Transcription
The S&P is rolling over, and it's rolling over for three major reasons that we need to address. Crude oil is skyrocketing faster than any place since the 80s. A lot of people have this wrong on why exactly it's skyrocketing. Some parts are easy to fix, other parts are not, and we're going to get into what those two parts are so that you'll know exactly what they are. So when they change, you'll know how to act on it.
The dollar's continuation of rally is really rolling a lot of other sectors over. We're going to explain exactly why that's happening, so you know which sectors to look at and which sectors to avoid. Private credit funds continue to implode. We need to talk about how this is going to affect the current landscape, which stocks are going to benefit greatly from this contraction and which ones are going to get absolutely crushed.
To be clear, through this strait, zero tankers got through on Friday. The average was 56 a day. 20% of global oil supply is now gone. Insurance pulled. There's no escorts and there is no movement. That's the facts. Gas is skyrocketing. There are companies that get destroyed because of this and there are companies that actually go up because of this, and we're going to cover them. Let's get to it.
27.5% of you do not subscribe to this channel. Please click the subscribe button and click all notifications. These videos are linked. They start on Saturday and then they run through the week as we follow what transpires. Let's do it.
A graph will help us really understand what's going on. EM is emerging markets, and why does that matter? It matters because just so you understand what you're looking at. That's all. Currency volatility has jumped above the G7 gauge. So the G7 sets a gauge. JP Morgan G7 FX V gauge. And that here is in blue. So what they're saying is this is what we think the FX volatility is going to be for the G7, and then JP Morgan EM FX volatility. And this is what they think it's going to be for them. So what you're seeing is that the emerging markets over the course of a year, and it's kind of interesting how it's all declined on the volatility scale from there and now you're going over.
Now, why is this important and why do you care? And there's a couple reasons why you do. The first is stability of the underlying currency is one of the reasons why people have been going into the emerging markets trade. When that stability goes away, people are either going to one, have to hedge that out, or two, they're going to have to look at this and say it's too volatile and they can't hedge it out and they're going to sell. Either way, it reduces the return that they are getting on emerging markets. So, emerging markets come in.
The second part of this shows that the G7 and where you're at right now on the volatility scale is actually putting into a position where G7 is actually more stable than EM, which is really kind of interesting when you look at it because you would just think it'd be the exact opposite. Like it would always be the exact opposite of that. But what this will do is this will throw people off and it'll force people to either one, avoid EM or hedge it and therefore they're going to get less return, and so it becomes less attractive. That's the importance of this graph.
Now, this is important because it shows that volatility is another reason why they're going to start buying the dollar. Now, you always go into the safest asset, and despite what we always hear, the dollar is still the de facto standard. And so, you're going to have money that's going to come into the US dollar. But that volatility that we just went over exacerbates the speed in which you move into the dollar, which throws off the emerging markets trade even more. So, keep that in mind.
Also, if you need to go out there and buy more oil, you're still trading oil in the dollar. So, you're going to see this huge rush into the dollar, and that is going to change the game. We're going to talk a little bit about what other sectors are going to be affected by this, but this becomes very, very clear on how this is playing out. And I, I just think that this is really important. Parts of this, guys, I know are a little more in-depth and you might want to watch parts again, but the reason I do this is so that you can actually understand the mechanics behind the market so you know what's actually driving it. So you'll know when it's over instead of guessing.
But if we went back to when we had all that winning and liberation, so much winning and liberation, they had to pause it. And we can see, we all know what this was. And then when they paused it, you can see right here that was the shortest that people were on the dollar because they didn't need the dollar as much if they weren't going to trade in it. Well, if you're going to be out there scrambling like everybody else is to go out there and buy as much oil as you possibly can right now, which everybody is going to be doing clearly. Uh, and again, this is by Macro Bond down here and Morgan Stanley, you are now at a 91.9%. Um, and that you went from record shorts to 92% in a year. It's, it's an enormous move and it means that the dollar most likely is either going to one, stabilize or go higher. And then we could talk about what sectors are going to be most affected by this. And I think that this is something that we should just be a little bit aware of before we plow into those names.
Now, when we look at industrials, and just important to note, it does not mean that, no, you're not going to buy, stop buying industrials, but the cost goes up. Oops. So, again, these are always unedited. I map these out and then I keep them raw and unedited because I think the devil's in the details. And sometimes I'll say things like, I'll map this whole thing out in my head and then I'll, I'll have the corresponding research before I create them and then I just roll with it. And I just think it's, I just think it's fresher that way and I think it's more honest that way. Um, and I just think it's more actionable that way because then if you know how I'm looking at the world, you can agree or disagree, but at least you know where I'm coming from.
So we just look at the industrial sectors and we'll see that we're coming in. And it's not, it's not like we're falling off a cliff, but you are getting a little bit of weakness here. And you can see where the RSI is dropping. So if we went and just did something simplistic and looked at the weekly and just said to ourselves, okay, well, selves, what do we think here? Well, we'd have to look at the industrial space here on the RSI and say, well, we are at an 86 on the weekly. And that doesn't mean that you're going to fall apart, but it does mean that you might just breathe a little bit. You can see your negative divergence here where you have the high and then the lower high. And we can see how that obviously is going to give you a period of just slowing down and then of course winning and liberation. But whenever we see this stuff, we just want to be cognizant of it. And it doesn't mean that you're going to fall off a cliff. You don't understand the magnitude of the drop.
So whenever I see stuff like this where I have these negative divergences, all we want to do whenever you see this kind of thing is you just say to yourself, you say, "Self, this might be a situation where we just might want to watch and maybe we don't have to get goofy. Maybe we want to be more of a trader in here where when you have these kind of areas down here where you're getting this huge opportunity to buy, this is when you want to, you know, as I like to say, go nuts." Um, but when, when you're up here and you're starting to see some weakness, this is happening for two reasons. One, the stronger dollar. And, and so why does the stronger dollar matter? The stronger dollar matters because when you see these kinds of moves, it actually means that you're going to be putting yourself in a position where if they were going to buy a John Deere tractor overseas, all of a sudden that tractor got more expensive. Caterpillar, Boeing, any of that, it all of a sudden gets more expensive. Does that mean you're not going to buy it? No. But it does mean that it's going to get more expensive.
What it's good for with the industrial space is the conversion back from that currency into the dollar because a lot of these companies don't even hedge the risk as much anymore because they got sick of trying to hedge it out. And we just showed you how the currency fluctuation gauge is significantly greater than anybody thought. So their hedges are going to be all screwy anyway. But what this means is when they convert back in, they might do better. And we see this a lot with Microsoft where Microsoft no longer hedges their currency risk. They just, they just fly footloose and fancy free. That's why you always see huge moves in Microsoft after hours. Whenever you see an earnings call on Microsoft, sometimes you'll see these enormous moves up or down because a lot of the earnings sometimes are coming from currency risk. You'll always see Microsoft have one move and then usually when the CFO speaks, you'll see another on the earnings call. You can go back and chart that over the past two years, especially with the volatility in the dollar and, and well, go back from 25 and look at it when you have some free time and you're looking for a puzzle.
But what I'm getting at here is, do I think that the industrial is going to come in? No. Industrial production has been through the roof. I don't see industrial production slowing down. What I think this does a great job of is looking at industrials that start coming in. And when they start coming in, ones that really don't have as much exposure overseas, but maybe more domestic, because industrial production is not going to slow down. Far from it. But that may present an opportunity. But industrials, for example, here should be at at more risk, just candidly, from that fluctuation of the dollar. And frankly, I think that presents opportunity. So when we're looking at this, we don't need to rush into these names. What we want these names to do is get smoked. So we want something like a GE when we're looking at this divergence going here, this negative divergence. We're looking at this and going, do I really need to have a long-term position? Probably not. You might look at GE and say to yourself, "Wow, I really want to buy GE." And then we're waiting for that to get smoked, right? We'll wait for it to come in pretty hard and then go, "All right, well, this is an area where I want to look at GE." Or we might look at Boeing and what's going on there and say to ourselves, "Hey, I really want to buy this." Now, you have this huge order from China that's coming out right now. Um, and I do actually like the way that that's shaping up, but do I really need to get into that right now? Maybe not. And so, what you do is you just go through the names and then you make your own decisions. I, I, I do equate like GE V in this space as well. And these are pretty decent reversals on this kind of stuff. And we just want to be cognizant of that.
So, I always put these names like GLW in there. And you can see how these names are acting right now. Um, and they're going to get smoked here, guys. Like, there's not really a whole heck of a lot that you're going to uh, you're going to do or say about it. And I do think that they fit into this category. COHR. Um, and then LIIT. And why are they coming in? There's another reason why they're coming in as well. And, you know, maybe we'll touch base on that in this video. But, I do think that when you see this kind of stuff, you have to put the brakes on. And I do tie these names to the industrial space, but I also think of the hard mechanics and the hard machinery as well. And you don't really want to go out there and say, I will stop the water. I'll give you a great, great example of this. And we'll just break it down on a five-minute chart. This looked absolutely fantastic. You came down perfectly to this level on Friday, like absolutely perfect. And you hit, you held the open. I actually bought in here and was up in it for about an hour. And then all of a sudden, we cracked and that was it. My dreams were smashed and then I'm looking for which hot pocket to eat.
But what you start to see is that just it becomes systematic. And, and how do you know it's systematic? If you're in the community, you hear me talk about this all the time. These 45-degree angles, that is just systematic selling. And then as the day goes on into 3:00, it just gets worse. It's just get me out, get my cash, and go from there. But to tie it all back together, what we really want to understand is whether the industrial space is that we're looking at here with the XLI is going to be come down to this 155 or not. We understand that a stronger dollar is going to make the industrials weak. So we understand what's driving it and therefore we can make better decisions. And that's the important part that you need to take from this. So if you're looking at the industrial space, you might take a second and go, well, let's go take a look at the dollar. You also might think about it from the standpoint of, hey, who's up the most right now and what names are up the most? Because that's where these guys are going to say, do I really want to risk my year? And, and you always have to think about from the standpoint of an investor or someone that's running a bunch of money. And I'll give you an example of this. If you're, if you're up five or 10% on the year and then you're about to go negative on the year, money managers don't do that. Like they, they, they just don't. What they'll tend to do here is they'll put themselves in a position where they'll say, "Okay, I'm up 10% on the year. I'll do a drawdown across the board to 5% year-to-date 5%." And then I have to go. So, when they start to see this happen, it doesn't matter if they make lampshades or DRAM, they're gone. They're just locking it in. And this tends to have a self-fulfilling prophecy. So, you're going to see more of that as well.
But what you're doing before you get to the part of it, you're understanding that the mechanics that are driving that is the stronger dollar with what's going on in Iran. Let's dive into the actual problem. This is the Strait of Hormuz, if I'm pronouncing that miscre. It's not a shock. Crude exports before and after disruption. So this is million barrels a day. And you can see your level in here. And then you have other examples of what's transpired of the 12-day war, some types of drills that happened in 25 US pull out in May of of uh 2018, 26, which we now refer to as epic fury, uh, Israeli strikes of Iranian embassy in Damascus. And the one thing that I don't think a lot of people are getting because, and I'm not sure why we're not picking up on this or why people are not picking up on this, you're in a situation here where it's literally zero, zero is getting through. And I'll show you data from Kuwait in a minute here. And the important part. Why do you care about this? You care about it because it's affecting crude, and crude's affecting the dollar, and the dollar is affecting everything else, and crude's going to affect the other things that the dollar doesn't affect. And that's why you're watching what I referred to as the great unwinding. Let me show you a couple things here.
Now, to be clear, these graphs are obviously not mine. They came from JP Morgan. And I just want to state something. JP Morgan said two days ago that Kuwait was going to have to do this, and they're saying the UAE is next. I, I would just pay attention to this and I would pay attention to the graphs that I'm going to show you because I, I put a, a bunch of slides together and you'll see them in a second. But I, I, it's really important to get this, um, because estimated supply of shut-ins by day. We're going to describe what a shut-in is in a minute, but that's really what Kuwait did, and it's not great. It could actually be irreversible. There's a chance that it could really screw up what's going on, but we'll address that in a moment. And I am far from an expert on this, but I'm trying to get up to speed as fast as possible because I think it's way bigger than we think it is.
Days before shut-ins started, Yscale supply shut-ins in millions of barrels a day. So this is where we are right now. And then this shows the crude volumes and then this shows crude production volumes reported. And so what you're starting to see is the cut-off. And what you're seeing is not only does it, it doesn't like flatline the millions of barrels a day, which you might think it would, it actually starts to go exponential until you're about three to four weeks out and then it flatlines on crude and products volume. So you're not only just talking about crude, you're also talking about other, other things as well. We're talking about LNG, other forms of energy that are coming out of the region. This is really important to get, and this is how they see it. And so they're saying if we get a de-escalation, and they're showing crude and then they're showing other forms of energy here, but we're just going to focus on crude without getting into the whole LNG side of it. We can look at the LNG charts, etc., etc. But if we look at flow of tra, flow, full flow of traffic, if it picks up again immediately, or 65-70 is what they're saying. If you have ongoing issues, 80% of tanker flow returns within one to two weeks. If you got 80% returning in one to two weeks, another two months before it returns to 100%. Meaning right now, if you stop and everything started flowing again and you got up to speed, you're at 90 in the first half. Now, this is not them saying this is where you're at immediately, that this is an average price. So in order for you to be at 90 on an average price, you would have to go higher than 90. We're already there. That this would be best-case scenario based upon what we just saw happen with Kuwait. So we have to understand that best-case scenario in my opinion, you're looking at this 90. If you start looking at effective closures, effective closures remain for four to five weeks or longer. Demand destruction necessary to rebalance the market. You're looking at 120, 130. Do I think that's possible? I, I do. And I don't think people fully understand this. So even in talking to people, I, I don't think they understand that.
So take for example Kuwait. We'll get to this. They went from one number to literally zero or passing through the strait. Now, what I've done because it's easier to do, candidly, is I do a ton of research and I do a ton of reading, and this is labeled March 7th. So, if someone rewatches this part of it, they'll understand where. And what I've done is I compiled this into bullet points so it's easy for for people to look at and then I throw it all into a graph and you can look at this. It'll also be in Substack. I'm probably going to write a Substack on this. So, you're probably going to want to go in descriptions and just make sure that you're on the Substack, um, if it's of interest.
So, what happened? Kuwait has begun shutting down oil production at multiple feeds after exhausting all available storage capacity. They're producing and now they are shutting down, exhausting capacity. Why? People are like, why? Well, they don't have any place to put it. Well, why would they keep production going? Because you can't, you don't want to do a shut-in, essentially. Tanker traffic throughout the strait, it was 60 a day. It's effectively zero. So, we're hearing, we're winning, we're doing this, meaning the US, it's winning. It's, nothing's getting through. So, I don't know what the definition of winning is, but that doesn't feel like it. If everything was flowing and everything was good, you could say you're winning. This does not feel that way. And I'm not saying that from any political standpoint, but what I'm saying is we have to look at this and say what's actually going on. And one of the largest in the region, one of the, the original OPEC members can't even get oil through the strait. Officials discussing cutting production and refining domestic consumption only levels. Decision expected within days. Officials discussing cutting production and refining to domestic consumption only levels. I'm just going to say it again. Officials discussing cutting production and refining to domestic consumption levels only. Imagine Kuwait going to the point where they're only going to say, "Oh, we're going to produce only for us." And that's it. Exact volumes are not yet disclosed. Data shows cuts are already underway and projects must deepen cuts within 12 days to to avoid absolute tank tops. Meaning we're going to have to do even more than we've done in 12 days if this doesn't figure itself out. Pre-crisis, Kuwait was at 2.58. And then if you look at this, it's these numbers are just staggering to me. It's just that the amount of the amount of capacity that you were at and what they can do. It's really staggering when you think about it.
Why do you care? Why does it matter? Shutting wells is a last resort. Excuse the voice. We're going to power through it. Risks permanent reservoir pressure damage, high restart cost, days to weeks to restore. So when they shut, do a shut-in on a well, it risks permanent damage to the reservoir pressure. Iraq already cut production by more than half. Qatar declared force majeure on LNG after halting all production. World's largest LNG complex. So just so we're clear, the world's largest LNG complex has halted production. So, when we're looking at this and saying, "Well, why is oil moving like this? We missed it." Unless we're getting world peace, at the time of recording this by Monday morning, I don't see this getting better.
Now, there's talk of, "Oh, we're not going to." Iran came out. I'm not even going to cover it that greatly, but they came out and said, oh, we're not going to bomb our neighbors anymore. At the time of this, which is Saturday, they've already started that up again. So, that's just, uh, you know, it's a headline. It's not accurate. JP Morgan blockade could cut Iraq and Kuwait combined by 33, 38, and 47. See, it's not just, it stops, it gets worse and worse and worse and worse. And that's really the problem here. So, not only do you have that issue, but you're getting less and less. It's not like, oh, Kuwait stops and this is the stop. It actually gets worse. So, if you think about it, from day eight to day 18, 10 days later, if you just look at the numbers, you're taking another 1.5 on this number. So it's going to get 40% worse just here with Iraq and Kuwait in 10 days. Saudi Arabia and UAE face similar storage constraints within three weeks if the strait stays closed. Now, these are people in the region. Qatar energy minister says within two to three weeks if it remains blocked, and this is the part that I don't know why we're not getting the coverage of, but we're not. And you're looking at 150 is what the guy saying. So he knows more than I do. I'm not saying it's going to get there. I'm also not saying that it's not going to get there, but you have to understand that without this strait open, this gets worse, not better. It's at the point where I was reading an article this morning, uh, where they're starting to talk about moving things through land to get to the Red Sea. All major Gulf exporters expected to declare force majeure within days of a blockade. Brent 90, WTI as of just anywhere at crude gain largest since 83. But it can't possibly stay here, right? No, it, it can stay here. It can actually go higher, further, faster.
And so when we start, what, what are the streets doing? And it's just easier for me to put it this way. And you can screenshot this, but I will include a lot of this in a Substack. Uh, they raised Brent to 80, okay, from 62. And that's what they're saying. That's the average for 26. The average. If you did the math right now, they're telling you that they think it goes higher. Multiple banks see 100 if the disruption extends. Worst case, I, I, the numbers are just staggering to me. Uh, optimistic scenario, shortfall, SPR draws, Saudi rerouting, rerouting through the Red Sea East West pipeline, but terminal infrastructure limits pipeline, neither can fully offset sustained closure. So I put this together and I just think it's very helpful to look at. If you look at where you were pre-crisis and you look at your runway before you're at tank tops, meaning they have to shut down even more, you have 12 days left. And then you look at your storage runway, and then you look at what your daily transit was, which was 60, 60 ships a day, and you're basically at zero. And Brent crude at 90, and this is where you're at. And the price gain. I think that this is way, way worse than people think it is. That's my personal opinion of this. I'm always very interested in what your opinion is on these kinds of matters because there are experts that watch these videos in their fields or know way more than I do. So, please comment on this and please comment on what else you would be watching. But I don't think that people are fully getting the magnitude of this, and I think over the weekend people are going to educate themselves and be more aware of it for next week.
Now, when we look at something like crude oil, everybody's saying, "Well, this is it. I missed it." You just had one nation say this and you jump like this. And I'm not saying that you can't come in, have some inside bars before building. But this is not how this ends. So, if you know anything about technical analysis, and again, we're talking purely technical right now because you could have a macro event, you could have the peace, we could just have peace, right? And then you have a fundamental change and then you have a technical change based upon that. I mean, that can happen and I don't know how I feel about this stool, but there it is. So if we look at that coming straight across, yeah, something could happen and it could drop, but let's say all things staying equal, and right now this is the, the hand that we're dealt because that's all we can go on. You can't possibly be looking at this and saying, oh, well, I missed this. Oh, it's definitely going to pull back. Where's it pulling back to where it was the day before Kuwait announced? They still would have to fire it up again. I mean, that puts you at 82 best case. So, if you think about it from that standpoint, I don't see how this just miraculously turns around and everything's going to be groovy.
But if we just say it from a technical standpoint, let's say, all right, well, here's our breakout and go through these levels. You start getting to a point here where we're not even back to 22. We're not even at those levels. And that gets you back up to 101. So, if you're starting to look at this from a, just a purely technical standpoint, March 22 and what's happening here, June 22, you're looking at an area where it's pretty clear to me that you have a real shot here of getting to 100 pretty darn easily. And once you're at that level, then it starts getting where they, they really are going to try to keep it from breaking out of that. But if you get through this, let's go look at this on a weekly and dive into it for a sec. And you can see my little thing right there, the little stool. But if you get through 100, just from a technical standpoint, you're looking then at 119 fairly easy. At through 119, then you're getting yourself into 130. If you don't think this, this could happen, it was there a decade ago. So, it can happen. I'm not saying it's going to happen, but to think that it can't happen is a huge mistake. I don't know if you're going to get something like this again. I doubt it very, very highly because you're going into midterms. So, quite frankly, they're going to be freaking out. Uh, but that's my opinion of this. But for another week or two, can you see stability here? Could you see oil stay higher? Yes. And then what does that do, you know, because you start looking at some of this stuff and let's just be real clear about this. I, I think you see if you, and I don't know what's going to happen because I don't know that if how long this goes. I don't see how you don't see triple digits. And I know people are looking at this and saying that, well, that's pretty obvious. But what you have to extend to your, to your knowledge with this is then that puts you in gas, and then all of a sudden gas starts jumping. So, and that's exactly what it's doing because you can always go look at gasoline futures and you're like, well, why do you care about this? Well, if you're going to the pump and you're paying $6 for a gallon of gas, all of a sudden, you know, it gets, it starts adding up to people, and this is exactly what you're seeing.
So, when you start to see this stuff, you have to start thinking, well, who's affected by this? Besides looking at like the tankers, which actually, you, once they're full, right, and, and it goes higher, there's not a whole heck of a lot they're going to do. And I, I really think that that's one of the reasons why they're not moving the same way because all right, you fill the tankers up for storage and then they can't get through the strait and they can't travel as fast because the, the fastest way is through the strait, hence why they go through it. Well, now they're just filled with oil and there's no growth. They can't keep doing it, right? So, I think that's why the tankers here do come in. I've been saying this for a couple days, but, um, I think that's one of the reasons. There's more.
But if we look at that way, then you go, "All right, well, what about, you know, Exxon and these kinds and these." It hits a point where if you're not able to get it out, then there's, you're not seeing the growth. If it stays higher for longer, then you're going to have to adjust your price. But we've already come into that. So, what's so interesting to me is that when we're looking at something like an Exxon here, you're already seeing these massive divergences. Now, I'm not saying to run out there and short Exxon and, and Chevron. Far from it. I think what you have to do is start understanding the mechanics of each corporation and then understand where they have the majority of their oil and then go from there. So, I'm not an expert on this, but it does, it is interesting when you look at something like a Chevron and their operations in Venezuela and how we started down there and then all of a sudden now we're in Iran. Does that help Chevron? Right? Is that a better situation for Chevron because of what's going on down in Latin America? And so I start trying to figure this out and I was looking at Argentina, which obviously is going to be a huge exporter as well. And you would start thinking that some of these countries down there like Argentina or Brazil, maybe they start benefiting from this. And I'm not really seeing that yet. And I don't understand enough about that globally to to understand why we're not seeing that, but it would seem to make sense to me that they would benefit from this. So understanding which one of these corporations I need to look at or understanding if I want to start looking at the production side of the market. I don't think I need to look at the oil service side of the market because it's not like you're going to have a ton of growth coming out of that area unless you're going into some kind of protracted boots on the ground land war and then you're going to have to redo everything and that leads to, you know, Baker Hughes, uh, those kinds of names. But we're seeing the exact opposite in that space.
So then you have to think like, well, who's really going to benefit from this? And then you start thinking about names like Casey, for example. Casey has the ability to change their contracts out and they sell gas. So, could Casey actually benefit from this because gas prices go higher? And I think they can. Now, when I look at the chart and historically, you know, people don't even know that this company exists and it always makes me laugh because when you start looking at this, it like will rival any tech company out there. It's like just insane. They just print money and it's just always made it's like such an easy business. But nevertheless, if they have a contract and they have the ability to move those contracts. You see, when you go to a gas station, like you go to an Exxon, they have to buy gas from Exxon. They don't have a choice. Casey's can go anywhere they want and buy gas. They have contracts, of course, but they can negotiate. And that's one of the things about it. So, when gas goes up, they can negotiate where other places like an Exxon or a Chevron gas station are locked in. Another one that makes sense that I want to watch is Murphy's because Murphy's has a very similar kind of model to Casey's. It doesn't work the same, but it's very similar. So, I will be watching both those names. If you guys have names that you think are going to benefit, I'm all ears.
We saw this little guy kick around this BATL. And I have to say something. I don't know enough about this company, but if you're, if you're land-based in the US and you're going to be able to produce, you have to start thinking about some of these outside local types of organizations because a lot, when a lot, see what a lot of people are not getting when they look at like EW and how it's dropping is all their oil comes through that strait essentially. Same thing with China, and that's why you're seeing these drops in these like EWT and EW. You have, you're getting hit from both barrels with these. And again, really important concept to understand because when it reverts and it stops, these will probably go back up. But you have the rising dollar which is putting pressure, as we went over with the G7 stuff very early in the video. But also the cost of them to buy oil and get oil. If you look into what, what is Japan doing, or Vietnam doing, or Taiwan doing, or South Korea doing, any corporation that was selling such as gasoline anywhere, they're, they're being restricted from even exporting anything right now. They're so they're already tightening. It's been a week. It's not been a month. It's been a week and we're acting like, and you know, I'll use the term that he's going to taco this and just change his mind. You don't get a do-over. You don't get to come out with a new piece of cardboard here. And I'm not saying that from a political standpoint, but you have to understand like you can't put this can, the jar back, the top of the lid. There it is. There's the saying. You can't put the lid back on the jar. The can of worms once you pop it open. It doesn't work like that. Not like this.
So, what happens here? Well, I think this puts us in a really interesting position because you have, you know, that's not going to stop. We're going to tie this all together, by the way. Samsung, that's not going to stop, right? Okay. Micron, that's not going to stop. So we know those names are not going anywhere. We know that Taiwan Semi has more business than it cares to to mention. But we also know that their costs might go up on all this. So what this is doing is giving us an opportunity when this settles to start looking at these again. So what I find very helpful in situations like this is to build up a list of things that if, if this, then this. If this slows down, everyone's going to say, "Oh, well, you short oil." Well, of course. But if this stops, then you want to start understanding that people are going to start realizing that the cost structure of these corporations are going to change again. And then you're going to want to look at those names. Standing in front of those names and saying, "I will stop the water like light or GLW or anything like that is going to be the kiss of death." And we have to understand that.
And we also have another, another issue out there like we, like we don't need one more. But we, we really should talk about what Oracle's doing and with this cost-cutting measure and what, what's happening on the capex side and then tie this whole thing together. First part of this that we need to tie together is when we're looking at Europe right now, we have to understand who's affected by this and how badly they're affected. So if we look at MSCI Europe, and anyone can just go pull that up. Every single time that you have this three, this three-month, and you're just looking at from a daily perspective. Every time oil drops, you can look at what happens with the MSCI Europe correlation to oil. Every single time Europe gets smoked, it's not once. It's pretty drastic. We need to really pay attention to this because to me, I think that that's exactly what could happen here. And the reason for that in my opinion is going to be the fluctuation of currency and the reason that you go back out and buy the dollar. That's one reason. The second reason is if you look at the correlation on how this marks, and obviously they're inverting, they're obviously inverting Europe, and I'm sorry, they're inverting oil here, and they're, you know, obviously not inverting Europe. So, there, the inversion of oil is right here, just FYI. But what we have to understand is it does make sense because you're going to buy the dollar. So the outflows of owning the euro into the dollar are going to drive you down, right? That's the first thing that's probably going to happen, obviously. And then you would have to say, all right, well, your cost structure goes up, so your gross margins get tighter, and Europe definitely works on thinner margins than the US does, right? So you have a couple things there that you'd have to pay attention to. But this is definitely something we want to pay attention before we go to the next slide here.
This was a great graph, and I just want to go through this so people can see it. Are you worried about these loans and private credit and everything else that's out there? If you're not, you need to be, and we're going to cover this because it's really important. So, not only do we have this other front going on with the cost of oil going up, if you are looking at capex and you think that it can keep going up, it can't go up if nobody wants the paper. If they're losing money on the paper, they don't want it. So, I'm just going to make this super simple. If you buy something and it doesn't work, you're going to return it. If you buy an investment and it doesn't work, you're going to sell it. Are you going to buy more of that investment? No. If you bought a stock and the stock goes down and it keeps dropping, are you running back into it? No. Not unless you have issues. So it, so when we start to look at this, and again, this is your leverage loan, one-month price return. So just so you understand what we're looking at, one-month price return on EU leverage loans, and I try not to get this specific, but this was so, as someone likes to say, absolutely glaring that you just have to see this. IT services, I guess, because we're all Googling or I'm going to say Googling or searching on Claude on how to fix things, how to fix our own printer these days, but I'm, I'm making it obviously more basic than it is. But when you start to look at the price point on these corporations and their ability to borrow money, you're down 8%. Now, that's from January from this point over, which looks like about December over. But that means for every piece of paper that you bought for 100, it's at 92. Just think about that for a second. And then with software, you can obviously see how software has been getting hit. I think it's a real issue that that you could see the credit market sees up. Now, I'm not going to go do the deep dive because I don't want to make this video 14 hours long, but you need to just, I'm just going to talk it through so that you, you can get it. And let's do it.
The first thing is the spread of the average return between the top and the bottom of the top 500 market cap out there is the highest that it's been. If you're not in the right names, then you're not making any money. It's never been more important to be in the right names in any time in the past. This only goes back 16 years. It's never been more important to be in the right names than right now. And that is so significant. And the question is why? Because everybody's in the most crowded that they've been in 16 years. So when this gets hit, as it's getting hit, that's why it's so vicious. That's why it's so volatile. That's why you're watching names like Light drop two $300 and you're like, "What the heck's going on? They just had great earnings." Everyone's in the trade. Supply and demand, fear and greed, but it's on steroids. You have to understand this part of it before we go to the next part because this could be the next lever that accentuates the situation.
So let's start with the issue. So the first issue is that Oracle and their data centers, and now they're starting to slow these data centers down. So we started with 1.2 trillion by OpenAI, and now they're at 600 billion that they're going to do. They cut it in half or 60%, something like that. And at the same time, we're now being told that Oracle is not going to expand out with OpenAI. Oracle has all these bonds, but they're debt service. They can actually cover it. So it's not as big of a deal, right? But they're not going more in the hole for this, which is maybe not the worst idea, right? And you are starting to see Oracle start to hold in here if we do some simple things and we focus here. But this all ties back, and again, you're just looking at a three, a five, and an eight. This is the eight. The yellow is the five, and the three-day is the green. But if we go back and we look at this and we just can see pretty much you had bouts of just red and then flipping to green and giving us the opportunity to possibly go. You know, you're getting some movement out of that, but not a whole heck of a lot, right? But we're starting to see it start twisting and turning and getting tighter and tighter down here. And I think that's actually a good thing because when you start seeing like the, like for example, the three, if I clean this off real quick, I'll show you what I mean by this. Let me just go to, we'll hide that. So, if you go to this area, you'll note that like, all right, here's the three-day, and we're rallying up.
But then we have this low, and then we take out another low, and then the 3-day takes out another low, and then the 3-day stops taking out a low and starts taking out a higher high. So, you're actually charting you're actually charting the moving averages, right? And seeing if they're they're taking out lower lows. So, like if here's the three and here's the five, you'll see that the five actually took out the lower low. You'll see that the eight actually took out the lower low, right? So, here's the low of the eight and then we took it out. The three didn't. So, that can be a change in trend because that moving average is here. So, here's the low and then here's a higher low. Say it with me. Yay.
So, same thing could have happened here where we didn't take out the low and then we took out a higher high and that just wasn't the case and we just had more pain. And you can see that area of pain right in there and how it flips. But you're trying the same thing here. So, now if we can make a higher high or a bigger higher high and get that 3-day over like 158, maybe have a bottom. All right.
So the point of this is not to say look at just Oracle, but understand what's going on under the hood. So if we take a look here on the RSI, we'll see that the bottom's here. We'll see another bottom here. And so you are putting in a huge bottom in Oracle. I do think it's got a probability of holding. And I'm saying this for a reason. So here's the 200E moving average and you're sitting right on there as well, right? All right. So you have a lot going for it.
So why does this matter? It matters for a couple reasons. So, we get this news on Friday and the news is Oracle's not going to go forward with the expansion on OpenAI in this one area yada yada yada. Does the stock drop? Does the stock fall off a cliff? Does the stock die? Not entirely. No. Is it the best news? No. You drop down about eight bucks, then you bounce, and then you try again, and then that's pretty much it, right? But does it go to zero? Does it fall off a cliff? No.
You get a bunch of people going, "I knew they had problems." Well, if they don't spend more money, then they don't have to increase their debt. So, I actually think that the equity side is looking at this the wrong way. They don't need they already have the cash flow. So, they don't need that, right? And so, they can just stop if they really need to. They're not in a position they are negative cash flow with the the buildout, but the buildout slows down and the the capital comes back in. They start paying down the bonds. They restructure some things and then they're fine. It's not that big a deal. They already came out and said they're laying a bunch of people off and they're going to focus some efforts here and so they're shoring up their balance sheet. It's actually prudent what they're doing, but that's a real long-term way to look at it and I think that's how you should look at it here.
I'm bringing Oracle up for a reason because there's this canary in the coal mine that's out there and like like we don't need another suck salad, but we have one and we have to talk about it. So, you have the software side of the market and AI is going to eat the world, right? CRM is in a lot of trouble even though it's got like one red day now since earnings you know crowd strikes very similar chart another higher high that day since that bottom here you've done nothing but grind up IGV very similar you're bouncing as well nothing but grinding made a higher high and you have these names out there that are still building despite the selloff that we had recently right and that's because of that unwinding that we went through in the beginning all right.
So where am I going with this? Because it's important to understand what's moving in this market and why it's moving. The great unwinding is causing that move. So, let's go back to IGB. Sorry. The great unwinding from the dollar trades are are causing that move. All right. And then this thing, you know, we're never going to need a software engineer again. But as we went in last Saturday's video, well, we don't need a software engineer again. Why is why is OpenAI and Anthropic and all these companies hiring them?
Okay, if you take a look at that piece, the one thing that could slow this all down and even slow AI down and everything is the ability to borrow money. Now Google and the metas of the world, they don't really need to borrow money. They choose to borrow money, but they don't need to borrow money, right? And so when we understand that structure and we understand the difference, we're better off. So they certain companies have to borrow money. Like Snow has to borrow money. Certain companies to grow, I'm picking on them wrongfully so, but I'm just pointing it out. Like someone like them, if they really want that growth, they may have to borrow money. Smaller midcap companies have to borrow to grow. Cash cows don't have to do that.
What does this all have to do with anything? And how does this tie to that sheet that I just show showed you about what's going on in the capital markets and the slowdown and whether or not capback slows down or doesn't slow down. The answer to capback slowing down or not slowing down is I don't know. But if I had to bet, I think that certain people slow down and other people speed up. And so maybe that's a net thing. We'll get to that later in another video. But you have cracks here. And this is the third crack that we've seen in this sector and we have to talk about it.
All right, so let's get to it. So one of the things that we saw here is Black Rockck. Now why is Black Rockck doing what it's doing? So we talked about the drop in what we're seeing in software and we saw talked about the drop in it and what's happening in Europe with these private credit and is private credit going to be a problem? Is it not going to be a problem? Let's just go to a complete bare chart. And this is really really important to get because it's not a prediction or this is going to happen or that's going to happen. But if credit seizes up, you have a problem because you can't grow, meaning you can't borrow, meaning capex could come in, etc., etc. Your expansion plans, etc.
Black Rockck, very clean line, came out on Friday, and a lot of people missed this. Didn't pay attention to it because they had 17,000 other things going on with becoming Iranian experts, what's going on in the oil market, non-farm payrolls, which you'll notice we haven't even touched on because it's so immaterial to what's happening right now. It's actually like a fourth tier. There's no chance of a rate cut right now with what's going on out there with what's happening with in inflation with what's going on with oil.
So, if we look at something like Black Rockck and this complete breakdown, well, why is this happening? Well, they're halting redemptions on one of their private credit funds. Okay. Well, we only thought it was going to be the smaller guys that were going to do that. So, Black Rockck broke. Period. End of story. So, are they going to be going out there and issuing or buying more private credit paper?
Now, why does does that matter? Blackstone came out and said, I guess they have managing partners or however they're set up because it's a public company. Let's I think it's managing partners. So, our managing partners are going to buy $125 million private credit fund so that we can issue redemptions to our clients. How many times are they going to be able to do that with these funds? Once, twice, three times. So, we saw this breakdown, but it held. Now, why did this one hold? Because they said, "Hey, you can have your redemptions. We'll buy the fund." And, you know, they're probably looking out 5 10 years and saying the fund's fine. That's not a problem of whether or not the fund is fine or not. The problem is that when they're asking for redemptions, you're not going to go out there and create a new fund.
So, forget about private credit's going to blow up and this is going to happen and blah blah. If I don't have demand for product, I don't need supply of product. If I don't need private credit software loans, they get more expensive at best if you can even get them done. And we saw this with Cororeweave where Coreweave had a problem with the $4 billion loan that what they wanted. Now the larger companies are not going to have this problem, the Googles, the Metas, and the Microsofts. But we take it back to Black Rockck and what's happening there. This becomes a much larger issue because something like Black Rockck is enormous. And if they're saying you can't have redemptions, where are you selling your private credit to?
So then you start looking at these three and we'll call them the three behemoths. And then you start looking at something like owl and they're taking out a new low. I think it's really important to note that the short position in blue owl is actually increasing. I do have a small short in this, not a huge one anymore, but the short position is actually increasing. It's not decreasing, it's increasing. And I think that's really important for people to get. I know it's important for me to get that because that means that the people on the street that are closest to these stories like that are looking at Black Rockck that are looking at Blackstone that that are looking at these names they're still shorting these names and they're not shorting them for any other reason but but what we have going on that particular issue of private credit.
So if they can't borrow they can't grow. If they can't grow we have to start understanding like how does capex grow? Well, it grows from the cash flow of those seven companies. All right, but what about all these other companies? So when credit seizes, that becomes a problem. You're not at that point where it seizes yet, but you're certainly at the point where it's going to slow down. There's no doubt about that. So we have to watch this.
Now, when you tie that part of it together, you have to look at this, and I do want to go through one name about this one thing that happened on Friday at 7:45. It's super interesting. But when you look at something like XLK, you're like, "All right, well, we're hanging in here. XLK text hanging in there." Then we go to XLC and go, "Wow, that's really hanging in here." But the leading sector for the for the S&P is always XLF. It always is. You need the financials to be in charge and lead or at least hold their own. You're not really holding your own. Yes, you're starting to see the Goldman's hold those bottom levels. Yes, they're trying to hold here. And yes, they're they're trying. That's the key word here. They are trying.
If we look at the JP Morgans of the world, they're trying. They've come back to that key level and they're trying. But trying to hold is not enough for financials. And so if you ever have a market where the financials look like this and then we're seeing the semis that are going to look the same exact way and they look like this, this becomes a real problem for the market. And so we're losing semiconductors. The financials are actually contracting. So what does that mean for financial conditions? That would mean that that contraction that you're going to see with names like Black Rockck or names at Blackstone, any of these or Blue Owl, that's going to spread and they're not going to be able to borrow.
Now, you're not seeing it in all the names, although you have names like Apollo or KKR and they'll get a little tighter as well and you can see that different kinds of corporations, but they'll all get pulled down. So, eventually something like a KKR, and I'll give you an example of this, you'll start seeing this level and going, "Well, this is really a great spot to get involved." Yeah, maybe if you're super long-term, but you have to understand right now that these names are in the doghouse for this particular moment and then we need for those to rebound.
If you go in with that premise that you no longer have a leading sector, which you no longer have a leading sector, I want to be really clear about that. We don't have any leadership here at all in the NASDAQ. We need to get back over the 55 here. Until that, this is what we have. So, keep that in mind when you're looking at your decisions.
I do want to go through one name in particular because I think a lot of people miss this. If you look at HIMS, you have a 39% 39.65% short. 81 million shares are short. HIMS came out on Friday. Novo is no longer suing them. And also, they are now partnering with Novo. Take a look at what happened at the end of the day. I think a lot of people missed this and now you haven't missed it. Now you know. So, not only is NOVU no longer suing them, now Novo is is agreeing to sell through their website. You have 81 million shares short. And I guarantee you that a lot of people were out for happy hour on Friday.