This page has been archived and commenting is disabled.

Beware, The Brent Vigilantes Are Coming Back

Tyler Durden's picture




 

Back in February we introduced the world to their last best hope in controlling the largesse of the world's central bankers. The 'Brent Vigilantes' were shown to have taken over the mantle of the now totally-repressed and benign bond vigilantes (since deficits don't matter apparently). Each time retail gas prices have breached $3.80 in the past six years, the S&P 500 has crested (specifically the crossing of that threshold has seen P/E multiple expansion brought to a halt). With current gas prices around $3.53, we hear you cry, "what are you worried about?" Well, simply put, the answer lies in what is coming. Prices at the pump follow crude oil prices extremely closely with around a 30-day lag; the current WTI crude prices imply a price of gas at the pump around $3.80. So, if there is anything that can stop us from hitting 2,000 on the S&P 500 (or Dow 30,000), we suspect it is the 'tax' that gas prices represent and we now know what the trajectory of those prices is likely to be in the next few weeks.

Each time retail gas prices have topped $3.80, valuations (Fwd P/E) have also topped - not good news for a market driven solely by hope-driven multiple expansion...

 

Especially as it would appear clear that gas prices at the pump are set to surge up to that $3.80 level once again...

 

The Brent Vigilantes are on their way back... maybe that is what China is banking on?

Charts: Bloomberg

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Wed, 05/08/2013 - 10:25 | 3540926 ekm
ekm's picture

People say: follow the money

 

EKM says: FOLLOW THE ENERGY

Wed, 05/08/2013 - 10:34 | 3540977 spastic_colon
spastic_colon's picture

now that ZH has discovered this trend, it will be fully arbitraged by the fed and rendered irrelevant /s

Wed, 05/08/2013 - 10:37 | 3540996 Dr. Engali
Dr. Engali's picture

The Hedge has posted this trend in the past and fuel was beat down shortly after that.

Wed, 05/08/2013 - 10:44 | 3541029 ekm
ekm's picture

This is the only factor, absolutely only factor that makes Obama call Benny and start swearing over the phone, thus Benny wetting his pants on the spot.

Wed, 05/08/2013 - 10:54 | 3541079 fonzannoon
fonzannoon's picture

the only call Obama makes is to George Clooney to see what time they are chillin this weekend.

This is financial repression. That is all it is. THEY DON'T CARE ABOUT THE ECONOMY. That is why Tyler calls the reporting agencies the "department of making shit up". As Lawsofphysics says, we will beat expectations all the way down.

As I keep saying, $3.80 a gallon is hyperinflation for a guy who just ran out of money. All of us will bust out one person at a time until China or someone finally pulls the rug out completely.

 

Wed, 05/08/2013 - 10:59 | 3541102 Spastica Rex
Spastica Rex's picture

They care about the economy; you're just not part of it. Neither am I.

Wed, 05/08/2013 - 11:35 | 3541279 malikai
malikai's picture

What difference does it make? All the fed has to do is talk hawkish and get a couple banks to sell some contracts and the lemmings will jump themselves, thus dealing with this silly gasoline price nonsense.

 

Wed, 05/08/2013 - 11:17 | 3541199 Panafrican Funk...
Panafrican Funktron Robot's picture

"not good news for a market driven solely by hope-driven multiple expansion"

Could have sworn it was driven solely by $85 billion per month in propping.  

Wed, 05/08/2013 - 11:43 | 3541312 NotApplicable
NotApplicable's picture

I think that's where the "multiple expansion" comes in.

Wed, 05/08/2013 - 10:26 | 3540929 NoDebt
NoDebt's picture

"Prices at the pump follow crude oil prices extremely closely with around a 30-day lag."

The only "lag" at my corner gas station is the time it takes the manager to walk across the parking lot and change the number on the sign.

Wed, 05/08/2013 - 10:34 | 3540978 DeadFred
DeadFred's picture

Unless prices go down, they seem to wait longer to drop prices. But who am I to say, I'm just a paranoid. If I were inclined to bet on manipulated markets I would short WTI at 96.7 with a stop about 97.4, there's a nice resistance line around there

Wed, 05/08/2013 - 10:36 | 3540990 spastic_colon
spastic_colon's picture

"short" - I do not think that means what you think it means - inconcieveable!      /s

Thu, 05/09/2013 - 09:01 | 3544100 DeadFred
DeadFred's picture

If I read the charts correctly it peaked at 96.77. Who could have knowed it? A ruler is your best friend in this market. Your BFF is don't be in the market.

Wed, 05/08/2013 - 10:27 | 3540936 LawsofPhysics
LawsofPhysics's picture

Oil, coal, natural gas, all are the world's reserve currency, whether the world knows it or not is irrelevant.  Now where the fuck are those fusion reactors I ordered?

Wed, 05/08/2013 - 10:38 | 3540999 CrazyCooter
CrazyCooter's picture

Don't forget food!

IMHO, gold, oil, and food can't go up. I see a lot of the algo/fraud stuff as a game by which prices in key commodities can be held down while everything else goes up. When it breaks, those things are going up in a big, big way. These tools allow insiders to print money, but not pay the price in core commodities ... aka the free lunch.

Print out that food chart and hang it on the fridge. You can use it to guess which countries will implode, in order, when food prices head north.

We already know who uses all the oil.

Regards,

Cooter

Wed, 05/08/2013 - 10:39 | 3541005 LawsofPhysics
LawsofPhysics's picture

Yes, my tractors still run on diesel (oil).

Wed, 05/08/2013 - 11:37 | 3541287 Panafrican Funk...
Panafrican Funktron Robot's picture

I would suggest it's even a little simpler than that for the U.S., it's really just oil that's propping the USD at this point (and that appears to be degrading rapidly).  NG/coal are players (and are becoming increasingly important again), but we're more or less super duper fucked in the absence of petrodollar dominance.  

Wed, 05/08/2013 - 10:47 | 3540952 JustObserving
JustObserving's picture

If Brent is recovering, so should be gold and silver.  Gold should be recovering to $1600 and silver to $29.  But someone slaughtered the gold and silver vigilantes?

R-squared (coefficient of determination) shows you how much of the changes in the price of gold can be explained by changes in the price of crude oil. The result is 78.7% which, quite intuitively, tells you that, in fact, price levels of gold and crude oil are strongly related

Wed, 05/08/2013 - 11:45 | 3541317 NotApplicable
NotApplicable's picture

Those vigilantes have been effectively Corzined.

Wed, 05/08/2013 - 10:31 | 3540963 Dr. Engali
Dr. Engali's picture

It's a good thing that higher energy prices aren't inflationary. I know because the Bernank said so.

Wed, 05/08/2013 - 11:05 | 3541139 JeffB
JeffB's picture

Sure, that will tank the economy and cure inflation... or at least put a damper on it for awhile.

 

Wed, 05/08/2013 - 10:32 | 3540966 slaughterer
slaughterer's picture

Gold buy'and'hold is now dumb money: the small Landesbanks in Germany are now selling gold as a "crisis-proof" asset.  Very contrarian: Time to get the fuck out of the gold rush.   

Wed, 05/08/2013 - 10:36 | 3540987 LawsofPhysics
LawsofPhysics's picture

Are we talking paper or physical?  Did the world's 7+ billion liabilities suddenly disappear?  What am I missing here Slaughterer?

Wed, 05/08/2013 - 10:38 | 3540991 Dr. Engali
Dr. Engali's picture

So are we to assume that you sold all the physical that you  purchased when gold got hammered  for a loss ?

Wed, 05/08/2013 - 10:42 | 3541017 slaughterer
slaughterer's picture

I took a minor loss on my phyzz (the outrageous premiums helped me here), but now I am short PMs--just like all of your ZH enemies (JPM, GS, etc.).   With every FOMC meeting and Paulson&Co. redemption worry and Vol. rise in Japanese bonds and peripheral EU sovereign CB fiat run there will be a panic in PMs.   PM-bugs have nearly all of the news items of 2013 stacked against them--as well as the firepower of criminally insane IBs with 1,000s of times more leverage than the wealthiest ZHer.  Sorry, but ZH only has rational fundamentals on its side--and, clearly, that is not enough these insane days.   And it only costs $6 to dig silver out of the ground.  LOL:   

Wed, 05/08/2013 - 10:46 | 3541032 fonzannoon
fonzannoon's picture

I love how only stocks get to climb a wall of worry.

Slaughterer I realize you are a trader and don't marry anything for long...but why the hell would you buy 100 oz of physical gold only to dump it now? Why not just buy the etf?

Wed, 05/08/2013 - 10:49 | 3541053 slaughterer
slaughterer's picture

Gold is clearly manipulated and suppressed by a powerful criminal cabal that will never be punished for its crimes--why do I want to be in that asset?  The last few weeks have clearly established the futility of gold to me--with ever single day I wake up to punch in gold/silver spot price before I even check my E-Mails it became clear: Gold is going down, I made a mistake buying it.  

Wed, 05/08/2013 - 10:56 | 3541084 fonzannoon
fonzannoon's picture

That reminds me i need to check my emails...

 

Wed, 05/08/2013 - 11:08 | 3541153 JeffB
JeffB's picture

Perhaps it's not for short term traders... unless you have inside information.

Wed, 05/08/2013 - 11:24 | 3541232 Snoopy the Economist
Snoopy the Economist's picture

Slaughterer: You are clearly a trader (short term horizon) while most PM buyers are investors (long term horizon). We all knew that gold will be hit hard in the near term (3-6 months) but I still believe the long term fundamentals will prevail. I think the banks need much lower prices to get out of their shorts with profits and allow purchases at much lower costs. IMO

Wed, 05/08/2013 - 11:40 | 3541298 Panafrican Funk...
Panafrican Funktron Robot's picture

Definitely calling bullshit on a physical gold buy by you.

Wed, 05/08/2013 - 11:49 | 3541332 NotApplicable
NotApplicable's picture

What's futile is measuring gold and silver in dollars.

If the dollar price matters to you that much, then you don't understand the real reasons to own it.

Wed, 05/08/2013 - 10:54 | 3541078 CheapBastard
CheapBastard's picture

slaughter, I hope you were wise enough to short AAPL when it was 700.....and 600.....and 500....and.....

Wed, 05/08/2013 - 10:56 | 3541091 slaughterer
slaughterer's picture

Shorted AAPL at $704.55 but I covered way too early.  Am now long AAPL as AAPL is an important vehicle right now for communicating fake bullishness.  Plus, the news has turned the corner on AAPL.

Wed, 05/08/2013 - 10:40 | 3541013 Skateboarder
Skateboarder's picture

I agree to a small extent. 'sall bout dat Silver.

Wed, 05/08/2013 - 12:16 | 3541429 Non Passaran
Non Passaran's picture

Those banks are insolvent, who cars what they are up to!
I'm buying when the weak hands are selling. Few bucks up or done concerns traders and I'm a hoarder, so your "advice" is useless to me.

Wed, 05/08/2013 - 12:56 | 3541607 ParkAveFlasher
ParkAveFlasher's picture

My personal investing philosophy is to get your hands on whatever people lie, cheat, steal, and murder for very reliably.  Any object conforming to the above criteria is inherently valuable.

Wed, 05/08/2013 - 10:33 | 3540974 SheepDog-One
SheepDog-One's picture

All they need is their 30 day lag to rape everyone for billions!

Wed, 05/08/2013 - 10:34 | 3540979 otto skorzeny
otto skorzeny's picture

$3.53 a gallon-I wish. $4.25 this am in Chi-burbs - all time high for us

Wed, 05/08/2013 - 10:43 | 3541027 Skateboarder
Skateboarder's picture

Damn, it's been around $4 in SF Bay. We're normally the ones (well, So-Cal first) that shell out the high $4s and low $5s. Only had to pay > $5 once, in 07 0r 08 when the prices shot up like crazy for the first time.

Wed, 05/08/2013 - 10:46 | 3541041 otto skorzeny
otto skorzeny's picture

Chi prices are highest for the last few years- you know - because IL's economy is roaring  /sarc.

Wed, 05/08/2013 - 10:37 | 3540981 guidoamm
guidoamm's picture

What concerns me is not the vigilantes. 

The price of brent is coiling in an environment of waning volume and demand that is back at 1995 levels. Everything seems to indicate that the price should break lower. 

Despite the real life and technical picture though, the price of Brent seems to be "kept" at these levels. 

Can we infer that, should the price of Brent break down, we'll be treated to some event of global import that will make crude prices explode upwards? 

Wed, 05/08/2013 - 10:37 | 3540994 LawsofPhysics
LawsofPhysics's picture

U.S. demand may be "waning", but this is not the case for world demand.  Stop beng so "merica-centric".

Wed, 05/08/2013 - 10:42 | 3541024 otto skorzeny
otto skorzeny's picture

Sales at the pump are down so much in US the pols are kicking around the idea of taxing one based on miles driven through car's GPS tracking your every move to make up for gas tax losses

Wed, 05/08/2013 - 11:03 | 3541127 Spastica Rex
Spastica Rex's picture

I reckon my 2 year old steel framed bicycle will last about another 100 years, and it doesn't have a GPS.

Wed, 05/08/2013 - 11:48 | 3541329 Cobra
Cobra's picture

Yup, and while they're at it, why not COMPLETELY gut the working middle class by automatically sending moving violations using the same technology! - Disgusting...

Wed, 05/08/2013 - 10:38 | 3540995 HD
HD's picture

I plead ignorance.  Can't the Fed manipulate every market with ease? Is it actually likely that brent vigilantes can overcome Ben's printing press?

 

 

Wed, 05/08/2013 - 12:50 | 3541581 CrashisOptimistic
CrashisOptimistic's picture

Yes.

Because in the end Brent vigilantes are actually Saudi Arabians and Russians.

Markets don't matter.  Only what comes out of the ground matters.  You can bid futures prices to anything you want, and if the oil sources don't like that price, they will get a different price.  The refineries pay it or they don't get the oil.

The game is over.

Wed, 05/08/2013 - 13:11 | 3541666 Peachfuzz
Peachfuzz's picture

Seems like certain oil producing nations suppress the price of oil in dollars in return for the price of physical gold being cheap in dollars. It is my understanding from my reading that asian big timers have goofed this up badly. Now when they smack down gold with paper, the asians haul it home so fast there are physical delivery problems in the lbma and elsewhere. This leaves the US in a spot as said oil producers don't want worthless paper for their natural resources, so the prices rise to cover them.

  I noticed a zh article that reinforced my understanding of this situation the other day. When the gld market crashed on tax day and the phyz was snapped off the market, we saw a multi-billion dollar shipment of arms go from the US to these oil producers. All at no money down, super low rate financing. I don't believe this to be a coincidence.

Wed, 05/08/2013 - 21:26 | 3543283 HD
HD's picture

Thank you both for responding - appreciated.

Wed, 05/08/2013 - 10:39 | 3541006 orangegeek
orangegeek's picture

CME Gasoline is currently about $2.85.  Weekly chart below.

 

http://bullandbearmash.com/chart/weekly-spot-gasoline-consolidating-move/

 

It is true that WTI Oil and Gasoline follow one another, but like many other markets, a divergence is occurring here too.

Wed, 05/08/2013 - 11:57 | 3541369 Cobra
Cobra's picture

Is that the pretax (Fed AND State) price?

Wed, 05/08/2013 - 10:42 | 3541022 wswarrior
wswarrior's picture

Here in the suburbs of Chicago, we are already paying $4.15 because of refining issues, and those are the cheapest gas stations.  

Wed, 05/08/2013 - 10:44 | 3541031 otto skorzeny
otto skorzeny's picture

Blame now is going to Mobil refinery in Channahon turnaround and complete production shutdown.

Wed, 05/08/2013 - 12:50 | 3541584 ParkAveFlasher
ParkAveFlasher's picture

Blame John Galt.

Wed, 05/08/2013 - 10:43 | 3541026 surfersd
surfersd's picture

This time around WTI is only $8.00 under Brent as opposed to $20 the last time we had a spike. On top of that the WTI is about to move in to backwardation. Law of Physics has it wrong world demand is slowing as it relates to US demand, thus Brent weakens relative to WTI. Add on the new takeaway capacity out of Cushing and presto the WTI rallies to meet the Brent price, sorry Chicago.

Wed, 05/08/2013 - 11:23 | 3541229 LawsofPhysics
LawsofPhysics's picture

That is only one factor.  The underlying cost (in capital and real resources) to deliver that WTI is rising as well.  In any case, the dream that was brent coming down to WTI is just that, a dream, for now.

Wed, 05/08/2013 - 10:52 | 3541068 CheapBastard
CheapBastard's picture

My guess is oil and some PMs will hit new highs this year. Ben will be forced to print as we sink depper into depression with higher unemployment.

 

Who knows? Many Commodities are pretty dog-gone cheap right now.

Wed, 05/08/2013 - 10:58 | 3541099 Smegley Wanxalot
Smegley Wanxalot's picture

12 cent jump this morning.  More to come.

Wed, 05/08/2013 - 12:17 | 3541431 NoWayJose
NoWayJose's picture

Up 27 cents in the last week - despite a supply build... I see $4.00 coming by July 4th. Crush the common man again, Ben.

Wed, 05/08/2013 - 11:36 | 3541278 mayhem_korner
mayhem_korner's picture

 

 

Not seein' that high of a correlation.  Refinery capacity and the blend requirements intervene too much on the crude/retail price relationship.  Brent prolly needs to be $114 or higher to get to $3.80.  That's still a pretty good level of printing away.

Wed, 05/08/2013 - 11:53 | 3541344 Hongcha
Hongcha's picture

We'll get there Otto.  They sit in their grey windowless offices with their Excel s/s and add a penny here and there so they can find a way to make the budget and keep their jobs.  This is what a cancer does and 'murican governments are cancers at this stage, whinging more & more from the healthy cells.

They will install shit in cars and make it mandatory and issue ray guns to the cops to read meters.  Wait and see. 

Wed, 05/08/2013 - 12:17 | 3541435 Hohum
Hohum's picture

If rising prices are needed to bring on more oil production, then prices will rise.  If not, then they won't.  See where the rig counts are going.

 

www.wtrg.com 

Wed, 05/08/2013 - 12:36 | 3541508 Lord Koos
Lord Koos's picture

It's summer, of course gas will go up.

Do NOT follow this link or you will be banned from the site!