October 10, 2023

Oil Surges as Israel Conflict Reignites Middle East Volatility

📰 News Organizations

  • Oil Surges as Israel Conflict Reignites Middle East Volatility. Oil prices surged more than 2% on Monday and reversed last week’s downtrend as military clashes between Israel and the Palestinian group Hamas ignited fears of a wider conflict in the Middle East.

  • Amazon To Hire 15,000 Seasonal Workers. Amazon is planning to hike pay for its operations workers in the U.K. and add 15,000 new staff ahead of the holidays, as the e-commerce giant prepares itself for a wave of demand ahead of Christmas.

  • Bristol Myers Squibb to buy Mirati Therapeutics. Bristol Myers Squibb Co. said it will buy Mirati Therapeutics Inc. in a deal valued at up to $5.8 billion. The pharmaceutical giant announced it will pay $58 a share for Mirati, for a total equity value of $4.8 billion.

  • Ship Freight Rates Tumble as U.S. Consumers Buy Fewer Goods. Wholesale inventories have been ticking down in recent months, but they are well above pre-pandemic levels, a sign that orders for goods may remain depressed for some time.

  • Oil giant Aramco Announces Pilot Project to Suck CO2 Out of the Air. Aramco is partnering with Siemens Energy AG to develop a small-scale direct air-capture “test unit,” which will extract carbon dioxide from the atmosphere to be stored underground.

🐦 Twitter

  • Rather rapid convergence happening with 10y U.S. Treasury yield soaring and the pace of year/year nominal GDP growth falling. Not far from both passing each other if current trends continue. Source.

  • The US has already issued $1.76 trillion in net Treasury securities through September. Will be well over $2 trillion by year-end, trailing only 2020 for the largest net debt issuance of any year in history. Source.

  • “Bonds should be the best performing asset class in the first half of 2024:” Bank of America’s Michael Hartnett. His team is “impatiently waiting for capitulation selling, and a recession or credit event to trigger bullish policy easing,” he said. Source.

  • Interest coverage ratios show Fed continues to have negative impact. W/the Fed funds rate at 5.5%, we’re significantly above Fed’s 2.5% estimate of neutral & as a result, monetary policy is biting harder & the incoming data continue to weaken. Source.

  • Expecting a Q4 rally as stocks are very oversold and sentiment has become very bearish, but this is likely to be the last hurrah before a recession induced sell-off early next year. Source.

  • Commodity prices are rising. Ammonia prices have seen a record-breaking surge, reflecting broader inflationary trends in commodity cycles, which include increases in oil, gasoline, and natural gas. Source.

Most investment portfolios are totally unprepared for war. In times of conflict inflation rises, gold and commodities outperform, while stocks, bonds, and cash underperform. A typical portfolio of 60/40 + cash is the worst portfolio, particularly on a real return basis.

Bob Elliott

📓 Online Publications

  • Nelson Peltz Boosts Disney Stake, Seeks Board Seats. The activist investor’s Trian Fund Management, now one of Disney’s largest investors with a stake valued at upward of $2.5 billion, is expected to request multiple seats—including one for Peltz.

  • Current State of the Housing Market. Year-over-year, sales fell 15.3% (down from 4.77 million in August 2022). Usually, house prices bottom after sales bottom, so a new cycle low for sales suggests likely further weakness for house prices in coming months.

  • Global Conflict Will Create More Inflation. As the US gets weaker, and the world becomes more chaotic, they are forced to increase the national debt at a furious pace in order to pay for all the weapons and money they are giving everyone else.

  • Housing Market Overvalued? Real estate experts believe prices are well above what they should be and expect them to begin coming down. Homes in 98 of the 100 largest housing markets are selling above their long-term prices, which indicates that they are overvalued.

🎧 Podcasts

  • Green Transition to Translate to More Manufacturing Jobs. Politicians, like Joe Biden and UK counterparts, suggest that the green transition can create jobs in economically challenged areas, aligning environmental goals with economic revitalization. Source(6:00)

  • German Voters Turn Their Backs on Government Parties. Conservative opposition victories in Bavaria and Hesse highlight dissatisfaction with Chancellor Scholz's coalition. Voters are particularly discontented with issues like migration, inflation, and high energy costs. Source(5:14)

  • 4-Day Work Week Feasible? There is an ongoing trend of decreasing working hours in high-income countries based on continuous productivity growth and technological innovation, suggesting a trend toward even shorter workweeks, possibly down to four days. Source(1:04)

  • Global Population Decline. Elon Musk and certain demographers warn of an existential threat due to declining birth rates and aging populations, suggesting a future with a low population on Earth. This can have numerous economic knock-off effects if not prevented. Source(8:03)