Whiny Banks, Housing Slows, Back to Coal, Oil Black Market, & More: OTW #009

Welcome to another edition of “Over the Weekend.” This is where I summarize interesting finance and economics content that I read, listened to, or viewed this past week. I also link to the sources so you can check them out “over the weekend.”

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1. Big Finance is whining about retail traders again.

Genevieve Roch-Decter reported that JP Morgan and others are warning of the danger of 0DTE options. She said that many traders expect regulators will intervene if necessary.

0DTE stands for “0 Days to Expiration” options. They’re options contracts that expire in less than a day.

0DTE options have become very popular among retail traders because of their potential for huge gains within just a few hours. Of course, they also come with huge risks.

The problem—according to firms like JP Morgan—is that these 0DTE options could lead to volatility shocks in the market. Excessive options volume can also cause a stock to crash even if the share price has nothing to do with the stock’s actual value.

Antagonist’s Take

I’m not going to get into whether 0DTE options are good or bad. I just find it laughable when massive banks and hedge funds whine about retail traders influencing the market.

It reminds me of when I complained about my kids being lazy…right before I got a call from Door Dash. They were worried something happened to me because they hadn’t heard from me in 2 days.

The word you’re looking for………is “hypocrisy.”

For decades, institutional investors have manipulated the stock market to their advantage, crushing regular folks along the way. The SEC has never done anything of substance to stop them.

But when retail investors—everyday people like you and me—gain a little influence in the market…Big Finance reacts with scare tactics and cries for Mommy-SEC to come save them.


2. A dark secret: oil’s black market.

On last week’s MacroVoices podcast, renowned energy expert, Dr. Anas F. Alhajji, discussed the black market in oil. Dr. Alhajji emphasized that we must be careful about oil import/export data:

And the reason why because whenever we get data from India, or China, or Saudi Arabia, or any other country, these are the official data. But the market is somewhere else because we have a massive black market on one side. And some countries like China are importing the Russian oil through a third party. So they show that they are importing oil, let’s say from Malaysia or Indonesia or other country. But really that is Russian oil.

So if you look at the official Chinese data, we see a jump in oil imports, until almost June or July. And then it dropped and people think well, China is not importing that much from Russia, while China basically is importing a massive amount from the black market, and another amount coming from third countries. So we’ve seen this change in direction, while we’ve seen African and Middle Eastern countries, exporting to Europe to replace the Russian crude.

Antagonist’s Take

The oil black market is enormous and thriving. This shows that economic sanctions against Russia aren’t working.

Russia is still able to export its oil and therefore fund its economy. International sanctions were supposed to prevent that from happening—if not prevent it, then at least reduce Russian oil exports to the point where Putin would be forced to end his war in Ukraine.

3. Countries will cling to their climate convictions…until it hurts their economies.

On the same MacroVoices podcast, Dr. Alhajji also pointed out that “idealistic” Western nations abandoned their climate change pledges once their economies were threatened. He used Germany’s return to coal power as one example:

Just look at Germany, they went back to coal, they literally threw away all the climate change rhetoric they’ve been talking about. They’ve been telling Africa and Asia to stop using coal.

…the same countries that were telling other countries not to give subsidies to fossil fuel, they reenact on that, and they are giving subsidies in billions of dollars to their populations to use fossil fuel under the guise of we are going to reduce the burden, prices are too high, etc. But they literally sacrifice all the climate change rhetoric by giving those subsidies to their own people.

Dr. Alhajji also referenced how the U.S. drew down its strategic petroleum reserve (SPR) to keep gas prices under control.

Antagonist’s Take

Dr. Alhajji’s comments align with the special report on energy and energy stocks that I published last week. There’s no denying that fossil fuels are limited and are harmful to the environment.

We simply do not, however, have a viable alternative that comes anywhere near meeting the global demand for oil…and we won’t for at least another decade. Germany and the United States’ actions are evidence of just how dependent the world still is on fossil fuels.

Germany returned to coal—the very fossil fuel that they have criticized other countries for using—to prevent skyrocketing energy prices from crashing their economy.

The United States has been drawing down its SPR—not as an emergency supply like it was intended—but as a tool to suppress oil prices.

Demand for energy is only going to rise from here. That’s why in our Blend Portfolio, we hold 4 stocks that are set to soar alongside this trend.

4. Mortgage demand falls as rates rise. Rental market is also easing.

CNBC reported that mortgage applications dropped 6% last week compared to the previous week and were 44% lower than the same week last year. Volume is now at a 28-year low.

Refinance applications also fell 6% from last week and are 74% lower year over year.

On the rental side, the Apartment List National Rent Report suggested, “2023 could be the first time since the early stages of the pandemic that we see property owners competing for renters, rather than the other way around.” According to the report, this will be due to supply constraints easing as a record number of multi-family apartment units are currently under construction.

Year-over-year rent growth is continuing to decelerate, and now stands at 3.0 percent, its lowest level since April 2021. Year-over-year growth is now pacing just slightly ahead of the average rate from 2018 to 2019 (2.8 percent), and is likely to decline further in the months ahead.

Historical chart showing month-over-month change in the National Rent Index from 2018 to present.

Antagonist’s Take

High mortgage rates and low demand could result in a slow Spring for the housing market. That may also cool homebuilder stocks’ hot start to the year. Homebuilding ETFs XHB and ITB are up 14% and 13% YTD, respectively.

5. Warren Buffett is still informative and entertaining.

Warren Buffett’s annual letter to Berkshire Hathaway shareholders is always packed with investing wisdom and some laughs.

This is a great summary thread of the letter that was released on Feb. 25.

Antagonist’s Take

I love Buffett’s honesty that his company’s success is the product of about a dozen great decisions—about one every 5 years.

With investing, you don’t have to be perfect. One massive winner can overcome several average, or even poor, performers.

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