Hey There Income Hunter,

 

Today, June 1, is the start of the Fed’s quantitative tightening (QT). 

 

The chart below shows the past year’s trend in the balance sheet … But mark my words, nine months to a year from now, the April peak will be shattered and QE will thrive once again.

 

 

From June through August the Fed plans to allow $47.5 billion of securities to roll off the balance sheet …

 

• QT will include $30 billion of US Treasury bills, notes and bonds, plus $17.5 billion mortgage bond for 3 months.
• Starting in September, the amount of QT will rise to $95 billion a month for a year, which would bring the total reduction in balance sheet to $1 trillion.
• This would be a significantly quicker pace than the Fed’s first attempt at QT between 2017 and 2019, when its balance sheet was reduced by $50 billion per month.

Will the Fed pause its rate hikes if markets reach new lows? That is the trillion dollar question on everyone’s mind. 

Today, we’ll look at new data that shows continued trouble for the markets and economy ahead

Corrections Following Previous Fed Moves to Neutral Rates

However, as you can see in the chart below, every time the Fed printed money to boost the economy the inevitable drop once the stimulus ended increased each and every time. Each correction is circled in red, with the black line showing the size of the Fed balance sheet and the blue line representing the S&P 500.

Obviously, the Fed is praying that inflation starts dropping soon, but this is where it gets real tricky …

The energy crisis due to sanctions and years of under investment in adding capacity has pushed prices higher with no end in sight right now.

Real Asset Price Inflation is Very Sticky

The Fed ca not control real asset price inflation because it can’t print oil or gas. 

Europe is in an even worse situation than the US, as you can see from yesterday’s headline … 

IEA EXECUTIVE DIRECTOR BIROL, TELLS GERMANY’S SPIEGEL: THE ENERGY CRISIS IS MUCH BIGGER THAN THE 1970S OIL SHOCKS, AND I EXPECT IT TO LAST LONGER.

Europe faces higher energy prices, lower real incomes & deteriorating confidence in months ahead. However, the energy crisis is hurting the US just as badly …

The higher energy prices translate into higher gasoline prices, which are already crushing the US consumer.

Rising gas prices lead to worsening consumer sentiment …

The graph below illustrates the tight relationship between higher gas prices (inverted green line) and Michigan consumer sentiment (black line), which is a leading indicator of consumer spending.

We may see a lower low for consumer sentiment versus the low during the 2008 financial crisis.

 

 

Oil to $140 dollars by Halloween 

 

Here is another headline from yesterday that highlights another major risk to oil prices …

 

RUSSIAN FOREIGN MINISTER LAVROV WILL VISIT SAUDI ARABIA ON WEDNESDAY – GULF OFFICIALS.

 

The Saudis have a ton of leverage now. In the 1970s the Saudis broke the back of the US by executing an oil embargo and halting all shipments of oil to the US.

 

The Saudis could be persuaded to repeat that move due to the sanctions being put on many countries.

 

This is not currently expected but if it were enforced, we could see oil prices explode to $140+ quickly. 

 

Energy is the lifeblood of every economy in the world and the current crisis will last for years as the world transitions to new alternative energy sources.

 

Bring It Home

 

As we used to say back in the day … Don’t let a good crisis get in the way of a winning trade. 

 

There are some very solid oil and gas servicing companies that were making a ton of money at $85 dollar oil prices … Here are a few symbols to research that have much to rally as oil prices remain elevated. These three Canadian oil and gas servicers are primed to rally in the months ahead;  

 

• SES
• PDS
• LBR

 

Consider subscribing to my Power Income Trader program, where I analyze companies that are in a powerful position to take advantage of the supply/demand imbalances in the real asset world.

 

Real assets are the sector to be trading and investing in. A massive multi-year bull market is only beginning so get involved. Call 1-888-872-3301 now to speak with the Option Pit Customer Care Team. You’ll be glad you did, and you’ll be able to …

 

Live and Trade With Passion My Friend,

Griff