The Effects of Politics on Trading

In today’s trading newsletter, we discuss the effects of politics on trading and investing!

Biden’s Oil
President Biden seemed to indicate a couple weeks ago that he favors higher gas prices, as part of an “incredible transition” away from fossil fuel energy.

With a gallon of unleaded pressing past $5.00 a gallon and summer right around the corner, the anticipated “demand destruction” – that is, the hope that higher prices will stop people from buying fuel for their vehicles – is nowhere in sight.

The result of this and related inflationary pressures is an unprecedented increase in the percentage of household income being spent on basic necessities. Food, shelter and transportation costs are all at record highs, even as real average earnings are falling.

This is all happening as the President continues to push for embargoes on Russian oil, limiting global supplies, and maintains the prohibitions on domestic production based in green environmental policies. Taken together, these moves give the appearance of a deliberate plan to keep oil prices high.

At the same time, the administration realizes that the midterm elections pose a grave threat to Democratic control over the House and the tenuous balance of power in the Senate.

Americans are already angry about rising prices, which is why Biden is pressuring the Fed to maintain the (hopelessly slow and small) increases to the benchmark ed Funds rate.

Exactly how a 1% target range is supposed to slow 8% (actually higher) inflation is a mystery, but clearly the President is hoping that these meager hikes along with Powell’s “quantitative tightening” (selling bonds to reduce the Fed balance sheet) will bring about a “soft landing,” with inflation easing while the economy avoids recession.

This problematic situation is leading the President into some politically dangerous contradictions.

On one hand, he continues to oppose Putin (and oil-producing nations like Cuba and Argentine) as legitimate sources for energy supply. At the same time, he is practically begging Saudi Arabia – no bastion of freedom – to loosen the spigot so we can have some more oil. Talk about hypocrisy.

Then there’s the idea being floated that the Democrats will push through a “gas relief” stimulus measure some time before the election. The sheer lunacy of handing out more helicopter money to fight high prices at the pump may escape these power-hungry politicians… there can be little doubt that when it comes to pandering, our elected representatives take the cake.

It all comes down to this: Americans will continue to pay through the nose to feed our families and drive our cars, while the power elite game-players and journalistic hacks joust over phony “solutions” and blame-game finger pointing.

What this means for investors is more economic uncertainty, continued downward pressure on equities and the upward trend in interest rates combining to eat away our retirement nest eggs, and bigger, louder distractions intended to distract us from the real source of our problems.

Fortunately, smart traders can make the most of this kind of situation. If you’re sitting on the sidelines because of this crazy market, you could be missing some of the best opportunities for outsized gains. Let FFR Trading help you position your portfolio for profit. Call (800) 883-0524 today to schedule your free strategy review.

Oil’s Long Bull Market
Regular readers of Market Slice know that we have been bullish on oil since last September, when we commented on oil’s role in the emerging commodities supercycle.

Since then, oil is up almost 75%, from around $68 a barrel in late August to $119 at the close of market on Tuesday.

This is a long run, but not unprecedented by any means. Let’s zoom out a bit… here’s the 3-year chart for Brent Crude:

As you can see, since the pandemic crisis lows, oil has been on a fairly steady upward trajectory.

But those April ’20 lows were not a freak occurrence (despite the sensational momentary spike into negative pricing, which occurred as contracts rolled over). Look at the 5-year chart:

Notice that between Oct. 2018 and April 2020, prices fell from $85 to $20. The gap caused by the downward break in Feb. ’20 wasn’t filled until November of that yea… and since then, oil has hardly looked back.

One more chart, though, can help us put the current move into a historical context.

That horizontal line is at 126… the pivot point of the August 2008 oil crash that presaged the global financial crisis. This resistance was tested twice, in 2011 and 2012, and after failing to break through, oil declined slowly for three years before breaking down in 2014.

What these charts show us is that major moves in oil are not uncommon. When taking inflation into account, the price of oil is still considerably below historic highs, and with global production constrained by environmental pressures and the impact of war, there is every reason to believe that Crude still has room to run.

With that said, when the reversal does arrive, it’s likely to be brutally swift.  While the opportunity for profit on the long side remains – oil could easily go to $150 before the summer’s done – risk on the long side is starting to signal caution to prudent traders.

It goes back to the market wild cards we’ve been talking about…any seismic shift in international geopolitics or the world economy could trigger a break.

FFR Trading’s Strategy Team is your partner in navigating challenging markets. You don’t have to figure it all out for yourself… Call (800) 883-0524 to speak with a Trading Strategy Team member, or click here to schedule a strategy call.

Beware of Donkeys and Elephants
This issue might give the impression that Market Slice takes sides in the partisan political game. That would be incorrect.

Bashing the “In party” is the easiest sport in America… everybody loves to take potshots at the sitting president and the majority in Congress. But blaming one individual – or one side of the political aisle – for America’s deep divisions and structural problems really isn’t a rational approach.

As we move into another election season, it is worth bearing in mind the true nature of the American political system.

What history shows us is that Democrats and Republicans are actually very similar in most respects, and that the “political spectrum” in the U.S. is like the “Guess Your Weight” prize selection in The Jerk.
Link: https://www.youtube.com/watch?v=Ag6DtzRUF5U

If you ever wonder about the true sentiments of most Washington insiders when it comes to their little fraternity, try sitting through a National Press Club or Gridiron Club dinner, as these supposed rivals drink and laugh together over jokes made at our expense.

Roping voters in with the Tweedledee and Tweedledum options of supporting “opposing” politicians that end up voting the same way more often than not is another way the powers-that-be deflect our attention from authentic solutions to our profound national crisis.

While it’s fine to vote your conscience and express your opinions at the ballot box, the bigger question is whether we actually expect any politician to solve our problems.

As citizens, it is our freely expressed voice, our determined actions, and our economic decisions – far more than our votes — that influence the course of domestic events.

A nation of free men and women requires freedom of speech, freedom of assembly, and the right to bear arms if we hope to remain free. When the media opinion-controllers start spinning stories and the politicians begin spouting rhetoric, we need to grab our wallets, and our Constitution.

“However [political parties] may now and then answer popular ends, they are likely in the course of time and things, to become potent engines, by which cunning, ambitious, and unprincipled men will be enabled to subvert the power of the people and to usurp for themselves the reins of government, destroying afterwards the very engines which have lifted them to unjust dominion.”

George Washington, Farewell Address, Sept. 17, 1796

Other News
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