Welcome to this episode of Finance U.
This week Paul and I discussed the fractured oil markets, Inflation, the AI bubble, and Gold and silver.
Oil markets, or should I say ““markets,”” are increasingly divorced from reality. Instead, the price for oil seems to be running on narratives vs fundamentals.
This appears to be the result of heavy-handed oil futures shorting by a very large player (wink, wink, who could it be?).
Price discovery has been replaced by price setting. However, the downstream products from oil such as diesel and gasoline are priced as if oil were ~$130/barrel.
Someday, we suspect, the price setting will crash into reality and the price oil will violently adjust higher. This will then drag long-term interest rates higher, which will be something of a double whammy for the economy and financial markets.
Iran has two powerful cards to play: the Strait of Hormuz and time.
All Iran has to do is wait the US out and let the eventual oil shortages work their magic on the US economy.
Inflation
The July CPI came in, and it was, as usual, a howler.
The BLS had the temerity to post that heating oil had gone down by -1.7% in July when the wholesale price had gone up by +35% in the month of July.
In this age of universal deceit, what data can we trust from the US government? Jobs reports? Oil data? Anything?
Government debt and monetary intervention, along with the possibility of oil shortages, could combine to create a second, potentially larger inflation wave. This would mirror the ‘double hump’ inflation of the 1970’s and 1980’s.
Everybody needs to be prepared for vastly higher inflation, as it seems unthinkable that the US government will do anything different from what it has always done and continues to do: deficit spend.
““Markets””
Markets are beginning to look more like casinos than mechanisms for price discovery. Bullishness is at extreme levels, valuations are at record levels, and the vast majority of investors seem to think these are permanent conditions.
Maybe. But it would be a first in history.
The AI boom is now mainly a self-reinforcing financial loop where companies invest, borrow, and commit spending to each other in a highly confusing circular fashion. When it becomes this difficult to figure out who owes whom what, that’s a red flag.
Paul recommends that people approaching or in retirement consider taking profits, building several years of income reserves, and avoiding the need to sell assets during a major downturn. Patience, he argued, is particularly valuable when market euphoria reaches extreme levels.
Timestamps
00:00 — Oil Markets Defy Reality
02:25 — When Narrative Replaces Truth
04:32 — Who Is Selling Millions of Barrels at Dawn?
07:10 — Algorithms, Passive Investing and the Casino Market
10:31 — Iran Has Time on Its Side
13:39 — Oil Price Suppression Meets Physical Shortages
16:58 — The Economics of Price Manipulation
20:60 — Diesel, Inflation and the Cost of Everything
22:17 — The CPI Inflation Reality Check
27:25 — Losing Trust in Markets and Government
34:21 — Debt, Inflation and the Next Inflationary Wave
38:19 — When Markets Become Casinos
47:23 — The AI Bubble and Financialization Machine
51:51 — Gold, Silver and the Next Bull Market
54:15 — Bonds, Rising Yields and the Yen Carry Trade
58:36 — The Financialization of Everything
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by cmartenson