A something noteworthy that caught my attention on Friday raises mention with its extension today...
So much for hyperinflationary shutdown of refining capacity with Delta's move? Maybe for the moment. At any rate, the pendulum swing in spot unleaded gasoline is favoring the "demand destruction" trade, which is not what the bailout crowd needs. Likewise there appears growing urgency over the past month to deal with this recognition.
As for any connection between this commodity and a physical economy whose functioning feeds psychology driving the stock market, we could be at a breaking point where the most efficient route to wealth's accelerated destruction is the path forward, involving the most liquid assets, both debt and equity. The more backhanded manner in which this has been occurring over the past decade in particular might be on the verge of becoming glaringly overt. Capital to sustain incredibly fantastic valuations across the financial spectrum might find no alternative but be drawn from Mr. Market.
The relative performance of $GASO versus $SPX displays this idea of covert wealth destruction. This trend probably will accelerate as $SPX joins the demand destruction party.
Considering that everything hinges on supporting financial structures impossible to sustain in a rising rate environment — imbalances would not have become so profound were credit driving rates lower over decades instead more aggressively checked — it is fairly easy to perceive the present moment one where policy and effect are likely to disconnect from the Pavlovian trend established over the past fifteen years. There is no central bank "put" to forever withstand negative physical consequence its attempt brings. So, the course of ongoing wealth destruction may have reached a point where securities (debt and equity) whose value simply is unsustainable must be marked down.
As for $5/gallon gasoline (or higher), the possibility is not out of the picture. Rather, this price might be reached as the S&P 500 bounces from, say, 200 to 500 sometime over months ahead, following an upcoming euro-tremor, as banks appear to be facing a political problem of unity, such as might threaten their even remaining going concerns.
The hyperinflationary blowout of gasoline prices thought possible here late March had its basis in momentum circled in the PPO panel above. However, the coincident pickup in $GASO daily volume likewise noted then (occurring as weekly momentum was transitioning like early 2011) did not materialize in an added burst of positive momentum, like occurred last year to lift $GASO above $3.00. So soon, then, is $GASO seen bidding adieu to LTRO (this being told by PPO falling below 0). Chalk up unleaded gasoline as another indication of precarious underlying fundamental conditions of consequence threatening the stock market.
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