Though pausing occasionally to correct short-term oversold conditions, crude still seems locked in a one timeframe down market. As we suggested several months ago, the dominant narrative has become one which now finds reasons to project the move ever lower, conveniently forgetting all previous ideas of cost-of-production floors at $90, then $80, then $60 as each has been breached in turn.
Back in the halcyon days of summer, it seemed nothing could go wrong.
Commodities were still things it was not utterly disreputable to own. Base metals had shaken off a springtime swoon to hit 18 month highs. Though still suffering from that enervating, post-bubble flatness, precious metals had just enjoyed a neat little 10% rally. Energy was threatening to print new 2 ½ year highs as WTI sold for more than $107 at the front and $86 at the back of the curve. Nor were people much interested in paying for downside protection: across the complex, options premia were as low as ever they had been in recent years.
One of the overarching characteristics of asset markets is that its participants are prone to harbour the eternal Doublethink whereby the consensus usually revolves around a sempiternal bullishness with regard to equity prices and an equally unshakable millenarian gloom regarding the wider prospects for the human race.
With regard to the latter, it should be recalled that, only a few short years ago, the media were overly solicitous of the morbid declamations of both Hubbert’s Peak Malthusians and their lesser brethren who saw naught in prospect but depleted mineral seams and planetary-scale dustbowls. All of this ilk were much given to tortured Old Testament visions of an imminent, resource-exhausted Dystopia were we not instantly to repent of our unrighteousness and sin and to follow their always anti-economic and frequently anti-scientific prescriptions for society instead.
For all those still clinging to the hope that today’s extraordinary level of equity valuation will soon reverse and what we fondly remember as ‘normality’ will again break out (and we confess that we are often to be found among their camp), we and they should never lose sight of the fact that this exaggeration is a direct result of the central banks’ deliberate move to destroy the market for time discount and so to provide the rentier class with a little assisted suicide (only fair since it was obviously all the savers’ fault that the previous period of central bank laxity had induced far too many people to borrow too much bank credit the last time around with predictably disastrous results). Continue reading