(Houston)

The oil market is in an odd place right now. Generally described as “tight”—when supply and demand are very close, prices have risen considerably over the last several months. That said, prices have fallen steeply over the last week or so on fears of falling demand and rising supply. That is what makes today’s call on oil so bold. Barron’s, citing a senior research analyst on the oil market, says that prices may rise from their current high $60s range all the way to more than $100 this year. The core of the argument is that supply increases are not enough to offset growing global demand.

FINSUM: We don’t see oil going that high, but it could resume its bullish run. The core idea for us is that the oil market has many ways to increase supply (e.g. using strategic oil reserves, loosening sanctions etc), so we don’t see prices rising that sharply.

(New York)

There has been a lot of speculation lately about the extent to which the current growing trade war may affect the economy and markets. Some expect a benign effect on both. Well, Bloomberg has run a piece arguing that the trade war may lead to a Chinese debt crisis, which could in turn lead to a global financial crisis. The impact of the tariffs on the Chinese economy could be serious. China is already seeing a very high level of defaults, and with the extra burden of tariffs coupled with a weaker Yuan, it could create credit chaos for Beijing. Bloomberg put it this way, saying “That the massive burden of debt will drag the economy into recession is as obvious as the empty towers that rise on every landscape … But on any metric, the amount of new lending each year grows faster than the economy, and the interest newly owed exceeds the incremental rise in GDP. In other words, the whole economy is a Ponzi scheme”.

FINSUM: It is hard to imagine a more forceful comment than that last one from Bloomberg. We don’t know if we would go so far, but given how indebted the Chinese economy is, and their reliance on exports, tariffs could spark a meltdown that then spreads overseas.

(New York)

The New York State Department of Taxation and Finance has just formally opened an investigation into Trump’s charity activities. The state accuses the Donald J. Trump Foundation of violating state tax laws regarding campaign financing, self-dealing, and illegally coordinating with the presidential campaign. The state seeks to dissolve the foundation in addition to other measures. The investigation may turn criminal, in which case it could widen in scope to include much of Trump’s personal financial affairs, including his tax returns.

FINSUM: Hard to know how broad this could extend, but it seems like it will certainly intersect with Mueller’s investigation. It could prove a big headache for the president.

(Houston)

The commodities market is taking a wallop across the board today. It seemed to start earlier this week with oil dropping on fears over weakening Chinese GDP. Weaker growth would mean less demand for oil. Now, those fears have spread across most of the commodities market, with metals currently selling off strongly on the same fears. The renewed selling follows losses nearing 20% in industrial metals over the last month.

FINSUM: Remember that commodities markets are often a leading recession indicator, so this data does not bode well. Though in this case, it seems to be GDP data leading commodities, which is a bit back-to-front.

(Atlanta)

All of the worries in the real estate market have been focused on commercial property. While commercial real estate is supposed to be overvalued and over-supplied (a dangerous combo), US residential real estate is supposed to be healthy, with manageable price rises and tight supply. However, the residential market has just gotten some bleak news. US Housing starts plunged by over 12% in June, and new building permits dropped over 2%. The reasons cited for the drop are a lack of skilled workers to build and a higher cost for materials.

FINSUM: The question is whether this is a demand-led problem (new buyers pulling away) or a supply-led one (meaning the supply of everything is too tight). The first would indicate falling prices, the second the opposite.