Risk level: Orange - High

RED: Severe (+/- 4%) ORANGE: High (+/- 2%)  YELLOW: Elevated (+/- 1%)  BLUE: Guarded (+/- ½%)

THE BOOSTER SHOT

•             There's a fear factor that could be running underneath the market stream
•             The two "I" words – inflation and impeachment -- could have interesting links
•             If the price of oil inversely related to GDP, this week's rally is telling

The "I" word overshadowed some of the major international developments this week, and we don't mean Fed Chair Jerome Powell's statements on inflation at the Jackson Hole symposium. We mean, of course, impeachment. If the claims made by long-time "fixer" Michael Cohen are accurate, Trump at the very least has a poor memory when it comes to politicking. We've already traced a theoretical argument for waning confidence in U.S. leadership that suggests the president is at best secondary to systemic momentum. Now, however, we're forced to confront questions about U.S. confidence more directly. Recent consumer confidence measurements pointed to waning optimism and the latest poll AP-NORC poll found nearly three quarters of those surveyed said Trump's trade policies might cause prices for everyday goods to go up. That's inflation. While significantly weaker than it was in the 1970s, there is at least a loose relationship between inflation and the price of oil. Because it takes time for the price of oil, meanwhile, to catch up with the economy, we may not see it have an impact on U.S. momentum just yet. But it could be a sign of things to come. For the week, it was a large draw on U.S. crude oil inventories, a dovish stance by Powell and some signs of a drop in the global trade war temperatures driving the price of oil. The movement in the price of Brent crude oil for the week was above what our scale accounts for, ending up 5.29 percent to close the week at $75.63 per barrel.

"I tell you what, if I ever got impeached, I think the market would crash," the president said this week. "I think everybody would be very poor, because without this thinking [points to his head], you would see numbers that you wouldn’t believe in reverse."

A 2004 report from Jennifer Jerit at Southern Illinois University highlighted how political rhetoric and emotions are linked. Political leaders, she argued, have an incentive to use language that evokes strong emotions in the voting public. Emotions, meanwhile, trigger our first political response, leaving logic as a secondary stimulant. Jerit noted that fearful people are risk-averse and unlikely to want to change course. It's angry people that want change. Trump with his claim of economic collapse is using fear to keep calls for his impeachment at bay. On the campaign trail, he used anger to drum up support.

Fear is linked to anxiety over an uncertain future, which leaves people favoring the known over the unknown. Fear is the feeling people have when they lack confidence about their security in an uncertain future. The latest gauge of consumer confidence from the University of Michigan found sentiment dropped to its lowest level since September 2017. Consumers when asked by surveyors said they were concerned about the rising prices for household goods, vehicles and homes. According to Surveys of Consumers chief economist Richard Curtin, "consumers have become much more sensitive to even relatively low inflation rates than in past decades."

Speaking on Friday from Jackson Hole, Fed Chair Powell noted that inflation has moved above the comfort-zone 2 percent rate, but "we have seen no clear sign of an acceleration above 2 percent, and there does not seem to be an elevated risk of overheating."

Most Americans disagree, however. An Associated Press-NORC Center for Public Affairs Research survey published Friday found about 60 percent of those responding to pollsters questions said they disagreed with how Trump was dealing with international trade. Even worse, 72 percent said U.S. trade policy was causing the price of goods to go up. And in a testament to the perplexity of polling data, 51 percent also said Trump was doing a good job on the economy.

So what about the other "I" word. If there ever was a testament to a decline in confidence in the American system, impeachment is it. It's a quasi-political, quasi-legal action against the head of state. Comparisons between Collusion-gate and Watergate are commonplace in the recent news cycle. Against the backdrop of the Watergate investigation, the Nixon administration was navigating through a period of a dramatic spike in inflation, a stock market in free-fall and the Arab oil embargo. In the Trump era, the current bull market is on pace to become the longest one ever. But we're also reminded of Stein's law -- "If something cannot go on forever, it will stop."

On the more fundamental issues of supply, we are starting to see buyers move away from Iranian oil, indicating the slow drain of the millions of barrels of oil flowing from OPEC's third-largest producer has begun. With little spare capacity left in the market, we wonder if this week's rally in crude oil prices is a sign of things to come in November. There are loose indications to suggest that higher oil prices are correlated with a slowdown in growth in gross domestic product in the next year. Those watching the yield curve already know there are signs of a slowdown coming. OPEC economists said in their latest report the growth in U.S. GDP should hit 2.9 percent this year, but then slow to 2.5 percent in 2019.

With more of the people in Trump's inner circle getting immunity from prosecutors, we're expecting the cycle of fear to continue. If that spills over to a weaker dollar as confidence in the U.S. system wanes, this week's rally could continue. In upstream, Baker Hughes offered few headwinds with a decline in rig counts. Could that be an indication of rising costs of steel somehow?

It may be light trading week ahead because of the long U.S. holiday weekend, but there's no time to relax. On Tuesday, we get another look at U.S. consumer confidence, something to pay attention in the wake of the AP-NORC poll. The latest U.S. GDP numbers come out on Wednesday as do data on pending home sales.  Thursday brings a gauge of Canadian GDP and July consumer prices in the United States. The week ends with Chinese manufacturing PMI and the eurozone consumer price index.

We're going Orange for next week, expecting a run higher for crude oil. The British labor strike continues in the North Sea and we've seen two straight weeks of shockers from the EIA. The price could moderate, however, on easing trade tensions as Chinese officials said Friday that recent trade tracks were constructive.