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"Crude" Reality!


Exactly 18 months back in depths of COVID induced panic, Crude oil fell to -37 US $ per barrel....yes you read it right. It was minus..means someone was ready to pay $37 to take one barrel of oil off their hands...weird but it did happened albeit for very short time....That was then..and now same barrel of oil has reached $80 - highest since 2014. Oil price is just one of the very widely tracked indicators which reflect multiple factors. Let's look at some other trends

  • Oil at 7 years high
  • Natural gas at multi year highs crossing $6 per BTU
  • Power cuts in China due to coal shortage. Even in most progressive country priding itself to transition to green power Germany also having potential power cuts due to coal shortage
  • UK citizens are living in their 70s with long lines at gas stations to refill their cars. 
  • Avg time to ship holiday goods from Asia to America has gone to 80 days - twice of pre-pandemic days and prices have gone up multi-fold
  • Labor shortages all across - UK is having shortage of 100,000 truck drivers to haul much needed fuel and goods. US unemployment dipped to 4.8% and given number of people exiting from workforce, effective rate may be even lower. By some estimates, there are more job openings than unemployed people
  • Inflation running closer to 3% in US potentially derailing Fed plans built on "transitory" high inflation
  • Even in high-tech, supply chain and shortage issues are causing major disruptions...After all there are very few chip manufacturers who can produce chips...
All of these are results of multiple factors..
  • Supply-Demand Imbalance: During pandemic, supply abruptly shut down fearing major drop in demand. While demand came back very strongly (thanks to $10 trillion stimulus), supply did not come back quickly. This is classical supply-demand imbalance which would take another year to work it out
  • Economic Imbalance: Availability of cheap money due to Fed policies and stimulus money
  • Labor Imbalance: Continued COVID fears and alternate sources of income (government stimulus, day-trading stocks or house flipping) forcing many workers to rethink if they want to go back to "normal" work. Lack of labor growth due to stricter immigration policies (and Brexit). aging population in developed countries (even China) and skills mis-match (e.g. shortage of software engineers, healthcare workers) creating labor shortage
This is "Crude" reality of post-pandemic world. It would take all of 2022 to sort out these factors. In the meantime Q3 earnings season starting next week. Stock markets were basically flat during Q3 due to downturn in Sept. Since analysts have already brought down earnings estimates, more than 2/3rd companies would again beat the forecasts. Historically Q4 has been good for markets. This year won't be different..expect all US indexes to claim their all-time highs by year end.

If you are a "Bond" fan, do check out 25th Bond movie and Daniel Craig's last one "No Time to Die". I have been seeing movies at AMC for few weeks so it was natural for me to check this out in IMAX!

Happy Navratri and Dussera!

/Shyam

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