Transcription
Hey everyone, and thanks for jumping back into the macroverse. Today, we're going to talk about oil and how it just had the largest rally in a single week since WTI started trading back in 1983.
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So, a week ago, one week ago, we made this video called "The Mechanism That Ends Business Cycles." One week ago. And when I posted that video, the price of crude oil was $67. $67. Today, one week later, it is now $91. Again, this is the largest weekly spike in history for oil.
Now, there's going to be a lot of people that sort of look at this and, and rightfully say, "Well, it's still less than $100. It's not where it was in 2022. It's not, you know, as high as it was in 2008." But one of the things to consider with oil is it's not like the absolute value of it that can cause issues with inflation data and that sort of stuff. It, it's more so the rate of change. It's the rate of change that really is more concerning, not like the absolute value that it is at any given time. So that's one thing to consider.
Now, the reason why we talk about this about oil within the confines of a larger business cycle is we developed a chart a while back, and we've been talking about it forever, but, um, it's the ITC business cycle chart. And the chart was created by just simply taking the S&P 500, dividing it by the unemployment rate squared, multiply, multiply it by interest rates in the United States, multiply it by the inflation rate year-over-year in the United States, and divide it by the money supply. When you do that, you get these pretty well-defined business cycles. And you can see them, right? And what you'll notice is that every business cycle ends with a recession, right? The gray shaded region. Every business cycle ultimately ends with a recession. That's what usually is needed to get us back down to where the business cycle resets and where we start a new business cycle.
You will notice that we haven't had a recession this business cycle. So far, the Fed has been achieving what's known as a soft landing, where they try to rein things back in without it leading to a larger drop in risk assets. But recently, uncertainty has been mounting. Stocks are starting to to show a lot of weakness. They haven't really gone anywhere in six months. And the reason why that's concerning is if you trade Bitcoin, you know that when Bitcoin basically went six to twelve months without making any progress, it eventually led to a, a relatively sharp correction in, in the cryptoverse. And so now we're faced with the S&P 500 hasn't really made any great moves recently, and we've been calling for a correction here for a while. And it, it's taken a while, but it, it's also just been generally trending down slowly. And so the, the price of the S&P, the value of the S&P today is the same value that it was back in October of 2025. So this, to me, looks like, you know, it's, it's wanting a correction, right? It's wanting a deeper correction, in my opinion.
Now, business cycles end when you develop a negative feedback loop. Now, that negative feedback loop has not yet occurred. Now, the negative feedback loop is characterized by companies laying workers off. Those workers that are then laid off, there's not as much demand for goods and services in the economy because of the workers getting laid off. Therefore, it leads to the company's earnings going down, and then to to accommodate that and to, you know, to cut costs, the companies will then lay more people off, which then leads to less demand, and then it leads to lower stock prices, and then it leads to more layoffs. That is the negative feedback loop. We are not in the negative feedback loop right now. We're not. Initial claims are low, layoffs are low. Certainly, one weekly spike by oil is not enough to necessarily justify an immediate end.
But the problem, and we'll show this on this chart, the problem is that in a lot of these business cycles, it's oil spiking that then leads to the beginning of the end of the business cycle. Look at 1990. There is a lot of geopolitical conflict going back then as well. And you'll see that the price of crude oil spiked, and we pretty immediately had a recession. And the business cycle ended in the '90s. You can see that there was this bubble, the dot-com bubble. The price of oil started to spike, and it led into the recession in 2001. And in 2008, 2009, you can see we had this business cycle, and then the price of oil was already going up, and then it just continued to go up, and then it led into this major downturn. I'm not saying the price of oil caused the major downturn, but what it does is it puts pressure on an already weak economy, an economy that is already in a late business cycle environment. So now things have been slowly dropping, appearing like a soft landing, but now we have this hiccup in the soft landing narrative, and that's the fact that the price of oil is spiking.
Now, what's interesting is that despite how weak the labor market data was, despite how weak it was, what's really fascinating is that the Fed is not really expected to cut rates. Now, how can that be? How, how can it be that the Fed would not be projected to cut rates until, say, like July or September, when we just got non-farm payroll coming in negative? How can that be, right? Non-farm payroll, 92,000. Consensus was 70,000. Negative 92,000. So, if the US economy is losing jobs, and we can go look at this really quick. Um, we're going to go over to the unemployment statistics. We'll look at the, uh, which one do I want to look at here? Um, employment level year-over-year change. Notice how prior recessions happen when this metric goes negative. It's really close, right? Like it's really close to going negative. So, how can it be that we are about to see a negative year-over-year change in total non-farm payroll? Fed's got their head buried in the sand because they're not, they don't look like they want to cut anything. How can this be?
Well, the Fed has a dual mandate: price stability and maximum employment. It's not just one. It's both. The Fed can't cut if they think inflation's about to spike. Whether it spikes or not is irrelevant, right? Just the, the fear that it's going to spike. Now, oil, you know, the energy prices only make up like 7% of CPI, but because they can spike 30 to 50% annually, like that's a fairly common thing that it can happen, it can really impact CPI. It can really impact it. So, what happens is that we run the risk of a hard landing because the Fed is going to be too late. Now, the reason the Fed might be too late is because of something necessarily that's out of their control. They can't control that oil is spiking, right? They can't control what's going on in the Middle East, but it does influence the reaction function of the Federal Reserve. So, you got to keep an eye on oil. I mean, you, you have to keep an eye on this because that, that is the risk that we run right now.
Now, listen, I'm not saying the S&P can't, you know, get any more rallies. I'm just saying right now, I think we're in the middle of of at least a 10% correction. I'm not saying it has to immediately go, you know, down 50% or anything like that. But the way that you, you start to test the waters of that negative feedback loop is if prices drop, does that lead to layoffs? That then leads to lower demand, and which then leads to lower stock prices, and which then leads to more layoffs. The, the, the risk is that because oil is spiking and we're getting this larger drop in, in the stock market, it, we're going to, we're about to find out, right? We're about to find out if this is going to cause any type of negative feedback loop. Right now, initial claims are low, layoffs are low. There's a chance that if this follows, say, what it did in '96, or sorry, in in '99, 2000, whereas if you, if you take that bar pattern from way back then and you start here in '96, there's a chance if it follows this, which it's had a pretty good track record of following, you know, so far, you could have a drop and then it still gets another rally before ultimately dropping large, dropping more.
The point is is that, you know, we are in a late business cycle environment. And you can see that we're in a late business cycle environment by looking at the business cycle chart. If you want to get access to this, you can go to intothecryptoverse.com. So, we're in a late business cycle environment according to this. And then we're also in a late business cycle environment according to our liquidity risk metric, which shows you that it's similar in terms of prior areas that then led into recessions. Right? It's a late business cycle environment. If the price of oil were going up because demand spiked in an early business cycle environment, that's different. That's a bullish thing. But in a late business cycle environment, when the price of oil spikes because of a supply issue and geopolitical risks and tensions, that is what can accelerate the beginning of the end of the business cycle.
So, remember, we put out this video one week ago. I think just like one week ago, and in one week, the price of oil rallied from $67, from $67 to over $90 in one week. I mean, it went all the way up to almost $93 now. I mean, oil is coming into some levels here that that might be interesting to watch, right? Because it, it has spiked up to these levels a few times. But the main risk to the business cycle at this point, the main risk is that all the work by the Federal Reserve, the careful raising of rates, the years of quantitative tightening, the pain that so many of you felt if you were holding altcoins. I try to do my best to tell people that altcoins were a terrible investment the last few years, but the pain that a lot of people felt in those high-risk environments, in those in those high, um, in a not in a not a high-risk environment, in a late business cycle environment because of of tight monetary policy, the pain that you felt was all part of the process of the Fed trying to achieve a soft landing. And now all of that is being threatened to be undone because we're now in a late business cycle environment and global uncertainty is spiking. Oil is spiking. It runs the risk of inflation heading back up.
And Bitcoin saw all this stuff coming a long time ago, by the way. You know, back in October, and everyone was screaming for it to go higher. We said, "No. This is normally when Bitcoin's market cycles end." Now we know why, right? Look at this. Straight down. Basically, I even said, I told you guys, you know, I said that expect a rally in early March, but it would likely be a lower high. You got to be careful with these higher-risk assets. I'm not saying they won't rally, and, you know, anytime they do, it gets really toxic out there. But midterm years are for wealth preservation. That doesn't mean only cash. It just means being in things that are trading differently than sort of your typical risk assets.
Over in ITC Premium, one of the main things we've been very bullish on for a while have been energy stocks. And the reason we were bullish on energy stocks for so long, like the XLE, was because we talked about this coming rise in the price of oil because usually in a late business cycle environment, it is the price of oil going up that then leads to the drop in risk assets. So because we thought that oil would go up, it made sense that energy stocks were starting to price in that increase in the price of oil. Energy stocks went up, and then when the price of oil broke out, we got a little bit of a correction in energy stocks. Not a lot, but a little bit. And remember, energy stocks are some of the last things to top out at the end of a business cycle. I don't want to give you the impression that this takes place over a day. Look at what happened in, you know, 2007. I mean, energy stocks were all over the place from like July of '07 until a year later. But it did inevitably lead to the end of the business cycle. Even in 2001, right? Energy stocks were still putting in new all-time highs. Even in April of 2001, the stock market topped out in March of 2000. Energy stocks made, remained bullish a year after the S&P topped out. So even if you get a correction over here, it doesn't necessarily mean that's the end of the business cycle. But what it is is it's the beginning of the end. It's not the end. It's just the beginning of the end. And the beginning of the end of the business cycle can take many, many months to play out. It's all a very, very long process, and a lot of people lose their way, right? They get distracted. They forget about where we are. They think that alt season is happening because someone said it on Twitter. They forget where we are in the business cycle.
But when you zoom out, you can see that we have been in the confines of a single business cycle for years, for many, many years. And if you exclude the pandemic, you could say it's been going on since '09. So I don't know exactly when it's going to end, but normally when the price of oil starts spiking, the alarms start going off. Now, it's funny because when we talk about this, there's always a lot of critics, but what I have found is that the loudest critics are the ones that have been bullish on these risk assets the entire way down. Right? So, you know, it, there's a difference between being a doomer and being realistic, right? You know, a lot of people called, you know, called us out for being bearish on Bitcoin back over here, said that, "Oh, you guys are doomers for believing in the four-year cycle." No, we're realistic. That's all it was. We're realistic. There's a difference between being between being realistic and being a doomer. Not all business cycles have to end with 50% drops in the stock market. The one in 1990 was a 20% drop in the stock market. Okay? They don't all have to end the same way. But it is okay to learn about business cycles, to understand where we are in the business cycles, and to not simply ignore something because someone on Twitter thinks they know what they're talking about. Because again, a lot of these guys have been bull posting the entire way down. So, please remember that, right? Because it, you know, every midterm year has been the same. And I don't really think this one's going to be different.
And you know what's really fascinating about Bitcoin this midterm year? You guys remember this chart? The average price of Bitcoin in midterm years. I mean, look at that. Look at it. It, it spiked when it always does, and then it got a correction when it always does. You can add the standard deviations and just see it's tracking prior midterm years, the average of them perfectly. And on March 4th, when we had the rally, there were about ten different people with followings on Twitter that came out to dunk on me when Bitcoin rallied up. And now it's crickets again. So remember, there's a difference between managing risk and being a price cheerleader who dunks on people anytime there's a counter-trend rally. There's a difference. Learn to distinguish between the two. It is better to be a permabull than a perma-bear. I will always think that is if you're going to be one, if you have to pick one, go be a permabull and not a perma-bear for the next 40 years. Okay? But sometimes the bears are right, and usually in crypto, they're right about every four years. And it's okay to be realistic about the markets and want to learn about how the macro fits in with these business cycles.
If you guys like the content, make sure you subscribe to the channel, give the video a thumbs up, and again, check out ITC Premium at intothecryptoverse.com. Link is in the description below. Thank you guys for tuning in. Subscribe, and I'll see you next time. Bye.