(MEMO) Memo - It Can't Be That Simple
By: Wilson
Big picture, big picture, big picture. That's what I used to always tell myself when it came to investing and sadly, I ignored it once again. On June 10, 2022, I wrote an article at the time titled, "This Is A Tough Macro Environment We Are Entering So Prudence Is Needed." In the article, we wrote:
Again, while these things are not saying that the oil market fundamentals will turn bearish, it does imply that demand won't surprise the upside. No matter how you look at the data moving forward, there is a bit of asymmetry when looking at global oil demand moving forward. More likely than not, we are going to see demand somewhat disappoint.
As a result, we have to figure out how much will demand disappoint to the downside if the macro front continues to disappoint. We don't know and truthfully, it's still a bit early to say. The only way we can keep gauging this is by focusing on the available macro price action and EIA data.
And at the moment, we are doing ok. But bumpy roads are ahead. It's not all rainbows and puppies from here on out, so let's stay prudent.
Looking back, it was clearly obvious that something had changed. The Fed was hellbent on crushing inflation and global growth was disappointing. Then a few weeks later on June 20, 2022, I wrote another piece titled, "We Are In For A Massive Bear Market Rally." In it, we wrote:
Bond yields are moving lower.
Inflation expectations are topping out.
And copper vs gold broke down suggesting a global economic slowdown ahead.
All three indicators tell me that the market believes the Fed rate hikes will work. As a result, global growth is headed lower, bond yields are going to move lower, the yield curve will further flatten, and the Fed won't need to keep jacking up interest rates later on.
The sad thing looking back is that my bias on oil market fundamentals made me believe that the Fed wouldn't be successful in fending off inflation. With the Fed guidance yesterday, it is now clear that the Fed won against inflation and we were wrong.