The Next 'Parabolic' Move Could Hurt (Almost) Everything

A trip down 'parabolic' memory lane... Is oil next?... The next 'parabolic' move will hurt (almost) everything... Nothing but the essentials... Skyrocketing credit-card balances... A way to ease the blow from soaring oil and gas prices...

We've seen a lot of things go 'parabolic'...

In the pandemic era alone, we've seen a cycle of parabolic moves – where readings suddenly go vertical – across a variety of prices and indicators.

We'll start in March 2020... That's when the CBOE Volatility Index ("VIX"), often referred to as the U.S. stock market's "fear gauge," spiked to an all-time high of 82.69 from an easygoing reading of 14 a month earlier.

Not long after that, the Federal Reserve balance sheet spiked...

It ballooned by roughly $1.5 trillion that March – then by another $1.3 trillion over the following two months – reflecting an effort by the central bank to inject fresh digitally-created dollars into the economy to keep markets from seizing up, they said...

As our colleague and Stansberry's Credit Opportunities editor Mike DiBiase wrote in the March 7 Digest, the Fed's balance sheet more than doubled since the pandemic (and only this month has the central bank begun measures to reduce its size).

Then, the major U.S. stock indexes rebounded quickly from the March 2020 lows.

I (Corey McLaughlin) wouldn't call this one quite a "parabolic" move, but it was significant and bubble-like... The benchmark S&P 500 Index doubled in record time.

Some individual stocks, though, have gone parabolic over the past two years...

Let's remember the "meme stocks," such as video-game retailer GameStop (GME) or movie chain AMC Entertainment (AMC)... which became playthings of a new group of "investors" with stimulus checks to burn and the means to burn them.

I shared this chart in the January 26, 2021 Digest...

That was just the start... The GameStop moonshot trade topped out above $300... and shares have traded violently in a downward trend for the past year, down to around $140 per share today.

Of course, the COVID-19 "curve" went parabolic in different places at different times in the U.S., and around the world, too... And, most notably now, inflation has spiked in ways we haven't seen since the 1970s. As we shared in the Digest last week...

It's an understatement to say it has been a volatile couple of years... as a result of a combination of a few of the factors we just mentioned, not the least of which being the economic stimulus in response to the pandemic.

In the economy, we've seen almost as many bubbles as a kid's birthday party.

Air is starting to come out of the bubbles, though...

The meme stocks trade at a fraction of their peaks, though they're still well above their starting points.

Home prices spiked in the past couple years and remain high, but now mortgages are getting more expensive as the Fed lifts its benchmark lending rates.

The next 'parabolic' move could pop the pandemic bubbles...

I'm not going to predict what the next parabola will be. But one plausible candidate would be oil prices... followed by gasoline prices.

Brent crude – the international benchmark – is up almost 3% today alone to around $124 per barrel, hitting a new three-month high. The average gasoline price – tied closely to the price of crude – is $4.95 per gallon as of today, according to AAA.

Oil is up 100% in the past year, while gasoline is up 60% since this time last year.

You might think those numbers are high enough... that it just must stop. Maybe we just need the war in Eastern Europe to approach some kind of conclusion. Or you're just optimistic because prices have always gone down before... But there's no guarantee.

In fact, we're hearing more and more smart folks in the energy sector and elsewhere talk about the possibility of oil prices going parabolic before they go back down... If they do, they will hurt almost everything in the economy.

You might think that happened already when Russia invaded Ukraine. That's when prices leaped about 40% in a few weeks. The price pulled back a little since then, but it's still in an uptrend and is back at those highs today.

Here's a weekly chart of Brent Crude prices over the past year...

Our Stansberry NewsWire editor C. Scott Garliss shared a story with me today from the Financial Times, quoting a warning from the CEO of the world's second-largest private oil-trading firm: that the oil market could reach a "parabolic state" this year...

During a conference yesterday, Jeremy Weir, the head of the Singapore-based firm Trafigura, talked about how oil prices could surge to new record highs and trigger a slowdown in economic growth...

We have got a critical situation. I really think we have a problem for the next six months... once it gets to these parabolic states, markets can move and they can spike quite a lot.

Weir said it was "highly probable" that oil prices could rise to $150 a barrel or higher in the coming months... with supply chains strained as Russia tries to redirect its oil exports away from Europe and the West.

In other words, a volatile situation could get more volatile...

We mentioned the fact yesterday that big, slow-moving, years-in-the-making trends remain in place for higher oil prices...

That's low supply and continued strong demand... with a catalyst of war in Eastern Europe added to the mix.

To this point, subscribers to our colleague Steve Sjuggerud's True Wealth Systems can find more detail in his May issue about why he and his team think the oil boom is just beginning...

And our Commodity Supercycles editor Bill Shaw also points out that no news from Ukraine would have much effect on energy prices. In his June issue, published on Monday, Bill wrote...

Even if the war ends tomorrow, Russian President Vladimir Putin will remain an international pariah and Western countries will continue to move away from buying gas and oil from Russia.

I wrote about high gas prices yesterday – including the station in California selling a gallon for almost $10. But given this stern warning from one of the biggest commodity-trading businesses around, I think it's worth exploring the idea a little bit more today...

Specifically, I want to look at what the next step in the fallout of higher oil (and gas) prices might be for the U.S. economy and the stock market in general...

I'll share some numbers that show consumers are already feeling the brunt of higher prices across the board, including for gas... and then, fortunately, we'll offer up a simple way to actually make money if this scenario plays out.

Because...

If oil prices go 'parabolic', it will hurt everything – one way or another...

Well, almost everything. I'll get to that at the end of today's Digest.

I'm not trying to needlessly scare anyone. But I still sense that most people aren't thinking about the consequences of the highest gas prices of all time nearly as seriously as they might want to.

We're already seeing the effects... both on a personal and business level...

I still can't get over the fact that retailer Target (TGT) said a few weeks ago that it expected to pay an additional $1 billion in fuel costs... and that expensive gas is crimping its projected profit margins.

Target isn't the only company dealing with this reality, but it's one of the few saying it so publicly... Falling profits doesn't have good immediate consequences in business.

For everyday people, the most obvious thing is that you and I pay more dollars to drive our cars and trucks...

In the space of a year, a tank of gas that cost $40 now costs $64. The squeeze on folks' budgets gets worse with every rise on the oil price. As I wrote yesterday, the oil price accounts for about 60% of the cost of gasoline today at the pump, according to industry surveys.

Maybe you think paying an extra $24 for a tank of gas is not that big of a deal... But for people who drive a lot – and businesses that ship goods around the country and world – the higher costs add up quick. And the higher prices ultimately add up for everyone...

We're already seeing signs that people have less money to spend freely...

Folks are spending so much money today on the "essentials" like food and gas, they have less and less to spend on everything else. As Scott wrote in his morning market commentary yesterday in the NewsWire...

Recent data from the U.S. Bureau of Economic Analysis indicates household disposable income is rapidly shrinking. The latest revision of first-quarter gross domestic product showed disposable income is down 5.5% compared with the same period a year ago.

Those figures point to rapidly shrinking spending power for American households. As more people use credit to extend their paychecks, it means they'll have to spend more on servicing those debt loads. Their disposable income will shrink further.

The above chart is going parabolic in the wrong direction...

As a result, people are putting more and more goods on their credit cards.

Payment-processing giant Visa (V) recently released new volume and transaction data, and the company's May U.S. payments volume was 148% higher than the same period in 2019.

Credit volume was up 140%, while debit volume jumped 156% from 2019's quarter-to-date levels. Purchases made online or without the presence of a physical card (excluding travel) increased 173% since 2019, while card-present (meaning in-person) purchases were up 127%.

At the same time, total credit balances are rapidly expanding, which could spell trouble for the economy down the road. As Scott added in the NewsWire today...

During the month of April, total credit increased by $38.1 billion, or 10.1% on an annualized basis, according to data from the Federal Reserve. That's on top of a record $47.3 billion, or 12.7% jump, in March.

Even more interesting is the expansion of revolving credit, which includes credit-card debt.

Those numbers surged $17.8 billion, or 19.6%. That compares to the record $25.6 billion, or 29% jump, in March. The total amount of revolving credit outstanding now sits at a record $1.1 trillion dollars.

The numbers imply households are using credit debt to expand their paychecks...

Rapidly rising inflation is wreaking havoc on individuals' and households' personal finances. As we've all experienced over the past year, prices are climbing. One need look no further than the gas pump for an example.

Adding to the gloomy picture is dwindling consumer sentiment. As Scott also wrote yesterday...

Deloitte's Global State of the Consumer Tracker, an online monthly survey of 1,000 adults, reported that 57% of Americans are now concerned about their savings. In fact, the survey showed roughly one-third of domestic consumers use credit cards to stretch out paychecks. The number has been rising throughout 2022...

And other trends are equally troubling... The data also showed that 35% of Americans are concerned about making upcoming payments and 43% are troubled by their credit-card balance. Those metrics are all at the highest level in two years.

These are big warning signs for the economy, of course, since 70% of U.S. economic activity stems from Americans spending...

This really hit me yesterday when looking at the picture of the gas station in California selling $10-per-gallon gas. A full tank would cost maybe around $150. The station closest to me here in Maryland is now charging more than $5.

Now, that adds up quick... and is reason for people to perhaps change their daily routines, cut back on driving, and think hard about spending money... or, alternatively, to rack up more (potentially unaffordable) debt by putting more essential costs on a credit card.

This won't end well. As Scott wrote yesterday...

Increased credit-card usage may help short term, but you'll have to pay the piper eventually. Unless inflation starts to ease and lessens the cost burden on families, interest payments are headed even higher. This change means the risk of default rises.

If this is the start of a credit bubble, Americans should be prepared for when it bursts. Because when it happens, it could push the domestic economy into a prolonged recession. Households will need time to repair their balance sheets so activity can rebound once more.

All in all, if oil prices indeed go parabolic, or even simply keep rising from here in soul-churning fashion, the economy – here and around the world – will eventually be in for a significant slowdown... higher costs... and more bills to pay down the road.

In fact, earlier this week, the World Bank lowered its global growth forecast for 2022 from 3.2% to 2.9%, saying a recession will be hard for many countries to avoid due to rising inflation, energy prices included.

There is one way to soften the blow from oil and gas prices, however...

That's to own inflation protection in your investment portfolio.

Broadly speaking, this could mean following our colleague Dan Ferris' common advice to hold a truly diversified portfolio of cash, stocks, and bonds... and "hard assets" like gold that maintain their value as that of dollars goes down.

In the inflation discussion, it's easy to forget owning stocks has been a good buffer against higher prices over time, generally speaking. And given the situation with oil today, a good option is to seek to own shares of businesses that profit directly from these higher prices...

We know some folks might not like them, but these are the oil and gas companies...

Over the past year, for example, the Energy Select Sector SPDR Fund (XLE) is up 72%, including 20% in the past three months. Oil majors ExxonMobil (XOM) and Chevron (CVX) represent nearly half of this fund's allocation.

But if you really want to make a trade on this trend, you might be able to see even greater returns from a targeted, well-researched bet than you would from simply owning a broad-based index fund.

The best way to play rising oil prices...

Specifically, a certain type of energy business – oil royalty companies – is best positioned to reward shareholders... and is the best way to play rising oil prices... and inflation.

The team behind our flagship Stansberry's Investment Advisory recently put together a brand-new "5-Stock Inflation-Protection Portfolio" – and a pair of them come from this very sector.

In fact, senior analyst Alan Gula calls one of these companies "The No. 1 Stock on Earth to Beat Inflation." That's the title of a new research report available to subscribers with this company's stock ticker, the case for the recommendation, and details on how oil royalties work.

I urge you to check out this new research if you haven't already.

Existing Investment Advisory subscribers and Stansberry Alliance members can find it here. And if you don't yet receive our flagship publication, click here to hear more details from Dan and our editor-at-large Daniela Cambone... and get started today.

At the end of the video at the link, Dan and Daniela share the chance to sign up for one year of Stansberry's Investment Advisory for 75% off the regular price... and with a risk-free 30-day, 100% customer-satisfaction guarantee.

If for any reason you don't like what you see from our research and new special reports I've just mentioned, all you need to do is get in touch with our customer service team within 30 days and you'll receive a full refund. The offer is hard to beat.

Five Stocks That Have Hit Bottom

Despite all the concerns today, Matt McCall has uncovered five stocks that he suspects may have already found a bottom. In the latest episode of his podcast, Matt shares his evidence... and explores the idea of how to spot great long-term buying opportunities...

Click here to watch or listen to this episode right now. And to catch all of Matt's shows and more videos and podcasts from the Stansberry Research team, be sure to visit our Stansberry Investor platform anytime.

New 52-week highs (as of 6/7/22): Continental Resources (CLR), ProShares Ultra Oil & Gas Fund (DIG), Enterprise Products Partners (EPD), Freehold Royalties (FRU.TO), Kinder Morgan (KMI), Northrop Grumman (NOC), VanEck Oil Services Fund (OIH), Shell (SHEL), Suncor Energy (SU), Texas Pacific Land (TPL), United States Commodity Index Fund (USCI), Viper Energy Partners (VNOM), Energy Select Sector SPDR Fund (XLE), and SPDR S&P Oil & Gas Exploration & Production Fund (XOP).

In today's mailbag, a few suggestions for dealing with the gas prices and extreme drought in California that we wrote about yesterday... plus a response to a letter we shared in yesterday's mailbag... What say you? As always, send your notes to feedback@stansberryresearch.com.

"Water is the next treasure of the world. Snowpack and annual rainfall is declining in almost every state. Case in point California. Water restrictions have been happening there for years and it's continuing. Even states like Oregon which has a reputation for rain has years of declining rain and snowpack.

"When will our fearless leaders start building off shore stations that take the salt out of the water? And then pipe it to places where the drought is the worst? The Saudi government has already got ahead of the curve and have them built and operating off their coast line. Why not the U.S.? Maybe the current crisis in farming/fertilizer/food shortages will wake some people up!!" – Paid-up subscriber John M.

"I too am quite aware of the sting the price of gas has upon my pocket book. However, if all of the U.S. citizens are moaning about the price of gas, why oh why is everyone still driving 10 to 20 MPH over the speed limit? I am out here in the Northwest and have yet to see people driving at the speed limit, except when no choice, trying to conserve gasoline.

"We all know higher speed uses more gas. Pretty simple equation. When I see the American driver or drivers, a few drive sanely, making a conscience attempt to conserve gas then I will have a more sympathetic notion to the price of gas and the effect on the consumer." – Paid-up subscriber Russ F.

"Maybe California should build some dams and reservoirs instead of letting water just run off into the ocean because they want to save a rare species. The species will relocate and survive, I am not so sure about California policy makers." – Stansberry Alliance member Mike K.

"You can tell me the stats on how much oil factors into the pump price for gas, but I have a pretty good idea we voted for this pain.

"Crude peaked in 2008 at $147/barrel. At that time, gas was an astronomical $4.06/gallon.

"Today [Tuesday], crude closed around $120 as gas made another record to $4.92.

"If oil and gas prices were proportional to 2008, we'd be paying $3.33. That's energy policy.

"'We are going to get rid of fossil fuels,' said Joe Biden during the campaign. Today, he blames Putin and all the demand created from all the economic expansion we've enjoyed since he took office.

"Not to get political, but elections have consequences." – Stansberry Alliance member Jason B.

"I lived in California in the 70s. Drought and low water supply has plagued the state for ever. State leaders approach the problem with one arm tied behind its back. Coastal nuclear desalination plants could easily solve the problem. It should be funded as infrastructure. Why is it so hard?" – Paid-up subscriber Tim B.

"Although I agree with the general sentiment about looking for an easy way out (i.e., "popping pills") when trying to lose weight, I think Ian missed the point here, and I'm not so sure your posting of his note was appropriate. If memory serves, the drug in question did not allow one to consume limitless calories with no weight gain, but instead decreased appetite, addressing directly Ian's concern about eating anything and everything...

"Keep up the good work!" – Paid-up subscriber Jan W.

All the best,

Corey McLaughlin
Baltimore, Maryland
June 8, 2022