Charts of the Month.

October 2020

This chart was borrowed from Juliette Declrecq of JDI research and you'll see it again in more context next week in our upcoming Editorial.. The USD Bull trend that began in 2011 seems to be at an inflection point and is worth watching how it plays out in a post-election and post-COVID world.

For our US readers, just a friendly reminder before you head to the voting booths next week.

Your vote gets them in office, but money dictates policy.

...and a look at where those influential dollars are flowing from.

Most headline debt numbers seem to ignore debt held in Intragovernmental Accounts (Social Security, Medicare, etc.) which we think is a bit misleading. Those accounts (about $6 trillion in total out of $26 trillion in 2020) are funded by taxpayers who have paid into those programs and need to be repaid just as China and Japan need to...Ultimately, debt is debt, and if you're deciding who to pay back depending on which type of debtor it is, well, ever seen Uncut Gems?

The actual US Debt-to-GDP has already exceeded the size of the US economy.

“Fiscal mismanagement and incompetence were part of the picture, but ultimately, Spain’s inability to control military spending proved catastrophic. Incredibly, it became a serial defaulter on its debts in the second half of the sixteenth century, failing to meet its obligations no fewer than four times. It was like a lottery winner that had gone from rags to riches – only to squander the prize money on luxuries that were unaffordable.”

Peter Frankopan, The Silk Roads

To be fair, when looked at from a Military Spend-to-GDP perspective, the US (3.4%) sits in fourth place behind Saudi Arabia (8.0%), Israel (5.3%), and Russia (3.9%). However, when you look at Total Debt-to-GDP above, the nominal dollars spent are very relevant, and $700B+ for the next decade is a LOT of money, no matter how you look at it.

After reading the Goehring & Rozencwajg Q2 market commentary report and listening to the Art Berman Podcast with Erik Townsend on MACRO Voices (highly suggest you listen and subscribe), it's clear that both camps believe US supply is not coming back online anytime soon. Where the two differ is demand. G&R believes we will get close to 2019 levels in early 2021, while Art believes we have probably already seen peak oil.

Either way, this chart is fascinating to look at as it tells a complicated story that requires further explanation.

Peak demand, or an inflection point for crude oil?