Oil - Energy commodities are having their day in the sun, as much of the world heads into the cold, dark winter season. The all stars, oil and natural gas, are flirting with decade-long highs and have been on an absolute tear since early 2021, representing the shitstorm that is global supply chains right now. Not only is there a shortage in supply of oil going around now (thanks, OPEC+), but even delivering that oil as a final consumer product, like gasoline, is challenging as there are seemingly less than zero truck drivers in the entire country. Just a few days ago OPEC+ came out and gave a giant, petro-soaked middle finger to the entire world by saying they would not change their predetermined plan to gradually raise oil prices. But, hey, this is literally a cartel, so at least they aren't flooding other countries with cocaine.
If you're a big ESG proponent, don't get too happy yet. One of the only other abundant and cheap fuel sources that could be used as a substitute for oil is coal, which is way, way worse for the planet. Despite the phasing out of pollutive energy sources, it turns out oil still basically runs the world. Regardless of your beliefs, diversifying our energy sources can only be a good thing, as this process will decrease fragility by opening up alternative routes to deliver the power behind the goods and services we all love. But, for now, oil remains king and is fighting hard to keep the throne. Don't tell Greta Thunberg I said that.
LIBOR Losers - Markets are going through a lot right now. Pandemic recovery, asset tapering, looming bills totaling $4.5tn, and an energy crisis, just to name a few. Add Fed Governor Randal Quarles friendly (not-so-friendly) reminder of one of the biggest changes financial markets have seen in decades to that list. Yesterday, Quarles stepped on his soapbox and reminded market participants that LIBOR, the London Interbank Offering Rate, has its day numbered.
Currently the base rate for essentially every single floating rate note (FRN) and many other debt instruments, LIBOR is being replaced by the hip, new SOFR, or Secured Overnight Financing Rate. This is a huge deal for the fixed income, rate, and swap markets that have relied on LIBOR since the mid-80s. Right now, LIBOR, the rate that powers some of the largest markets in the world, is based on little more than a daily survey. SOFR, on the other hand, is determined through actual transactions, giving a more accurate rate of supply and demand forces in these markets. SOFR is to LIBOR as an iPhone is to a telegraph. You'll be hearing more and more about this as we approach the massively significant date of December 31st, the last day FRN's get to spend with their old buddy LIBOR.