RE: OP tests a limiting line8 Dec 2023 10:04
Boyo - I read through your posts and then went back to them. Very informative, great analysis, but the historical perspective is difficult to beat and helps to cast light and sense on the current situation.
Biden is at war with the OP on every controllable or influenceable front. Will the trend line end with the US election? Will there be a significant OP event that throws some of his toys out of the pram. that's the joy and uncertainty of commodities trading.
I think the only thing I would add to your analysis are a few thoughts on China, banks and bonds, that are a bit like part of the background wallpaper to the current economic situation for me. Influences that are largely suppressed by the weird Chinese "command" economy.
Demand, or stimulating it, looks to be a current issue with the Chinese economy. The real-estate crisis alone is a monster as it comprises an estimated 40% of Chinese GDP. They have a massive trade surplus with the US, which because goods are paid for in USD leaves Chinese manufacturers with a massive surplus of Dollars. Their workers then need paying in Yuan, so the Chinese banks exchange the US Dollar holdings of the manufacturers to Yuan for them.
This leaves the Chinese Banks with enormous regular holdings in USD. For decades they have bought "ultra-safe" US Treasury Bonds, making them the biggest foreign holder of US Treasuries after Japan - $1.3 trillion in 2013, but still the best part of a $trillion now. The problem, in common with the US Regional Banks and many others, is that most of their holdings are long-dated low coupon bonds. Compare this with the newer higher coupon bond issues and which would you want?
If the Chinese dump them on the market en masse, the effect will be to force down the price of these bonds, thereby forcing up the interest payment on the bonds, and forcing up inflation. If Chinese labour then became more expensive to the US the US would buy less Chinese goods, which it would take away cheap Chinese imports that benefit US consumers.
The prospect of not containing the contagion from the issues with holding low-coupon bonds, for the Chinese Government, investment banks, hedge funds, and world banks generally, can only be alleviated with lower interest rates & inflation. Until that time it is a spectre at the feast for the bond market & futures market. And this will cast a shadow over any forecasts of rising oil demand for a time.
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