Weldon's Money Monitor
The point of no return, the point at which matter, light, and energy are DOOMED to disappear from the 'visible universe' ... the point where matter collapses into infinite density and the gravitational field prevents any and all electromagnetic radiation from escaping.
The 'Event Horizon' ... also known as the point of no return, when matter slips INTO a 'black hole', and collapses into an infinitely dense state known as 'singularity'.
The Event Horizon is THE point where the 'curvature' of time and space becomes extreme. In terms of market history, and the severity of the impact of rabidly rising crude oil prices on the global economy ... we may have crossed OVER the Macro-Economic Event Horizon, yesterday, as per the explosion to new all-time high prices taking place in the crude oil market.
We have long talked about the prospect for this 'event', specifically as derives from crude oil and its potential to SQUEEZE the entire global economy, bringing about deflation from inflation. We have highlighted the particulars as applies to the energy sector, and we have spotlighted the extreme macro-divergences as applies to the complete LACK of wage-income reflation, and the over-reliance by US households on home-price appreciation driven debt, as a means to maintain a rabid pace of consumption growth.
Moreover, we have focused attention on the increasingly intense, co-dependent relationship between the US debt-driven consumer, and foreign countries that have become increasingly reliant on export growth for their own GDP stimulus.
Indeed, in a world of disinflating raw material prices ... it's all good.
BUT, in the current environment, where raw material prices are rising MORE than any other 'price' sector, particularly when it comes to the global circulatory system, and the blood stream that provides oxygen to the global macro-economic organs ... via the delivery of crude oil ...
... then all is NOT good. In fact, staring straight into a BLACK HOLE of consumer debt linked to reflated US home prices, a moonshot in the energy sector, RELATIVE to the reflation in ALL other areas, brings the global economy to the edge of ... the "Macro-Economic Event Horizon."
First, observe the long-term macro-monthly crude oil chart on display below, revealing the lift-off to new all-time highs.
What is SO 'impressive' about this chart, is the clarity in terms of the fact that prices have risen FIFTY percent ... above the OLD HIGHS, in just the last fourteen months. This IS, explosive. Note also the UPRECENDENTED slope and incline exhibited by the long-term moving average.
Even MORE 'telling' ... in terms of trying to identify the approaching 'Macro-Economic Event Horizon." we observe the ratio spread shown in the long-term monthly chart on display below, revealing the plot of Crude Oil relative to the broad universe of commodities as defined by the CRB Index. Again an explosive move to new all-time highs, easily eclipsing the 1990 peak.
Taking our Crude Oil/CRB Index ratio, and applying a 24-month Rate-of-Change indicator, we come up with the chart on display below. Of particular interest is the timing of the last two times wherein the ROC moved above the 50% level ... defining each of the last two recessions, and, the last two times that global stock markets got hit with a solid dose of ... disinflation.
The action in the energy-weighted Goldman Sachs Commodity Index is even MORE EXTREME, as evidenced in the long-term monthly chart on display below. Indeed, not only is this index SO MUCH HIGHER now, than during previous periods of crude oil strength, and subsequent macro-eco-turbulence, but it has extended to a monstrous 100% gain, in just two years.
And finally, a long-time Money Monitor favorite chart view ... the GSCI/CRB ratio spread, shown below via the macro-monthly perspective dating all the way back to 1970. In this case we can easily identify the 'even' level (100 on the ratio), and create bands of plus/minus 10%, and plus-minus 30%, to define our 'Macro-Economic Event Horizon' pivots.
On only one occasion has the commodity-ship traveled close to the 'upside' Event Horizon, and on three occasions the ship has visited, and flirted with crossing over, the 'downside' Event Horizon.
Each one of those 'trips' came in conjunction with EXTREME movements in the macro-economic time and space 'continuum'.
In historical terms, we CAN say, for FACT, that the spread has NEVER moved this far beyond the 'Event Horizon", and our FEAR level, macro-economically, is going through the roof along with the ratio.
Indeed, it gets WORSE, as interest rates are rising, and more importantly, rabid raw material price inflation notwithstanding, REAL rates are now rising, globally. This is a potential TRIPLE WITCHING, in terms of the likely impact on the global economy, and the over-indebted US household-consumer ... especially if ... nominal interest rates continue to rise, as might be implied in the long-term overlay chart on display at the top of the next page.
The gravitational pull is intensifying, daily.
The Event Horizon is visible.
We only wonder HOW global central banks will react, when they finally see the light, the light that CANNOT be released from 'singularity'
In other words, once global central bankers realize that we have crossed over the Macro-Economic-Event Horizon, it will be TOO LATE ... to ESCAPE. Indeed, it will be too late to escape the downward pull of gravity, a gravity that has been building for YEARS, if not a couple of decades, amid the creation of a critically massive debt-density.
Singularity will come into view, if global central bankers react hawkishly to rising crude oil prices, case closed.
Indeed, again, we note the chart below, implying that there is still PLENTY of upside room, for global central bankers to raise rates, if they are looking at the upside run in commodity prices as cause to tighten monetary policy.
On the other hand, we could say that central banks, particularly the Fed, DO see the situation, and do sense the danger that comes 'with' the approaching Event Horizon, since they have NOT raised rates to the extent that this chart might imply.
Either way, at some point, we will have already PASSED that point, the point of no return, the point where debt-density takes over, gravitationally pulling every ounce of creative monetary energy central banks can throw at it, devouring it all, and everything else, as the global economy slips into ...
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