Chapter 229: Rethinking the Great Inflation Cycle
Wednesday, April 10, 2024.
It rains heavily during the Qingming Festival, and the pedestrians on the road are heartbroken.
On that day, a drizzle was falling in City B, and the hazy rain covered the peach blossoms blooming on the roadside, making them look particularly endearing.
Li Feng didn't hold an umbrella, but strolled leisurely towards the main room.
As he walked, he smelled the scent of earth in the air, and his body and mind felt relaxed.
There have been so many important news both at home and abroad these past two days.
Just as Yellen was about to leave, the Russian Foreign Minister arrived.
Unlike Yellen's aggressiveness, the meeting with the Russian Foreign Minister was very pleasant. The leader said:
"Support Russia in combating terrorism and maintaining social security and stability"
We must "strengthen multilateral strategic cooperation in BRICS, the Shanghai Cooperation Organization, and other countries"
and “lead the building of a community with a shared future for mankind.”
Now, the game between China, the United States and Russia is really exciting.
Thinking of this, suddenly an idea flashed into Li Feng's mind, which made him enlightened.
He raised his head, looked at the misty road ahead, and couldn't help muttering to himself:
"Could it be that all this is an open conspiracy?"
"Could it be that the price of oil, and what I believe to be a period of hyperinflation, are merely byproducts of the great power game?"
If your investment logic is untenable or even wrong, then the methods and approaches guiding your investment will be wrong, and when it comes to specific operations, they will be a huge mistake.
Even, it may eventually lead to heavy losses.
Thinking of this, Li Feng couldn't help but feel worried.
I no longer had the heart to appreciate the flowers and scenery, so I walked quickly to the main room, poured myself a cup of hot tea, and started thinking while writing.
As we all know, there are three main factors that I have previously considered to be the cause of the arrival of a major inflation cycle:
The first one: The Federal Reserve is flooding the market with money.
Second: anti-globalization leads to industrial chain disruption and migration.
The third: mismatch between supply and demand of commodities.
However, thinking back carefully now, since the Federal Reserve began to raise interest rates aggressively in 2022, the entire commodity market has basically not fallen back, and is even soaring now.
The second argument has indeed not changed, and is even getting worse.
But the first and second arguments are quite worthy of discussion.
Looking back, the observations of these days,
If we start from a few of the most basic bases, we may be able to discover the truth hidden behind it.
First of all, the first basic point that needs to be made clear is: oil is the mother of inflation and determines how long the big inflation cycle will be.
Oil is the blood of industry and supports carbon-based modern civilization. This is beyond doubt. Without oil, world civilization will regress significantly. If oil prices soar sharply, it will definitely bring about global inflation or even stagflation.
Secondly, the second basic point that needs to be made clear is that there are only three real big players in the world: China, the United States, and Russia.
Maybe many people don’t believe it, but this is the fact.
In the world, there are only three real big players: China, the United States, and Russia. Of course, if the United Kingdom is to be counted, it can only be considered half a troublemaker. Other countries, due to their size (military strength), can only serve as sparring partners and can only be regarded as vassals of big powers.
This is the helplessness of small countries, but it is also their best choice and the reality they need to face.
Again, the third basic point that needs to be known is that oil is both a bulk resource and can also be used as a weapon. It is actually not that scarce, and the supply is not that tight.
Many people have questioned this and listed a lot of data.
For example, how much has the cost of global oil production increased due to inflation?
For example, investment in the oil industry is seriously insufficient, and there will be an imbalance between supply and demand in the future, and prices will continue to rise.
For example, the Russia-Bird conflict and the Israeli-Palestinian conflict have caused serious problems in oil supply.
In fact, these are all appearances.
In other words, they are all illusions to let us know or to comfort us.
The real reason is that OPEC is controlling oil production and using oil as a weapon to achieve its own economic interests and political goals.
And who is leading OPEC today?
The person behind the scenes is intriguing.
There will certainly be people who disagree with this statement.
But if we look back at the Middle East oil crisis in 1973, everything will become clear.
That year, the Fourth Middle East War broke out, and Middle Eastern countries jointly declared an oil embargo and suspended exports.
The first oil crisis directly pushed the price of oil from less than three dollars per barrel to 13 dollars per barrel.
It is obvious that the Middle Eastern countries are using oil as a weapon to sanction Western countries, and this has led to a global collective stagflation in Europe and the United States.
Later, the second oil crisis occurred (Iraq-Iraq War), and the price of oil soared from around US$13 per barrel to US$34 per barrel.
This led to a collective recession in the Western economies.
At this time, the famous American diplomat Henry Kissinger visited the Middle East and reached a secret agreement with Saudi Arabia, successfully tying the US dollar to oil and beginning to use oil as a weapon to attack the Soviet economy.
Saudi Arabia began to increase oil production significantly, which directly pushed down the oil price at the time from more than $30 per barrel to $10 per barrel, a drop of 70%.
The plummeting oil prices directly led to the collapse of the Soviet economy and indirectly led to the disintegration of the Soviet Union.
Judging from history, OPEC is now constantly limiting production. Isn’t this also using oil as a weapon in battle?
You should know that Saudi Arabia now only produces 9 million barrels of oil per day, while its production capacity limit is 13 million barrels. This country alone has a full 4 million barrels of idle oil production capacity.
The production capacity restrictions imposed by other OPEC countries are estimated to be no less severe.
This shows that OPEC now basically controls oil production and controls oil prices through oil supply.
Oil is not as scarce as you think, it's just that someone makes it scarce.
This is exactly the same as the current joint control of iron ore prices by Brazil's Vale, Australia's BHP Billiton, and Britain's Rio Tinto.
To sum up, the biggest factor affecting oil prices is no longer a supply and demand issue, but a political issue.
Therefore, we must be sufficiently vigilant when thinking about this major inflation cycle.
We must keep a close eye on the game between China, the United States and Russia, observe the game between the three forces in the Middle East, study the various policies introduced by OPEC, and observe the supply and demand situation in the oil market.
As for issues such as increased oil extraction costs, insufficient oil reserves, and increased difficulty in oil extraction technology, they can be ignored and regarded as noise.
It now seems that the issue of oil prices is a real political issue.
I don’t know what Russia promised to the countries in the Middle East after it participated in the Syrian civil war.
I don’t know what our country said when it urged Saudi Arabia and Iran to reconcile.
In short, OPEC has been cutting production and oil prices are very strong.
After looking back, or enriching and improving his understanding of this major inflation cycle, Li Feng felt much more at ease.
Although, my previous understanding had some flaws.
But fortunately, it did not affect the final cognition.
It is important to note that we need to pay more attention to the relationship between China and Russia, and between China and the United States in the future. A very important part of this is the game among the three countries over oil prices.
Because oil prices are a political issue.
The price of oil is essentially the result of the game between three countries.
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