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Market Lab Report
Dr. K has mentioned asset classes that can keep up with inflation. Should oil & gas be on that list or will they fall behind inflation?
A: Commodities such as nickel, aluminum, wheat, and copper are in a bear market. Others such as oil which continue to trend higher in price drive a good part of inflation since it is ubiquitous, contributing to 2.6% of the CPI's 8.6%. But oil can be manipulated by the cartels as well as countries, so it is a precarious bet to assume it will keep up with inflation as measured by the CPI at all times. Should oil's price materially fall, inflation as measured by the CPI can still rise due to other factors such as supply chain issues.

Demand is also a factor which depends on the severity of the recession. Lower demand would lower the CPI. The bullwhip effect would also materially lower prices as inventories are soaring. Both would give the Fed room to stop or reverse the rate hikes. Any renewed QE would increase the supply of dollars thus require more of it for the same goods. Perhaps we see a temporary drop in the price of oil, then a resurgence in price back to new highs depending on the degree of the next iteration of QE. [As of June 29, 2022]
First published: 29 Jun 2022
Last updated: 29 Jun 2022