Back in February we introduced the world [7] 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


