Several very bright folks are talking about the worsening North American economic situation. Some say, they have read and they believe the U.S. is on the verge of the worst market correction since the Crash of '29. Certainly, when it happens, that U.S. tidal wave will leave a crushed Canadian economy in its wake.
Apparently, the U.S. purchasing managers have a most-bleak view of the future. Surveys apparently support a 'deep-depression outlook'. And, what makes these conversations more stressed out - apparently those U.S. purchasing managers are reliable forecasters, getting it right 90-plus percent of the time.
Could that be true? Could self-fulfilling prophecies or other forces be at play, driving us toward a capital-D, economic Depression?
Is that fundamental purchasing-manager mindset about to take hold and lead technical trading into a downward spiral?
One thought prevails, the U.S. is at war.
The economic impact of the war may be much broader than is readily apparent.
It seems the energy-commodity futures market provides an example to support that thinking. Over the last few years, haven't we witnessed a clear de-linking of (the pricing of) the hydrocarbon commodities, crude oil and natural gas? Do these markets make any sense from a fundamental or technical perspective? Many claim understanding, however, it seems old rules are not reliable guides or price predictors for calling the market.
Are those purchasing managers, with their bearish-economy thinking, shorting the hydrocarbon slate? If we were to look at the personal portfolios of all those purchasing managers would we discover they are shorting futures, stocks or stock market indices? Would we find they are about to get rich as their employers get whipped and their country's economy caves into the worst of Depressions? If those purchasing managers are in fact reliable indicators [truly prophetic] then will they manage their own money so they gain personal wealth as North America rides down into economic Depression?
If so then will they make what might appear to be the safest of bets, shorting the hydrocarbon futures?
Observers might look at the key U.S. hydrocarbon futures - crude oil and natural gas - and conclude: one is a global commodity with U.S. influences while the other is a U.S. commodity with global influences. One relies to a material degree on masses of sea-faring cargoes while the other has this at the margin. Meanwhile, those of us who live too far from the oceans and seas tend to ignore the power of ships of commerce.
So, if they agree with that thinking then will the purchasing managers simply short natural gas futures?
Of course, speculation skews the balance of energy-market thinking and activity. Regardless, if one is convinced a capital-D Depression is on the visible horizon then the hedge funds and even the rogue traders will yield to it, sooner rather than later.
On the other hand...
For at least 2 years many have said so emphatically, “The hydrocarbon bull will soon be humbled by the realities of the U.S. economy”. Adamant statements supporting this thinking have been presented as recently as last week.
It wasn't all that many years ago many energy-market experts said the U.S. economy simply could not withstand $30 Crude for any period of time. Then, the argument was extended to $50 crude. Then, more…much more.
Many said, “Sure, there's lead and there's lag so the cause and effect cycle might get clouded”. “Regardless”, they said, “sooner, definitely sooner rather than later, the slipping U.S. economy and those laws of supply and demand will bring that Crude price back to realistic, market-supported levels”.
But that did not happen. Instead, we saw crude oil break resistance at $30, $40, $50, $60, $70, $80, $90...etc.
We have not seen the humbling of the hydrocarbon slate.
Now, it is true the slipping U.S. currency value is a tempering factor. For Canadians, $100 (USD) crude oil just doesn't cost what $100 U.S. crude oil used to cost....and that applies even if we limit our thinking to months, not years.
$50 crude oil versus $100 crude oil or even $150 crude oil...for the North American users of these fuels - does price matter anyhow?
The near-term answer is easy enough. Of course, when we get right down to it, it doesn't matter if crude oil is $50/bbl or $100/bbl or $150/bbl. And, it doesn't matter if natural gas is trading at $7/MMBtu, $12/MMBtu or $17/MMBtu.
Some will continue to say those last comments are silly. Those comments probably violate some if not most economic rules. Nonetheless, for almost all real-life oil & gas energy applications in North America the comments are true. Our physical markets have shown a curious ability to absorb price shocks (almost without even blinking).
Consider Eastern Canada. What effect can Eastern Canadian end users of hydrocarbon fuels exert on physical-market pricing let alone North American financial-market pricing? That question is intended to trigger budget-reality checks and alternative thinking rather than resignation to depressing big-picture facts.
Put another way, what purchase adjustments have Eastern Canadian users of hydrocarbon fuels made during the last couple of years? The answer speaks loudly. Overall, our consumption is unaffected by price. We use what we use and that's about as simple as it gets.
Of course, that does not apply to the Eastern Canadian industrial users who have gone or will soon go out of business.
Perhaps we can agree on two things: there is a need for better risk-management practice and there is a need for better energy-consumption practice.