeeze and massive outperformance of oil cuz oil goes into everything and I don't think AI can do anything about that I don't think they I mean plastics paints everything it's in all it's in everything.
Maybe it creates artificial oil I don't know.
It says everyone is asking why oil prices keep rising the real question is simpler why can't the world just replace Gulf oil? The answer is chemistry.
Crude oil varies by two things weight which is API gravity heavy versus light sulfur content sour versus sweet most people assume oil is oil and it's not a refinery built for one type cannot efficiently process another without major modifications it's like trying to put diesel in a petrol engine.
Global refineries run best on medium gravity and manageable sulfur who sits perfectly in that zone Arab light API 33.3 sulfur about 2% Arab medium API 30 sulfur 2.6% Basra API 29 sulfur 3% all Arabian grades are highly compatible with most refineries globally.
Persian Gulf oil was practically designed for the world's refineries.
This is the Persian Gulf oil and this is Canadian Venezuela crude the the heavy stuff it's all high sour or high sulfur.
And then sweet low sulfur is over here but the API gravity is too light.
The middle is here and that's where all of our refineries are set up for it's all for the middle stuff.
All the other stuff in the world isn't equivalent.
Doesn't work like that.
Coming down why can't the US just replace Gulf oil? Because US shale is mostly too light. WTI Midland, Bakken, Eagle Ford, all API 45 plus.
Asian refiners have invested heavily over decades in the capability to process Arab light efficiently.
You can't undo that in weeks. Light oil does not equal refinery ready oil.
Here's the trap refineries are in right now.
They built over decades specifically for Gulf crude. You can't easily switch to light US shale. You can't switch to heavy Canadian crude fast enough.
Retrofitting takes years and billions of dollars.
They don't have years. They need the right barrels this week. This is why 122 Brent understates the problem. It's not just about volume. It's about the right barrels reaching the right refineries.
Asian refineries built for Arab medium can't run on Texas light. When the right barrels disappears, no price is too high to get it back.
The Hormuz crisis isn't just a supply shock, it's a chemistry crisis. The world's refineries were built around Gulf crude. There's no substituting sitting on a shelf.
That's why there's this time is genuinely different. Tag someone who thinks just pump more US oil solves this.
So, that's kind of some background on that.
Uh this is Casper charting platinum and oil are pretty much twins looking back. However, lately have they've seen uh a separation between those two.
Who is in the wrong here? Uh platinum's in the right because platinum is following gold and silver. Uh crude oil is going to follow platinum higher.
Another way that you can look at this is you can you can price crude oil divided by platinum.
And you'll see the ratio uh is super low down here.
This here, if if you can look, let's let's kind of draw this through here.
You can see a pattern here.
See that squeeze and then we kind of I have gotten pretty uh volatile. We squeezed up, we broke down, we went up into this upper area in 2018 where uh plat- uh crude oil was expensive against platinum. Crude oil was expensive against platinum here in 2022.
2022 we massively bought a lot of platinum uh for >> [clears throat] >> the website.
And then we've come down uh all the way down here and we've gone to the opposite end of the spectrum where where crude oil in late 25 early 26 is completely cheap against platinum.
And we're going to see a catch-up move where crude oil is going to normalize against platinum or even get expensive.
That's what I think is going to happen.
And these these ratios are going to go back and forth with uh certain commodities outperforming other commodities back and forth. So, what I think is going to happen is you're going to see uh like platinum go up and then consolidate. And then during this consolidation, you're going to see crude oil, which was consolidating here, go up. And then it will consolidate crude oil and platinum will take off.
And these could go back and forth.
So, these consolidations are going to allow the ratio to catch back up and normalize.
That's going to happen with gold as well. So, when we when we look at this if we pull up say gold here and then we get into kind of the shorter term. See how this is consolidating here? And then we put crude oil underneath it.
So, you're going to see crude oil, this is going to start to consolidate.
And then then crude oil is going to take off to the upside while this consolidates sideways.
You guys see how that is working? So, the way that I I I set up the portfolio to to to uh balance and or smooth out the portfolio is you could take mining companies versus say oil equities.
Put a certain percentage amongst both of these and you'll get a steady portfolio increase upward.
As one asset class goes up consolidates and then the other asset class consolidates and then goes up. And then as this consolidates uh sideways, then this will start to go up again. And you get this stair-step pattern uh in each asset class, but a portfolio that is more smoothed out >> [clears throat] >> is a little easier to ride.
And sometimes, depending on the companies, you can get some nasty pullbacks during the consolidation of the commodity.
So, that's that's what I'm posing here is we're getting a consolidation while this rips higher. There is a possibility where these both go up together.
Uh we saw that back in the uh '70s. So, if I were to use uh let's let's use US oil here.
It has a little bit more data going back.
So, you can see that we we had a a period of time where these both ramped up together.
Do you know when that occurred? Let me put another thing on underneath this.
That occurred when interest rates got above 5%. So, this one didn't go all the way back, but um it it's right here.
So, when interest rates got above 5% and it came up like this, that's when oil and gold and everything kind of linked together and they both ran together. Oil is going to be the driver of interest rates going up.
And and I think gold and silver are going to follow. But 5% is going to be that critical area.
So, right now we can kind of hedge each other below 5% and then I think they're going to correlate and we're going to decimate when interest rates get above 5%.
Uh the the the portfolio that we have created.
So, uh on the website that is. So, I know some of you guys you're looking and you're saying, "Andy, um you know, I I kind of feel like I'm like I'm chopping sideways in the portfolio because I've got Some people have more precious metal mining companies, some have more energy. I think they're going to connect at some point in the future and then both go up together.
Uh and I think 5% is the threshold level. That that's my opinion on the 10-year yield.
So, that's what I've got for today, guys. Give me a thumbs up for the content, subscribe to the channel, subscribe to the website if you'd like.
Um special on 500 year the coupon codes.
We have a 7:00 a.m. Mountain Time Q&A session coming up on Saturday this weekend. And I have a hard stop where I have to go um because of some other prior um things I have to hit.
All right, guys. That's what I've got for today. So, we'll catch you next time, guys. See you.
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