What I think is going on

Disclaimer: I am an imbecile down from +150% YTD to +50% YTD. If you take any of this blog as financial advice you are insane, because 100% of my net worth on Jan 1st was an insane amount of money, and yes I torched that being wrong (so far) about oil. Furthermore, I’m not qualified to give financial advice or help with financial planning, and the purpose of this blog is to track my thoughts and allow me to write speculative ideas that flow through my brain. Everything is based on my life experiences, and therefore, can be 100% incorrect, and should be assumed to be incorrect. By continuing to read, you agree that this is purely for entertainment purposes.

Basically, the summary of events is as follows.

1. I see on TwiXXer today that the news about total USD M2 is making the rounds again.

   1. Yes: M2 grew by an insane amount for a single month: about +1.1%. Meanwhile, commodities tanked, and the USD strengthened! Amazing! About as intuitive as the next point.

2. Oil draws around the globe continue (yes around the globe, because China didn’t retrofit their entire economy to stop using oil overnight, and they also would have no incentive to do this with sub $150 oil anyway).

   1. The reason crude prices are down is that the refinery buyers strike continues. I think we’ve entered stage 2 of “The Good, The Bad, and The Ugly” standoff, out of 3 stages.

3. Crack spreads (the profit a refiner makes for turning oil into oil products like fuel, distillates (diesel/heating oil), lubricants, etc, are at record highs vs oil prices.

   1. Why? This is simple, China has a ton of idled refining capacity, primarily because China isn’t letting refiners sell gasoline and diesel at market rates — they fixed the price at the start of the war. Thus, refiners are discouraged to run oil through at maximum throughputs, because they’ll be selling at breakeven if they’re lucky, and actually, for most of this war, they’d be selling at a loss. Currently, their refining margins are slightly positive with $70 oil.

   2. I expect them to return to the market soon enough and bid for oil, which should happen right as SPR releases significantly decline in volume (unless they’re extended, which they might be, but as much as people say “SPR releases are bearish” this is an incredibly short sighted perspective. The higher crack spreads go, the higher gasoline goes, and the more political pressure there is to fund new refineries as well as mandate refineries hold larger quantities of supplies on hand (Australia doubled their mandate, but one of two large domestic refineries blew up since the war started).

Some other updates: SPR releases have already started to slow in volume released per day. A lot of Canadian oil in storage (waiting to be shipped to America) is also at record lows, primarily train based oil exports (which are nothing compared to pipelines, but empty storages are empty storages.

The point is, there’s a hell of a lot of pent up demand for oil. So updates about how I’m playing this are below, but first some updates to the blog.

To start, everyone knows I’m an AI Ph.D., and I’m annoyed with myself for not investing in size in the memory bottleneck, which I’ve known about for 9 months, and knew was coming. Sure, trailing 9 months I’m up an astronomical amount, but I could be up even more had I included some targeted tech exposure. With AAPL and MSFT via Xbox and others announcing price increases for sold computers, due to soaring RAM costs, I see the bubble going farther here. Note: I’m still using the word bubble, and the reason for that is that RAM costs have hit truly astronomical levels. This inspires two things.

1. Competition: other people will race to bring new capacity online. I predict and expect classic “supply crisis followed by glut” commodity dynamics.

2. Innovation: META has already announced they’re now repurposing past DDR4 RAM to function in place of DDR5 RAM.

I’ve been (to my knowledge) the best commodity investor of this decade, and I see no reason why, if I’m thinking about digital compute and the physical tech for AI inference & training as commodities, that my current framework won’t print gains there as well. Naturally however, since AI is likely to be in a bubble where most companies will experience >50% selloffs over the next few years, I won’t be chasing this with more than 10% of my net worth, and primarily will be investing via options when the IV is in the right place.

Obviously, if I’m going to chase this bubble, the right way to think about it will be as a boom and bust cycle, and since I’m well-connected and actively researching AI, I’ve got a shot of identifying future shortages before others identify them.

This leads me to my second point about the future of the blog.

This may take me awhile, but I’m hoping to get this going, since I think it will be awhile before I officially start a fund. The reason for this is that I haven’t had much to say lately, because I’ve just been sitting on my hands and waiting. I have rebalanced some things in my portfolio, but they’ve been very minor, and I’ll talk about that below, as well as discuss my view on commodity macro.