Pro Perspectives 10/4/21

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October 4, 2021

The correction in stocks continues.  We've been looking at this chart below, as our guide, following the break of the big uptrend. 

This yellow trendline in the chart, represents the 40% climb in stocks from election day, on anticipation of continued easy money, and a massive fiscal spend to fund Biden's clean energy agenda.

But now the Fed has set expectations for a change in policy direction
And the politicians on Capitol Hill are getting closer to firing of fiscal bazooka.

With that, we had a catalyst to trigger this correction. 
And if history is our guide, we should expect some more pain, maybe something in the 10% neighborhood.  Going back through almost 80 years of data, we have a 10% decline in stocks, on average, about once a year.  The 200-day moving average (the purple line) now comes in at 9% below the record highs.  I suspect we'll see that tested.    
That said, while stocks were down today, commodities were UP.  This is a clue. 
Unlike many of the declines in stocks we've seen in the post-financial crisis decade, this decline is not about demand.  It's about prices.  

The media will continue to harp on the Chinese property market, the U.S. debt ceiling and related infighting on Capitol Hill.  But this continues to look like the world is waking up to a materializing energy crisis.

Last week we looked at the storm that is brewing in global energy.  The record prices are reflecting a combination of the war on fossil fuels, meeting supply chain bottlenecks and a ramping of global demand (coming out of the depths of the pandemic). 
We looked at coal futures.  This is up another 12% since we saw this chart last Thursday. 

We looked at natural gas.  This has tripled from the pandemic lows. 
And global demand for natural gas and coal is now higher than pre-pandemic levels.  Yet supply has been choked off by the global climate agenda.  

So demand is turning to oil

And guess who's back in the driver's seat in determining oil prices? OPEC.   Not surprisingly, OPEC chose not to take measures to curb prices in a meeting today.  

And with that, we have this chart in oil …

After the OPEC news, oil broke above the big $77 level, to seven year highs.  As I've said, get ready for $100 oil.
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