Thursday, December 25, 2014

Christmas Weekend Linkfest: 6 Top Links

Link #1: Thanks to falling oil prices, Europe's trade surplus is booming!

Link #2: US Oil Prices Tank on surge in US supply, imports

The U.S. is awash in oil, with record levels of production meeting a rising tide of imports. The U.S. Department of Energy said oil stocks rose by 7.26 million barrels, while analysts had expected a decline of 1.8 million barrels. 

 "Refiners produced the highest amount of gasoline ever reported by the EIA — 9.92 million barrels per day," noted Andrew Lipow, president of Lipow Oil Associates. He said refiners produced the second-highest amount of distillate fuel ever, at 5.24 million barrels per day, second only to 5.26 million barrels a day in December 2013.

Refineries were also running at a high rate, with utilization at 93.5 percent. "To be able to build crude inventories like that in the face of a 93.5 percent utilization rate is remarkable. Imports are also rebounding," said John Kilduff of Again Capital. He said imports of crude rose to 8.3 million barrels per day from 7.1 million the previous week. 

Link #3Saudi Arabia projects huge deficit as oil price drop bites

The government announced the $38.6 billion deficit on state-run television, saying it would nonetheless boost projected spending by tapping its vast financial reserves.

The 2015 budget shortfall is the first deficit projected by the OPEC kingpin since 2011 and the largest ever for the kingdom.

The price of oil, which makes up around 90 percent of public income in Saudi Arabia, has lost about half of its value since June due to a production glut, weak global demand and a stronger US dollar.

If oil prices remain at the current level of about $60 a barrel for benchmark Brent crude, Saudi Arabia is expected to lose half of its oil revenues of $276 billion posted in 2013. Oil income this year is expected at $248 billion.

But the wealthy kingdom, which pumps about 9.6 million barrels per day, can easily tap into huge fiscal buffers, estimated at $750 billion, to meet the deficit.

Link #4: Oil’s Swift Fall Raises Fortunes of U.S. Abroad

A plunge in oil prices has sent tremors through the global political and economic order, setting off an abrupt shift in fortunes that has bolstered the interests of the United States and pushed several big oil-exporting nations — particularly those hostile to the West, like Russia, Iran and Venezuela — to the brink of financial crisis.

The price plunge may also influence Iran’s deliberations over whether to agree to a deal on its nuclear program with the West; force the oil-rich nations of the Middle East to reassess their role in managing global supply; and give a boost to the economies of the biggest oil-consuming nations, notably the United States and China.

It might even have been a late factor in Cuba’s decision to seal a rapprochement with Washington.

For Iran, which is estimated to be losing $1 billion a month because of the fall, it is as if Congress had passed the much tougher sanctions that the White House lobbied against

Link #5: Commodity Supercycle Could Be Over Says Deutsche Bank

The ten year-old commodity supercycle, triggered by rising demand in booming emerging markets, “has come to a clear and abrupt end” as the price of oil has been halved, a report from Deutsche Banks says.  While other commodities have been heading south for some time, it is the fall in the price of oil, however, that appears to be sealing a sea change in thought regarding the end of the commodity supercycle.

The report from Josef Auer and Lorenz Vignold-Majal, notes that the Commodity Price Indices compiled by Germany’s Hamburg Institute of International Economics (HWWI) have reached their lowest levels since 2010, leading to a trend lower in commodity prices. Moderate global growth from 2012 to 2014, the bank noted, is “no doubt one of the main reasons, and perhaps the most important one, for the trend.”

To read the whole report, click here.

Link #6: 10 Economic Questions for 2015

1) Economic growth: Heading into 2015, most analysts are pretty sanguine.   Even with contraction in Q1, 2014 was a decent year (GDP will grow around 2.4% in 2014).  Will 2015 be the best year of the recovery so far?  Could 2015 be the best year since the '90s?  Or will 2015 disappoint again?

2) Employment:  With one month to go, 2014 is already the best year for employment growth since the '90s.   Will 2015 be as strong?  Or will job creation slow in 2015? 

3) Unemployment Rate: The unemployment rate was at 5.8% in November, down 1.2 percentage points year-over-year.  Currently the FOMC is forecasting the unemployment rate will be in the 5.2% to 5.3% range next December.  What will the unemployment rate be in December 2014?

Read the rest.

By the way, U.S. vehicle sales saw their strongest December in 10 years, weekly initial unemployment claims decreased to 280,000, mortgage applications are increasing, and personal income and spending are increasing.

In fact, thanks to cheap oil, consumer spending is blasting off.

More by the way, the S&P 500 is up 12.6% year-to-date as I write this. In the past four years, it's up 65%!

(Updated chart)

And most indications are that the S&P 500 is about to take another leg up.

Do tell me again how President Obama is a socialist who creates a negative business environment.

Anyway, have a Merry Christmas. I'll talk to you next week.

Monday, December 22, 2014

Upcoming interview on Energy

On Wednesday, I'll be interviewed at 2 pm Eastern Time on Arise News (, a cable news station in New York. In preparation, here are four stories I've written on energy recently.

“Three Pitfalls for Energy in 2015”

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

What Most People Don’t Get About Crude Oil

Thursday, December 18, 2014

Fascinating Chart Action on Dollar and Gold

I find the chart action in the US dollar (as tracked by the UUP fund) and gold (as tracked by GLD) fascinating. I'm kind of a geek that way, but see if you find it interesting.

Visit to see more great charts.

(Updated chart)

Here's the thing. We can all see the U.S. dollar looks poised to go to new highs. That should happen, unless emerging markets like Russia make a miraculous recovery, Japan finds a recovery concealed in its kimono and Europe finds that recent deflation is all just a bad dream.

However, while the dollar pushes to new highs, gold is off its lows. It hasn't even tested low it made back in November. How do you like them apples? What does it mean? Hmm...

Wednesday, December 17, 2014

Waiting on Janet

The market is waiting on the Fed. The big question is, how will the week end, and will the recent blood-letting in the markets finally end.

Today, the Federal Reserve issues its latest policy statement at 2 pm. Wall Street will be holding its breath, waiting to see if the Fed changes language saying it will keep interest rates close to zero for a “considerable time” even after its bond-buying stimulus measures have ended.

Remember, reactions to Fed-Speak can be short-term.  Longer-term, we need to look at the background economy, and what that potentially means for profits and prices.

Oil Could Go Lower

This week, the United Arab Emirates’ energy minister said OPEC will stand by its decision not to cut output even if oil prices fall as low as $40 a barrel. What’s more, OPEC will wait at least three months before considering an emergency meeting.

To be sure, Suhail Al-Mazrouei was talking about the international oil benchmark, Brent Crude.  Since West Texas Intermediate (the U.S. benchmark) usually trades at a discount to Brent, prices could be lower here. Yikes!

On December 12, Free Market Café published my article titled, “Three Pitfalls for Energy in 2015.” I lay out some other forces that could push prices lower.
Now for the good news.

·         It won’t be a straight line. We’ll see rallies and plateaus along the way.
·         Also, energy stocks will probably bottom long before the price of energy.
·         Finally, the market is punishing companies that primarily produce natural gas along with oil producers. But the outlook for some nat-gas producers, transporters, pipeline companies and so on is quite good. That’s a disconnect we can take advantage of.

And don’t write off oil, either. There are some pipeline companies and transporters that can continue to do well.

Economic Outlook

The oil price drop stoked fears of major dislocations across asset classes. The fear is we could see a worsening emerging market currency crisis or maybe junk debt collapse. I’m not saying that will happen, just that Wall Street is worrying, even obsessing, about these perils now.

And sure, we are seeing weakness in Europe, where deflation fears are raising their ugly head. China’s manufacturing is slowing down, too.

In other words, investors worry about a global recession. That’s why foreign investors are piling into U.S. Treasuries at the fastest pace in two years.

On the other hand, U.S. economic news continues to be good, unless you’re in the oil business. Retail sales rose 0.6% in November after rising 0.5% in October. U.S. manufacturing surged last month, with the largest increase in 9 months. Wow!

Sure, maybe the U.S. is “the best house on a bad block.” Or maybe lower oil prices are fuel for a global economic boom that isn’t recognized yet.

For now, the market holds its breath to see what the Fed will say at 2 pm today. Stay tuned.

Monday, December 15, 2014

Looking for Santa -- What Did the Market Do Last Year?

Traders are looking for a Santa Claus rally, but not finding one, at least so far. What happened last year? Let's look at this chart of the S&P 500 from late 2013 through the early months of 2014.

Visit to see more great charts.
Stocks actually sold off from late November through December 17, a peak-to-trough loss of 2.3%.  Then the markets did experience a Santa Claus rally of about 4.5%.  That ended in January for another 6% loss. And this was followed by a trough-to-peak rally of 8.3%.

Santa did show up. But he was riding a roller coaster.

Friday, December 12, 2014

How Low Could The S&P 500 Go?

What if there's no Santa Claus rally this year? That's what investors are asking themselves as they watch the market bleed lower on what should be good news.

For the record, I'm in the camp thinking there WILL be a Santa Claus rally. History is on the side of that.

However, there is a possibility we could see the same kind of pullback we saw in October, when the S&P 500 pulled back more than 9% (on an intraday basis) before heading higher again

Take a look at this chart ...
(Updated chart)

The lines I have put on this chart are as follows ...

  • The 50-day moving average and 200-day moving averages are self-explanatory.
  • 1950 is a 50% Fibonacci pullback.
  • 1918 is a 61.8% Fib pullback.
  • 1880 would be the same percentage decline as we saw (intraday) in October.

The economic news and consumer sentiment keep getting better and better. Stocks can go lower, though, if investors are worried about profits.  Considering that consumers make up a much bigger part of the economy than energy stocks, investor's shouldn't be worried.  But the difference between shouldn't and aren't, to paraphrase Mark Twain, is the difference between lightning and a lightning bug.

Anyway, who am I to stand in the way of anyone's panic? It just brings us to cheaper prices for the next rally.

Have a great weekend.

Thursday, December 11, 2014

What Most People Don't Get About Crude Oil

Oil prices fell 4.9% yesterday (West Texas Intermediate crude price).

The conventional wisdom is that as oil prices fall, producers will trim high-cost oil production, and we'll hit some new equilibrium.

Here's the thing that most people don't get: Producers have bills to pay. I don't care whether you're talking about some Kuwaiti oil sheik or some Texas wildcatter, they all got bills to pay.

Those bills have to be paid with income.  Let's say your source of income is oil. The price of oil goes down. How are you going to pay those bills?

The simplest thing to do is PUMP MORE OIL.

The less money you make on every barrel of oil, the more barrels you have to pump to get anywhere close to the money you need to pay your bills.

See where this is leading?

Let me give you an example.

Goodrich Petroleum (GDP) has already said that its capital spending (exploration) will drop nearly 50% in 2015 given the drop in prices. At the same time, Goodrich expects its output will increase 30% to 40%.

So, if we are expecting shut-ins of production to help the oil price, it likely won’t happen near term. 

My target on oil was $60. We've reached that.  That doesn't mean we have to bounce here. Sure, oil is oversold. But there are easier ways to make money right now than in the energy markets.

Friday, December 5, 2014

Friday Wrap -- Jobs and Oil (Big Charts!)

First of all, here is the most important paragraph you will read all week:
“Those who travel with the current will always feel they are good swimmers; those who swim against the current may never realize they are better swimmers than they imagine.” (source)
Chew on that for a minute. Now, on to some economic-market analysis.

The employment news is excellent.
  • US employers hired 321,000 people last month.
  • This was the strongest month of hiring since January 2012 – almost two years ago.
  • We’re on track for the best year of job creation in 15 years.
  • Average hourly earnings rose 0.4 percent, the most since June of last year.
Quartz is collecting some beautiful charts on the U.S. jobs report and associated trends and facts. You can check out those charts HERE.

Here is one chart you should see ...

That chart shows the jobs being created are full-time jobs. Those are the kind of jobs we want.

What you can take away from all this is ... well, you know those people who have been telling you that you should sit out this rally because the economy is in the tank? Those people are lying to you.

Let's talk about energy.

There are those who say falling oil prices will hurt the U.S. economy. They're as full of sh*t as the people who have been ranting that the U.S. economy is in the tank despite rising payrolls.

Here is what you need to know:

Consumer spending represents 68% of the US economy. Oil and gas capex represents about 1% of US GDP and less than 9% of US total capex (which in turn represents about 12% of US GDP). Therefore, the benefit of lower energy prices to the consumer and many businesses greatly outweighs the significant hit to energy companies and/or energy-oriented capex, especially in energy-oriented states.

Got that? That doesn't mean there won't be layoffs in the oil patch. Of course there will be.  But the oil patch has seen booms and busts before, and it's a buying opportunity for investors with a longer-term view.

Now that we have that settled, let's look at what should affect oil prices in the short-term.

First, the Saudis keep cutting oil prices. They aren't blinking in this price war. They think they can win.

US Global Investors says the price of oil is getting near the Saudi break-even price.

Is US Global right? Ask the Saudis.

U.S. producers aren't blinking either. Meanwhile, here's what we know about breakeven prices in some U.S. shale plays and the oil sands (source)...

And new U.S. oil and gas well permits dropped 40% in November.

Just five days after the Organization of Petroleum Exporting Countries decided to maintain production levels, Iraq, the group’s second-biggest member, made a deal that may add about 300,000 barrels per day (bpd) to world supplies.

And new production is starting in the U.S. Gulf of Mexico. Read this next piece of an eye-opener:

On Tuesday, U.S. major Chevron Corp. and its consortium partners announced crude oil production started at the Jack/St. Malo project in the deep waters of the U.S. Gulf of Mexico, one of the region's largest. "The Jack/St. Malo project delivers valuable new production and supports our plan to reach 3.1 million barrels per day by 2017," George Kirkland, vice chairman and executive vice president for upstream operations at Chevron, said in a statement. If realized, that would be roughly three times the current rate of production from the Bakken shale oil field in North Dakota.

Remember, there is already a surplus of between 1 million bpd and 2 million bpd on the global oil market.

On Wednesday, when U.S. crude oil prices bounced, Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $2.4 billion said in press reports: “We’re in a bear market so every move higher will be limited. Every rally is an opportunity to get out of long positions and load up on shorts.”

In Oklahoma City, gasoline prices dipped below $2 a gallon.

That's promotional, sure, but the big trend at the gas pump is lower.

Still, that doesn't mean the Doomers don't have plenty to gloom about.

Have a great weekend.

Tuesday, December 2, 2014

Where Will Small-Caps Go From Here? (IWM)

Small-caps could be poised for a deeper pullback in the short-term, as we can see from this chart of the Russell 2000 iShares (IWM). A lot depends on what happens today, so stay tuned.

Here's the scoop: On Friday, the IWM tagged the top of its recent Bollinger Band and pulled back.

On Monday, it gapped lower and tagged the bottom of the Bollinger Band.

So, trading range, right? Except that short-term momentum appears to be weakening. Therefore, it wouldn't surprise me to see 113 or 111 tested. Even 109.60 could be tested within the context of a larger bull move.

Visit to see more great charts.

(Updated chart)

For the bigger picture, let's look at a weekly chart of the IWM.

(Updated chart)

You can see that the IWM has been rangebound all year while consolidating last year's rally.  Such horizontal consolidation is usually a continuation move, and we'll look for a breakout in the direction of the previous rally.  MACD gave a "buy" signal in November. 

So, let's see where the short-term pullback takes us. It will be short-term pain for existing positions. But it also may be a great buying opportunity.

Some other news worth reading

Pullback, Sure. But Odds of a Large Loss in December Are Low:

Source: @ukarlewitz  

Silver's largest intraday move in two years: h

There's No Telling What This Oil Slide Could Do To Junk Bonds:

It might not feel like it, but the US #economy grew at a healthy 3.9% pace last quarter:

Monday, December 1, 2014

Chart of the Day -- A Grinch Before Christmas

Here's a chart showing how markets perform around Thanksgiving.


We saw the big sell-off after Thanksgiving.  If markets go true to form, the S&P 500 will close fairly flat today. And the whole week should be pretty miserable.

The Stock Traders' Almanac HAS MORE. 

Better luck next week. And the Santa Claus rally is a thing, so stay tuned for that.