Tuesday, November 8, 2022

Stage Management

 I cannot shake the feeling that for the past couple of months the US stockmarket and the price of gasoline at the pump are being manipulated, stage managed if you like, ahead of today's crucial mid-term elections. 

I strongly believe that these mid-terms are the most important since at least WWII.  The confluence of economic, financial, social and cultural issues is creating an unprecedented political tinderbox for the US, far beyond anything we have experienced in our lifetimes.  I think President Biden is right in saying that "democracy is at stake", though it doesn't necessarily follow that voters should cast their ballots for Democrats.  Indeed, America faces far more important issues than Blue-Red politics.

Back to stage management: there is no question that gasoline prices at the pump are being suppressed, mostly by massive domestic oil releases from the Strategic Petroleum Reserve, which has now fallen by 45% to 40 year lows (chart below).


What is very peculiar is that while gasoline prices are being kept low, diesel fuel (also used for heating) is soaring to new highs (chart below).


US Prices for Diesel (red) and Gasoline (blue) 

The spread between the two has reached unprecedented highs (chart below).


Spread Between US Diesel And Gasoline Prices Reaches Record High

Unlike Europeans, Americans don't drive many diesel cars, preferring gasoline ones instead.  The country consumes three times more gasoline than diesel/heating oil.  Therefore, voters are not experiencing "pump shock", just now. However, diesel is essential for moving goods in trucks and trains, as well as heating homes where natural gas is not available.  Therefore, it plays an important role in shaping consumer inflation, even if voters don't see it everyday driving to and from work.

As for stage managing the stockmarket: while tech companies are taking a massive beating, broad averages like SP500 and the ever popular Dow 30 are not.  Why? Because (a) oil companies are soaring (b) "defensive" shares like pharma are holding up and (c) Apple, the biggest biggie of them all, is also holding up, comparatively.

The election will be over today. No matter what the result, I believe stage management will also be over today.  Let's see how markets fare then.  



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