Say hello to my little friend

Happy Friday!

Hope everyone had a nice and relaxing Thanksgiving holiday. 

There’s been a lot of chatter about the diesel fuel situation. One of our wealth management clients reached out to us and suggested we write about it, so that’s what I did this week. 

I am in no way an expert on (1) diesel fuel, (2) fuel, or (3) commodities. In fact, one of my summary points is that I have no idea where diesel fuel prices are headed. But another summary point is that neither does anyone else.

Where I’m a little more confident is that the eternal battle between supply and demand tends to normalize market anomalies over time. 

Moving on…

Speaking of energy

I’ve seen some variant of this chart floating around the internet over the past week or two. It compares the spot price of West Texas Intermediate (WTI) crude oil, the benchmark oil price in the U.S., to the Energy SPDR ETF. 

Typically, these two lines have a very obvious and logical correlation. When oil rises, so should the future profits of energy companies, and over the last decade, they’ve averaged a correlation of about 0.68 with no lag.

But right around August, this relationship broke down. Energy stocks keep rising, while crude oil is effectively flat for the year. This correlation can only normalize if one or both of the following happen:

  1. Energy stocks need to recognize that global oil demand is falling and/or supplies are rising. It’s easier to track supply, and it doesn’t seem like a lot of new drilling is going on, so let’s go with demand falling for now.
  2. Investors expect the opposite – either demand rises from here and/or supplies fall further. Maybe this is due to most developed nations entering winter months. Hard to say. The point here is that they believe that energy stocks can and will grow into their multiple.

So, it seems like energy sector bulls are either going to look really smart, or they’re about to get their faces ripped off. Place your bets.


Think about the power that Jerome Powell holds. All he did was say the following during a presentation on Wednesday, and the S&P 500 closed 3% higher for the day and at a three-month high:

“The time for moderating the pace of rate increases may come as soon as the December meeting.”

That’s pretty blunt talk coming from the Fed. The rally was also broad-based, with growth stocks doing especially well. Why, you might ask?

It’s because the futures market now estimates an 82% chance that the Fed will hike by only 0.5% at its next meeting in two weeks. Not too long ago, those odds were in the low teens.

Something else happened on Thursday that didn’t get much attention, but it’s also pretty important to the Fed. The Personal Consumption Expenditures index (PCE) reported that inflation fell to 6.0% from 6.3% last month. More evidence to suggest that inflation is coming down.

It’s even more important because, despite the lack of media attention, the Fed prefers the PCE to the Consumer Price Index (CPI) because they view the PCE’s basket of goods and services as more representative of the economy.

Third quarter GDP was also revised higher on Thursday to an annualized 2.9% from 2.6% originally. Spending remains strong, and it appears that waking up at 3 am to save $12 on a toaster oven is still a thing in this country because Black Friday numbers have been coming in stronger than many had expected.

Add it all up, and the Fed will raise by 50 bps in December, with another hike likely in February. No clue what that one will look like. Probably 25 – 50 bps? Then another in March? Then they may pause?


There’s this scene in Goodfellas when Henry Hill tries to convince his wife, Karen, to bail him out of jail. It goes something like this:

Henry: “I got to straighten out everything with Paulie or I’m dead.”                        

Karen: “Then you’re safer in here.”                       

Henry: “They could whack me here as easy as outside. They’re afraid I’ll rat them out.”

I’d wager my house that this is where SBF’s head is at right now because his probability of survival has to be lower than the Fed achieving its soft landing. Since this whole FTX fiasco broke a month ago…

  1. Some crypto guy tweeted that intelligence agencies were trying to kill him, only to be found dead on a Puerto Rican beach days later. 
  2. Another crypto guy died mysteriously in his sleep last week at the old age of 30.
  3. This week, a Russian billionaire died in a helicopter crash. Usually, we could just assume it was Putin because he’s been doing a lot of that this year, but perhaps someone else got to him first.

Maybe that’s why SBF is doing so many interviews. The longer he stays on camera, the lower the chances he ends up in a forced reenactment of the final scene in Scarface at his $300 million real estate portfolio in the Bahamas. I don’t know.

But I’m pretty sure that jail won’t help him any more than it would Henry Hill. SBF will 100% get Epsteined in about 12 minutes behind bars, and he has to know this. 

Short of the century

SBF also told a reporter this week that he only has one working credit card left. My question is which card? What issuing bank has kept his line of credit open? 

If it’s a publicly-traded bank, then this could be a career-making short sell because if SBF still has access to capital, then that means lending standards at this bank likely rival crypto lending standards. 

Trades like these don’t come around all that often, so if anyone can get an edge here, let me know. I’d bet the farm on this one.

Enjoy the weekend…