• 50 mins Nigeria Files Suit Against JPMorgan Over Oil Field Sale
  • 8 hours Chinese Oil Ships Found Violating UN Sanctions On North Korea
  • 13 hours Oil Slick From Iranian Tanker Explosion Is Now The Size Of Paris
  • 17 hours Nigeria Approves Petroleum Industry Bill After 17 Long Years
  • 19 hours Venezuelan Output Drops To 28-Year Low In 2017
  • 21 hours OPEC Revises Up Non-OPEC Production Estimates For 2018
  • 24 hours Iraq Ready To Sign Deal With BP For Kirkuk Fields
  • 1 day Kinder Morgan Delays Trans Mountain Launch Again
  • 1 day Shell Inks Another Solar Deal
  • 2 days API Reports Seventh Large Crude Draw In Seven Weeks
  • 2 days Maduro’s Advisors Recommend Selling Petro At Steep 60% Discount
  • 2 days EIA: Shale Oil Output To Rise By 1.8 Million Bpd Through Q1 2019
  • 2 days IEA: Don’t Expect Much Oil From Arctic National Wildlife Refuge Before 2030
  • 2 days Minister Says Norway Must Prepare For Arctic Oil Race With Russia
  • 2 days Eight Years Late—UK Hinkley Point C To Be In Service By 2025
  • 2 days Sunk Iranian Oil Tanker Leave Behind Two Slicks
  • 2 days Saudi Arabia Shuns UBS, BofA As Aramco IPO Coordinators
  • 2 days WCS-WTI Spread Narrows As Exports-By-Rail Pick Up
  • 3 days Norway Grants Record 75 New Offshore Exploration Leases
  • 3 days China’s Growing Appetite For Renewables
  • 3 days Chevron To Resume Drilling In Kurdistan
  • 3 days India Boosts Oil, Gas Resource Estimate Ahead Of Bidding Round
  • 3 days India’s Reliance Boosts Export Refinery Capacity By 30%
  • 3 days Nigeria Among Worst Performers In Electricity Supply
  • 3 days ELN Attacks Another Colombian Pipeline As Ceasefire Ceases
  • 4 days Shell Buys 43.8% Stake In Silicon Ranch Solar
  • 4 days Saudis To Award Nuclear Power Contracts In December
  • 4 days Shell Approves Its First North Sea Oil Project In Six Years
  • 4 days China Unlikely To Maintain Record Oil Product Exports
  • 4 days Australia Solar Power Additions Hit Record In 2017
  • 4 days Morocco Prepares $4.6B Gas Project Tender
  • 4 days Iranian Oil Tanker Sinks After Second Explosion
  • 7 days Russia To Discuss Possible Exit From OPEC Deal
  • 7 days Iranian Oil Tanker Drifts Into Japanese Waters As Fires Rage On
  • 7 days Kenya Cuts Share Of Oil Revenues To Local Communities
  • 7 days IEA: $65-70 Oil Could Cause Surge In U.S. Shale Production
  • 7 days Russia’s Lukoil May Sell 20% In Oil Trader Litasco
  • 7 days Falling Chinese Oil Imports Weigh On Prices
  • 7 days Shell Considers Buying Dutch Green Energy Supplier
  • 8 days Wind And Solar Prices Continue To Fall
Azerbaijan: A Crucial Energy Hub

Azerbaijan: A Crucial Energy Hub

Its strategic location and its…

Iraq Is Troubling The Oil Majors

Iraq Is Troubling The Oil Majors

Oil majors are divided on…

Leonard Brecken

Leonard Brecken

Leonard is a former portfolio manager and principal at Brecken Capital LLC, a hedge fund focused on domestic equities. You can reach Leonard on Twitter.

More Info

Why Wall St. Craves QE Right Now

Why Wall St. Craves QE Right Now

(Click to enlarge)

Wall Street remains addicted to the sugar rush of monetary easing, and the rise in asset valuations over the past years have largely not occurred because of fundamental reasons.

Money managers continue to trade on central bank policies, and it is easy to see that the case to remain over weight in U.S. equities is very thin while asset bubbles exist. Very high valuations as measured by PEG ratios are stemming from slowing EPS and a weaker overall economy.

Yes it is true that certain classes of equities are attractive long-term but high beta, such as tech, clearly are not. So many hopes hinge on the recovery in the second half of 2016, where EPS is supposed to magically reaccelerate because of more central bank actions.

Related: Saudi Oil Minister Says Oil Production Cut “Not Going To Happen”

However, as U.S. Secretary of Treasury Jack Lew stated in a Bloomberg interview on February 23: "Don’t expect a crisis response in a non-crisis environment".

In other words things have to get a lot worse before we will see the central bank add more short-term sugar to our economy. Actually, rather than sugar, monetary stimulus should be called "artificial sweetener" because it may satisfy a short-term craving by providing a low calorie substitute, but in the medium- to long-term it only serves to slow your metabolism.

Not surprisingly, that is exactly what all the central bank money printing and rate cuts have done for the economy: boosting asset prices in the short-term, giving false hope for real growth, only to ultimately fail in that endeavor. What’s different this time around is that the ineffectiveness of monetary stimulus is finally becoming exposed. Yet those who desperate still hope for it, much like a drug addict. Others quietly reduce exposures in the dead of night while being all smiles on TV about the U.S. economy.

Related: This Is What Will Cause A Lasting Oil Price Rally

In my prior articles I stated that the Fed is boxed in. If it does more QE it will unleash more hell on the middle class via already high inflation as it crashes the dollar bubble.

Sec. Lew encouraged more of the same this week: more jaw boning from Fed (maybe now on negative rates while saying everything is great) and even more action from foreign central banks to perpetuate the dollar bubble. The end result is to use the commodity complex as the QE substitute, wrongly assuming that it would boost consumer spending. We already see the real effects on manufacturing, cap-ex and industrial sectors overall as the commodity crash has negatively impacted growth. Essentially what the U.S. is admitting is that we have run out of artificial sweetener. The government appears to be running out the clock, hoping we can stall the inevitable bubble collapse until 2017.

The use of artificial sweetener isn’t a substitute for real fundamental investing nor is it a replacement for policies that actually create economic growth. Japan is the poster child of ineffectual monetary policy. Our problem as a nation is that our recipe for growth is flawed as our taxes and regulation have made us less competitive globally and all the artificial sweetener in the world still won’t make it taste any better.

Related: Rudderless OPEC Doesn’t Know How To Respond To U.S. Shale

The decline in energy prices has been exaggerated by the rise of the U.S. dollar, which to reiterate, began its ascent in June 2014 when oil began to fall, when the EU & Japan signaled more QE, and when the U.S. signaled that it was done with monetary expansion. Jack Lew’s recent comments point to more of the same and thus keeping pressure on commodities as the U.S. dollar remains strong.

Oil production has declined and will continue to fall through 2017 as hedges roll off. That will help the markets adjust, but the robustness of demand is now coming into question as inventory levels remains high (although, I still maintain that they are exaggerated in the media) and that will put lid on how high prices can rise in 2016.

By Leonard Brecken for Oilprice.com

More Top Reads From Oilprice.com:



Join the discussion | Back to homepage

Leave a comment

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News