The DC Today - Wednesday, January 11, 2023
The Dividend Cafe
The Dividend Cafe - The Bahnsen Group
4.9 • 572 Ratings
🗓️ 11 January 2023
⏱️ 11 minutes
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Summary
Dow: +269 points (+0.81%) S&P: +1.28% Nasdaq: +1.76% 10-Year Treasury Yield: 3.54% (-7.6 basis points) Top-performing sector: Real Estate (+3.60%) Bottom-performing sector: Consumer Staples (+0.06%) WTI Crude Oil: $77.71/barrel (+3.45%)
ASK DAVID “The US government has stated that it will purchase crude oil to replenish the strategic reserve once the price hits $70. In effect, this seems to indicate that the government will purchase millions of barrels at $70.
Does this function as a price floor? And, if so, what impact does a government-created price floor have on markets?”
~ Keith
So just by way of clarification, they have indicated they want that to be the rough price level at which they will transact, but their rough and very ambiguous guidance on the subject would indicate the intent of more a floor than a ceiling and yet, if the price does not go (or stay) there, it may not be a price at which much transacts. The government cannot make the market cooperate. But to the extent the market expects that level to be a rough “floor,” I suppose one could assume in their economic calculation that some of the left tail risks of various price collapses are less likely. The problem is that they can change their mind, and any number of events could happen (upside or downside) that alter the economics here. What market actors ultimately know is that there is a forced buyer in the marketplace, and supply calculations, profit expectations, and a number of numerical considerations around production can be performed with that intervening fact lingering. It does suggest a certain backstop in matters which provide a bit of an asymmetrical risk/reward (in the producers’ favor).
Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com
Transcript
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| 0:00.0 | Welcome to the DC Today, your daily market synopsis of the Dividing Cafe, brought to you every Monday through Thursday to bring you up-to-date information and perspective on financial markets. |
| 0:15.1 | Hello, welcome to the Wednesday, D.C. today. I am excited to give you a quick summary, but I do have to say |
| 0:25.0 | that some of this feels a little bit like deja vu. We had a good update in the market. You know, |
| 0:31.4 | we had a massive update in the market Friday. And then we've kind of moved along this week |
| 0:36.2 | and everything's kind of going all right. And it's been a little down. And then there was a couple good ups and the big up Friday |
| 0:42.8 | and net net, you know, when you go back to it, it's really quite positive. Today we're up another |
| 0:48.5 | 269 points. And I think a lot of this is an expectation that tomorrow's CPI number is going to be bad. |
| 0:58.0 | And I think it's going to be bad. And even if I didn't think it was going to be bad, |
| 1:01.9 | by the way, when I say bad, I mean lower. I'm sorry. So that's good. That's what people want. |
| 1:06.3 | Lower CPI, that would be good. Okay? That's what I should have said. But here's the thing. |
| 1:13.5 | I very much believe that in terms of throughout the course of the year, but it very much |
| 1:19.5 | feels to me like there's a lot of traders piling on the long side of that. |
| 1:24.7 | In other words, believing that that will be the data, that there will be |
| 1:28.8 | good CPI reduction. And first of all, the deja vu is that that's happened in advance of a CPI number |
| 1:40.7 | the last couple of months. And then there was something about the number that disappointed. |
| 1:46.0 | And you got back, an opposite response after the announcement. |
| 1:52.5 | There was a month. |
| 1:54.6 | I don't remember off top of my head which month it was, but there was a month. |
| 1:59.3 | And I want to say that it may have been August. It could have |
| 2:03.9 | been October. Oh, geez. I usually can think of this right away. It doesn't matter right now. My point is |
| 2:09.5 | that there was a number of which things were softer than expected. And then that did cause a market |
| 2:15.5 | that had been selling off in advance of the number to rally |
... |
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