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It’s still all about Oil

Is the market about to make an all-time new high?  I remain skeptical.

Ignore Q1 earnings announcements that will be trickling out over the next two weeks.  The slack in US and global economies is the result of two related factors:  Oil Glut & China Slowdown.  Neither of which are easily resolved.

Note the below chart, which illustrates the approximate amount of US Petrodollars in global circulation.  A Petrodollar is the value earned by a producer of Oil.

Forget the hype about “Peak Oil”.  US Oil consumption has gone down/stabilized; US production has increased; and the price of Oil has decreased.  These three elements are the confluence of a significant decline in the amount of US Petrodollars in circulation.

In other words, dramatically less US Dollars are being earned by Oil producing nations.  These economies therefore have less disposable income…thus a slowdown in global trade.  [The slowing Chinese economy has had a similar impact on commodity exporting countries…thus the second major factor contributing to an anemic global economy.]

Don’t believe the Petrodollar is evaporating?  It’s not a coincidence that this week Al Jazeera America TV was discontinued.  Last year, Saudi Arabia’s foreign currency reserves declined by $138 billion.  It’s not just OPEC; non-OPEC exporters include: Russia, Canada, Mexico, Norway, Brazil, Venezuela…

With Oil at $40/barrel, Oil exporters not only have less to spend but also less to invest.  Sovereign wealth funds have been selling stocks to raise cash.  This is likely to continue and reinforces my concern about the general health of the stock market.

Join me on the next episode of the Wealthsteading Podcast where I’ll discuss this topic in detail.

Decline of US Petrodollars in circulation 160415


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