Post by
Obscure1 on Apr 12, 2022 5:22pm
What's is already baked into the market and what isn't?
I really enjoy this board.
We have bona fide posters at the opposite ends of the spectrum of factors ranging from market risk, to oil risk, to management risk. We also have a solid group who land at different places along the spectrum.
We are very fortunate that most of the posters have something useful to contribute. They also express themselves intelligently and are respectful of others with different opinions. I keep bringing this up because we shouldn't take our good fortune for granted. The posters that don't adhere to these principles quickly find their way onto my IGNORE list, which I'm pleased to say is very short for the SU thread.
I would like to read your opinions on the following:
* I think a total of a 150 point rise in interest rates coming by summer is already fully baked into the market. As such, I don't see the pending interest rate raise tomorrow in Canada or the raise in the US on May 3rd as a risk to the market
* Intersest rates: I think an additional 100 point rise expected over the back half of the year is far from being baked into the market, as it remains to be seen what effect the first 150 point raises will affect the market. As such, I think higher interest rates in the back half of the year represent a bit more risk than the pending 150 point raise.
* Russia: I don't think there is much downside risk to the market left from the Russian invasion as I think it is OLD NEWS as far as the market is concerned. One codicil would be the effect of a significant escalation to the current conflict.
* Oil prices: I think the arrow for oil is still pointed UP. I don't think we will see $150 oil this summer and if we do, it will only be very temporary. Migraine appears to have by far the most educated opinion in our group about oil matters and he remains very bullish. Experienced believes that oil prices will eventually regress to the mean which will likely be formed around the marginal cost of producing oil. My hope is the oil stays in the $90 to $100 per barrel range so that the world can start clawing back inflation. As such, I think higher oil prices will be more harmful to SU
* Covid: I think concerns about Covid are pretty much baked into the market for North America and Europe at least until winter starts up again. I'm not quite sure what to make of the Shanghai lockdown. The Chinese have been very good at isolating previous strains of covid in the past, but it doesn't appear that their vaccines are very effective on the current Omicron(?) strain. Conflicting reports about lockdown release numbers and dates make it difficult to make a judgement on when things will get back to normal (???). What is more important than Shanghai itself is whether the outbreak is going to escalate around the world or not. I just don't know, so I think that covid is more of a risk to the market than is priced in.
* Oil Supply/Demand: It seems pretty obvious that OPEC is unable to bring on more supply in a time frame that will help Europe. I don't think China and India will factor into the Demand/Supply numbers as both countries will get what they need from Russia at whatever discount they want to pay. I read today that Russia had a huge Q1 budget surplus and as long as oil prices stay in the current range, Russia will be happy to supply Urals at $70 per barrel. I don't think Biden and Trudeau are going to unleash the tarsands, so I think European energy security will remain at risk for much longer than the market is pricing in. Therefore, I think the best case scenario for oil prices will be a range around $100 per barrel.
In summary, I expect that the delicate balance that the world finds itself in will continue "as is" into the summer. At some point in time, something is going to happen the can't be fixed by central bank tinkering or hopefully, inflation will slowly be reeled in. As such, I think the market will continue to bounce along with great volatility, which is the ideal scenario for the Wall Street investment firms.
So, my best guess is that the markets will remain range bound and we will not be seeing any unsettling drop or burst to the upside in the next few months. I think we will see continued volatility, which is exactly what the Wall St. investment banks thrive upon. From my chair, it seems like the market is becoming more and more like a casino with Wall St being the "house".
I hope others will share their views as my views make sense in the "Obscure" world but I don't have a working crystal ball.