The Fed Is Fuct (Part 5)…

Sign Up for Kuppy’s Korner Updates

If you’d like to subscribe to Kuppy’s Korner, please enter your email

I know that I touched upon this in Part 2 of this “Fed is Fuct” series, but I just cannot let go of this topic. It is simply too important of a question—in fact, it seems to be the only question in my mind as we find an event-path for “Project Zimbabwe” to re-accelerate.

Let’s try a thought experiment. Imagine that OPEC pulled back on their production and sent oil to $300. Given how tight I believe that the oil market currently is, it wouldn’t even be that hard for them to achieve this. Given how annoyed they are with Biden and Powell, it’s easy to see how they’d want to do this and prove a point. Meanwhile, the rapid spike in oil prices would dramatically increase OPEC’s revenue, even with fewer barrels sold—making you wonder why they haven’t already done this.

At $300 oil, I believe the US economy would collapse. Sure, inflation prints would go parabolic, but with the rest of the economy in freefall, the Fed would likely be forced to stop chasing the CPI higher. In fact, I’d wager a healthy sum that in such a scenario, the Fed would dramatically reduce interest rates and flood the market with liquidity. The Fed would effectively ignore their inflation mandate in order to save the global economy from OPEC’s oil price spike—much like when they were fighting the virus during March of 2020. In this scenario, the Fed would be responding to an exogenous event that threatened to take down the economy.

Now, what if oil didn’t go to $300 due to OPEC?? What if oil went there because our President has joined an end-of-days economic suicide cult, with a bizarre carbon obsession?? The oil price spike would potentially be the same, yet the cause would be different. In this self-inflicted scenario, would the Fed chase oil higher and continue raising interest rates to fight inflation?? Or would the Fed bail out the economy?? Every investor needs to answer this question and answer it correctly as the range of outcomes is too extreme if you get it wrong. If the causes of the oil spikes are different, will the responses be different??

I think we’re about to play out this experiment in real time over the next few months as the SPR releases end, right as China re-opens. The investment choices in front of you are quite different in terms of how you answer this key question. Sure, you’re going to ride oil into the supernova, but when you switch investment horses, which one do you choose??

What will JPOW do when oil hits $300??

If you aren’t fixating on this conundrum, you’re going to be paralyzed when it happens.

Does he detonate what’s left of the economy by hiking rates?? Or does he stimulate like a lunatic??

One thing is for sure, it won’t be a middle path…

Disclosure: Funds that I control are long an obscene quantity of energy exposure.

* Above meme images were self-generated using third party software. Logos are protected trademarks of their respective owners and Praetorian Capital LLC disclaims any association with them and any rights associated with such trademarks. This blog makes no representations, guarantees, or warranties as to the accuracy, completeness, currency, or suitability of the information provided via this website. We specifically disclaim any and all liability for any claims or damages that may result from providing the website or the information it contains, including any websites maintained by third parties and linked to or from this website. External links within the website are for information purposes only. The website does not adopt or endorse, and cannot be held responsible for, the contents of any externally linked pages.

Past performance of Praetorian Capital Fund LLC and its feeder fund Praetorian Capital Offshore Ltd. (collectively, the “Funds”) is not indicative of future results. No representations or warranties of any kind are made or intended, and none should be inferred, with respect to the economic return or the tax consequences from a potential investment in the Funds. Each investor should consult their own counsel and accountant for advice concerning the various legal, tax and economic matters concerning their investment. The information provided herein does not constitute an offer to sell an interest in the Funds. Such offer can only be made to qualified investors pursuant to the Funds’ Confidential Private Placement Memorandum (“Offering Memorandum”), the Subscription Documents relating thereto and the Limited Liability Company Agreement, as applicable, which set forth the complete terms of the offer. 

No representation or warranty (express or implied) is made or can be given with respect to the accuracy or completeness of the information found within this website. Certain information constitutes “forward-looking statements” about potential future results. Those results may not be achieved, due to implementation lag, other timing factors, portfolio management decision-making, economic or market conditions or other unanticipated factors. Nothing contained herein shall be relied upon as a promise or representation whether as to past or future performance or otherwise.

FULL DISCLAIMER

Sign Up for Kuppy’s Korner Updates

If you’d like to subscribe to Kuppy’s Korner, please enter your email

Sign Up for Kuppy’s Korner Updates

If you’d like to subscribe to Kuppy’s Korner, please enter your email

Related Posts