Thursday, October 30, 2014

Here's Where it Gets Tricky: Russell 2000 ($IWM) at Overhead Resistance

Here's an update of a chart I originally posted October 11th. Check out this chart from StockCharts.com for IWM. You can see that it has recovered from broken price support, but now it is testing its broken uptrend line.  This would be a classic place for it to roll over.
Visit StockCharts.com to see more great charts.

Stocks look ready to sell off this morning, as investors worry about a more "hawkish" Federal Reserve. And we may see the small-caps sell off more than most. But is it another fake-out or the real deal?

The metrics on the economy are improving. And I'm not just talking about the advance Q3 GDP, which came in at 3.5%, beating expectations of 3% growth.

Still, the U.S. dollar surged to a 6-week high yesterday, on the hawkish Fed news that shouldn't have surprised anybody. And gold took it in the chops.


Gold is weaker because it is priced in dollars. But you know what also is priced in dollars? The stock market! Just as a weaker currency can send stocks higher, a stronger currency can send stocks lower.

My gut feeling is that the sell-off in stocks that we saw yesterday -- and may see continue today -- is just a trade of the moment that lacks fundamental backing to support it. Inflation is heading lower in the near term and earnings growth is headed higher. Sure, the Fed is no longer as strong an ally to stocks as it once was. But that's because it no longer has to be.

I'd like to see how this week ends before putting more money to work. Good luck and good trades.

Wednesday, October 29, 2014

Must See Charts on Solar, Recession Triggers and Gold Miners

Here are some charts and stories you need to read.

While You Were Getting Worked Up Over Oil Prices, This Just Happened to Solar


After years of struggling against cheap natural gas prices and variable subsidies, solar electricity is on track to be as cheap or cheaper than average electricity-bill prices in 47 U.S. states -- in 2016, according to a Deutsche Bank report published this week.

Solar has already reached grid parity in 10 states that are responsible for 90 percent of U.S. solar electricity production. In those states alone, installed capacity growth will increase as much as sixfold over the next three to four years.


The chart below shows the price of energy sources since the late 1940s. The extreme outlier, of course, is solar, which only recently became an expensive blip in the energy marketplace. It will soon undercut even the cheapest fossil fuels in many regions of the planet, including poorer nations where billion-dollar coal plants aren’t always practical.

Solar will be the world’s biggest single source of energy by 2050.

Projects Canceled as Oil Price Drops
The drop in oil prices has led to about 22 projects being canceled this year, principally in Canada and the Arctic. Still, traders are betting on a big rebound in the oil price. OPEC next meets on November 27th.

Morgan Stanley: Freight Cycle Favors Shippers Over Truckers

Barge capacity and rail capacity are set to expand the most according to a recent note from Morgan Stanley.

ROSENBERG: Bear Markets Don't Just Happen — They're Caused By These Two Conditions.

"The reality is that bear markets do not just pop out of the air," he wrote. "They are caused by tight money, recessions, or both. These conditions do not apply, nor will they until 2016 at the earliest."

Based on the trends in the Conference Board's Leading Economic Index, a recession is "at least two years away," Rosenberg said. "That is one peg — the expansion being sustained. The other is the Fed policy, and any actual rate hikes now seem to be more of a 2015 than a 2016 story."

Worst Chart of the Day: Gold Miners


Read it and weep ...




(Updated chart)


Some stories on the yellow metal ...


No Love for Gold: Holdings in gold-backed exchange-traded products fell 1.8 metric tons to 1,652.1 tons yesterday, remaining at a five-year low. And sentiment in the gold markets is terrible and getting worse, says Mark Hulbert.


On the other hand, demand for gold in India is surging as festival season gets underway.In September alone, India imported $3.75 billion worth of gold, a 450 per cent jump from year-ago levels. And Russia's state gold reserves are at their highest level in two decades. And despite slowing down, the Chinese seem to be buying a lot of gold.

Monday, October 27, 2014

Is It Time to Vacuum Up Bargains



video


My Aunt Joanne used to have a dog, Duke, who loved to be vacuumed.  It helped that Duke was totally deaf. Since he couldn't hear the vacuum, he just loved the suction. And he was the kind of dog who got thick in the weeds; his fur was full of prickers and stray twigs.

Being deaf was no hindrance for Duke, but it was a great inconvenience for everyone around him. More than once, drivers would come along the dirt road that Aunt Joanne lived on at the time (Bible Hill Road in Hillsboro, New Hampshire) and see Duke lying in the middle of the road, fast asleep. They'd hit their horns. Duke would not stir a hair.

Naturally, they thought Duke was dead.  So, they'd trudge, heavy-hearted, to the nearest house, which belonged to my Aunt. They'd knock at the door, and when Aunt Joanne would bustle up, they'd tell her some version of "Ma'am, I'm terribly sorry, but your dog is dead in the middle of the road."

And she'd sigh, exasperated, and say "that lazy old devil. Just nudge him with your foot, and he'll move along."

The markets are pulling back this morning. Is it time to vacuum up the bargains? 

Good luck and good trades this week.

Chart of the Day -- Winners and Losers from Low Oil Prices

The price of Brent crude fell over 25% from $115 a barrel in mid-July to under $85 in mid-October. Who wins and who loses from lower oil prices? This chart provides some answers ...

Source

  • A 10% change in the oil price is associated with around a 0.2% change in global GDP. A price fall normally boosts GDP by shifting resources from producers to consumers.
  • Saudi Arabia can survive low prices because, when oil was $100 a barrel, it saved more of the windfall than it spent. The biggest losers are countries that didn't. Notable among these are three vitriolic critics of America: Venezuela, Iran and Russia
  • However,Russia now has reserves of $454 billion to cushion against oil-price fluctuations.
  • China is the world's second-largest net importer of oil. Every $1 drop in the oil price saves it an annual $2.1 billion. The recent fall, if sustained, lowers its import bill by $60 billion, or 3%. Meanwhile, the cost of goods its exports should remain fairly stable. China is a big winner.
  • Energy imports into the European Union cost $500 billion in 2013, of which 75% was oil. So if oil prices stay at $85, the overall import bill could fall to under $400 billion a year.
  • America  is simultaneously the world's largest consumer, importer and producer of oil. Analysts at Goldman Sachs reckon that cheaper oil and lower interest rates should add about 0.1 percentage points to U.S. growth in 2015.
  • A $20 drop in the world oil price reduces American producers' profits by 20%. Only four-fifths of shale reserves are economic to extract using current technology with Brent around $85. However, that's starting from scratch -- shale oil wells that are already producing will likely keep pumping even if the price falls.

More HERE

Friday, October 24, 2014

It's Friday. Take Your Best Shot (S&P 500 Chart)


"Ronnie, the Bren Gun Girl", poses with the finished product at the John Inglis plant, Toronto, 1941.


Stocks seesawed this week, but we seem to have reached a resolution.


(Updated chart)

Markets showed weakness early this morning due to an Ebola case in New York City, but the market is getting used to Ebola, just like we got used to AIDS and every other terrible thing that has come down the pike.

One gauge of global economic health is the Flash Manufacturing PMIs from around the world. 

Global October Flash Manufacturing PMIs

  • China Oct. Manufacturing PMI 50.2 vs. (E) 49.9.
  • German Oct. Manufacturing PMI 51.8 vs. 49.5.
  • Eurozone Oct. Manufacturing PMI 50.7 vs. 50.0.
  • U.S. Oct. Manufacturing PMI 56.2 vs. (E) 57.0.


So far, it seems that fears about the pace of global economic growth were overblown.

Crude oil prices are stuck between $80 and $84. The bounce in crude so far has been weaker than one might expect. That is NOT bullish for crude oil prices.

Nat-gas prices remain weak, even as venerable (if unreliable) weather forecasters warn of the T-Rex of winters. The T-Rex is for Canada, here's the U.S. forecast. Nat-gas price weakness in the face of these forecasts is not good news for nat-gas bulls. What does that tell you about nat-gas supply and demand?

I know what I'm going to do. How about you?

Other links of interest ...

Silver Linings. 
This past weekend, I spoke at the World MoneyShow in Toronto. There were a lot of smart audience questions, especially on silver. That surprised me, because I hadn't presented on silver. But here's what I told the audience: When it comes to silver, there is good news, bad news and plenty of opportunity.

The Energy Sector Says, "Merry Christmas!"
The benchmark U.S. crude oil price is holding in the low $80 range, but I wonder how long before it takes its next leg down. International oil prices aren’t doing much better. These slumping prices are due to rising global supply and a slowing of demand. And it is kicking many oil producers right where it hurts: in the bottom line. But there will be big winners from this slump in oil prices. And if you want to see one of them, look in a mirror. That’s right, you. And me. And consumers all across America.

Pentagon Spends $4 billion for 43 More F-35 Jets. And oddly, the same people who become apoplectic when we want to spend money fixing roads and water systems are perfectly fine with this. Go figure.

Special report: America's perpetual state of emergency.

Since 1976, when Congress passed the National Emergencies Act, presidents have declared at least 53 states of emergency — not counting disaster declarations for events such as tornadoes and floods, according to a USA TODAY review of presidential documents. Most of those emergencies remain in effect.

Why US Anti-Islamic State Propaganda Probably Won't Work.
Why? Because the U.S. State department fails to understand how Islamic State attracts recruits in the first place.

How to start a war and lose an empire (The Russian View).
The American behavior throughout this succession of defeats has been remarkably consistent, with the constant element being their flat refusal to deal with reality in any way, shape or form. Just as before, in Syria the Americans are ever looking for moderate, pro-Western Islamists, who want to do what the Americans want (topple the government of Bashar al Assad) but will stop short of going on to destroy all the infidel invaders they can get their hands on. The fact that such moderate, pro-Western Islamists do not seem to exist does not affect American strategy in the region in any way.

Have a good Friday and a great weekend.


Thursday, October 23, 2014

Check out this chart from StockCharts.com for IWM

Here's a chart I'm working on.



Visit StockCharts.com to see more great charts.
(Updated chart)

Mixed Signals Leaves This a Show-Me Market: S&P 500 Chart

Yesterday, the S&P 500 turned lower from its recent downtrend (the Russell 2000 small-cap index did the same thing). If we traded strictly on technicals, this would be a short.

On the other hand, how much is due to some whackaloon shooting up the Canadian parliament. Also, stock prices seem to move in sympathy with oil prices recently. Transports sold off big yesterday, despite the fact that lower oil prices is good news for transports. So, maybe there's a bit of hysteria in the market right now.

Visit StockCharts.com to see more great charts.
(Updated chart)

I've put two momentum indicators on the chart to show the mixed signals. 

I often use RSI for short-term momentum. and it banged its head, looking like it will turn down. That seems bearish.

MACD is better for the longer-term trend. And it just gave a buy signal.

See what I mean about mixed signals?

I was going to add a new recommendation today, but I think it's best to wait and see how this sorts out.

3 Stories on Gold

Story #1: Russia Says "Da" to Gold!

Russia's central bank is buying gold. A lot more gold. Take a look at the chart.

Russia's central bank purchased another 37.33 tonnes of gold in September, bringing its gold holdings to almost 1,150 tonnes and is the seventh month in a row it has increased it gold reserves, and noticeably its biggest monthly increase yet.

Story #2: Gold Miners Are Hedging Gold Production Forward.
This is mainly due to the Russians as well. The volume of gold sold forward by mining companies jumped 61 percent in the second quarter after Russia's Polyus Gold added a major new hedge position.

Story #3: China Consumed More Than Twice as Much Gold in 2013 as the World Gold Council Estimated.
The World Gold Council offered its assessment at 1,066 tonnes. Koos Jansen just translated the the 2014 China Gold yearbook by the China Gold Association, and he came up with 2,199 tonnes.

What's more, while China is consuming less gold this year, "the country’s gold demand this year looks to be heading for close to 1,900-2,000 tonnes a fall of perhaps around 10-15%, far short of some of the big decline figures quoted by non-gold-savvy media wonks."

Wednesday, October 22, 2014

Chart of the Day: UPS Goes Vroom-Vroom!

Check out this chart from StockCharts.com for UPS.
Visit StockCharts.com to see more great charts.

(Updated chart)

The stock reports earnings in two days. The holiday season is normally strong for UPS. It's extra-strong this year because falling gasoline prices are putting more money in consumer's pockets. Oxford
Resource Explorer subscribers are up nicely if they bought it at my recommended entry price. 

Tuesday, October 21, 2014

Charts -- US Oil Imports Go Down, Down Down

This morning, I read that U.S. crude output rose 0.9% to 8.95 million barrels a day in the week ended Oct. 10. That's the most since June 1985, according to Energy Information Administration data. 

Some charts from the Energy Information Administration on U.S. energy consumption and imports are eyepopping.

First, total U.S. net imports of energy as a share of energy consumption fell to their lowest level in 29 years for the first six months of 2014.


American energy consumption grew, but it was outpaced by the rise in total energy production. As a result, we saw a 17% reduction in net imports compared with the first six months of 2013.

If you're wondering how the rise in U.S. energy production breaks down, petroleum accounted for 52% of the 2014 year-to-date increase, natural gas for 27%, renewable energy for 9%, and nuclear electric power for 2%. In contrast, total coal production fell 1%.


Total energy imports in the first six months of 2014 fell 6% compared with the first six months of 2013. Total energy exports increased 8% compared with the first six months of 2013. The increase was almost entirely the result of a 21% increase in petroleum product exports.

Read the whole EIA report HERE.

Meanwhile, there is support for the U.S. oil benchmark, West Texas Intermediate, around $75 per barrel.

And here is a chart showing breakeven prices among the U.S. shale plays. Notice that the costs in the Eagle Ford are generally a lot lower than in the Permian.

Also, crude oil processing volumes in China reached a record high. However, Chinese refiners are facing a "triple whammy" -- slowing economic growth, state price controls, and now a plunge in the value of stockpiled petroleum.

Just some things to keep in mind today.

And let's look at that oil price chart one more time.

(Updated chart)

A bounce looks likely, but there's no law saying it has to happen.

have a good Tuesday,

Sean

Monday, October 20, 2014

Gold Silver Ratio Chart

A sneak peak from my InvestmentU.com column this week.
(Updated chart)

A few things to keep in mind.

A wise man once said: “The market can remain irrational longer than you can remain solvent.”
And as for long-run averages, the same guy also said: “In the long run, we are all dead.”

That said, history is on a side of a pullback once 80 is reached.

Chart for Today -- Deflation Dead Ahead?

Over the weekend, the Wall Street Journal posted a story titled "5 Reasons to Worry About Deflation". Here is the chart that goes with the story ...

You can read the whole piece HERE.

It's a busy day for me. Good luck and good trades to you all. Keep an eye on gold here as it hammers away at overhead resistance. Ordinarily you would not expect gold to do well in a time when people are worried about deflation, but these are not ordinary times.

Saturday, October 18, 2014

World Money Show Chart for Today -- US Dollar and Gold

My presentation at the Toronto World Money Show yesterday went very well.  The room was packed, the audience was attentive, and the questions were great. Even more people piled in for the following session, where I hosted a panel with Michael Dehn, a geologist and president of Fairmont Resources, and Michael Kosowan, a mining engineer and 15-year veteran of Sprott Global, Canada's premiere natural resource investment firm.

Both Michaels are brilliant, and they provided a lot of concise, insightful analysis. It made it more fun that there were areas where we did not agree. In fact there were strong disagreements. So that made it a LOT more fun. Really, that had to be the best panel I've hosted in years. The audience loved it.

Today, I'll be speaking in the Bullpen at 1:30.  I had something prepared, but I got so many good questions during my first session yesterday that I spent last night and this morning coming up with a new presentation to address some of those things. We'll be talking about silver, (and silver's underperformance of gold) crude oil, Sasol, the broad market trend, the Fed, the US dollar and more.

Here's one of the new charts I made overnight.

(Updated chart)

There will be many more charts. If you're attending the Toronto Money Show today, I hope to see you there.

And if you're an Oxford Club paying subscriber, and you want to see either of the presentations I made at the Money Show, contact your customer service representative next week (Monday October 20th or later) and ask them to send you PDFs of my Power Point presentations.

Have a good weekend. It's back to work for me. No rest for the wicked, you know ;-)

Friday, October 17, 2014

Why Gold Will Keep Shining

Over at Free Market Cafe, you can read my latest, "Why Gold Will Keep Shining."

And here's an updated chart to go with it.

Updated chart

We'll see what happens at overhead resistance.

Thursday, October 16, 2014

See You at the World MoneyShow Toronto

Boy, that was a nice bounce in energy today. Maybe the world isn't ending. In which case, some energy stocks are cheap-cheap-cheap.

And gold, yeah, gold is looking good, too. Select gold producers are very attractive at recent levels.

I'm flying to the Toronto Money Show on Friday. Look for me at three events.


  • At 1:45 PM on Friday, I'll be presenting an educational seminar: "Top Picks in Energy, Mining and Precious Metals."
  • At 2:45 PM I'll be leading a panel titled "Diverse Opportunities in the Canadian Resource Sector"
  • Then on Saturday, I'll take questions (and hopefully give worthwhile answers) from 1:30 to 2:00.


See you there.

Wednesday, October 15, 2014

You Know What to Do ... Wiggle, Wiggle, Wiggle!

Your PostModern Jukebox for today




Looks like another day where we'll need a song or two to get through it.

Nice Oil Cartel You Got There. Be a Shame if Something Happened to It

This morning, we saw the front-month WTI contract dip below $80; it has since rebounded and crude oil is flat-to-up for the day as I write this. Still, it's fair to say that oil is under pressure. Almost as soon as the Saudis said they would accept a US-dollar $80 oil price for an extended period of time, the price of oil set out to prove them right.

We can point to fundamental reasons for oil weakness. Those are ...

  • Rising oil production in the U.S. and other regions (Libya, Iraq, etc.). 
  • Economic weakness in China. The latest is that China's CPI came in weaker than expected (1.6% vs expectations of 1.7%). That's adding to disinflation worries.
  • Weakness in Europe, which is ground zero for deflation and slowdown concerns
  • The International Energy Agency keeps cutting its estimates for growth in global oil demand. It has now cut demand estimates for four months in a row.
You will find links to these stories and more below.

But there is also a political component to the oil price crunch. And that is, the Organization of Petroleum Exporting Countries (OPEC) is starting to fracture. I'll have more on this in an InvestmentU.com story later this week. But the Cliff's Notes version is that despite falling prices, OPEC increased its oil production last month to a 13-month high. At the same time, Saudi Arabia is cutting prices to retain market share. Iraq and Iran are also cutting prices to keep market share.

All this is driving the price of Brent Crude, the international oil benchmark, lower and lower. It's down around 23% year-to-date, dropping from $113 to below $84 briefly this morning.

The Saudis don't like lower prices, but they know they can bear them better than higher-price producers like Canadian oil sands or Russia. 

In the meantime, OPEC members like Venezuela are shouting LOUDLY for an emergency meeting to prop up oil prices. The Saudis -- who have been stabbed in the back by the Venezuelans enough times that they should have a whole set of steak knives by now -- are saying "too bad."

That doesn't bode well for the future of the cartel. I know, I know -- it couldn't happen to a nicer bunch, right?

So here's the question. If there is a political component to the oil price, what does this mean for the falling price of U.S. oil?

It means that the fall in U.S. oil prices is more in sympathy to the move in Brent crude.  It's NOT because the U.S. economy is slowing. 

In fact, domestic U.S. oil demand is sitting near all-time highs.




So is this move in U.S. oil companies overdone? If they can make a profit at current prices, or at least at $70 a barrel or so (probably as low as we'll see WTI crude go), then yes, they are being priced for a disaster that is not going to happen. Not unless Godzilla is moving toward San Francisco right now and nobody told me. 

Now, that doesn't prevent me from having a position in ProShares UltraShort Oil & Gas (NYSE: DUG) in Gold & Resource Trader. It's our second time holding it, we got into it early, and while we took partial gains, we'll hold the rest for the wild ride that is probably ahead.

But my analysis which I've just shared with you also prevents me from panicking. It's not the end of the oil boom story. It's maybe the end of a chapter. A new one is beginning.





News and Links of Interest

Estimate of Global Oil Demand Growth Cut Again. Global oil consumption will increase by about 650,000 barrels a day this year to an average 92.7 million a day, according to the IEA, which advises 29 nations on energy policy. The estimate for demand growth is 250,000 barrels a day lower than last month’s forecast, and about half the level the agency projected in June.
(Source)

Commodity Price Drop Gives Fed Additional Breathing Room. Goldman Sachs economists last week estimated the combined effects of a weak dollar and soft commodities prices would shave 0.2 of a percentage point off core inflation next year, pushing against the Fed’s efforts to lift already-low inflation up to its 2% target. Senior Fed officials have signaled pretty clearly in the past few weeks that they’re looking at mid-2015 for liftoff from near-zero interest rates. The confluence of developments weighing on inflation is dampening the urgency in that discussion. (Source)

Global Oil Glut Sends Prices Plunging. The good news: Every one-cent drop in gas prices means a $1 billion annual decline in energy spending by Americans, estimates Brett Ryan, U.S. economist at Deutsche Bank. “It’s like a tax cut that consumers can use to eat out more often, buy more goods or help save for a new home,” he said. (Source)


Lockheed makes breakthrough on fusion energy project. On Wednesday LMT said it had made a technological breakthrough in developing a power source based on nuclear fusion, and the first reactors, small enough to fit on the back of a truck, could be ready for use in a decade. (Source)

Retail Sales in U.S. Dropped More Than Forecast in September. Wages remain low, which means people aren't spending. (Source)

Crumbling U.S. Fix Seen With Global Trillions of Dollars. Another public-private partnership. Every $1 billion in new infrastructure investment creates about 18,000 jobs, according to a 2009 report by economists at the University of Massachusetts’ Political Economy Research Institute. (Source)

They saved the eurozone; they just forgot to save the people. Eurozone officials have preached a gospel of budget austerity and "structural reform" to ailing economies as the cure for the crisis. The eurozone has ten countries — including big ones like France, Italy, and Spain — that are doing worse than Rhode Island. Greece has 11 million people — making it more than 10 times the size of Rhode Island — and an unemployment rate of almost 27 percent. Meanwhile, Finland is considered one of the healthy eurozone economies but only Nevada and Rhode Island have unemployment rates higher than Finland's, and they're close. (Source)

See also: EU Austerity Witch Doctors Attack Each Other

Economists are increasingly worried that Europe is going to drop into deflation. Here are the latest deflation figures from Europe, for September. 


  • Italy: -0.1%. Italy is in its second month of deflation
  • Spain: -0.3%. Spain has the most serious deflation of any large eurozone economy; it's in its third consecutive month
  • Germany: 0.8%. The fact that Germany has some of the highest inflation in the eurozone tells you a lot.
  • France: 0.4%. A five-year low. Core inflation is actually now at zero, the lowest in modern history. 
  • The UK: 1.2%. The UK isn't in the eurozone, but inflation is also at a five-year low.

(Source)

Good luck today.

Tuesday, October 14, 2014

Shake It Off

Getting pounded by the markets? I feel your pain, buckaroo.  But don't sweat. We'll get through it.  Here's a song from Postmodern Jukebox to help you on your way ...

And here's one for Cathy, who is terrified of clowns. See, things aren't so scary once you add music. Same goes for the market.

"Entering a World of Pain" - Hot Links on Oil, Earnings, Gold, and More

Here are some very interesting stories I've been reading this morning.

As global growth weakens, central bankers who sustained much of the expansion are running out of ammunition. "You're entering a world of pain." (Source)

Important Analysis of the Crunch in Energy Stocks. 
During the majority of peak to trough ‘situations’, stocks fell no more or less than 70% over a 3 month period … This go around, it appears the damage is being afflicted to energy shares … Unlike the dot coms and bubble stocks of 2014, the oil stocks have significant earnings power, cash, and assets … even during the kick ass end of western finance days of 2008, the oils never really came down too hard. This is with crude ‘coming in’ from $145 to $36. Shares of CXO only dipped a mere  38% during September and October of ’08. At the present, CXO is already down 23% from last month … (but bears be warned) these bastard companies have more money than God and would simply buy up their own shares, whilst sipping on Long Island Iced Teas … The nefarious price action is probably a result of strong headed hedge fund managers playing the stock market game wrong, on margin. Now they’re crying, shitting the bed, and generally getting flushed out of the ballpark.
(Source)

Facing a new oil glut, Saudis avoid 1980s mistakes to halt price slide. "The big mistake was that they continued to cut production to try to prop the prices and the price fell anyway," said analyst Yasser Elguindi of Medley Global Advisors. "Instead they should have fought for market share, allowing "higher cost producers to shut in as the price fell - which is what they are doing now.” (Source)


U.S. Oil Producers May Drill Themselves Into Oblivion. Rather than pulling back in hopes of slowing the amount of supply on the market to try and boost prices, drillers are instead operating at full tilt and pumping oil as fast as they can. Just look at the number of horizontal rigs in the field:

(Source)

IEA: Nearly 3% Of Output Vulnerable If Oil Falls To $80.

"All told, roughly 2.6 million barrels per day of world crude oil production comes from projects with a breakeven price in excess of $80 per barrel," the report said on Tuesday. Some 8 percent of deepwater crude oil production is adjudged to require a breakeven of $80 per barrel or higher ... totaling some 1.05 million bpd or 1.1 percent of liquid production.”

"For ultra-deepwater alone (more than 1,500 meters), the results are, perhaps surprisingly, that very little of current output from those depths, less than 1 percent, requires such a breakeven price."




 More than 80 percent of deep-water production is based in Brazil and the U.S. Gulf of Mexico, where cost discipline ensures projects tend to be less exposed to higher breakeven levels than in Angola, Brazil, Norway and the United Kingdom.
(Source)

Update: Here's an alternate view. IEA Chief Maria van der Hoeven says only a tiny minority of U.S. shale oil production would be affected by the slump in prices. "Some 98 percent of crude oil and condensates from the United States have a breakeven price of below $80 and 82 percent had a breakeven price of $60 or lower," she told Reuters. (Source)

S&P 500 Companies Have Bought Back $2 Trillion Worth Of Stock Since 2009. Operating profits of the S&P 500 companies totaled $4.4 trillion since Q2-2009. So S&P 500 buybacks amounted to 45% of their profits since Q2-2009, and over 50% during the first half of this year. 

(Source)


Politics of Austerity Shaves About 4 Percentage Points off GDP Growth
It started when the stimulus ran out. Then state and local governments had to balance their budgets amidst a still-weak economy. And finally, there was the debt ceiling deal with its staggered $2.1 trillion of cuts over the next decade. Add it all up, and there's been a big fiscal tightening the past few years, something like 4 percent of potential GDP.



And, as you can see above, all this austerity has been hurting GDP growth since 2011. It shows the Hutchins Center's new "fiscal impact measure," which looks at how much total government tax-and-spending decisions have helped or harmed growth. The dark blue line is what policy has actually done, and the light blue one is what a neutral policy would have done. So, in other words, if the dark blue line is below the light blue one, like it has the last three years, then policy has subtracted from growth.

(Source)


More reads:

Eurozone industrial production is crumbling and German GDP forecasts along with it. And both Italian and French CPI fell more than expected. Read about Europe's Austerity Zombies. Also, Gold ETFs see inflows for first time in weeks. Retailers see lower gasoline prices and improving labor market boosting holiday sales. But the New York Times thinks retailers are wearing rose-colored glasses. Finally, Schwab says "things ain't so bad." Good charts at the Schwab link.

This just in: The IEA just cut its forecast for global oil demand growth AGAIN! That makes four months in a row of cuts.

Have a good day.

Monday, October 13, 2014

Forget It, Jake, It's China(town) ...Trade, Steel, Farming and Gold

Happy Columbus day. U.S. Bond markets are closed today. Some stories from across the Pacific deserve your scrutiny ...

1. China Posts Strong Trade Figures, but Data Deserve Close Scrutiny

  • Data point #1: China Exports (YoY) above expectations (11.8%) in September: Actual (15.3%).
  • Data point #2: China Imports (YoY) registered at 7% above expectations (-2.7%) in September.

China’s exports through Hong Kong – a major trade gateway — should roughly track the nation’s total exports. In September, however, even as year-on-year exports to all regions rose a stronger-than-expected 15.3% year on year, those to Hong Kong grew by 34%. (This compared with a drop in exports to Hong Kong of 2.1%  in August.)

“Given that China’s exports to Hong Kong have surged again while the RMB is appreciating, it is natural to suspect the round-tripping trade is reviving,” said ANZ economist Li-Gang Liu, who added that trade developments between Hong Kong and China need to be closely monitored.

2. China Steel Exports Hit Record High in September - Steelmakers Boost Cheap Exports Amid China’s Slowdown

September net exports of steel products reached 7.2 million metric tons, rising 4.5% from the last high posted in May. Steel exports for the first nine months of the year are up 39% to 65.3 million tons. Net exports are exports less imports.

By absolute volume, exports reached 8.5 million tons, also a record. September shipments rose 73% from a year earlier.

Overcapacity continues to plague the Chinese steel industry. Domestic demand for steel is waning, which compounds the problem of excessive production capacity, said Applied Value analyst Jason Yang.

China’s crude steel production in the first eight months is up 2.6% at 550 million tons. Measured on a daily average basis, the country’s mills are still producing at record levels.

Five-year lows in prices of iron ore, the key raw material for steel, are also spurring Chinese mills to produce. September iron ore imports rose 14% from a year earlier to 85 million tons. As global miners open new lines of fresh supply, iron ore for delivery to the Chinese port of Tianjin reached $80 a ton last Friday, down 40% from the beginning of the year, which is the lowest level since July 2009.

3. Once a Symbol of Power, Farming Now an Economic Drag in China

Farms in China are too small to generate large profits, about 1.6 acres on average, compared with 400 acres in the United States. Yet it is difficult to consolidate these farms into larger, more efficient operations because Chinese farmers do not own their plots — they lease them from the government.

Privatizing farmland would allow market forces to create bigger farms. But that would be a political minefield for the Communist Party. It would also risk exacerbating inequality, by concentrating land ownership in the hands of a few while leaving many rural families without farms to fall back on if they hit hard times in the cities.

...

In some parts of China, rents are even higher than in Yangling, topping $1,200 per acre. By contrast, the average acre of farmland in the United States rented for $136 in 2013.

4. Asian Market Hubs Move Into Gold

Three big financial hubs in Asia are separately launching trading in a gold contract, each backed with physical gold.

The Shanghai Gold Exchange was launched in September inside the city’s free-trade zone, offering yuan-denominated contracts backed by gold held in Shanghai. This week, Singapore will offer its own contract, and later this year, CME Group, which operates exchanges in Chicago and New York, plans to start a U.S. dollar-denominated contract in Hong Kong.

Holdings by gold-backed exchange-traded funds fell to 53.5 million ounces in October, the lowest level in five years, according to U.S-based ETF Securities.

In Asia, where the metal remains popular as a store of wealth, demand for gold jewelry, bars and coins is robust. The World Gold Council, an industry body, says demand in China rose to almost 1,300 tons in 2013, up 160% from five years ago, although it expects demand to be flat, at best, this year. In India, buying was 50% higher over the same period at 975 tons.

China is now the world’s largest producer and consumer of gold, and the biggest importer, as domestic demand has outstripped supply. India also is a major buyer and importer. Two-thirds of global gold purchases come from Asia, the World Gold Council says.

Sunday, October 12, 2014

4 Stunning Stats for Sunday - Oil, Obama and More

1. Nearly half of the projects the oil industry has under development will need oil prices greater than $120 a barrel to achieve positive cashflow.Source

2. President Obama has initiated seven separate military actions (you might call them wars) since winning the Nobel Peace Prize. Source

3. Forget the Keystone Pipeline controversy. The New "Energy East" pipeline will be twice as long as Keystone, carry a third more oil, and be up and running by 2018 to get more trapped oil out of the middle of Canada. (Source).

4. The most crowded slum in India has 600,000 people jammed into just 500 acres. Source

Saturday, October 11, 2014

Big D, Double O, Small M. That Spells 'Doom', Baby!

I've been away. I've been busy. The markets look toppy. Case in point ...

It is likely, though not required, that the small-cap Russell 2000 (tracked by IWM) will make an attempt to test its broken support as overhead resistance. If you are in a mind to go short, that might be a good time. In the bearish case, look for a test of 97, and probably 90. Anything under 83 is brown-trousers time.


Updated chart

I've drawn the Fibs from the 2011 pullback, the most recent big pullback. 2009 was deeper, of course. The question is, do you think we're in 2008-2009-type trouble, or 2011-type trouble? 2011 was mostly political. Europe was in a real pickle. Europe is in political trouble again today. The Germans refuse to do stimulus spending when it's obvious that it is required. I see other similarities between 2011 and now.

Just remember that every political crisis ends.

But for now, the euro is under pressure (as is the yen, as is the rouble) and the US dollar reigns supreme. This is happening despite widespread and ongoing "analysis" that the U.S. dollar is already sliding toward an abyss. This analysis is taking place in a background where the U.S. dollar is up 7% so far this year. And people are lapping it up.

Why is the U.S. dollar so strong? As I've said many times this year, the U.S. dollar is winning a beauty contest in a leper colony. 

  • It's not that our currency is so great, but the others look like hell.
  • It helps that the U.S. deficit (not the national debt) is falling like a proverbial rock.
  • Our economy is outperforming other economies.

So of course the US dollar is going up.



Source: New York F*cking Times

What does this kind of rally in the US dollar mean? Anything priced in dollars gets crushed. If you are a bit forward thinking, just remember that nothing goes up in a straight line. There will be a correction in the dollar. When that happens, a lot of things that have been under pressure are going to go ZOOM!

By the way, I have my own reasons for thinking the U.S. dollar is heading for a haircut in the longer term, and it has little to do with the reasons being pushed by the crackpot chorus. It has a lot to do with China, Russia and Saudi Arabia. More on that another time.

Next question: Would I play energy for a bounce here? My Gold & Resource Trader subscribers are long ProShares UltraShort Oil & Gas (DUG) ... again ... and it's a nice cushion considering what happened to some other positions. A while back, I gave my own target of $85 as a Come-to-Jesus moment for the oil industry, especially the Saudis (maybe a Come-to-Allah moment, then). And this past week, West Texas Intermediate, the U.S. oil benchmark, hit $85 and bounced (international oil prices remain higher, but way off their own highs).

So is that it for the oil pullback? Is this parade of pain finally over?

To put a floor under oil prices, two things need to happen. The US dollar needs to stop going up, though that is secondary. The main thing is that oil production needs to stop going up. Those sad sacks who write to me with frothy, fear-dripping tales about ISIS and the Iraqi oil fields -- zip it. No one cares about your theories about what ISIS will do, Field Marshall Monty. I'm sure you have a mainline to ISIS strategy HQ, right? Yeah, right.

In the real world, don't expect US oil companies to shut in any production until $70 or so. So that leaves Saudi Arabia. The central bank of oil. You might think the conservative Saudis would cut production to boost prices. That would be a costly assumption, at least so far. The House of Saud recently cut prices to match Brent Crude to preserve market share. What will the Saudis do now?

I thought pipelines would be a refuge in the oil pullback, because they make their money on oil flow (which is still going up), not prices. Clearly, I was wrong. When traders got scared, they dumped everything. I do think pipelines are a great buy on the pullback, because North American production is likely to keep rising if the price of oil stabilizes above $80.

By the way, lower oil prices are generally bullish for the non-oil economy.

But we shall see.

Other Reading

4 Forces That Are Driving Down Oil Prices -- and Could Drive It Lower (That's my original headline; the headline the editor put on this is WTF, but whatchagonnado). 

Russia is "Spear Phishing" -- and You're the Fish

Grumpy Gold Men