Good afternoon. When I was writing today’s story it looked like markets were going to have a bad day, but now they’re up again, which seems appropriate given the subject matter. Anyway, new all-time high incoming?
In today’s letter: How come markets are shrugging off the oil supply shock? How long can that go on? Plus: Rogers is doing big staff cuts, Canada gets a sovereign wealth fund, and more Polymarket mischief.
— Taylor Scollon
Markets don't care much about the oil shock
The nightmare scenario for energy markets for a long time was a closure of the Strait of Hormuz. Well, it’s still closed, and oil prices are higher, but not at the levels you might expect for a nightmare scenario. At the pump, prices are higher than they were a few months ago, but not outrageously so. Meanwhile, the stock market is at record highs.
Isn’t this a bit weird? We have now had several weeks of will-he, won’t-he being played out in Pakistan between American and Iranian negotiators, all while oil does not flow and production drops.
There seems to be a widespread view that this situation will resolve itself soon, which is in turn suppressing oil prices, which is preventing a broader sell-off in equities.
Well, maybe. But also: here is a chart from Ninepoint Partners on oil inventories worth considering.
How do you reconcile a chart like that with the serenity in the oil and equities markets right now? Two thoughts:
Physical oil shortages have not hit yet, or at least not widely. These are just starting to show up with jet fuel shortages and cancelled flights, and in some parts of Africa. Eventually more sectors of the economy in more parts of the world will feel this, and the effects on economic activity will be impossible to ignore (industries reducing production, people opting not to drive, etc.).
The White House has been able to stop prices from rising by essentially posting through it. I’ve personally lost track at this point of how many anonymous sources close to the president have said a deal is this close. Until that point when companies have to start actually reckoning with true energy scarcity, this seems to be working.
Even if a deal is reached, it will take time to resupply markets, get production back to normal levels, and repair damaged facilities. And that’s assuming the deal that’s made returns the Strait to the status quo ante, which is not at all a sure thing.
At some point, the hopes and dreams of the market are going to run into the physical reality that there isn’t enough oil to go around. That’s going to mean significantly higher energy prices, which will eventually translate into broad inflation, probably showing up early in food.
Canadian and U.S. central banks expected to keep interest rates steady. Both the Bank of Canada and the Fed are almost certain to hold interest rates steady this week. Most forecasters are expecting no rate changes through the rest of the year, though a few are beginning to call for some hikes as inflation starts to pick up.
Rogers is offering buyouts to half its workforce. The telco employs around 25,000 people, but didn’t say if it had a target for the cuts. Rogers said it was planning to cut $1.2 billion from its capital budget this year.
Ontario bans resale tickets above face value. Ticketmaster pulled down resale tickets for Ontario events in compliance with a new law banning the resale of tickets above face value. Tickets to game 6 of the Raptors playoff series against Cleveland are still available above face value on StubHub.
People are maybe tampering with airport thermometers to win Polymarket bets. French officials are investigating whether someone used a hair dryer to make a sensor at Charles de Gaulle airport show a higher temperature, which is apparently something you can wager on now. The sensor showed the temperature rising 4 degrees in the span of 12 minutes before dropping again. A user won $14,000 betting the temperature in Paris would be above 21 degrees Celsius on April 6, and the temperature reading is drawn from — you guessed it — the sensor readings at CDG.
Canada’s getting a sovereign wealth fund. Details are scant on how the fund will operate, but PM Carney said it will operate on “a commercial” basis and aim to generate returns competitive with the private sector. It’s being seeded with $25 billion which is very tiny compared to the world’s big SWFs. Alaska’s is around three times as large for a population of just over 700,000.
Air Canada is putting lie-flat seats on their smaller planes. The airline’s new Airbus A321XLR planes will have 14 lie-flat seats. It’s a first for smaller, single-aisle planes that fly shorter routes, and a sign of how airlines are now generating more of their revenue from wealthy flyers who are willing to shell out for a more comfortable experience.
Someone bought Friendster for $30,000. “There is only one friendster.com domain name in the world, and I found the idea of owning it very fun and interesting. Building a social network on Friendster seemed like it would be so much fun.”
Expensive booze is bringing back pregames. WSJ reports:“Nearly a third of the 1,000 people surveyed by Zappi who had drinks within the last three months said they now predrink to avoid paying higher prices at venues. Drinkers are trading tips on how to sneak alcohol into events, often gravitating toward the miniature-sized bottles sold by many alcohol makers.”
