#407 Oil Rising – Fed On The Hot Seat

Drone Strikes

There was big news released over the weekend. An unexpected drone strike was carried out on a Saudi oil facility. That drove oil futures to go up 15%. That’s the biggest intraday jump in almost 20 years. While the U.S. is energy independent, the rest of the globe is not. This is a reminder of how volatile oil can be when so much of it is produced in an extremely volatile part of the world. Saudi Arabia still produces a large percent of the world’s oil. This strike took out roughly 5% of global oil production. That’s why you saw the spike over the weekend because we’ve taken out a large percentage of the amount of oil that can be produced. Now the U.S. is going to do everything we can to ramp up production to try and fill that gap. This will possibly have a negative impact on global economies because we’re going to see that price go up and that could potentially hurt the cost of the global consumer. How quickly can this be fixed and can the supply and demand become rebalanced? That’ll be what we’re going to watch closely. A one-week spike isn’t that impactful but if it goes on for weeks on end that may have a negative impact.

What Will The Fed Say?

A big market mover this week to watch will be the Fed. They are meeting and are expected to cut rates down about a quarter of a percent. We saw Chinese ease two weeks ago and last week we saw the European Central bank take significant action. We are expecting our Fed to follow the course. The problem is, with core inflation rising, the Feds are in a tough spot going forward. The verbiage of what the Fed is going to say could cause a disappointment. Even though they might cut rates, it’s what they say about going forward that could be the potential market mover.

Antitrust Filings

Last week, by count, there was about 48 State Attorney Generals around the country as well as the U.S. justice department that jumped in on the filing of antitrust actions against big tech companies. We’ve received a lot of questions from viewers asking since that’s a big sector, what does that mean and has this ever happened before. The answer is, you will see a lot of press about it saying that we’re breaking new ground with it. The truth of the matter is that, honestly, this is the third time in U.S. history that this has happened. If you go back to the late 60s, there was a very large computer maker and designer that ran afoul of antitrust. The government lost that one. We all remember the communications industry during the 1980s. There was a settlement caused by a lot of breakups in big tech but since then it’s been reconstructed again. The interesting thing about any type of antitrust in that sector is that it doesn’t matter if you say it, you must prove it. When you’re reading about this in the media, it will end up being a proof issue to the consumer and whether the consumer has been harmed or not. Legal actions like that against antitrust when you are evolving technology, it’s not a matter of what you think may happen but a matter of what the actual damage is. The technology sector in the United States employs roughly 12 million people, which is a lot. A lot of this antitrust is going to tread very carefully around that. If you’re looking at it from a competitive point of view, 40,000 new tech startups came into the industry just in 2018 alone. It’s hard to look at that as an industry and say competition is being limited. This is going to be interesting to watch and could end up having a lot of media press on it. We just wanted to give you a little bit of a peek down the road of what you may see on this topic.

 

Bobby Norman, CFP®, AIF®
Senior Vice President
Wealth Consultant
Email Bobby Norman here

Ashley Page, JD, MBA
Senior Vice President
Wealth Consultant
Email Ashley Page here

Trey Booth, CFA®, AIF®
Senior Vice President
Wealth Consultant
Email Trey Booth here

Democratized Family Office #406 Roth IRA vs. Traditional IRA