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Luongo: Davos Runs Into The OPEC+ Buzzsaw

Luongo: Davos Runs Into The OPEC+ Buzzsaw

Authored by Tom Luongo via Gold, Goats, ‘n Guns blog,

Every Wednesday and Sunday morning I record…



Luongo: Davos Runs Into The OPEC+ Buzzsaw

Authored by Tom Luongo via Gold, Goats, 'n Guns blog,

Every Wednesday and Sunday morning I record a private podcast for my patrons. I cover gold, silver, oil, the Dow Jones and Bitcoin at a minimum. This past Sunday I mentioned during my oil commentary I thought the six-month long weakness in oil was overdone.  

Last week’s price action clearly agreed with me as the futures markets finally saw some position squaring into the quarterly close on Friday.

At least that’s what I thought at the time.  It turns out that there were a lot of people who must have known that OPEC+ was going to announce a surprise production cut while I was yammering into a microphone Sunday morning. Because they bid oil up into the quarterly close using the tailwinds of strong closes across the entire ‘tangible assets’ space — gold, stocks, US treasuries, industrial metals, etc. — as cover.

The ‘deflation trade’ hit its peak when Brent crude futures bottomed near $70 per barrel on March 19th.

Thanks to OPEC+’s announcement Brent Crude gapped open at ~$85 per barrel.  West Texas Intermediate (WTI) moved above $80 and the Brent/WTI spread is trending towards $3.

It was $8+ a few months ago.  This is very good news for US producers and exporters.  The oil market had a fundamental supply and demand mismatch.  Back in January even the IEA was talking nearly a 1 million bbl/day mismatch between supply growth (1.9 million bbls/day). And that was with a recession on everyone’s lips to start the year and China locked down.

Today their outlook more sanguine but mostly on disruption due to the embargoes against Russian oil. That disruption, like all things, is temporary. Transport costs will go up due to rising inefficiencies but the structural demand will stay the same.

This supports, not undermines, higher oil prices.

Goldman Sachs, whose statements one should always salt to taste, has been screaming that the action in the oil pits has defied reason for months. As long-time readers well know I’ve been complaining that this move down in oil into the $70’s was complete nonsense, a product of futures manipulation through headlines and always dubious inventory data.

Watching the Volatility Splash By…

I’ve watched the volatility in oil explode since “Biden’s” war on Russia began.

You can see it clearly in the weekly charts… just look at the candlesticks on each half of the chart below (demarcated by the vertical black line). You don’t need numbers or years of market analysis behind you, just use your eyes.

The war isn’t just being fought on the ground in Ukraine.  It’s being fought in the capital markets.  Oil is the most important market in the world, far more important than the US dollar or the US Treasury markets.

Here I disagree with Martin Armstrong, not because those markets aren’t bigger and affect global capital flows more than oil (they do), but because without a relatively stable market for pricing oil there can be no trade.

The instability of our interest rate and currency markets are downstream of this increased volatility in oil.

The same thing, by the way, happened to the Dow Jones after President Trump was elected.  I had to alter my data sets for calculating my quantitative tools for assessing the weekly state of the Dow because volatility tripledThis made older data useless in assisting me in seeing the odds of moving higher or lower week to week.

Targeting the US stock market with volatility was a way to undermine Trump while pushing the US dollar lower even though Jerome Powell was trying to raise interest rates pre-COVID-19, only to be attacked via COVID and Trump’s short-sightedness.

The main point is this: the way to destroy a market is to make it too volatile for the average person or even small hedge fund to trade.  Constantly whipsawing the price from hither to yon and back again makes it impossible for the small players in the futures markets to maintain their margin requirements. Eventually, they are either the victim of ‘volatility washing’ or just give up and go trade something that isn’t batshit insane.

When you do this, flush out the small specs (speculators) you decrease market liquidity and make it the plaything of those with the deepest pockets.  This has been the playbook used in the precious metals for years which guys like Craig Hemke (TF Metals Report) and others rightly complain about.

Multi-Front War

Do you see why OPEC+ would announce a major production cut at this moment in time?   Brent is becoming a broken market.  

Biden left the US vulnerable to a price shock with an empty SPR while preparing for at least one ground/naval war.  

Europe is already screwed. Lagarde is defending the euro to offset energy imports at higher prices from the US, now Europe’s largest supplier.

This is killing US/EU credit spreads. Because Lagarde can either protect credit spreads or she can protect the euro but she can’t do both without outside help.

Biden was supposed to help Europe (and Davos) by selling them the SPR as the price came down and shutting out Russia via sanctions and Janet Yellen’s moronic price cap. They were supposed to have control over oil prices such that they could drive them into the $50s or even the $40s to break Putin’s and bail out Europe’s economy.

This would have crushed inflation, stopped the interest rate hikes, and quelled the unrest around the continent.

Instead OPEC+ did exactly what you would expect them to do in this situation, announce a production cuts and force the central banks of energy importers to defend their currencies.

The guy laughing his ass off right now is Jerome Powell.

Look at the markets this morning and you’ll see what I see — a massive cost-push inflation trade.  Gold through $2000, Silver up, Oil up, bond yields down, stocks up strong.

But at the same time those signals can also be reinterpreted as ‘money getting to ground’ rather than being unleashed because of new economic growth.

Either way it doesn’t matter, these market reactions tell you headline inflation, not just core inflation, is likely to stop falling here as oil reverses and OPEC+ takes it back towards $100/bbl.

Oil’s not done rising here.  

OPEC+ will protect its collective bottom line and push the fiat boys to their limit.  

I mean if someone declared war on you would you sell them your main export and the literal fuel for that war at a major discount?  

Only if you hated your own country…

… but enough about Barack Obama.

As I discussed in that video for my patrons, Saudi Arabia is making very big moves to alter its allegiances — away from the West and towards the RIC Alliance (Russia, Iran, China). This is the core of the much wider BRIICSS alliance — which now includes India and Saudi Arabia.

These are permanent moves, making a massive oil refinery deal with China, normalizing relations and becoming a ‘dialogue partner’ with the Shanghai Cooperation Organization (SCO), just to name a few.

And since the Saudis are not a ‘democracy’ their government cannot be gamed through electioneering. The diplomatic moves they make today will stick and alter the landscape of global trade for the next generation or two.

Crown Prince Mohammed bin Salman is pretty pissed with “Biden” which underscores his regional foreign policy moves.  

Take a look at this heat map of global shipping and you tell me how the “Biden” apparatchiks spin this defeat into a ‘no biggie’ like they do with every Russian victory in Ukraine?

This is one of those pictures that change the way you see the world.  I always ‘knew’ that the Arabian landmass was important but words sometimes just don’t cut it.  Sometimes you have to see it.  

Davos declared war on oil the second Russian tanks crossed the border into Ukraine last February. They attempted to bully OPEC into isolating Russia, kicking them out of OPEC+, and failed spectacularly.

The defection of the Saudis is the biggest strategic defeat of this entire war.  Without a compliant KSA there is no controlling oil prices and, by extension, the ability to control asset prices worldwide through currency trading.

Here we are 13+ months into this fight and Ukraine has all but lost the war. Bahkmut is done.  Zelenskyy has lost the support of the military and only the warmongers at the top of NATO and the EU want this war to continue.

And continue it will. Finland’s Davos government fell on its sword on its way out the door to make it a combatant by joining NATO.  There is too much smoke out there that the West is gearing up for an industrial war against Russia and China in the 2024-25 time frame.  They may lose in Ukraine but another front is just around the corner.

But for all of the focus on Ukraine and the insane tragedy of it, the oil pits and the diplomatic backrooms is where the war is really being fought.  

MOIA or Bust

I’ve been screaming MOIA – Make Oil Investible Again — for months in my public interviews because this is how we begin to rebuild what these vandals have already broken and they still have control of the baseball bat in the global economic China shop.

In order to MOIA the producers have to take control over the market. There is no better way to do that than to force a $10 reversal in price in a few days to volatility wash the big Davos specs out of the market and move a greater percentage of oil trading off US and London markets.

In March 2020 what kicked off the financial crisis wasn’t COVID-19, it was OPEC+ saying no to production cuts at Putin’s insistence.  I wrote a blog post about Russia saying “No.”  While I’m not fully in agreement with this article today, knowing that Davos used this moment to begin its war on humanity through COVID-19, the basic premise is still the same.

Putin said “No” to Saudi Arabia to become the de facto leader of OPEC+ by using his lower production costs to get the Saudis to knuckle under and stop playing footsie with the US who was using them as a weapon against Russia and the entire Global South.

This was Putin’s opportunity to finally strike back at Russia’s tormentors and inflict real pain for their unscrupulous behavior in places like Iran, Iraq, Syria, Ukraine, Yemen, Venezuela and Afghanistan.

He is now in a position to extract maximum concessions from the U.S. and the OPEC nations who are supporting U.S. belligerence against Russia’s allies in China, Iran and Syria.

We saw the beginnings of this in his dealings with Turkish President Erdogan in Moscow, extracting a ceasefire agreement that was nothing short of a Turkish surrender.

Erdogan asked to be saved from his own stupidity and Russia said, “No.”

This was the turning point in the oil markets.  Russia used its position as the supplier of the marginal barrel to force OPEC to heel and put pressure on US neocon foreign policy.

Of course Europe would cut itself off from Russia, since it’s been their stated policy for decades, c.f. the Climate Change Hoax.  But if you do that and don’t bring the producers to heel, if you don’t break the cartel you can’t control the price.

Putin gaining control over OPEC+ and then treating the cartel, which the US had been trying desperately to break, like kings rather than ‘the help,’ he set the stage for the last year when the KSA led the rest of OPEC in defying the US/EU/UK over sanctions on Russia’s markets.

Davos’ response was predictable, attack oil prices through the futures markets by destroying liquidity while forcing prices below the all-in-sustaining costs for countries like Saudi Arabia.

Powell undermined Yellen’s quest to break oil by pressuring European capital markets while they were vulnerable to not only energy price shocks but also interest rate and credit shocks.

Viewed that way the mother of all financial nuclear weapons have detonated over Europe but the radiation cloud hasn’t quite killed everyone.

The Saudis, predictably, courted China to pay in yuan and join the institutions built by Russia/Iran/China to limit their currency exposure and bring down their internal costs.

All Russia and KSA had to do then was wait for the perfect moment (1st trading day of Q2 2023) to reverse the March 2020 “No” moment, by supporting oil prices rather than consolidating power over them.

What this does now is ensure that any war the neocons have planned for the future will be fought with much higher interest rates, much weaker currencies and much higher effective oil prices.

Cost-push inflation will return in the 2nd half of this year.  “Biden” won’t be able to refill the SPR.  Debt ceiling talks should end with Matt Gaetz telling “Biden” and Yellen to pound sand, we’re cutting spending while the leveraged Eurodollar markets continue shrinking alongside the petrodollar.

And the neocons, at that point, can only whimper and try one last time to engineer a false flag that no one will believe, because they’ve cried ‘Russian bear’ too many times. The recession on the horizon Powell has purposefully engendered to wipe out the dumb collectivism subsidized by Yellen’s ZIRP bucks should drive political instability in Europe that far dwarfs the carnival barker sideshow of Trump’s indictment.

Tree meet saw. Check and mate.

*  *  *

Join my Patreon if you want to MOIA

Tyler Durden Fri, 04/07/2023 - 09:00

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February Employment Situation

By Paul Gomme and Peter Rupert The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000…



By Paul Gomme and Peter Rupert

The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000 average over the previous 12 months. The payroll data for January and December were revised down by a total of 167,000. The private sector added 223,000 new jobs, the largest gain since May of last year.

Temporary help services employment continues a steep decline after a sharp post-pandemic rise.

Average hours of work increased from 34.2 to 34.3. The increase, along with the 223,000 private employment increase led to a hefty increase in total hours of 5.6% at an annualized rate, also the largest increase since May of last year.

The establishment report, once again, beat “expectations;” the WSJ survey of economists was 198,000. Other than the downward revisions, mentioned above, another bit of negative news was a smallish increase in wage growth, from $34.52 to $34.57.

The household survey shows that the labor force increased 150,000, a drop in employment of 184,000 and an increase in the number of unemployed persons of 334,000. The labor force participation rate held steady at 62.5, the employment to population ratio decreased from 60.2 to 60.1 and the unemployment rate increased from 3.66 to 3.86. Remember that the unemployment rate is the number of unemployed relative to the labor force (the number employed plus the number unemployed). Consequently, the unemployment rate can go up if the number of unemployed rises holding fixed the labor force, or if the labor force shrinks holding the number unemployed unchanged. An increase in the unemployment rate is not necessarily a bad thing: it may reflect a strong labor market drawing “marginally attached” individuals from outside the labor force. Indeed, there was a 96,000 decline in those workers.

Earlier in the week, the BLS announced JOLTS (Job Openings and Labor Turnover Survey) data for January. There isn’t much to report here as the job openings changed little at 8.9 million, the number of hires and total separations were little changed at 5.7 million and 5.3 million, respectively.

As has been the case for the last couple of years, the number of job openings remains higher than the number of unemployed persons.

Also earlier in the week the BLS announced that productivity increased 3.2% in the 4th quarter with output rising 3.5% and hours of work rising 0.3%.

The bottom line is that the labor market continues its surprisingly (to some) strong performance, once again proving stronger than many had expected. This strength makes it difficult to justify any interest rate cuts soon, particularly given the recent inflation spike.

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Mortgage rates fall as labor market normalizes

Jobless claims show an expanding economy. We will only be in a recession once jobless claims exceed 323,000 on a four-week moving average.



Everyone was waiting to see if this week’s jobs report would send mortgage rates higher, which is what happened last month. Instead, the 10-year yield had a muted response after the headline number beat estimates, but we have negative job revisions from previous months. The Federal Reserve’s fear of wage growth spiraling out of control hasn’t materialized for over two years now and the unemployment rate ticked up to 3.9%. For now, we can say the labor market isn’t tight anymore, but it’s also not breaking.

The key labor data line in this expansion is the weekly jobless claims report. Jobless claims show an expanding economy that has not lost jobs yet. We will only be in a recession once jobless claims exceed 323,000 on a four-week moving average.

From the Fed: In the week ended March 2, initial claims for unemployment insurance benefits were flat, at 217,000. The four-week moving average declined slightly by 750, to 212,250

Below is an explanation of how we got here with the labor market, which all started during COVID-19.

1. I wrote the COVID-19 recovery model on April 7, 2020, and retired it on Dec. 9, 2020. By that time, the upfront recovery phase was done, and I needed to model out when we would get the jobs lost back.

2. Early in the labor market recovery, when we saw weaker job reports, I doubled and tripled down on my assertion that job openings would get to 10 million in this recovery. Job openings rose as high as to 12 million and are currently over 9 million. Even with the massive miss on a job report in May 2021, I didn’t waver.

Currently, the jobs openings, quit percentage and hires data are below pre-COVID-19 levels, which means the labor market isn’t as tight as it once was, and this is why the employment cost index has been slowing data to move along the quits percentage.  


3. I wrote that we should get back all the jobs lost to COVID-19 by September of 2022. At the time this would be a speedy labor market recovery, and it happened on schedule, too

Total employment data

4. This is the key one for right now: If COVID-19 hadn’t happened, we would have between 157 million and 159 million jobs today, which would have been in line with the job growth rate in February 2020. Today, we are at 157,808,000. This is important because job growth should be cooling down now. We are more in line with where the labor market should be when averaging 140K-165K monthly. So for now, the fact that we aren’t trending between 140K-165K means we still have a bit more recovery kick left before we get down to those levels. 

From BLS: Total nonfarm payroll employment rose by 275,000 in February, and the unemployment rate increased to 3.9 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, in government, in food services and drinking places, in social assistance, and in transportation and warehousing.

Here are the jobs that were created and lost in the previous month:


In this jobs report, the unemployment rate for education levels looks like this:

  • Less than a high school diploma: 6.1%
  • High school graduate and no college: 4.2%
  • Some college or associate degree: 3.1%
  • Bachelor’s degree or higher: 2.2%

Today’s report has continued the trend of the labor data beating my expectations, only because I am looking for the jobs data to slow down to a level of 140K-165K, which hasn’t happened yet. I wouldn’t categorize the labor market as being tight anymore because of the quits ratio and the hires data in the job openings report. This also shows itself in the employment cost index as well. These are key data lines for the Fed and the reason we are going to see three rate cuts this year.

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Inside The Most Ridiculous Jobs Report In History: Record 1.2 Million Immigrant Jobs Added In One Month

Inside The Most Ridiculous Jobs Report In History: Record 1.2 Million Immigrant Jobs Added In One Month

Last month we though that the January…



Inside The Most Ridiculous Jobs Report In History: Record 1.2 Million Immigrant Jobs Added In One Month

Last month we though that the January jobs report was the "most ridiculous in recent history" but, boy, were we wrong because this morning the Biden department of goalseeked propaganda (aka BLS) published the February jobs report, and holy crap was that something else. Even Goebbels would blush. 

What happened? Let's take a closer look.

On the surface, it was (almost) another blockbuster jobs report, certainly one which nobody expected, or rather just one bank out of 76 expected. Starting at the top, the BLS reported that in February the US unexpectedly added 275K jobs, with just one research analyst (from Dai-Ichi Research) expecting a higher number.

Some context: after last month's record 4-sigma beat, today's print was "only" 3 sigma higher than estimates. Needless to say, two multiple sigma beats in a row used to only happen in the USSR... and now in the US, apparently.

Before we go any further, a quick note on what last month we said was "the most ridiculous jobs report in recent history": it appears the BLS read our comments and decided to stop beclowing itself. It did that by slashing last month's ridiculous print by over a third, and revising what was originally reported as a massive 353K beat to just 229K,  a 124K revision, which was the biggest one-month negative revision in two years!

Of course, that does not mean that this month's jobs print won't be revised lower: it will be, and not just that month but every other month until the November election because that's the only tool left in the Biden admin's box: pretend the economic and jobs are strong, then revise them sharply lower the next month, something we pointed out first last summer and which has not failed to disappoint once.

To be fair, not every aspect of the jobs report was stellar (after all, the BLS had to give it some vague credibility). Take the unemployment rate, after flatlining between 3.4% and 3.8% for two years - and thus denying expectations from Sahm's Rule that a recession may have already started - in February the unemployment rate unexpectedly jumped to 3.9%, the highest since February 2022 (with Black unemployment spiking by 0.3% to 5.6%, an indicator which the Biden admin will quickly slam as widespread economic racism or something).

And then there were average hourly earnings, which after surging 0.6% MoM in January (since revised to 0.5%) and spooking markets that wage growth is so hot, the Fed will have no choice but to delay cuts, in February the number tumbled to just 0.1%, the lowest in two years...

... for one simple reason: last month's average wage surge had nothing to do with actual wages, and everything to do with the BLS estimate of hours worked (which is the denominator in the average wage calculation) which last month tumbled to just 34.1 (we were led to believe) the lowest since the covid pandemic...

... but has since been revised higher while the February print rose even more, to 34.3, hence why the latest average wage data was once again a product not of wages going up, but of how long Americans worked in any weekly period, in this case higher from 34.1 to 34.3, an increase which has a major impact on the average calculation.

While the above data points were examples of some latent weakness in the latest report, perhaps meant to give it a sheen of veracity, it was everything else in the report that was a problem starting with the BLS's latest choice of seasonal adjustments (after last month's wholesale revision), which have gone from merely laughable to full clownshow, as the following comparison between the monthly change in BLS and ADP payrolls shows. The trend is clear: the Biden admin numbers are now clearly rising even as the impartial ADP (which directly logs employment numbers at the company level and is far more accurate), shows an accelerating slowdown.

But it's more than just the Biden admin hanging its "success" on seasonal adjustments: when one digs deeper inside the jobs report, all sorts of ugly things emerge... such as the growing unprecedented divergence between the Establishment (payrolls) survey and much more accurate Household (actual employment) survey. To wit, while in January the BLS claims 275K payrolls were added, the Household survey found that the number of actually employed workers dropped for the third straight month (and 4 in the past 5), this time by 184K (from 161.152K to 160.968K).

This means that while the Payrolls series hits new all time highs every month since December 2020 (when according to the BLS the US had its last month of payrolls losses), the level of Employment has not budged in the past year. Worse, as shown in the chart below, such a gaping divergence has opened between the two series in the past 4 years, that the number of Employed workers would need to soar by 9 million (!) to catch up to what Payrolls claims is the employment situation.

There's more: shifting from a quantitative to a qualitative assessment, reveals just how ugly the composition of "new jobs" has been. Consider this: the BLS reports that in February 2024, the US had 132.9 million full-time jobs and 27.9 million part-time jobs. Well, that's great... until you look back one year and find that in February 2023 the US had 133.2 million full-time jobs, or more than it does one year later! And yes, all the job growth since then has been in part-time jobs, which have increased by 921K since February 2023 (from 27.020 million to 27.941 million).

Here is a summary of the labor composition in the past year: all the new jobs have been part-time jobs!

But wait there's even more, because now that the primary season is over and we enter the heart of election season and political talking points will be thrown around left and right, especially in the context of the immigration crisis created intentionally by the Biden administration which is hoping to import millions of new Democratic voters (maybe the US can hold the presidential election in Honduras or Guatemala, after all it is their citizens that will be illegally casting the key votes in November), what we find is that in February, the number of native-born workers tumbled again, sliding by a massive 560K to just 129.807 million. Add to this the December data, and we get a near-record 2.4 million plunge in native-born workers in just the past 3 months (only the covid crash was worse)!

The offset? A record 1.2 million foreign-born (read immigrants, both legal and illegal but mostly illegal) workers added in February!

Said otherwise, not only has all job creation in the past 6 years has been exclusively for foreign-born workers...

Source: St Louis Fed FRED Native Born and Foreign Born

... but there has been zero job-creation for native born workers since June 2018!

This is a huge issue - especially at a time of an illegal alien flood at the southwest border...

... and is about to become a huge political scandal, because once the inevitable recession finally hits, there will be millions of furious unemployed Americans demanding a more accurate explanation for what happened - i.e., the illegal immigration floodgates that were opened by the Biden admin.

Which is also why Biden's handlers will do everything in their power to insure there is no official recession before November... and why after the election is over, all economic hell will finally break loose. Until then, however, expect the jobs numbers to get even more ridiculous.

Tyler Durden Fri, 03/08/2024 - 13:30

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