Commodities - What We're Reading - StockBuz2024-03-29T00:47:27Zhttp://stockbuz.ning.com/articles/feed/category/CommoditiesWhat is a Commodity Super Cycle?http://stockbuz.ning.com/articles/what-is-a-commodity-super-cycle2019-08-02T22:04:31.000Z2019-08-02T22:04:31.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p><a href="{{#staticFileLink}}3403549125,RESIZE_1200x{{/staticFileLink}}"><img class="align-full" src="{{#staticFileLink}}3403549125,RESIZE_710x{{/staticFileLink}}" width="710" alt="3403549125?profile=RESIZE_710x" /></a></p>
<p>Since the beginning of the Industrial Revolution, the world has seen its population and the need for natural resources boom.</p>
<p>As more people and wealth translate into the demand for global goods, the prices of commodities—such as energy, agriculture, livestock, and metals—have often followed in sync.</p>
<p>This cycle, which tends to coincide with extended periods of industrialization and modernization, helps in telling a story of human development.</p>
<h3>Why are Commodity Prices Cyclical?</h3>
<p>Commodity prices go through extended periods during which prices are well above or below their long-term price trend. There are two types of swings in commodity prices: upswings and downswings.</p>
<p>Many economists believe that the upswing phase in super cycles results from a lag between unexpected, persistent, and positive trends to support commodity demand with slow-moving supply, such as the building of a new mine or planting a new crop. Eventually, as adequate supply becomes available and demand growth slows, the cycle enters a downswing phase.</p>
<p>While individual commodity groups have their <a href="https://www.visualcapitalist.com/periodic-table-of-commodity-returns-2019/">own price patterns</a>, when charted together they form extended periods of price trends known as “Commodity Super Cycles” where there is a recognizable pattern across major commodity groups.</p>
<h3>How can a Commodity Super Cycle be Identified?</h3>
<p>Commodity super cycles are different from immediate supply disruptions; high or low prices persist over time.</p>
<p>In our above chart, we used data from the Bank of Canada, who leveraged a statistical technique called an asymmetric band pass filter. This is a calculation that can identify the patterns or frequencies of events in sets of data.</p>
<p>Economists at the Bank of Canada employed this technique using their <a href="https://www.bankofcanada.ca/rates/price-indexes/bcpi/">Commodity Price Index (BCPI)</a> to search for evidence of super cycles. This is an index of the spot or transaction prices in U.S. dollars of 26 commodities produced in Canada and sold to world markets.</p>
<ul><li>Energy: Coal, Oil, Natural Gas</li>
<li>Metals and Minerals: Gold, Silver, Nickel, Copper, Aluminum, Zinc, Potash, Lead, Iron</li>
<li>Forestry: Pulp, Lumber, Newsprint</li>
<li>Agriculture: Potatoes, Cattle, Hogs, Wheat, Barley, Canola, Corn</li>
<li>Fisheries: Finfish, Shellfish</li>
</ul><p>Using the band pass filter and the BCPI data, the chart indicates that there are four distinct commodity price super cycles since 1899.</p>
<ul><li><strong>1899-1932:</strong><br /> The first cycle coincides with the industrialization of the United States in the late 19th century.</li>
<li><strong>1933-1961:</strong><br /> The second began with the onset of global rearmament before the Second World War in the 1930s.</li>
<li><strong>1962-1995:</strong><br /> The third began with the reindustrialization of Europe and Japan in the late 1950s and early 1960s.</li>
<li><strong>1996 – Present:</strong><br /> The fourth began in the mid to late 1990s with the rapid industrialization of China</li>
</ul><h3>What Causes Commodity Cycles?</h3>
<p>The rapid industrialization and growth of a nation or region are the main drivers of these commodity super cycles.</p>
<p>From the rapid industrialization of America emerging as a world power at the beginning of the 20th century, to the ascent of China at the beginning of the 21st century, these historical periods of growth and industrialization drive new demand for commodities.</p>
<p>Because there is often a lag in supply coming online, prices have nowhere to go but above long-term trend lines. Then, prices cannot subside until supply is overshot, or growth slows down.</p>
<h3>Is This the Beginning of a New Super Cycle?</h3>
<p>The evidence suggests that human industrialization drives commodity prices into cycles. However, past growth was asymmetric around the world with different countries taking the lion’s share of commodities at different times.</p>
<p>With more and more parts of the world experiencing growth simultaneously, demand for commodities is not isolated to a few nations.</p>
<p>Confined to Earth, we could possibly be entering an era where commodities could perpetually be scarce and valuable, breaking the cycles and giving power to nations with the greatest access to resources.</p>
<p>Each commodity has its own story, but together, they show the arc of human development.</p>
<p>Courtesy of <a href="https://www.visualcapitalist.com/what-is-a-commodity-super-cycle/" target="_blank">Infographic</a></p></div>How Big Oil Will Diehttp://stockbuz.ning.com/articles/how-big-oil-will-die2017-08-07T21:46:04.000Z2017-08-07T21:46:04.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p></p>
<div class="bp bq br" data-reactid="61"><a href="https://miro.medium.com/fit/c/2400/1601/1*XTVXrQ5WSTrwVS6sFBi5_g.jpeg" target="_blank"><img src="https://miro.medium.com/fit/c/2400/1601/1*XTVXrQ5WSTrwVS6sFBi5_g.jpeg?width=550" class="align-center" width="550" /></a></div>
<p></p>
<p class="ca b cb cc cd l m ce cf bm bn" data-reactid="70">It’s 2025, and 800,000 tons of used high strength steel is coming up for auction.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="73">The steel made up the Keystone XL pipeline, finally completed in 2019, two years after the project launched with great fanfare after approval by the Trump administration. The pipeline was built at a cost of about $7 billion, bringing oil from the Canadian tar sands to the US, with a pit stop in the town of Baker, Montana, to pick up US crude from the Bakken formation. At its peak, it carried over 500,000 barrels a day for processing at refineries in Texas and Louisiana.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="76">But in 2025, no one wants the oil.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="79">The Keystone XL will go down as the world’s last great fossil fuels infrastructure project. TransCanada, the pipeline’s operator, charged about $10 per barrel for the transportation services, which means the pipeline extension earned about $5 million per day, or $1.8 billion per year. But after shutting down less than four years into its expected 40 year operational life, it never paid back its costs.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="82">The Keystone XL closed thanks to a confluence of technologies that came together faster than anyone in the oil and gas industry had ever seen. It’s hard to blame them — the transformation of the transportation sector over the last several years has been the biggest, fastest change in the history of human civilization, causing the bankruptcy of blue chip companies like Exxon Mobil and General Motors, and directly impacting over $10 trillion in economic output.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="85">And blame for it can be traced to a beguilingly simple, yet fatal problem: the internal combustion engine has too many moving parts.</p>
<p></p>
<div class="bp ch br" data-reactid="89"><a href="https://miro.medium.com/fit/c/540/368/0*7CCHjpTEQ-gmz45P." target="_blank"><img src="https://miro.medium.com/fit/c/540/368/0*7CCHjpTEQ-gmz45P.?width=450" class="align-center" width="450" /></a></div>
<p style="text-align: center;">The Cummins Diesel Engine, US Patent #<a href="https://www.google.com/patents/US2408298" class="bm" data-reactid="94">2,408,298</a>, filed April 1943, awarded Sept 24, 1946</p>
<p></p>
<p class="ca b cb cc cd l m ce cf bm bn" data-reactid="98">Let’s bring this back to today: Big Oil is perhaps the most feared and respected industry in history. Oil is warming the planet — cars and trucks contribute about 15% of global fossil fuels emissions — yet this fact barely dents its use. Oil fuels the most politically volatile regions in the world, yet we’ve decided to send military aid to unstable and untrustworthy dictators, because their oil is critical to our own security. For the last century, oil has dominated our economics and our politics. Oil is power.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="101">Yet I argue here that technology is about to undo a century of political and economic dominance by oil. Big Oil will be cut down in the next decade by a combination of smartphone apps, long-life batteries, and simpler gearing. And as is always the case with new technology, the undoing will occur far faster than anyone thought possible.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="104">To understand why Big Oil is in far weaker a position than anyone realizes, let’s take a closer look at the lynchpin of oil’s grip on our lives: the internal combustion engine, and the modern vehicle drivetrain.</p>
<p></p>
<div class="bp cj br" data-reactid="108"><a href="https://miro.medium.com/fit/c/620/470/0*Nef_KOkhY1FYvANL." target="_blank"><img src="https://miro.medium.com/fit/c/620/470/0*Nef_KOkhY1FYvANL.?width=450" class="align-center" width="450" /></a></div>
<p style="text-align: center;">BMW 8 speed automatic transmission, showing lots of fine German engineered gearing. From <a href="http://www.eurocarnews.com/4/0/0/1355/bmw-8-spd-automatic-transmission-cutaway/gallery-detail.html" class="bm" data-reactid="113">Euro Car News</a>.</p>
<p></p>
<p class="ca b cb cc cd l m ce cf bm bn" data-reactid="117">Cars are complicated.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="120">Behind the hum of a running engine lies a carefully balanced dance between sheathed steel pistons, intermeshed gears, and spinning rods — a choreography that lasts for millions of revolutions. But millions is not enough, and as we all have experienced, these parts eventually wear, and fail. Oil caps leak. Belts fray. Transmissions seize.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="123">To get a sense of what problems may occur, here is a list of <a href="http://blog.credit.com/2016/04/the-top-10-car-repairs-of-2015-141786/" class="bm" data-reactid="125">the most common vehicle repairs</a> from 2015:</p>
<ol data-reactid="129">
<li class="ca b cb cc cd l m cg cf bm bn" data-reactid="130">Replacing an oxygen sensor — $249</li>
<li class="ca b cb cc cd l m cl cf bm bn" data-reactid="133">Replacing a catalytic converter — $1,153</li>
<li class="ca b cb cc cd l m cl cf bm bn" data-reactid="136">Replacing ignition coil(s) and spark plug(s) — $390</li>
<li class="ca b cb cc cd l m cl cf bm bn" data-reactid="139">Tightening or replacing a fuel cap — $15</li>
<li class="ca b cb cc cd l m cl cf bm bn" data-reactid="142">Thermostat replacement — $210</li>
<li class="ca b cb cc cd l m cl cf bm bn" data-reactid="145">Replacing ignition coil(s) — $236</li>
<li class="ca b cb cc cd l m cl cf bm bn" data-reactid="148">Mass air flow sensor replacement — $382</li>
<li class="ca b cb cc cd l m cl cf bm bn" data-reactid="151">Replacing spark plug wire(s) and spark plug(s) — $331</li>
<li class="ca b cb cc cd l m cl cf bm bn" data-reactid="154">Replacing evaporative emissions (EVAP) purge control valve — $168</li>
<li class="ca b cb cc cd l m cl cf bm bn" data-reactid="157">Replacing evaporative emissions (EVAP) purging solenoid — $184</li>
</ol>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="160">And this list raises an interesting observation: None of these failures exist in an electric vehicle.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="163">The point has been most often driven home by <a href="https://www.youtube.com/watch?v=M27KECEL5Zo" class="bm" data-reactid="165">Tony Seba</a>, a Stanford professor and guru of “disruption”, who revels in pointing out that an internal combustion engine drivetrain contains about 2,000 parts, while an electric vehicle drivetrain contains about 20. All other things being equal, a system with fewer moving parts will be more reliable than a system with more moving parts.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="169">And that rule of thumb appears to hold for cars. In 2006, the <a href="https://crashstats.nhtsa.dot.gov/Api/Public/ViewPublication/809952" class="bm" data-reactid="171">National Highway Transportation Safety Administration</a> estimated that the average vehicle, built solely on internal combustion engines, lasted 150,000 miles.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="175">Current estimates for the lifetime today’s electric vehicles are over <a href="https://electrek.co/2016/11/01/tesla-battery-degradation/" class="bm" data-reactid="177">500,000 miles</a>.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="181">The ramifications of this are huge, and bear repeating. Ten years ago, when I bought my Prius, it was common for friends to ask how long the battery would last — a battery replacement at 100,000 miles would easily negate the value of improved fuel efficiency. But today there are anecdotal stories of Prius’s logging <a href="http://www.hybridcars.com/toyota-prius-taxi-running-strong-with-600000-miles-and-original-battery/" class="bm" data-reactid="183">over 600,000 miles on a single battery.</a></p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="186">The story for Teslas is unfolding similarly. Tesloop, a Tesla-centric ride-hailing company has already driven its first Model S for more 200,000 miles, and seen only an <a href="https://techcrunch.com/2016/09/29/tales-from-a-tesla-model-s-at-200k-miles/" class="bm" data-reactid="188">6% loss in battery life</a>. A battery lifetime of 1,000,000 miles may even be in reach.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="192">This increased lifetime translates directly to a lower cost of ownership: extending an EVs life by 3–4 X means an EVs capital cost, per mile, is 1/3 or 1/4 that of a gasoline-powered vehicle. Better still, the cost of switching from gasoline to electricity delivers <a href="https://www.edmunds.com/tesla/model-s/2013/long-term-road-test/2013-tesla-model-s-cost-of-gas-vs-electricity.html" class="bm" data-reactid="194">another savings of about 1/3 to 1/4</a> per mile. And electric vehicles do not need oil changes, air filters, or timing belt replacements; the 200,000 mile Tesloop never even had its brakes replaced. The most significant repair cost on an electric vehicle is from worn tires.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="198">For emphasis: The total cost of owning an electric vehicle is, over its entire life, roughly 1/4 to 1/3 the cost of a gasoline-powered vehicle.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="201">Of course, with a 500,000 mile life a car will last 40–50 years. And it seems absurd to expect a single person to own just one car in her life.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="204">But of course a person won’t own just one car. The most likely scenario is that, thanks to software, a person won’t own any.</p>
<hr class="cm bz cn co cp bw cq cr cs ct cu" data-reactid="207" />
<p></p>
<p class="ca b cb cc cd l m ce cf bm bn" data-reactid="209">Here is the problem with electric vehicle economics: A dollar today, invested into the stock market at a 7% average annual rate of return, will be worth $15 in 40 years. Another way of saying this is the value, today, of that 40th year of vehicle use is approximately 1/15th that of the first.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="212">The consumer simply has little incentive to care whether or not a vehicle lasts 40 years. By that point the car will have outmoded technology, inefficient operation, and probably a layer of rust. No one wants their car to outlive their marriage.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="215">But that investment logic looks very different if you are driving a vehicle for a living.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="218">A New York City cab driver puts in, on average, <a href="http://www.statisticbrain.com/taxi-cab-statistics/" class="bm" data-reactid="220">180 miles per shift</a> (well within the range of a modern EV battery), or perhaps 50,000 miles per work year. At that usage rate, the same vehicle will last roughly 10 years. The economics, and the social acceptance, get better.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="224">And if the vehicle was owned by a cab company, and shared by drivers, the miles per year can perhaps double again. Now the capital is depreciated in 5 years, not 10. This is, from a company’s perspective, a perfectly normal investment horizon.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="227">A fleet can profit from an electric vehicle in a way that an individual owner cannot.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="230">Here is a quick, top-down analysis on what it’s worth to switch to EVs: The IRS allows charges of <a href="https://www.irs.gov/uac/2017-standard-mileage-rates-for-business-and-medical-and-moving-announced" class="bm" data-reactid="232">53.5¢ per mile</a> in 2017, a number clearly derived for gasoline vehicles. At 1/4 the price, a fleet electric vehicle should cost only 13¢ per mile, a savings of 40¢ per mile.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="236">40¢ per mile is not chump change — if you are a NYC cab driver putting 50,000 miles a year onto a vehicle, that’s $20,000 in savings each year. But a taxi ride in NYC today costs $2/mile; that same ride, priced at $1.60 per mile, will still cost significantly more than the 53.5¢ for driving the vehicle you already own. The most significant cost of driving is still the driver.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="239">But that, too, is about to change. Self-driving taxis are being tested this year in <a href="https://www.wired.com/2016/09/self-driving-autonomous-uber-pittsburgh/" class="bm" data-reactid="241">Pittsburgh</a>, <a href="https://arstechnica.com/cars/2017/04/waymo-trials-free-self-driving-taxi-service-in-phoenix/" class="bm" data-reactid="244">Phoenix</a>, and <a href="https://www.theverge.com/2017/4/25/15423090/nutonomy-boston-autonomous-car-test-expansion" class="bm" data-reactid="247">Boston</a>, as well as <a href="https://www.bloomberg.com/news/articles/2016-08-25/world-s-first-self-driving-taxis-debut-in-singapore" class="bm" data-reactid="250">Singapore</a>, <a href="http://www.businessinsider.com/tesla-supply-200-self-driving-taxis-dubai-2017-2" class="bm" data-reactid="253">Dubai</a>, and <a href="https://techcrunch.com/2016/11/17/baidus-self-driving-cars-begin-public-test-in-wuzhen-china/" class="bm" data-reactid="256">Wuzhen, China</a>.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="260">And here is what is disruptive for Big Oil: Self-driving vehicles get to combine the capital savings from the improved lifetime of EVs, with the savings from eliminating the driver.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="263">The costs of electric self-driving cars will be so low, it will be cheaper to hail a ride than to drive the car you already own.</p>
<p></p>
<hr class="cm bz cn co cp bw cq cr cs ct cu" data-reactid="266" />
<p></p>
<p class="ca b cb cc cd l m ce cf bm bn" data-reactid="268">Today we view automobiles not merely as transportation, but as potent symbols of money, sex, and power. Yet cars are also fundamentally a technology. And history has told us that technologies can be disrupted in the blink of an eye.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="271">Take as an example my own 1999 job interview with the Eastman Kodak company. It did not go well.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="274">At the end of 1998, my father had gotten me a digital camera as a present to celebrate completion of my PhD. The camera took VGA resolution pictures — about 0.3 megapixels — and saved them to floppy disks. By comparison, a conventional film camera had a nominal resolution of about 6 megapixels. When printed, my photos looked more like impressionist art than reality.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="277">However, that awful, awful camera was really easy to use. I never had to go to the store to buy film. I never had to get pictures printed. I never had to sort through a shoebox full of crappy photos. Looking at pictures became fun.</p>
<div class="bp cv br" data-reactid="281"><a href="https://miro.medium.com/fit/c/468/351/0*c-7k_3ruLVBhjWXn." target="_blank"><img src="https://miro.medium.com/fit/c/468/351/0*c-7k_3ruLVBhjWXn.?width=350" class="align-center" width="350" /></a></div>
<p style="text-align: center;">Wife, with mildly uncooperative cat, January 1999. Photo is at the camera’s original resolution.</p>
<p class="ca b cb cc cd l m ce cf bm bn" data-reactid="287">I asked my interviewer what Kodak thought of the rise of digital; she replied it was not a concern, that film would be around for decades. I looked at her like she was nuts. But she wasn’t nuts, she was just deep in the Kodak culture, a world where film had always been dominant, and always would be.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="290">This graph plots the total units sold of film cameras (grey) versus digital (blue, bars cut off). In 1998, when I got my camera, the market share of digital wasn’t even measured. It was a rounding error.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="293">By 2005, the market share of film cameras were a rounding error.</p>
<div class="bp cx br" data-reactid="297"><a href="https://miro.medium.com/fit/c/858/298/0*G_Jkv0kOVdaRk_at." target="_blank"><img src="https://miro.medium.com/fit/c/858/298/0*G_Jkv0kOVdaRk_at.?width=750" class="align-center" width="750" /></a></div>
<p>A plot of the rise of digital cameras (blue) and the fall of analog (grey). Original from Mayflower via <a href="http://www.mirrorlessrumors.com/chart-shows-how-digital-cameras-killed-analog-cameras-and-how-the-selfie-culture-almost-killed-digital-cameras-after-that/" class="bm" data-reactid="302">mirrorlessrumors</a>, slightly modified for use here.</p>
<p class="ca b cb cc cd l m ce cf bm bn" data-reactid="306">In seven years, the camera industry had flipped. The film cameras went from residing on our desks, to a sale on Craigslist, to a landfill. Kodak, a company who reached a peak market value of <a href="http://appleinsider.com/articles/11/08/17/kodaks_patents_valued_at_5_times_more_than_companys_market_cap" class="bm" data-reactid="308">$30 billion</a> in 1997, declared bankruptcy in 2012. An insurmountable giant was gone.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="312">That was fast. But industries can turn even faster: In 2007, Nokia had 50% of the mobile phone market, and its market cap reached <a href="https://www.fool.com/investing/general/2013/09/09/the-nokia-era-comes-to-an-end-and-what-this-means.aspx" class="bm" data-reactid="314">$150 billion</a>. But that was also the year Apple introduced the first smartphone. By the summer of 2012, Nokia’s market share had dipped below 5%, and its market cap fell to just $6 billion.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="318">In less than five years, another company went from dominance to afterthought.</p>
<div class="bp cz br" data-reactid="322"><a href="https://miro.medium.com/fit/c/1041/671/0*oZSBRjLNLk-mo-4y." target="_blank"><img src="https://miro.medium.com/fit/c/1041/671/0*oZSBRjLNLk-mo-4y.?width=750" class="align-center" width="750" /></a></div>
<p>A quarter-by-quarter summary of Nokia’s market share in cell phones. From <a href="https://www.statista.com/statistics/263438/market-share-held-by-nokia-smartphones-since-2007/" class="bm" data-reactid="327">Statista</a>.</p>
<p class="ca b cb cc cd l m ce cf bm bn" data-reactid="331">Big Oil believes it is different. I am less optimistic for them.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="334">An autonomous vehicle will cost about $0.13 per mile to operate, and even less as battery life improves. By comparison, your 20 miles per gallon automobile costs $0.10 per mile to refuel if gasoline is $2/gallon, and that is before paying for insurance, repairs, or parking. Add those, and the price of operating a vehicle you have already paid off shoots to $0.20 per mile, or more.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="337">And this is what will kill oil: It will cost less to hail an autonomous electric vehicle than to drive the car that you already own.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="340">If you think this reasoning is too coarse, consider the <a href="https://static1.squarespace.com/static/585c3439be65942f022bbf9b/t/591a2e4be6f2e1c13df930c5/1494888038959/RethinkX+Report_051517.pdf" class="bm" data-reactid="342">recent analysis</a> from the consulting company RethinkX (run by the aforementioned Tony Seba), which built a much more detailed, sophisticated model to explicitly analyze the future costs of autonomous vehicles. Here is a sampling of what they predict:</p>
<ul data-reactid="346">
<li class="ca b cb cc cd l m cg cf bm bn" data-reactid="347">Self-driving cars will launch around 2021</li>
<li class="ca b cb cc cd l m cl cf bm bn" data-reactid="350">A private ride will be priced at 16¢ per mile, falling to 10¢ over time.</li>
<li class="ca b cb cc cd l m cl cf bm bn" data-reactid="353">A shared ride will be priced at 5¢ per mile, falling to 3¢ over time.</li>
<li class="ca b cb cc cd l m cl cf bm bn" data-reactid="356">By 2022, oil use will have peaked</li>
<li class="ca b cb cc cd l m cl cf bm bn" data-reactid="359">By 2023, used car prices will crash as people give up their vehicles. New car sales for individuals will drop to nearly zero.</li>
<li class="ca b cb cc cd l m cl cf bm bn" data-reactid="362">By 2030, gasoline use for cars will have dropped to near zero, and total crude oil use will have dropped by 30% compared to today.</li>
</ul>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="365">The driver behind all this is simple: Given a choice, people will select the cheaper option.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="368">Your initial reaction may be to believe that cars are somehow different — they are built into the fabric of our culture. But consider how people have proven more than happy to sell seemingly unyielding parts of their culture for far less money. Think about how long a beloved mom and pop store lasts after Walmart moves into town, or how hard we try to “Buy American” when a cheaper option from China emerges.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="371">And autonomous vehicles will not only be cheaper, but more convenient as well — there is no need to focus on driving, there will be fewer accidents, and no need to circle the lot for parking. And your garage suddenly becomes a sunroom.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="374">For the moment, let’s make the assumption that the RethinkX team has their analysis right (and I broadly agree[1]): Self-driving EVs will be approved worldwide starting around 2021, and adoption will occur in less than a decade.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="377">How screwed is Big Oil?</p>
<p></p>
<hr class="cm bz cn co cp bw cq cr cs ct cu" data-reactid="380" />
<p></p>
<p class="ca b cb cc cd l m ce cf bm bn" data-reactid="382">Perhaps the metaphors with film camera or cell phones are stretched. Perhaps the better way to analyze oil is to consider the fate of another fossil fuel: coal.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="385">The coal market is experiencing a shock today similar to what oil will experience in the 2020s. Below is a plot of total coal production and consumption in the US, from 2001 to today. As inexpensive natural gas has pushed coal out of the market, coal consumption has dropped roughly 25%, similar to the 30% drop that RethinkX anticipates for oil. And it happened in just a decade.</p>
<div class="bp db br" data-reactid="389"><a href="https://miro.medium.com/fit/c/536/338/0*rNObdXrF2LjvO8NA." target="_blank"><img src="https://miro.medium.com/fit/c/536/338/0*rNObdXrF2LjvO8NA.?width=650" class="align-center" width="650" /></a></div>
<p>Coal consumption has dropped 25% from its peak. From the <a href="http://kleinmanenergy.upenn.edu/policy-digests/coal-dilemma" class="bm" data-reactid="394">Kleinman Center for Energy Policy</a>.</p>
<p class="ca b cb cc cd l m ce cf bm bn" data-reactid="398">The result is not pretty. The major coal companies, who all borrowed to finance capital improvements while times were good, were caught unaware. As coal prices crashed, their loan payments became a larger and larger part of their balance sheets; while the coal companies could continue to pay for operations, they could not pay their creditors.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="401">The four largest coal producers lost 99.9% of their market value over the last 6 years. Today, over half of coal is being mined by companies in some form of bankruptcy.</p>
<div class="bp dd br" data-reactid="405"><a href="https://miro.medium.com/fit/c/984/694/0*J7xR7MxLsUx2AQBu." target="_blank"><img src="https://miro.medium.com/fit/c/984/694/0*J7xR7MxLsUx2AQBu.?width=550" class="align-center" width="550" /></a></div>
<p>The four largest coal companies had a combined market value of approximately zero in 2016. This image is one element of a larger graphic on the collapse of coal from <a href="http://www.visualcapitalist.com/decline-of-coal-three-charts/" class="bm" data-reactid="410">Visual Capitalist</a>.</p>
<p class="ca b cb cc cd l m ce cf bm bn" data-reactid="414">When self-driving cars are released, consumption of oil will similarly collapse.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="417">Oil drilling will cease, as existing fields become sufficient to meet demand. Refiners, whose huge capital investments are dedicated to producing gasoline for automobiles, will write off their loans, and many will go under entirely. Even some pipeline operators, historically the most profitable portion of the oil business, will be challenged as high cost supply such as the Canadian tar sands stop producing.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="420">A decade from now, many investors in oil may be wiped out. Oil will still be in widespread use, even under this scenario — applications such as road tarring are not as amenable to disruption by software. But much of today’s oil drilling, transport, and refining infrastructure will be redundant, or ill-fit to handle the heavier oils needed for powering ships, heating buildings, or making asphalt. And like today’s coal companies, oil companies like TransCanada may have <a href="https://www.vox.com/2016/9/2/12757074/coal-bankruptcy-mine-cleanup" class="bm" data-reactid="422">no money left to clean up the mess</a> they’ve left.</p>
<p></p>
<hr class="cm bz cn co cp bw cq cr cs ct cu" data-reactid="426" />
<p class="ca b cb cc cd l m ce cf bm bn" data-reactid="428">Of course, it would be better for the environment, investors, and society if oil companies curtailed their investing today, in preparation for the long winter ahead. Belief in global warming or the risks of oil spills is no longer needed to oppose oil projects — oil infrastructure like the Keystone XL will become a stranded asset before it can ever return its investment.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="431">Unless we have the wisdom not to build it.</p>
<p class="ca b cb cc cd l m cg cf bm bn" data-reactid="434">The battle over oil has historically been a personal battle — a skirmish between tribes over politics and morality, over how we define ourselves and our future. But the battle over self-driving cars will be fought on a different front. It will be about reliability, efficiency, and cost. And for the first time, Big Oil will be on the weaker side.</p>
<p>Within just a few years, Big Oil will stagger and start to fall. For anyone who feels uneasy about this, I want to emphasize that this prediction isn’t driven by environmental righteousness or some left-leaning fantasy. It’s nothing personal. It’s just business.</p>
<p>HatTip to Member GT for this article.  Thank you buddy! </p>
<p>Courtesy of <a href="https://shift.newco.co/amp/p/38b843bd4fe0" target="_blank">NewCoShift</a></p>
</div>Graphene: The Game-Changing Material of the Futurehttp://stockbuz.ning.com/articles/graphene-the-game-changing-material-of-the-future2017-03-15T16:14:09.000Z2017-03-15T16:14:09.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p>Technology is only as good as the materials it is made from.</p>
<p>Much of the modern information era would not be possible without silicon and Moore’s Law, and electric cars would be much less viable without recent advances in the material science behind <a href="http://www.visualcapitalist.com/critical-ingredients-fuel-battery-boom/">lithium-ion batteries</a>.</p>
<p>That’s why graphene, a two-dimensional supermaterial made from carbon, is so exciting. It’s harder than diamonds, 300x stronger than steel, flexible, transparent, and a better conductor than copper (by about 1,000x).</p>
<p>If it lives up to its potential, graphene could revolutionize everything from computers to energy storage.</p>
<h2 style="margin-top: 0;">Graphene: Is It the Next Wonder Material?</h2>
<p>The following infographic comes to us from <a href="https://www.911metallurgist.com/graphene/">911Metallurgist</a>, and it breaks down the incredible properties and potential applications of graphene.</p>
<p><img src="http://2oqz471sa19h3vbwa53m33yj.wpengine.netdna-cdn.com/wp-content/uploads/2017/03/graphene-infographic.png" alt="Graphene: The Game-Changing Material of the Future" /></p>
<p>While the properties and applications of graphene are extremely enticing, there has one big traditional challenge with graphene: the cost of getting it.</p>
<h2 style="margin-top: 0;">The Ever-Changing Graphene Price</h2>
<p>As you can imagine, synthesizing a material that is one atom thick is a process that has some major limitations. Since a sheet of graphene 1 mm thick (1/32 of an inch) requires three million layers of atoms, graphene has been quite cost-prohibitive to produce in large amounts.</p>
<p>Back in 2013, Nature reported that one micrometer-sized flake of graphene costed more than $1,000, which made graphene one of the most expensive materials on Earth. However, there has been quite some progress in this field since then, as scientists search for the “Holy Grail” in scaling graphene production processes.</p>
<p>By the end of 2015, Deloitte estimated that the market price per gram was <a href="https://www2.deloitte.com/global/en/pages/technology-media-and-telecommunications/articles/tmt-pred16-tech-graphene-research-now-reap-next-decade.html">close to $100</a>. And today, graphene can now be ordered straight from a supplier like <a href="https://www.graphenea.com/collections/graphene-products">Graphenea</a>, where multiple products are offered online ranging from graphene oxide (water dispersion) to monolayer graphene on silicon wafers.</p>
<p>One producer, NanoXplore, even estimates that graphene is now down to a cost of <a href="http://www.thegraphenecouncil.org/blogpost/1501180/Graphene-Updates">$0.10 per gram</a> for good quality graphene, though this excludes graphene created through a CVD process (recognized as the highest level of quality available for bulk graphene).</p>
<p>The following graphic from Nature (2014) shows some methods for graphene production – though it should be noted that this is a quickly-changing discipline.</p>
<p><img src="http://2oqz471sa19h3vbwa53m33yj.wpengine.netdna-cdn.com/wp-content/uploads/2017/03/graphene-production.png" alt="Graphene Production" /></p>
<p>As the price of graphene trends down at an impressive rate, its applications will continue to grow. However, for graphene to be a true game-changer, it will have to be integrated into the supply chains of manufacturers, which will still take multiple years to accomplish.</p>
<p>Once graphene has “real world” applications, we’ll be able to see what can be made possible on a grander scale.</p>
<p>Courtesy of <a href="http://www.visualcapitalist.com/graphene-material-future/" target="_blank">VisualCapitalist</a></p>
</div>Crude Oil Rallys 81.8% Of The Time From Mid February To Mid Mayhttp://stockbuz.ning.com/articles/crude-oil-rallys-81-8-of-the-time-from-mid-february-to-mid-may2017-02-08T15:49:34.000Z2017-02-08T15:49:34.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><div class="body-text"><img src="http://68.media.tumblr.com/5819696bf0ddac5191868298f7b504ec/tumblr_inline_ol0xtknu1i1spdppr_500.jpg" data-orig-height="411" data-orig-width="640" height="321" width="500" />
<p>Crude oil has a tendency to bottom in mid-February and then rally through July with the bulk of the seasonal move ending in late April or early May. It is that early February low that can give traders an edge by buying ahead of a seasonally strong period. Going long crude oil’s July contract on or about February 14 and holding for approximately 60 days has been a profitable trade 27 times in 33 years, including the last three years straight, for an 81.8% win ratio with a cumulative profit of $108,660 (based upon trading a single crude oil futures contract excluding commissions and taxes).</p>
<img src="http://68.media.tumblr.com/2c1039600c702fbabff2d36b09b6e73a/tumblr_inline_ol0xu4Sj0o1spdppr_500.jpg" data-orig-height="694" data-orig-width="398" height="694" width="398" />
<p>Crude oil’s seasonal tendency to move higher in this time period is partly due to continuing demand for heating oil and diesel fuel in the northern states and partly due to the shutdown of refinery operations in order to switch production facilities from producing heating oil to reformulated unleaded gasoline in anticipation of heavy demand for the upcoming summer driving season. This has refiners buying crude oil in order to ramp up production for gasoline. Last year, crude bottomed in mid-February and that bottom was the end of crude’s multi-year bear market that began in earnest in 2014. The result was the second best performance in this trade’s history going back to 1984. Only 2008 was better.</p>
<p>Courtesy of <a href="http://jeffhirsch.tumblr.com/post/156948232753/crude-rallies-818-of-the-time-from-mid-february" target="_blank">AlmanacTrader</a></p>
</div>
</div>Bonds Haven't Even Begun To Price In Trumpflationhttp://stockbuz.ning.com/articles/bonds-haven-t-even-begun-to-price-in-trumpflation2016-11-27T20:17:59.000Z2016-11-27T20:17:59.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p>Since the election the financial markets have been trying to price in “<a href="http://www.investopedia.com/terms/t/trumpflation.asp">Trumpflation</a>.” This is the idea that the combination of infrastructure spending, tax cuts, rising deficits, immigration curbs and protectionist policies could reverse the disinflationary trends we have witnessed over the past few decades and more dramatically since the financial crisis. The selloff in the bond market amid surging interest rates might be the single most important piece of evidence in this regard.</p>
<p>Over the summer I noted we were likely witnessing the final blow-off stage of the bond bull market (see <a href="https://www.thefelderreport.com/2016/07/06/long-bonds-enter-the-blowoff-stage/">this</a> and <a href="https://www.thefelderreport.com/2016/07/08/a-few-more-thoughts-on-the-long-bond-blowoff/">this</a>). Since then the long bond has fallen nearly 15% leading many pundits to conclude it has already begun pricing in the prospect of Trumpflation. However, if you look at the data, it appears it’s just not pricing in as much deflation anymore. In fact, by some measures the yield 10-year treasury bond would still need to double in order to finish the job.</p>
<blockquote class="twitter-tweet" data-lang="en">
<p lang="en" dir="ltr" xml:lang="en">A simple model based on <a href="https://twitter.com/hashtag/inflation?src=hash">#inflation</a>, <a href="https://twitter.com/hashtag/ISM?src=hash">#ISM</a> and short-term rates suggests the 10-year US Treasury yield should be 4%! <a href="https://t.co/FooVkNvQTt">pic.twitter.com/FooVkNvQTt</a></p>
— jeroen blokland (@jsblokland) <a href="https://twitter.com/jsblokland/status/797377020535705600">November 12, 2016</a></blockquote>
<script async="" src="//platform.twitter.com/widgets.js" charset="utf-8" type="text/javascript">
</script>
<p>And if inflation were to actually increase from where it stands currently, yields would need to rise much further than that in order to properly price this in. Think of it this way: If inflation is running at 3-4% and rising how much of a premium to this number should an investor be paid for tying up his money for 10 years? 1%? 2%? More? Perhaps this is why “bond king” Jeff Gundlach recently suggested the 10-year yield could <a href="http://www.barrons.com/articles/gundlach-bond-yields-could-hit-6-in-five-years-1478929496">rise to 6%</a> after Trump’s first term in office.</p>
<p>This is a big deal not just for bonds but for asset classes of all kinds that have been priced in similar fashion over the better part of the last decade. Stocks now have more <a href="http://blogs.barrons.com/incomeinvesting/2016/11/17/watch-out-market-for-negative-yielding-bonds-could-dry-up/">interest rate risk</a> than they have had for many years, maybe ever. It might be wise to remember the 1994 bond market crash. Just like it has over the past few months, the long bond fell 15% back then before stocks took notice and fell a quick 10% of their own. Should bonds continue their current selloff, the parallels to 1987 might be more appropriate. The long bond fell 25% during that episode, the final phase of its decline coinciding with the stock market crash that fall.</p>
<p>Either way, the prospect of rising inflation is something the bond market is only beginning to grapple with. It may not even materialize. There’s a good chance Trump will run into a lot more resistance than most market participants currently believe when it comes to his dramatic policy shifts. But inflation does rear its ugly head again investors may be forced to reconsider the rampant enthusiasm for financial assets that has taken hold since the election.</p>
<p>Courtesy of <a href="https://www.thefelderreport.com/2016/11/25/bonds-havent-even-begun-pricing-in-trumpflation-yet/" target="_blank">TheFelderReport</a></p>
</div>Energy Of The Future. Demand By 2050http://stockbuz.ning.com/articles/energy-of-the-future-demand-by-20502016-11-05T19:57:27.000Z2016-11-05T19:57:27.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p><a href="http://www.mckinsey.com/~/media/McKinsey/Industries/Oil%20and%20Gas/Our%20Insights/Energy%202050%20Insights%20from%20the%20ground%20up/Energy2050_1536x1536_500_Standard.ashx?mw=1536&car=72:35&cq=50&tco=500" target="_blank"><img src="http://www.mckinsey.com/~/media/McKinsey/Industries/Oil%20and%20Gas/Our%20Insights/Energy%202050%20Insights%20from%20the%20ground%20up/Energy2050_1536x1536_500_Standard.ashx?mw=1536&car=72:35&cq=50&tco=500&width=400" class="align-left" width="400" /></a>Wh<strong>en it comes to energy,</strong> there is one matter everyone agrees on. For the near future, at least, the world will need more of it—and how it is produced and used will be a critical factor in the future of the global economy, geopolitics, and the environment. With that in mind, McKinsey took a hard look at the data, modeling energy demand from the bottom up, by country, sector, and fuel mix, with an analysis of current conditions, historical data, and country-level assessments. On this basis, McKinsey’s Global Energy Insights team has put together a description of the global energy landscape to 2050.</p>
<p>It is important to remember that this is a business-as-usual scenario. That is, it does not anticipate big disruptions in either the production or use of energy. And, of course, predicting the future of anything is perilous. With those caveats in mind, here are four of the most interesting insights from this research.</p>
<p><strong><em>Global energy demand will continue to grow.</em></strong> But growth will be slower—an average of about 0.7 percent a year through 2050 (versus an average of more than 2 percent from 2000 to 2015). The decline in the rate of growth is due to digitization, slower population and economic growth, greater efficiency, a decline in European and North American demand, and the global economic shift toward services, which use less energy than the production of goods. For example, in India, the percentage of GDP derived from services is expected to rise from 54 to 64 percent by 2035. And efficiency is a forthright good-news story. By 2035, McKinsey research expects that it will take almost 40 percent less fuel to propel a fossil-fueled car a mile than it does now. By 2050, global “energy intensity”—that is, how much energy is used to produce each unit of GDP—will be half what it was in 2013. That may sound optimistic, but it is based on recent history. From 1990 to 2015, global energy intensity improved by almost a third, and it is reasonable to expect the rate of progress to accelerate.</p>
<h2><strong><em>Demand for electricity will grow twice as fast as that for transport.</em></strong></h2>
<p>China and India will account for 71 percent of new capacity. By 2050, electricity will account for a quarter of all energy demand, compared with 18 percent now. How will that additional power be generated? More than three-quarters of new capacity (77 percent), according to the McKinsey research, will come from wind and solar, 13 percent from natural gas, and the rest from everything else. The share of nuclear and hydro is also expected to grow, albeit modestly.</p>
<p>What that means is that by 2050, nonhydro renewables will account for more than a third of global power generation—a huge increase from the 2014 level of 6 percent. To put it another way, between now and 2050, wind and solar are expected to grow four to five times faster than every other source of power.</p>
<p></p>
<p><strong id="main_0_ctl09_sectionHeadline" class="title headline"><em>Fossil fuels will dominate energy use through 2050.</em></strong> This is because of the massive investments that have already been made and because of the superior energy intensity and reliability of fossil fuels. The mix, however, will change. Gas will continue to grow quickly, but the global demand for coal will likely peak around 2025. Growth in the use of oil, which is predominantly used for transport, will slow down as vehicles get more efficient and more electric; here, peak demand could come as soon as 2030. By 2050, the research estimates that coal will be down to just 16 percent of global power generation (from 41 percent now) and fossil fuels to 38 percent (from 66 percent now). Overall, though, coal, oil, and, gas will continue to be 74 percent of primary energy demand, down from 82 percent now. After that, the rate of decline is likely to accelerate.</p>
<p><strong><em>Energy-related greenhouse-gas emissions will rise 14 percent in the next 20 years.</em></strong> That is not what needs to happen to keep the planet from warming another two degrees, the goal of the 2015 Paris climate conference. Around 2035, though, emissions will flatten and then fall, for two main reasons. First, cars and trucks will be cleaner, due to more efficient engines and the deployment of electric vehicles. Second, there is the shift in the power industry toward gas and renewables discussed above. The countervailing trends are that there are likely to be some 1.5 billion more people by 2035, and global GDP will rise by about half over that period. All those people will need to eat and work, and that means more energy.</p>
<p>The world is full of unpredictable and sometimes wonderful surprises, so I accept that these numbers are unlikely to be perfect. As with any forecast, they are based on assumptions—about China and India, for example—as well as about oil prices and economic growth. Other sources see different outlooks. Concerted global action to reduce greenhouse-gas emissions, for example, could change the arc of these trends. Technological disruptions could also bend the curve.</p>
<p>For business and political leaders, though, the implications are clear. Given that global energy demand will grow, it is likely that prices will continue to be volatile. Better energy efficiency, then, is an important way to reduce related risks. Technology development is critical to ensuring that the world gets the energy it needs while mitigating environmental harm. This will require substantial new investments. Finally, to encourage the creation of the clean and reliable energy infrastructure that the world needs, energy producers will need to work with local, regional, national, and international regulators. Getting things right the first time is essential; there is extensive evidence to show that dramatic changes in policy act as a powerful deterrent to energy investments by producers. Given the scale of the new investments needed, this will be a factor of growing importance.</p>
<p>Courtesy of <a href="http://www.mckinsey.com/industries/oil-and-gas/our-insights/energy-2050-insights-from-the-ground-up?cid=sustainability-eml-alt-mip-mck-oth-1611" target="_blank">McKinsey</a></p>
</div>The Market Deteriorates Further. 'Bout Timehttp://stockbuz.ning.com/articles/the-market-deteriorates-further-bout-time2016-10-30T18:07:13.000Z2016-10-30T18:07:13.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p>The stock market continues to weaken, as evidenced by these ETF charts. If you zero in on a sector you wish to short, I would bear in mind that ETFs are comprised of market leaders. I would look for names <em>"outside"</em> of the ETF components; consider them leaders and you want the weaklings to short.</p>
<p><span class="font-size-5">The reasons for weakness are numerous.</span> </p>
<p>Consider the election weight (a Trump win would weigh on equities but Clinton weighs on pharma pricing). Then there are flat-to-dropping sales. Of course the USD movement (up will weigh on commodities and large caps with overseas exposure). Then there's those who feel we are already at or above maximum value and they're not buying here. They're hedged, short some and long financials ahead of the Fed rate hike. Then there's that Fed hike itself. High dividend is flushing down the toilet (SDY) in September. Overseas weakness with China not helping boost confidence for demand. And we also have more failure at the <a href="http://www.reuters.com/article/us-opec-meeting-idUSKCN12T083?feedType=RSS&feedName=businessNews" target="_blank">OPEC talks</a> with no offer from outside countries to participate. They've definitely lost their 'power' over us and crude should continue to weaken.</p>
<p>Consider however, that the weakness has been <strong>growing</strong>, sector by sector. When you accept we have weakness in housing, some retail, some restaurants, small caps, mid caps, pharma, healthcare and now oil. With energy being the second largest sector, this weighs heavily. Banks can't do it all on their own.</p>
<p>Well here they go and there are <strong>many, many</strong> more out there; you'll see. Possibly you can use one here and/or search for more. Cover above the upper trend lines. Targets are all equal to the high/low of the pattern with a partial taken along the way. I usually leave a small piece on the table as well. You never know where the markets heading next. <strong>NOTE</strong>: Most are daily views but there are a few weekly charts. Take note.</p>
<p>You're welcome</p>
<p>(Click on any chart to enlarge)</p>
<p><a href="http://storage.ning.com/topology/rest/1.0/file/get/1291347?profile=original" target="_self"><img src="http://storage.ning.com/topology/rest/1.0/file/get/1291347?profile=RESIZE_1024x1024" class="align-full" width="750"></a><a href="http://storage.ning.com/topology/rest/1.0/file/get/1291393?profile=original" target="_self"><img src="http://storage.ning.com/topology/rest/1.0/file/get/1291393?profile=RESIZE_1024x1024" class="align-full" width="750"></a><a href="http://storage.ning.com/topology/rest/1.0/file/get/1291434?profile=original" target="_self"><img src="http://storage.ning.com/topology/rest/1.0/file/get/1291434?profile=RESIZE_1024x1024" class="align-full" width="750"></a><a href="http://storage.ning.com/topology/rest/1.0/file/get/1291492?profile=original" target="_self"><img src="http://storage.ning.com/topology/rest/1.0/file/get/1291492?profile=RESIZE_1024x1024" class="align-full" width="750"></a><a href="http://storage.ning.com/topology/rest/1.0/file/get/1291558?profile=original" target="_self"><img src="http://storage.ning.com/topology/rest/1.0/file/get/1291558?profile=RESIZE_1024x1024" class="align-full" width="750"></a><a href="http://storage.ning.com/topology/rest/1.0/file/get/1291566?profile=original" target="_self"><img src="http://storage.ning.com/topology/rest/1.0/file/get/1291566?profile=RESIZE_1024x1024" class="align-full" width="750"></a><a href="http://storage.ning.com/topology/rest/1.0/file/get/1291582?profile=original" target="_self"><img src="http://storage.ning.com/topology/rest/1.0/file/get/1291582?profile=RESIZE_1024x1024" class="align-full" width="750"></a><a href="http://storage.ning.com/topology/rest/1.0/file/get/1291587?profile=original" target="_self"><img src="http://storage.ning.com/topology/rest/1.0/file/get/1291587?profile=RESIZE_1024x1024" class="align-full" width="750"></a><a href="http://storage.ning.com/topology/rest/1.0/file/get/1291592?profile=original" target="_self"><img src="http://storage.ning.com/topology/rest/1.0/file/get/1291592?profile=RESIZE_1024x1024" class="align-full" width="750"></a><a href="http://storage.ning.com/topology/rest/1.0/file/get/1291599?profile=original" target="_self"><img src="http://storage.ning.com/topology/rest/1.0/file/get/1291596?profile=RESIZE_1024x1024" class="align-full" width="750"></a></p></div>Crude's Continued Slide To Persisthttp://stockbuz.ning.com/articles/crude-s-continued-slide-to-persist2016-07-30T21:00:05.000Z2016-07-30T21:00:05.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p>With disruptions fading and Libya now reaching a deal to <a href="http://www.reuters.com/article/us-libya-security-energy-idUSKCN1090TZ" target="_blank">end their brigade</a>, oils top may be in for now.  This man, however, feels it's going to be a very long road ahead for crude oil bulls.</p>
<p><iframe width="640" height="360" bgcolor="#131313" type="application/x-shockwave-flash" src="http://player.cnbc.com/p/gZWlPC/cnbc_global?playertype=synd&byGuid=3000539047&size=640_360" allowfullscreen="true"></iframe></p>
</div>Seven Ways To Trade The Brexit Votehttp://stockbuz.ning.com/articles/seven-ways-to-trade-the-brexit-vote2016-06-14T00:41:06.000Z2016-06-14T00:41:06.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p>Next week will be a historical one for both the United Kingdom and the global economy. On June 23<sup>rd</sup> the British people will decide whether to leave or stay in the European Union. Polls have been mixed over the last couple months, but the latest out show momentum for leaving, which is scaring the markets.</p>
<p>Loss of British sovereignty is the fundamental reason for leaving the EU, as many supporters want to take back control of U.K. borders in order to curb immigration. Those that wish to stay in the EU say there are severe short-term economic consequences that would make trade difficult and slow the economy. Even President Obama recently said that if there is a Brexit, the U.K. would go to the “back of the queue” in American trade deals.</p>
<p>While debate and speculation is running rampant, markets are watching the British Pound closely. Last week U.S. indices tracked and moved with the Pound tick for tick, showing that traders are very concerned about the upcoming vote.</p>
<p>So how can you profit off the news when it hits? Below I show seven different ETF/ETNs to buy in anticipation of either a “Yes or a “No” vote.  </p>
<p><strong>Volatility</strong></p>
<p>When markets are faced with uncertainty, volatility rises. The VIX is a fear gauge that measures how much fear there is in the markets at the current moment. Traders will buy VIX instruments to hedge against panic or bet on a move lower in the market. One of the most popular VIX instruments is the <strong>iPath SP 500 VIX Short-Term Futures ETN (<acronym class="ticker">VXX</acronym>). </strong> This ETN provides investors with exposure to short-term VIX futures. Essentially, when the market goes down and fear increases, it will go higher.</p>
<p>The chart below shows VXX over the last month versus the S&P 500. As Brexit fears have increase over the last week, we have seen the VIX shoot higher and the market soften. Investors can expect volatility to remain firm into the vote and surge higher if the vote is yes. However, if the vote is no, expect volatility to fall apart and VXX to go right back to the June lows.</p>
<p><em>The Trade:</em> If you believe it’s a yes vote buy VXX or UVXY (2x long VIX). If you believe it’s a no vote buy SVXY (Short VIX).</p>
<p><img alt="" src="https://staticx-tuner.zacks.com/images/blogs/7e/1465833743_scaled_624.jpg" style="width: 624px; height: 263px;" /></p>
<p><strong>Yes Vote</strong></p>
<p><strong>SPDR Gold Trust (<acronym class="ticker">GLD</acronym>)</strong> seeks to reflect the performance of gold bullion. The Trust holds gold bars and from time to time, issues Baskets in exchange for deposits of gold and distributes gold in connection with redemptions of Baskets.</p>
<p>In times of uncertainty gold thrives. A Brexit would create uncertainty about the euro zone economy, the stability of the EURO and would set a precedent for other countries to leave the EU.</p>
<p>Gold has already been very strong this year with the ECB and Bank of Japan experimenting with negative interest rates. A yes vote could push gold much higher as currency fears force traders to buy the yellow metal.</p>
<p><img alt="" src="https://staticx-tuner.zacks.com/images/blogs/e8/1465833764_scaled_624.jpg" style="width: 624px; height: 259px;" /><strong>Guggenheim Currency Shares Japanese Yen ETF (<acronym class="ticker">FXY</acronym>)</strong> is an investment that seeks to track the Japanese Yen. Traders will buy the Yen in expectation that it will rise against the Euro, the Pound and the Dollar. Yen momentum has been a concern and a risk-off type scenario could give the currency an extra push higher as global markets head lower.</p>
<p><strong>Direxion</strong> <strong>Daily Financial Bear 3x (<acronym class="ticker">FAZ</acronym>)</strong> is an investment that seeks daily investment results, before fees and expenses, of 300% of the inverse of the performance of the Russell 1000® Financial Services Index,</p>
<p>This is a good play, not only on a Brexit yes vote, but also the Feds reaction to the Brexit. Yellen has mentioned that the vote is a concern and a yes vote will most likely create turmoil that would prevent any fed rate hike until December. Low rates are killing banks, expect FAZ to head higher on the expectation on more delays on any rate hike, plus heightened fear of economic turmoil.</p>
<p><em>The Trade:</em> Long GLD, FXY, and FAZ if trader believes “Yes” vote is coming.</p>
<p><strong>No Vote</strong></p>
<p><strong>Guggenheim Currency Shares British Pound Sterling (<acronym class="ticker">FXB</acronym>)</strong> is a currency ETF that reflects the British pound and its daily movements. The Pound has come under pressure this year in anticipation of this vote. While some of the move might be priced in, there could be a lot more room to go lower if there is a Yes vote. However, if they stay in the EU, there will be a massive rally in the pound and FXB will shoot higher.</p>
<p><strong>iShares MSCI United Kingdom (<acronym class="ticker">EWU</acronym>)</strong> is an investment that seeks to track the investment results of the MSCI United Kingdom Index. The fund will at all times invest at least 90% of its assets in the securities of its underlying index and in depositary receipts representing securities in its underlying index.</p>
<p>Expect U.K. stocks to rally if there is no Brexit. The risk has held the index down so far this year and if that risks goes away we could see money flow into U.K. stocks.</p>
<p><img alt="" src="https://staticx-tuner.zacks.com/images/blogs/8e/1465833778_scaled_624.jpg" style="width: 624px; height: 263px;" /></p>
<p><strong>Direxion</strong> <strong>Daily Small Cap Bull 3x</strong><strong>(<acronym class="ticker">TNA</acronym>)</strong> is a way to play U.S. stocks through the Brexit vote. Expect a large rally if there is a no vote and the best performing stocks to be the riskier or small cap stocks. TNA gives an investor triple exposure to this idea so they can profit of a big move in the Russell 2000 index.</p>
<p><em>The Trade:</em> Long FXB, EWU, and TNA if trader believes a “No” vote is coming.</p>
<p><strong>In Summary</strong></p>
<p>It’s hard to speculate which way the British people will go as the polls have been all over the place. Expect the market to remain volatile as new polls and headlines come out. When the final vote is known there will be a violent move in response to the vote, with a Yes being bearish and NO being bullish for stocks.  Use the above stocks to trade your opinion and even protect your portfolio for that June 23<sup>rd</sup> vote.</p>
<p>Courtesy of <a href="https://mrtopstep.com/7-ways-to-trade-the-brexit-vote/" target="_blank">MrTopStep</a></p>
</div>This One Map Sums Up the Economy of the Middle Easthttp://stockbuz.ning.com/articles/this-one-map-sums-up-the-economy-of-the-middle-east2016-05-12T19:25:08.000Z2016-05-12T19:25:08.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p><a target="_blank" href="http://2oqz471sa19h3vbwa53m33yj.wpengine.netdna-cdn.com/wp-content/uploads/2016/05/most-valuable-exports-middle-east.jpg"><img class="align-full" src="http://2oqz471sa19h3vbwa53m33yj.wpengine.netdna-cdn.com/wp-content/uploads/2016/05/most-valuable-exports-middle-east.jpg?width=750" width="750" /></a>We’ll start with the obvious: the number one export for many countries here is crude oil or related petroleum products. Middle Eastern countries made up a significant portion of global oil export revenues during 2015 with shipments valued at $325 billion or 41.3% of global crude oil exports.</p>
<p>Saudi Arabia, Iraq, United Arab Emirates, Kuwait, Iran, and Oman were all among the top 15 exporters of crude oil in 2015. Russia and Kazakhstan, countries on the Central Asian part of the map, were also members of that same group.</p>
<p>Regimes in the region found that there were many other corollary benefits from this economic might. Unrest could be stifled by rising wealth, and these countries would also have more influence than they otherwise would in global affairs. Saudi Arabia is a good example in both cases, though a major driver of Saudi influence has been <a href="http://www.visualcapitalist.com/animation-oil-imports-to-u-s-shifted-15-years/">slipping in recent years</a>.</p>
<h2 style="margin-top: 0;">Outside of Oil</h2>
<p>Aside from exports of oil, there are some other interesting subtleties to this map. One of the most advanced economies in the region, Israel, is not dependent on oil exports at all. The country has had to find other ways to create value in the global market and its three major exports include electronics and software, cut diamonds, and pharmaceuticals.</p>
<p>War-torn Afghanistan, which is not a significant producer of petroleum on the world market, gets the majority of its export revenue from different natural resource. Opium is Afghanistan’s most valuable cash crop, and opiates such as opium, morphine, and heroin are its largest export. Fetching an estimated value of $3 billion at border prices, it was estimated to make up <a href="https://www.congress.gov/crec/2016/03/15/modified/CREC-2016-03-15-pt1-PgH1349-2.htm">about 15%</a> of the country’s GDP equivalent in 2013.</p>
<p>Lastly, countries on the map without oil wealth tend to be less influential on the world stage from a geopolitical perspective. Armenia, for example, mainly exports pig iron, unwrought copper, and nonferrous metals and is the world’s 138th largest exporter by dollar value, ranked in between Jamaica and Swaziland. Surrounded geographically by countries that Yerevan considers hostile, Armenia has <a href="https://www.stratfor.com/analysis/russia-tightens-its-hold-armenia">increasingly turned to Russia</a> for its support.</p>
<p>Courtesy of <a href="http://www.visualcapitalist.com/map-sums-economy-middle-east/" target="_blank">VisualCapitalist</a></p>
</div>Chart Paloozahttp://stockbuz.ning.com/articles/chart-palooza2015-10-13T14:43:16.000Z2015-10-13T14:43:16.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p>I'm continually saving charts and data points which I find interesting but generally don't post enough to share the data. That being said, I thought "wth" and decided to share some of my most recent. Perhaps you can find a few of interest or maybe you can translate one into a trade. It certainly can't hurt. Your comments would be of interest and will be answered. Happy trading.</p>
<p>Online shoppers by income group. It certainly seems Amazon benefits by middle income buyers. Possibly they just don't have the 'time' to shop in a store, working 60+ hours a week and balancing soccer games, football, cheerleading practice, dinner, laundry, etc.</p>
<p><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291227?profile=original"><img class="align-full" src="http://storage.ning.com/topology/rest/1.0/file/get/1291227?profile=original" width="600"></a></p>
<p>Jet[dot]com is now selling some items at a <em>loss</em> to gain marketshare from Amazon</p>
<p><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291267?profile=original"><img class="align-full" src="http://storage.ning.com/topology/rest/1.0/file/get/1291267?profile=RESIZE_480x480" width="400"></a></p>
<p></p>
<p>We've had numerous talks in Chat over coal usage (is clean coal an oxymoron or what?) and this certainly backs up the belief that natural gas continues to be embraced.</p>
<p><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291300?profile=original"><img class="align-full" src="http://storage.ning.com/topology/rest/1.0/file/get/1291300?profile=original" width="599"></a></p>
<p>Then we have a look at Bear markets of 20% or more.The average # of months caught my eye. No, I don't believe we're out of the woods yet.</p>
<p><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291374?profile=original"><img class="align-full" src="http://storage.ning.com/topology/rest/1.0/file/get/1291374?profile=original" width="578"></a></p>
<p>Presented without comment.</p>
<p><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291406?profile=original"><img class="align-full" src="http://storage.ning.com/topology/rest/1.0/file/get/1291406?profile=original" width="600"></a></p>
<p></p>
<p>More on China de-leveraging; reverting to the mean.</p>
<p><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291468?profile=original"><img class="align-full" src="http://storage.ning.com/topology/rest/1.0/file/get/1291468?profile=original" width="599"></a></p>
<p></p>
<p>Ever wonder just "who" is feeling the most pain with the collapse in commodity prices?</p>
<p><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291502?profile=original"><img class="align-full" src="http://storage.ning.com/topology/rest/1.0/file/get/1291502?profile=RESIZE_1024x1024" width="600"></a></p>
<p></p>
<p>Then we have projections on when the Fed will raise rates; this compared to past increases. Their rate of increase vs. what is anticipated.</p>
<p><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291520?profile=original"><img class="align-full" src="http://storage.ning.com/topology/rest/1.0/file/get/1291520?profile=original" width="537"></a></p>
<p>Now a blip from the <a href="http://soberlook.com" target="_blank">SoberLook</a> on steel and China's overcapacity.</p>
<p><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291547?profile=original"><img class="align-full" src="http://storage.ning.com/topology/rest/1.0/file/get/1291547?profile=original" width="599"></a></p>
<p>Lastly a look at China's production growth with many wondering just 'where' is the bottom?</p>
<p><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291560?profile=original"><img class="align-full" src="http://storage.ning.com/topology/rest/1.0/file/get/1291560?profile=original" width="600"></a></p></div>Why Commodities Are Back To The 1990shttp://stockbuz.ning.com/articles/why-commodities-are-back-to-the-1990s2015-10-01T19:22:33.000Z2015-10-01T19:22:33.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p><a target="_blank" href="http://assets.bwbx.io/images/igH2O4SQWy7o/v1/-1x-1.png"><img class="align-center" src="http://assets.bwbx.io/images/igH2O4SQWy7o/v1/-1x-1.png?width=600" width="600" /></a>The chart above is the Bloomberg Commodity Index. It consists of baskets of common commodities, including energy, metals, foodstuffs, softs and precious metals.</p>
<p>After a fairly flat period in the 1990s, the index leapt upward beginning in the early 2000s. The context explains the jump: High inflation, weak dollar and low interest rates. From 2001 to 2007, the dollar lost 41 percent of its value, and all commodities priced in dollars skyrocketed. At the same time, China began a huge expansion of its infrastructure, transportation, housing and manufacturing sectors. The BCOM index moved from around 90 to almost 240.</p>
<p>You know the <a href="http://www.bloomberg.com/news/articles/2015-09-30/morgan-stanley-warns-stunned-commodities-exposed-to-fed-shock">rest of the story</a>: Inflation is nowhere to be found, and the Federal Open Market Committee is concerned about deflation. The <a href="http://www.bloomberg.com/news/articles/2015-09-30/worst-seen-coming-for-currencies-ensnared-in-commodities-fallout">dollar</a> is at multiyear highs against just about any other currency. Commodity prices have suffered as a result.</p>
<p>Oil prices have been cut almost in half compared with a year ago, to $45 from $87. They are down more than 60 percent from the peak of about $150 barrel of the mid-2000s. The U.S. consumed 6.98 billion barrels in 2014, according to the U.S. Energy Information Administration. The silver lining is that current prices reflect a $42 per barrel savings from a year ago. If it holds, it could put almost $300 billion back in consumers' pockets. We have seen some early signs of that money being spent in recent retail sales.</p>
<p>But as the commodity index shows, this isn’t just about oil; just about all commodities have fallen across the board.</p>
<p>There are several reasons for the price contraction: Along with the strong dollar, excess supply, thanks to North American fracking, also is a contributor. Natural gas was trading Thursday morning at $2.488 per million British thermal units, and oil has cratered, too.</p>
<p>We shouldn't underestimate the impact of a slowing China on commodity prices. It has been on a huge building binge, a government planned overconsumption on an epic scale. When China, the world's biggest consumer of commodities, slows, commodity producers feel the pain.</p>
<p>According to data assembled by <a href="http://www.visualcapitalist.com/china-consumes-mind-boggling-amounts-of-raw-materials-chart/" data-web-url="http://www.visualcapitalist.com/china-consumes-mind-boggling-amounts-of-raw-materials-chart/">visual capitalist</a>, China consumes 54 percent of the world’s aluminum production, 48 percent of all copper, 50 percent of nickel, 45 percent of steel and 60 percent of concrete. It has “consumed more concrete in the last three years than the United States did in all of the 20th century.”</p>
<p>In terms of energy, China uses 49 percent of the world’s coal, 13 percent of the uranium and 12 percent of oil. It’s the same with food: 30 percent of the world’s rice, 22 percent of its corn and 17 percent of wheat.</p>
<p>China was one of the big reasons for the commodity surge in the 2000s. The country's growth has now been cut in half, and that's why prices are now back to the levels of the 1990s.</p>
<p>Courtesy of <a href="http://www.bloombergview.com/articles/2015-10-01/why-commodities-are-back-in-the-1990s" target="_blank">Bloomberg</a></p>
</div>Saudi Arabia May Go Broke Before US Oil Industry Buckleshttp://stockbuz.ning.com/articles/saudi-arabia-may-go-broke-before-us-oil-industry-buckles2015-08-06T13:31:51.000Z2015-08-06T13:31:51.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><div class="firstPar">
<p>If the oil futures market is correct, Saudi Arabia will start running into trouble within two years. It will be in existential crisis by the end of the decade.</p>
</div>
<div class="secondPar">
<p>The contract price of US crude oil for delivery in December 2020 is currently $62.05, implying a drastic change in the economic landscape for the Middle East and the petro-rentier states.</p>
</div>
<div class="thirdPar">
<p>The Saudis took a huge gamble last November when they stopped supporting prices and opted instead to flood the market and drive out rivals, boosting their own output to 10.6m barrels a day (b/d) into the teeth of the downturn.</p>
</div>
<div class="fourthPar">
<p>Bank of America says <a href="http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/11664780/Opec-market-report-Five-graphs-signalling-higher-oil-prices.html" target="_blank">OPEC</a> is now "effectively dissolved". The cartel might as well shut down its offices in Vienna to save money.</p>
</div>
<div class="fifthPar">
<p><img name="crude oil baml" src="http://i.telegraph.co.uk/multimedia/archive/03398/crude_oil_baml_3398974a.PNG" height="278" width="362" /></p>
</div>
<div class="body">
<p>If the aim was to choke the US shale industry, <a href="http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/11650577/US-big-oil-tells-Opec-anything-you-can-do-we-can-better.html" target="_blank">the Saudis have misjudged badly, just as they misjudged the growing shale threat at every stage for eight years</a>. "It is becoming apparent that non-OPEC producers are not as responsive to low oil prices as had been thought, at least in the short-run," said the Saudi central bank in its latest <a href="http://www.sama.gov.sa/en-US/EconomicReports/Financial%20Stability%20Report/FINANCIAL%20STABILITY%20REPORT-2015.pdf" target="_blank" rel="nofollow">stability report</a>.</p>
<p>"The main impact has been to cut back on developmental drilling of new oil wells, rather than slowing the flow of oil from existing wells. This requires more patience," it said.</p>
<p>One Saudi expert was blunter. "The policy hasn't worked and it will never work," he said.</p>
<p>By causing the oil price to crash, the Saudis and their Gulf allies have certainly killed off prospects for a raft of high-cost ventures in the Russian Arctic, the Gulf of Mexico, the deep waters of the mid-Atlantic, and the Canadian tar sands.</p>
<p>Consultants Wood Mackenzie say the major oil and gas companies have shelved 46 large projects, deferring $200bn of investments.</p>
<p>The problem for the Saudis is that US shale frackers are not high-cost. They are mostly mid-cost, and as I reported from the <a href="http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/11556531/Oil-slump-may-deepen-as-US-shale-fights-Opec-to-a-standstill.html" target="_blank" rel="nofollow">CERAWeek</a> energy forum in Houston, experts at IHS think shale companies may be able to shave those costs by 45pc this year - and not only by switching tactically to high-yielding wells.</p>
<p>Advanced pad drilling techniques allow frackers to launch five or ten wells in different directions from the same site. Smart drill-bits with computer chips can seek out cracks in the rock. New dissolvable plugs promise to save $300,000 a well. "We've driven down drilling costs by 50pc, and we can see another 30pc ahead," said John Hess, head of the Hess Corporation.</p>
<p>It was the same story from Scott Sheffield, head of Pioneer Natural Resources. "We have just drilled an 18,000 ft well in 16 days in the Permian Basin. Last year it took 30 days," he said.</p>
<p>The North American rig-count has dropped to 664 from 1,608 in October but output still rose to a 43-year high of 9.6m b/d June. It has only just begun to roll over. "The freight train of North American tight oil has kept on coming," said Rex Tillerson, head of Exxon Mobil.</p>
<p><img name="rig count v output" src="http://i.telegraph.co.uk/multimedia/archive/03398/rig_count_v_output_3398980a.PNG" height="230" width="358" /></p>
<p>He said the resilience of the sister industry of shale gas should be a cautionary warning to those reading too much into the rig-count. Gas prices have collapsed from $8 to $2.78 since 2009, and the number of gas rigs has dropped 1,200 to 209. Yet output has risen by 30pc over that period.</p>
<p>Until now, shale drillers have been cushioned by hedging contracts. The stress test will come over coming months as these expire. But even if scores of over-leveraged wild-catters go bankrupt as funding dries up, it will not do OPEC any good.</p>
<p>The wells will still be there. The technology and infrastructure will still be there. Stronger companies will mop up on the cheap, taking over the operations. Once oil climbs back to $60 or even $55 - since the threshold keeps falling - they will crank up production almost instantly.</p>
<p>OPEC now faces a permanent headwind. Each rise in price will be capped by a surge in US output. The only constraint is the scale of US reserves that can be extracted at mid-cost, and these may be bigger than originally supposed, not to mention the parallel possibilities in Argentina and Australia, or the possibility for "clean fracking" in China as plasma pulse technology cuts water needs.</p>
<p>Mr Sheffield said the Permian Basin in Texas could alone produce 5-6m b/d in the long-term, more than Saudi Arabia's giant Ghawar field, the biggest in the world.</p>
<p>Saudi Arabia is effectively beached. It relies on oil for 90pc of its budget revenues. There is no other industry to speak of, a full fifty years after the oil bonanza began.</p>
<p><img name="saudi fiscal break-even" src="http://i.telegraph.co.uk/multimedia/archive/03398/saudi_fiscal_break_3398984a.PNG" height="323" width="333" /></p>
<p>Citizens pay no tax on income, interest, or stock dividends. Subsidized petrol costs twelve cents a litre at the pump. Electricity is given away for 1.3 cents a kilowatt-hour. Spending on patronage exploded after the Arab Spring as the kingdom sought to smother dissent.</p>
<p>The International Monetary Fund estimates that the budget deficit <a href="https://www.imf.org/external/np/sec/pr/2015/pr15249.htm" target="_blank" rel="nofollow">will reach 20pc</a> of GDP this year, or roughly $140bn. The 'fiscal break-even price' is $106.</p>
<p><img name="saudi fiscal break-even" src="http://i.telegraph.co.uk/multimedia/archive/03398/saudi_fiscal_break_3398984a.PNG" height="323" width="333" /></p>
<p>Far from retrenching, King Salman is spraying money around, giving away $32bn in a coronation bonus for all workers and pensioners.</p>
<p>He has launched a costly war against the Houthis in Yemen and is engaged in a massive military build-up - entirely reliant on imported weapons - that will propel Saudi Arabia to fifth place in the world defence ranking.</p>
<p>The Saudi royal family is leading the Sunni cause against a resurgent Iran, battling for dominance in a bitter struggle between Sunni and Shia across the Middle East. "Right now, the Saudis have only one thing on their mind and that is the Iranians. They have a very serious problem. Iranian proxies are running Yemen, Syria, Iraq, and Lebanon," said Jim Woolsey, the former head of the US Central Intelligence Agency.</p>
<p><img name="saudi spending" src="http://i.telegraph.co.uk/multimedia/archive/03398/saudi_spending_3398983a.PNG" height="260" width="358" /></p>
<p>Money began to leak out of Saudi Arabia after the Arab Spring, with net capital outflows reaching 8pc of GDP annually even before the oil price crash. The country has since been burning through its foreign reserves at a vertiginous pace.</p>
<p>The reserves peaked at $737bn in August of 2014. They dropped to $672 in May. At current prices they are falling by at least $12bn a month.</p>
<p><img name="saudi capital flows" src="http://i.telegraph.co.uk/multimedia/archive/03398/saudi_capital_flow_3398967a.PNG" height="205" width="307" /></p>
<p>Khalid Alsweilem, a former official at the Saudi central bank and now at Harvard University, said the fiscal deficit must be covered almost dollar for dollar by drawing down reserves.</p>
<p>The Saudi buffer is not particularly large given the country's fixed exchange system. Kuwait, Qatar, and Abu Dhabi all have three times greater reserves per capita. "We are much more vulnerable. That is why we are the fourth rated sovereign in the Gulf at AA-. We cannot afford to lose our cushion over the next two years," he said.</p>
<p>Standard & Poor's lowered its outlook to "negative" in February. "We view Saudi Arabia's economy as undiversified and vulnerable to a steep and sustained decline in oil prices," it said.</p>
<p>Mr Alsweilem wrote in a <a href="http://belfercenter.ksg.harvard.edu/files/Saudi.pdf" target="_blank" rel="nofollow">Harvard report</a> that Saudi Arabia would have an extra trillion of assets by now if it had adopted the Norwegian model of a sovereign wealth fund to recyle the money instead of treating it as a piggy bank for the finance ministry. The report has caused storm in Riyadh.</p>
<p>"We were lucky before because the oil price recovered in time. But we can't count on that again," he said.</p>
<p>OPEC have left matters too late, though perhaps there is little they could have done to combat the advances of American technology.</p>
<p>In hindsight, it was a strategic error to hold prices so high, for so long, allowing shale frackers - and the solar industry - to come of age. The genie cannot be put back in the bottle.</p>
<p>The Saudis are now trapped. Even if they could do a deal with Russia and orchestrate a cut in output to boost prices - far from clear - they might merely gain a few more years of high income at the cost of bringing forward more shale production later on.</p>
<p>Yet on the current course their reserves may be down to $200bn by the end of 2018. The markets will react long before this, seeing the writing on the wall. Capital flight will accelerate.</p>
<p>The government can slash investment spending for a while - as it did in the mid-1980s - but in the end it must face draconian austerity. It cannot afford to prop up Egypt and maintain an exorbitant political patronage machine across the Sunni world.</p>
<p>Social spending is the glue that holds together a medieval Wahhabi regime at a time of fermenting unrest among the Shia minority of the Eastern Province, pin-prick terrorist attacks from ISIS, and blowback from the invasion of Yemen.</p>
<p>Diplomatic spending is what underpins the Saudi sphere of influence in a Middle East suffering its own version of Europe's Thirty Year War, and still reeling from the after-shocks of a crushed democratic revolt.</p>
<p>We may yet find that the US oil industry has greater staying power than the rickety political edifice behind OPEC.</p>
<p>Courtesy of <a href="http://www.telegraph.co.uk/finance/oilprices/11768136/Saudi-Arabia-may-go-broke-before-the-US-oil-industry-buckles.html" target="_blank">Telegraph</a></p>
</div>
</div>Crude Oil Bottom Truly Not A Bottom?http://stockbuz.ning.com/articles/crude-oil-bottom-truly-not-a-bottom2015-07-26T14:07:10.000Z2015-07-26T14:07:10.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p class="p1">When crude oil was stopped by it's 200 month simple moving average in June, I wrote <a href="https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&cad=rja&uact=8&ved=0CCkQFjACahUKEwiSrPCz-fjGAhUIGD4KHalHAbE&url=http%3A%2F%2Fstockbuz.net%2Farticles%2Fcrude-oils-overhead-resistance&ei=yOa0VZKoK4iw-AGpj4WICw&usg=AFQjCNGuJOqNtS59ywF9XmpkCbrmBrvI7g&bvm=bv.98717601,d.cWw" target="_blank">here</a> that this posed a problem for the energy sector. We analyzed rig counts and even questioned <a href="http://stockbuz.net/articles/behind-the-saudi-oil-price-approach-are-they-wrong" target="_self">here</a> if the Saudis had it wrong. I had already posed <a href="https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=6&cad=rja&uact=8&ved=0CDsQFjAFahUKEwiSrPCz-fjGAhUIGD4KHalHAbE&url=http%3A%2F%2Fstockbuz.net%2Farticles%2Fno-crude-oil-recovery-in-2015&ei=yOa0VZKoK4iw-AGpj4WICw&usg=AFQjCNHDqLGNkdrD0V7R7zqEqC6ulHZR6A&bvm=bv.98717601,d.cWw" target="_blank">here</a> that there would be no recovery in 2015 and we should be fearful of the nasty word "deflation" <a href="https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0CCQQFjABahUKEwiKv5z4-vjGAhXEdR4KHUUwD_Y&url=http%3A%2F%2Fstockbuz.net%2Farticles%2Fdangers-of-underestimating-deflation&ei=ZOi0VYr9HMTrecXgvLAP&usg=AFQjCNHd0qWd7wdvQXVvRXqOicMH4DGATQ&bvm=bv.98717601,d.dmo" target="_blank">here</a> and it doesn't appear I was wrong. Who's feeling the most pain from these prices? We took a look <a href="https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=4&cad=rja&uact=8&ved=0CC8QFjADahUKEwiSrPCz-fjGAhUIGD4KHalHAbE&url=http%3A%2F%2Fstockbuz.net%2Farticles%2Fcountries-hurt-by-lower-crude-oil&ei=yOa0VZKoK4iw-AGpj4WICw&usg=AFQjCNFPOFJpynJfG6HQu6-G7seU9LA5jw&bvm=bv.98717601,d.cWw" target="_blank">here</a> <span class="s1"><a target="_blank" href="http://static3.businessinsider.com/image/55b1477d2acae76e098b811b-4114-3086/rtx1dv5y.jpg"><img class="align-right" src="http://static3.businessinsider.com/image/55b1477d2acae76e098b811b-4114-3086/rtx1dv5y.jpg?width=300" width="300"></a></span> as these countries could pose good buying opportunities down the road. What's being said now on crude oil's recent drop in price is even more interesting.....at least until there's a disruption in supply or the Saudi's change their mind.</p>
<p class="p1"><span class="s1">Back in January, Morgan Stanley <a href="http://www.businessinsider.com/morgan-stanley-stock-overlay-chart-2015-1">drew similarities between the current oil crash and the one in 1986</a>— when oil prices fell 45%. Though they have been making these parallels for six months, analysts are now saying that the current crash could fare even worse. "On current trajectory, this downturn could become worse than 1986," <span>Morgan Stanley’s Martijn Rats wrote in a note to clients on Tuesday.</span></span></p>
<p class="p3"><span class="s1">"We have been expecting the current downturn to be as severe as the one in 1986 – the worst for at least 45 years – but not worse than that," Rats wrote. But now with oil rolling over again, it is starting to look like a worst-case scenario could be in play. </span></p>
<p class="p3"><span class="s1">While most of his initial predictions for oil were correct, Rats said the firm underestimated OPEC production so far this year. In February, <a href="http://www.businessinsider.com/the-oil-recovery-is-near-2015-2">Rats even predicted a market rebalancing later in 2015</a>.</span></p>
<p class="p3"><span class="s1">"We anticipated that OPEC would not cut, but we didn't foresee such a sharp increase," he wrote. "In our view, this is the main reason why the re-balancing of oil markets had not yet gained momentum."</span></p>
<p class="p3"><span class="s1">Now, the forward curve of oil prices is suggesting that there will be little recovery in the coming years, as well as an industrial downturn worse than 1986.</span></p>
<p class="p3"><span class="s1"><span class="KonaFilter image-container display-table"><span><span data-post-image="" class="image"><a target="_blank" href="http://static4.businessinsider.com/image/55b1447a2acae719008b961f-1304-893/screen%20shot%202015-07-23%20at%203.34.09%20pm.png"><img class="align-left" src="http://static4.businessinsider.com/image/55b1447a2acae719008b961f-1304-893/screen%20shot%202015-07-23%20at%203.34.09%20pm.png?width=450" width="450"></a></span></span></span></span></p>
<p><span class="s1"><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291181?profile=original"><img class="align-right" src="http://storage.ning.com/topology/rest/1.0/file/get/1291181?profile=RESIZE_480x480" width="450"></a>Plus, Rats points out that if the oil crash does turn out to be worse than 1986, it will become the worst in at least the last 45 years. This means there will be no precedent for analysts to look at to make sufficient predictions.</span></p>
<p class="p3"><span class="s1">"If this were to be the case, there would be nothing in our experience that would be a guide to the next phases of this cycle, especially over the relatively near term," he wrote. "In fact, there may be nothing in analyzable history."</span></p>
<p class="p3"><span class="s1">After a few months of stable prices, West Texas Intermediate crude oil <a href="http://www.businessinsider.com/closing-bell-july-23-2015-7">re-entered a bear market</a> on Thursday. </span></p>
<div style="overflow: hidden; color: #000000; background-color: #ffffff; text-align: left; text-decoration: none;">
<br> Courtesy of
<a href="http://www.businessinsider.com/morgan-stanley-on-oil-crash-potential-2015-7#ixzz3h0K7dPIW" target="_self">BusinessInsider</a>
</div></div>Gold Shrugs Off 'Armageddon'http://stockbuz.ning.com/articles/gold-shrugs-off-armageddon2015-07-02T13:20:12.000Z2015-07-02T13:20:12.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p>This was the week Greece inched closest to chaos, as a bank holiday and a technical default caused markets around the world to erupt in turmoil. They recovered somewhat Tuesday, and futures looked stronger <a href="http://www.bloomberg.com/news/articles/2015-06-30/euro-holds-drop-as-greece-misses-imf-payment-while-gold-advances">Wednesday morning</a>, but on Monday, the NASDAQ Composite Index lost 2.4 percent, the Standard & Poor's 500 Index lost 2.09 percent and the Dow Jones Industrial Average fell 1.95 percent. Volatility exploded, as the <a href="http://www.bloomberg.com/news/articles/2015-06-29/worldwide-stock-volatility-soars-as-sleepy-vix-awakens-on-greece">Chicago Board Options Exchange Volatility Index</a> surged 35 percent, its biggest increase in two years, to 18.85. </p>
<p><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291156?profile=original"><img class="align-right" src="http://storage.ning.com/topology/rest/1.0/file/get/1291156?profile=RESIZE_480x480" width="400"></a>One would imagine that such a scenario might be constructive for gold. It has been called the best measure of fear, the only real currency, a refuge for those who plan for panic. So how is it doing these days? <a href="http://www.bloomberg.com/news/articles/2015-06-30/sorry-gold-bulls-metal-s-best-forecaster-expects-more-declines">Spot prices</a> were soft on Monday, despite the wild volatility in equities, drifting down a few bucks from about $1,180 an ounce to about $1,176. They fell a few dollars more yesterday, and are soft Wednesday.</p>
<p>I thought gold was an investor’s best friend during Armageddon.</p>
<p><a href="http://www.bloombergview.com/quicktake/the-fall-of-gold" data-web-url="http://www.bloombergview.com/quicktake/the-fall-of-gold" data-tout-type="quicktake" class="quicktake">The Rise and Fall of Gold</a></p>
<p>I have <a href="http://www.ritholtz.com/blog/2013/04/the-10-rules-of-goldbuggery/" data-web-url="http://www.ritholtz.com/blog/2013/04/the-10-rules-of-goldbuggery/">kidded the goldbugs</a> over the years, but the muted response to the latest crisis is surprising, even to a precious metal skeptic. Gold simply can’t find a bid.</p>
<p>This isn't the sort of response we have come to expect from the “catastrophe metal.” Earlier this month, gold spiked to $1,202, from $1,172, raising hopes of a turnaround. The gold mavens began to dream of a new technical setup, perhaps even a resurrection of the currently <a href="http://www.bloombergview.com/articles/2015-03-10/gold-is-in-long-term-decline-while-stocks-are-in-a-bull-market">deceased trend</a>. There were renewed whispers about $5,000 price targets.</p>
<p>And then … nothing.</p>
<p>I have been writing critically about gold since it peaked in 2011. Its story has become an <a href="http://www.bloombergview.com/articles/2014-01-07/10-reasons-the-gold-bugs-lost-their-shirts">object lesson</a> in how to manage your positions without letting emotion get the better of you.</p>
<p>Why is gold no longer responding to global catastrophes? Nobody knows for sure, but a few different theories might help to explain its behavior in the most recent crisis:</p>
<p>1) The old <a href="http://www.bloombergview.com/articles/2014-12-02/the-gold-fairy-tale-fails-again">narrative</a> has failed. Without a new and improved rationale, buyers aren't motivated to accumulate more gold.</p>
<p>2) The U.S. economy has slowly improved, and much of the rest of the world is healing, too.</p>
<p>3) Other asset classes have been far more productive and rewarding investments in the last five years.</p>
<p>The failure of the classic gold narrative, recounted in <a href="http://www.bloombergview.com/articles/2014-12-02/the-gold-fairy-tale-fails-again">great detail</a> last year, is one explanation. The storyline was essentially a clever sales pitch filled with specific frightening details -- the Fed was going to cause hyperinflation, the dollar would collapse, and so on. All of this proved to be false.</p>
<p>Further reducing enthusiasm for gold is the gradual improvement of the U.S. economy. Despite forecasts of imminent collapse, the major economic data -- including employment, wages, spending, housing, autos and consumer sentiment -- have all trended higher over the last five years. Tales of an impending depression were greatly exaggerated.</p>
<p>Then there are other asset classes. U.S stocks are up 167 percent over the last 5 years. China’s stock market, despite the recent 20 percent drop, is still up almost 10 percent for the year, and it has been on fire the last 2 years.</p>
<p>Each of these is a possible explanation for the lack of response to the Greek crisis. Perhaps a <a href="http://www.bloomberg.com/news/articles/2015-07-01/greece-bailout-compromise-bid-faces-resistance-on-trust-deficit">default</a> to the International Monetary Fund is no big deal, and gold has no reason to rally.</p>
<p>Regardless, gold seems to going nowhere fast. Feel free to send me an <a href="mailto:britholtz3@bloomberg.net" data-web-url="mailto:britholtz3@bloomberg.net">e-mail</a> explaining how wrong and stupid I am. I have an archive of all the messages warning me that gold would teach me a lesson in humility. “You’ll see” these e-mails smugly assure me, “your comeuppance will be here any day now.” My plan was to respond to each on its fifth-year anniversary with a chart showing the performance of gold versus all other asset classes and the details of how much money has been lost.</p>
<p>What once seemed like a snarky and amusing idea just looks cruel today. </p>
<p>Gold teaches the careful observer many lessons -- about narratives, emotion, managing positions, leverage, one-way, can’t miss trades, the efficiency of markets, and story-tellers with product for sale. This is why you should never ever drink the Kool-Aid.</p>
<p>Astute traders ignore these lessons at their own risk.</p>
<p>Courtesy of <a href="http://www.bloombergview.com/articles/2015-07-01/gold-shrugs-off-armageddon" target="_blank">Ritholtz @ BloombergView</a></p></div>Behind The Saudi Oil Price Approach. Are They Wrong?http://stockbuz.ning.com/articles/behind-the-saudi-oil-price-approach-are-they-wrong2015-06-30T12:52:05.000Z2015-06-30T12:52:05.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p><span style="color: #00ffff;">Received this <span style="color: #ffff99;"><a href="http://www.soberlook.com/" target="_blank"><span style="color: #ffff99;">SoberLook</span></a></span> email from member Ryan and had to chuckle.  Did oil bulls (who are always drooling at the mouth) truly feel OPEC would cut production at some point to satisfy their desire for higher pricing?  Come on.  How much can the U.S.consumer handle with new jobs created at the low end of the scale?  What would happen with $5 gas gasoline?  Carpools would become all the rage here in my locale. At a time when the U.S. consumer needs money to spend, the impact of higher oil would be the last thing we need.</span></p>
<p><span style="color: #00ffff;">With low oil, the weak will fail and M&A will continue in the crowded space.  Let new technology force cost savings (as we're seeing it every where else) and bring O&G production up to 21st century standards.  I've written about it <span style="color: #ffff99;"><a href="http://stockbuz.net/articles/Energy" target="_self"><span style="color: #ffff99;">several times</span></a></span> and I think the Saudis knew it was time.</span></p>
<p>In 2014 the Saudis could no longer accept the loss of crude oil market share as the North American production levels shot up sharply over a three-year period.</p>
<div class="yiv7000530658separator" style="clear: both; text-align: center;"><a rel="nofollow" target="_blank" style="margin-left: 0em; margin-right: 0em;" href="http://3.bp.blogspot.com/-Tqq9y6SLZec/VZA4_YesuoI/AAAAAAAAp_0/UkQy-IKferA/s1600/rotary-drilling-rig-horizontal-directional-crawler-22663-4420807.jpg"><img src="http://3.bp.blogspot.com/-Tqq9y6SLZec/VZA4_YesuoI/AAAAAAAAp_0/UkQy-IKferA/s200/rotary-drilling-rig-horizontal-directional-crawler-22663-4420807.jpg" border="0" width="0" height="0" /></a></div>
<table class="yiv7000530658tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;" cellpadding="0" cellspacing="0" align="center">
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<td style="text-align: center;"><a rel="nofollow" target="_blank" style="margin-left: auto; margin-right: auto;" href="http://3.bp.blogspot.com/-YDPo0Pg7Rhw/VZBF1An2G9I/AAAAAAAAqAM/RFv6pwhTfnw/s1600/US%2Bvs%2Bsaudi%2Bproduction.png"><img src="http://3.bp.blogspot.com/-YDPo0Pg7Rhw/VZBF1An2G9I/AAAAAAAAqAM/RFv6pwhTfnw/s640/US%2Bvs%2Bsaudi%2Bproduction.png" border="0" width="571" height="354" /></a></td>
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<td class="yiv7000530658tr-caption" style="text-align: center;">Source: Yardeni Research</td>
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<p><br />
The Saudi response was quite rational. Rather than cutting production to support crude oil prices, the Saudis announced that output will remain the same. In private they were planning to actually <a rel="nofollow" target="_blank" href="http://calgaryherald.com/business/energy/saudi-arabia-to-raise-production-to-maximum-levels-escalating-oil-market-share-battle">increase production</a> in order to meet rising domestic demand as well as to regain market share. The idea was to put a squeeze on the high-cost North American oil firms, halting production growth and ultimately getting prices back into a more profitable range. Other OPEC nations reluctantly agreed to play along.</p>
<blockquote><a rel="nofollow" target="_blank" href="http://money.cnn.com/2014/11/28/investing/opec-oil-price-us-shale/">CNN</a> (November, 2014): - One motivation is to squeeze higher-cost producers in North America, including the booming U.S. shale industry that has reshaped the global energy landscape.<br />
<br />
It's a move Tony Soprano would be proud of. OPEC is betting lower oil prices will force U.S. producers to throw up the white flag and cut back on production because they won't be able to turn a profit.<br />
<br />
"The gauntlet has been thrown down for Western Hemisphere producers like Brazil, Canada and the United States," Bespoke Investment Group wrote in a note to clients on Friday.</blockquote>
<p>Is it working? So far the results have been less than what the Saudis had hoped for. After a bounce from the lows, crude oil has been trading in a relatively tight range, with WTI futures fluctuating around $60/bbl.</p>
<table class="yiv7000530658tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;" cellpadding="0" cellspacing="0" align="center">
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<td style="text-align: center;"><a rel="nofollow" target="_blank" style="margin-left: auto; margin-right: auto;" href="http://1.bp.blogspot.com/-7bk9uU6W2T8/VZA1R1olhYI/AAAAAAAAp-w/qg870i5XKL8/s1600/WTI.png"><img src="http://1.bp.blogspot.com/-7bk9uU6W2T8/VZA1R1olhYI/AAAAAAAAp-w/qg870i5XKL8/s640/WTI.png" border="0" width="571" height="358" /></a></td>
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<td class="yiv7000530658tr-caption" style="text-align: center;">Source: barchart</td>
</tr>
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<p><br />
How is this price stability possible when the common wisdom was that oil prices below $70/bbl will force most US producers to close shop and North American production would collapse? After all we've seen a spectacular decline in active oil rig count. The answer has less to do with rigs that have been taken offline and more with the technology that remains. After the inefficient rigs have been shut, US rig count is starting to stabilize.</p>
<table class="yiv7000530658tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;" cellpadding="0" cellspacing="0" align="center">
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<td style="text-align: center;"><a rel="nofollow" target="_blank" style="margin-left: auto; margin-right: auto;" href="http://4.bp.blogspot.com/-D0SuayPaLRQ/VZA2Ydr5cvI/AAAAAAAAp_A/h8NwKGG29hw/s1600/rig%2Bcount.png"><img src="http://4.bp.blogspot.com/-D0SuayPaLRQ/VZA2Ydr5cvI/AAAAAAAAp_A/h8NwKGG29hw/s1600/rig%2Bcount.png" border="0" /></a></td>
</tr>
<tr>
<td class="yiv7000530658tr-caption" style="text-align: center;">Source: BH</td>
</tr>
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<p><br />
US crude producers are achieving record efficiency with the remaining equipment. The charts below show new-well oil production per rig.</p>
<div class="yiv7000530658separator" style="clear: both; text-align: center;"><a rel="nofollow" target="_blank" style="margin-left: 1em; margin-right: 1em;" href="http://2.bp.blogspot.com/-A7B_T61wnDk/VZA2-hQcLaI/AAAAAAAAp_I/cPkiZ5k6Dwg/s1600/Bakken.png"><img src="http://2.bp.blogspot.com/-A7B_T61wnDk/VZA2-hQcLaI/AAAAAAAAp_I/cPkiZ5k6Dwg/s640/Bakken.png" border="0" width="571" height="352" /></a></div>
<p></p>
<div class="yiv7000530658separator" style="clear: both; text-align: center;"><a rel="nofollow" target="_blank" style="margin-left: 1em; margin-right: 1em;" href="http://4.bp.blogspot.com/-A8PgA2u2HyE/VZA2-ujY8dI/AAAAAAAAp_M/A4cNJvUCwlE/s1600/Eagle%2BFord.png"><img src="http://4.bp.blogspot.com/-A8PgA2u2HyE/VZA2-ujY8dI/AAAAAAAAp_M/A4cNJvUCwlE/s640/Eagle%2BFord.png" border="0" width="571" height="357" /></a></div>
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<td class="yiv7000530658tr-caption" style="text-align: center;">Source: EIA</td>
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<p><br />
From multi-well padding (multiple wells in a single location) to superior drill bits, technology is helping to keep production levels high. Well completion costs and the speed of drilling have improved to levels many thought were not possible.</p>
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<td style="text-align: center;"><a rel="nofollow" target="_blank" style="margin-left: auto; margin-right: auto;" href="http://1.bp.blogspot.com/-zIQyLZRPO8g/VZA3Tt5CVMI/AAAAAAAAp_g/jqOOx7gHi8o/s1600/South%2Btexas%2Beagle%2Bford%2Brig%2Befficiency%2B%2540PlanMaestro.jpg"><img src="http://1.bp.blogspot.com/-zIQyLZRPO8g/VZA3Tt5CVMI/AAAAAAAAp_g/jqOOx7gHi8o/s1600/South%2Btexas%2Beagle%2Bford%2Brig%2Befficiency%2B%2540PlanMaestro.jpg" border="0" /></a></td>
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<td class="yiv7000530658tr-caption" style="text-align: center;">Source @PlanMaestro</td>
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<p><br />
With the inefficient rigs mothballed, the remaining capacity is quite lean. It seems that $60/bbl can now sustain a good portion of current production capacity and even turn a profit.</p>
<blockquote><a rel="nofollow" target="_blank" href="http://www.platts.com/latest-news/oil/houston/us-oil-operators-make-plans-to-add-rigs-but-will-21696065">Platts</a>: - ... [US oil producers] have wrung astonishing efficiencies from their operations in a very short period of time, as the number of days to drill a well keeps contracting while initial well production rates and estimated hydrocarbon recoveries expand.<br />
<br />
Also, corporate efficiencies, coupled with cost concessions of around 15%-25% granted by oil services and equipment providers this year, have also lowered well costs and driven up internal return rates in the best plays to the point that operators appear comfortable with the current price environment, even if they privately hope for an eventual return to $80/b oil.</blockquote>
<p>To be sure, there is a significant chance that US production slows in the coming months. Thus far however the results of the recent Saudi efforts to diminish US production have been less than satisfactory.</p>
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<td style="text-align: center;"><a rel="nofollow" target="_blank" style="margin-left: auto; margin-right: auto;" href="http://4.bp.blogspot.com/-gaxdAzS-QL0/VZA3fQ5Q-1I/AAAAAAAAp_o/oG7UKY-Iwfk/s1600/Production.png"><img src="http://4.bp.blogspot.com/-gaxdAzS-QL0/VZA3fQ5Q-1I/AAAAAAAAp_o/oG7UKY-Iwfk/s1600/Production.png" border="0" /></a></td>
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<td class="yiv7000530658tr-caption" style="text-align: center;">Source: EIA</td>
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</div>Crude Oils Overhead Resistancehttp://stockbuz.ning.com/articles/crude-oils-overhead-resistance2015-06-09T01:55:05.000Z2015-06-09T01:55:05.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291194?profile=original"><img class="align-right" src="http://storage.ning.com/topology/rest/1.0/file/get/1291194?profile=RESIZE_1024x1024" width="750" height="305"></a>Had to share this monthly chart of crude oil because I am one that has viewed it bearishly since it broke it's 200 month sma; prior support during the financial crisis. (click chart to enlarge)</p>
<p>Blame it on fracking. Blame it on OPEC. Blame it in fuel efficient cars. Blame it on whatever you wish but just because it was bullish for years, does not mean it will always be the same.</p>
<p>Natural gas has been embraced by the U.S. and continues to grow. Coal is all but dead; being dropped by one country after the next. There obviously is <a href="http://stockbuz.net/articles/amazing-u-s-world-largest-petroleum-producer?context=tag-crude+oil+production+2014" target="_self">no U.S. oil shortage</a> (thank you Bakkens) and our dependency on overseas oil becomes less with each passing day.</p>
<p>Yes they have shut down rigs to cut back on the oversupply but (imo) barring any disruption in production, I see this years move in crude oil as nothing more than back-n-fill. The 200 month is an interesting overhead obstacle. And that strong U.S. Dollar? No, that not going to help it either (again barring a disruption).</p>
<p>It's not a bear market. It's a collapse of an entire sector. Airplanes went through it; why not /CL?</p>
<p>I'm waiting for much M&A and company failures. They'll increase enormously given the over 700+ publicly traded companies in the U.S. </p>
<p>And the <a href="http://stockbuz.net/articles/countries-hurt-by-lower-crude-oil" target="_self">countries reliance</a> on crude oil? It's astounding if you're in the Middle East.</p>
<p>Last month (May) was a Doji. A sign of indecision. What will this month hold? If you're in oil names, I would plan on <span style="text-decoration: underline;">trading</span> them rather than long hold. </p>
<p>It's going to be an interesting few years ahead. I'd rather be long banks and technology than energy. Something with growth.</p></div>Gold Losing Its Lusterhttp://stockbuz.ning.com/articles/gold-losing-its-luster2015-02-06T16:20:00.000Z2015-02-06T16:20:00.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291205?profile=original"><img class="align-right" src="http://storage.ning.com/topology/rest/1.0/file/get/1291170?profile=RESIZE_320x320" width="300"></a>I'm back from Illinois after "life intervened" and I rushed out the door and gold has done exactly what I felt it would do. In this <a href="http://stockbuz.net/charts/gld-weekly-update" target="_self">previous post</a> I felt that the 100 week SMA would pose a resistance and if you think about it, it makes complete sense.</p>
<ul>
<li>From a season standpoint, gold doesn't have much demand until last Summer when Indian festival and wedding season kicks in followed by jewelry gift giving as the Winter holidays approach. (see <a href="http://stockbuz.net/charts/gold-seasonality?context=category-Seasonality" target="_blank">seasonal chart</a>)</li>
<li>Inflation is very low = no need to hedge with gold</li>
<li>The stock market is challenging new highs. When equities are doing well, not to mention the killer strong U.S. dollar, again there's no need to hedge risk with gold.</li>
</ul>
<p>For all you gold bugs out there, dude, be a patient investor and wait for smart entries.</p>
<p>My guess is that gold will take out the low which has been tested three times and we'll see lower pricing. For those who want to place bets on gold falling, I would recommend $GLL or $DGZ however beware; they are thinly traded so exits may not be as simple as some would prefer. Of course there are always Put options.</p>
<p>Lastly, this thesis also applies to gold/silver MINERS in my opinion. I would just stay away or look for entries to short although I do expect M&A to ramp up at some point and yes, there will be company failures as those names heavily in debt, cave in.</p>
<p>Will I want to buy it gold if it breaks the low or come late Summer? Meh, only if the stars align. There will be a time but for now, it's simply just not now. I'll let the chart tell me "when". </p></div>No Crude Oil Recovery In 2015http://stockbuz.ning.com/articles/no-crude-oil-recovery-in-20152015-01-01T19:43:42.000Z2015-01-01T19:43:42.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><img src="http://storage.ning.com/topology/rest/1.0/file/get/2208480?profile=RESIZE_400x&width=400"></div><div><p><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291322?profile=original"><img class="align-left" src="http://storage.ning.com/topology/rest/1.0/file/get/1291168?profile=RESIZE_320x320" width="300"></a>While guests on <span style="text-decoration: line-through;">CNBS</span> CNBC and Bloomberg are busy encouraging you to buy oil names which are down over 50%, I wouldn't expect to reap any big rewards any time soon. In fact I believe there will be much more pain ahead, depending on the strength of the company you chose. Iran sanctions may be giving it a boost near term but once they're lifted (or eased) their production is expected to <span style="text-decoration: underline;">double</span> which is once again, bearish for this oversupplied market</p>
<p>While everyone is in agreement that crude oil is in a bear market, quite often one strategy is to buy the laggard and anticipate it to outperform the following year. The trouble with crude oil however, are the fundamentals.</p>
<ol>
<li>U.S. consumer Demand (figure 1) Consumption has been dropping since 2000 thanks to more fuel efficient autos and younger Americans (millennials born from 1980 to early 2000s) being drawn to work in and the lifestyles of large metropolitan areas. Baby boomers (born 1946-1964 or 51-69 years of age) will contribute less and less to overall GDP and consumption as they continue to approach retirement age. Gen Xers (children of baby boomers) being the only ones migrating to the suburbs as they have children, pay at the pump and handle the long commute to the office each day.</li>
<li>Production is up; way up (figure 2 to right) The U.S. has been ramping up black gold producing rig counts and oil production since 2000 back to levels not seen in 30 years and projections are that these levels will continue to at least 2020. Abundant supply shall continue.</li>
<li>OPEC feels the least pressure from an operating standpoint to cut production as they have the lowest cost to operate worldwide. They have <a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291208?profile=original"><img class="align-right" src="http://storage.ning.com/topology/rest/1.0/file/get/1291208?profile=RESIZE_320x320" width="300"></a>stated they are completely comfortable with lower crude oil pricing will not cut back production unless someone else joins in the fun (hint to Russia and Venezuela) but this chess game could remain in check for quite some time.</li>
<li>What we are witnessing is mean reversion in crude oil or price reverting back to a long term average in price. (see chart 3 below left) While there are numerous investing strategies when a stock reverts to the mean, an entire "sector" <a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291280?profile=original"><img class="align-left" src="http://storage.ning.com/topology/rest/1.0/file/get/1291280?profile=RESIZE_320x320" width="300"></a>reverting to the mean <em>can translate</em> into an <span style="text-decoration: underline;">underlying problem</span>. According to <a href="http://www.investopedia.com/terms/m/meanreversion.asp" target="_blank">Investopedia</a> mean reversion......</li>
</ol>
<blockquote>
........has led to many investing strategies involving the purchase or sale of stocks or other securities whose recent performance has greatly differed from their historical averages. However,
<span style="text-decoration: underline;">a change in returns could be a sign that the company no longer has the same prospects it once did</span>,
</blockquote>
<p>Now wrap your head around this. According to the <a href="http://www.bls.gov/iag/tgs/iag211.htm#iag211bdmcew.f.P" target="_blank">BLS</a>, in the U.S. alone, there are <em>technically</em> over 9,000 companies cranking out crude oil ,so one can only imagine how many exist world wide. Just mind blowing. F</p>
<p>or the sake of this theory, let's weed out the shell corporations and Mom & Pop operations with a pumper out on their back 40. If we look at just names publicly-traded in U.S. markets and <em>include</em> oil service names who will also be affected by lower prices and lower demand, there are over 700 according an Ameritrade screener. </p>
<p></p>
<p><span class="font-size-3" style="text-decoration: underline;"><strong>The First Domino Is The Price</strong></span></p>
<p>So let's say prices snap back but then continue drop and do not recover. A company only has "so much" in cash reserves to continue to operate. As they watch their market cap evaporate, they have limited options:</p>
<ol>
<li>Cut capital expenditures which we've already <a href="http://www.fool.com/investing/general/2014/12/08/oil-news-150-billion-in-oil-projects-are-at-risk-d.aspx" target="_blank">begun to witness</a> with projects worth billions more in jeopardy of postponement. Just in October alone, shale drilling <a href="http://www.reuters.com/article/2014/12/01/us-oil-prices-shale-permits-idUSKCN0JF2CU20141201" target="_blank">permits dropped 15%</a> in an area which had seen permits double from a year prior.</li>
<li>As <a href="http://www.eia.gov/todayinenergy/detail.cfm?id=17311" target="_blank">cash from operations shrink with price</a>, they can sell assets however this is obviously unsustainable.</li>
<li>Increase their stock buyback program in an effort to "buoy" their stock price. While this can work in a <em>bullish</em> environment, when the market is bearish and you repurchase more than is being bought, it's a cash drain.</li>
<li>Cut their dividend to save money unless they're able to get outside funding (not likely given forecasts). Funds will not like that one bit. Immediately funds will trim their positions even further than they already have seeking yield elsewhere. This has (I believe) already begun as Seadrill Ltd. (NYSE: <a href="http://www.streetinsider.com/stock_lookup.php?q=SDRL">SDRL</a>) and North Atlantic Drilling Ltd. (NYSE: <a href="http://www.streetinsider.com/stock_lookup.php?q=NADL">NADL</a>) announced that the two companies would be suspending dividends. Many are anticipating a cut in RIG's dividend (currently at 16%) but even supposedly strong players such as ESV (10%) have suffered a huge drop in share price.</li>
<li>They'll be forced to cut their forecast - more stock price pain</li>
<li>They'll be forced to eventually lower their prices to attract new or retain current customers. More pain in earnings and this can cause price wars. Remember airfare wars? Great for the consumer but killer for a balance sheet.</li>
<li>Restructure, reorganize, layoff and cut costs.</li>
<li>Pray a supply disruption, OPEC to cut production or for M&A to ramp up in the space and <em>shrink</em> the field of competitors.</li>
</ol>
<p><span class="font-size-3" style="text-decoration: underline;"><strong>Debt Debt Baby<br></strong></span></p>
<p>The low-interest-rate environment and continued central bank stimulus have helped energy companies ramp their capex via cheap, ubiquitous financing. Consequently, debt levels in the energy sector have soared. For example, <strong>Linn Energy, LLC</strong> (<a href="https://dwq4do82y8xi7.cloudfront.net/x/sRFaKe5h/" target="_blank">LINE</a>), a favorite stock for yield hogs due to its 10%-plus yield, has increased its long-term debt levels from $2.7 billion at the end of 2010 to <span style="text-decoration: underline;">$9.6 billion currently.</span></p>
<p>The Energy Information Administration (EIA) estimates that, in the <span style="text-decoration: underline;">last year alone</span>, major oil and natural gas companies added over $100 <span style="text-decoration: underline;">billion</span> in net debt.</p>
<p>It's no better across the pond where a <a href="http://www.telegraph.co.uk/finance/newsbysector/energy/11315956/Third-of-listed-UK-oil-and-gas-drillers-face-bankruptcy.html" target="_blank">third of Britain's</a> listed oil and gas companies are in danger of running out of working capital and even going bankrupt amid a slump in the value of crude, according to new research. Financial risk management group Company Watch believes that 70pc of the UK’s publicly listed oil exploration and production companies are now unprofitable, racking up significant losses in the region of £1.8bn.</p>
<p>Ratings agency <a href="http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/11314794/Oil-majors-finances-strained-by-price-slump.html" target="_blank">Standard & Poor’s recently flagged</a> its concern of some of Europe’s biggest oil and gas groups such as Royal Dutch Shell, BP and BG Group. Its primary worry is debt levels which it says have jumped from a combined $162.9bn (£105bn) for the five largest European companies in the sector at the end of 2008 to an estimated $240bn in 2014.</p>
<p>Martin S. Fridson, a prominent figure in the high-yield bond market, sees as much as <a href="http://blogs.cfainstitute.org/investor/2014/10/30/who-will-suffer-from-a-leveraged-credit-shakeout/" target="_blank">$1.6 trillion in high-yield defaults</a> coming in a surge that he expects to begin shortly.</p>
<p>We are already beginning to see the beginning of what I believe will be more pain ahead as Seadrill Ltd. (NYSE: <a href="https://dwq4do82y8xi7.cloudfront.net/x/35RFIdp7/" target="_blank">SDRL</a>) and North Atlantic Drilling Ltd. (NYSE: <a href="https://dwq4do82y8xi7.cloudfront.net/x/HIecdhRM/" target="_blank">NADL</a>) announced that the two companies would be suspending dividends.</p>
<p>So <span style="text-decoration: underline;">barring any disruption in supply,</span> I believe we won't see crude oil with any true, long term rebound in 2015. In fact, with no rebound in price we'll not only see Capex and dividends continue to be cut, but there will be <strong>defaults.</strong> I believe M&A is on the way and yes, failures, Bankruptcies and more dividend/buyback cuts. If you're a long term investor, sure go ahead and buy some shares (making certain they're financially strong) but don't expect a substantial return any time soon. Just pray your company survives or is bought out. Many will not survive.</p>
<p>(As a side note, <a href="http://www.fool.com/investing/general/2015/01/01/3-reasons-these-high-yielding-offshore-drillers-co.aspx" target="_blank">TheMotleyFool</a> has an interesting article on off shore drillers which may be of interest to long term investors. I love to bottom feed and the author makes a great point about retiring rigs. Check it out and let me know what you think)</p>
<p>The good news is once the smoke clears we will have fewer players on the oil field, prices will rise organically based on demand and competitive pricing and you, the consumer will benefit in the interim.</p>
<p></p></div>Russian Stocks - Blood In The Streetshttp://stockbuz.ning.com/articles/russian-stocks-blood-in-the-streets2014-12-16T14:40:41.000Z2014-12-16T14:40:41.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291042?profile=original"><img class="align-left" src="http://storage.ning.com/topology/rest/1.0/file/get/1291042?profile=RESIZE_320x320" width="300"></a><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291075?profile=original"><img class="align-right" src="http://storage.ning.com/topology/rest/1.0/file/get/1291075?profile=RESIZE_320x320" width="300"></a>Russia's central bank raised interest rates last Friday from <a href="http://www.theguardian.com/business/live/2014/dec/11/russia-central-bank-interest-rate-hike-ecb-loans-live" target="_blank">9.5% to 10.5%</a> in an effort to support the falling currency and battle inflation. When that did nothing, they shocked markets by raising it again overnight from 10.5% to a <a href="http://in.reuters.com/article/2014/12/16/us-russia-cbank-rates-idINKBN0JT2II20141216" target="_blank">whopping 17%</a> in what some are calling an emergency move. This was their sixth interest rate hike this year to support the currency.</p>
<p><span id="articleText">The central bank early on Tuesday also increased the maximum volume of foreign currency it provides to Russian banks via its foreign-exchange repurchase agreement auctions for 28 days to $5 billion from $1.5 billion.</span></p>
<p>Sadly the RUB/USD barely moved. (left image - click to enlarge)</p>
<p>Russia's economy still depends in large measure on sales of oil and gas, which account for about two-thirds of exports, despite liberal policymakers calling for structural <a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291096?profile=original"><img class="align-left" src="http://storage.ning.com/topology/rest/1.0/file/get/1291096?profile=RESIZE_320x320" width="300"></a>economic reform for years.</p>
<p><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291106?profile=original"><img class="align-right" src="http://storage.ning.com/topology/rest/1.0/file/get/1291106?profile=RESIZE_320x320" width="300"></a>That means swings in global oil prices have a significant impact on Russia's balance of payments, and therefore the rouble exchange rate. This will continue to worry investors that companies may not be able to pay their debts. While Russia has little debt and large cash reserves, one can imagine those reserves must be draining quickly.</p>
<p>Some may have wondered if the Russian ETF $RSX had a capitulation move yesterday but the currency pair this morning has shrugged off the move completely. (right image) A definite sign that money continues to flee the country enmass.</p>
<p>While crude oil continues to fall, the pressure mounts for Putin to cut crude oil production which represents 60% of the countries exports as Putin's popularity continues to drop.</p>
<p>Russian stocks (<strong><span style="text-decoration: underline;">not in the energy sector</span></strong>) are also showing the same pain include Sberbank ($SBRCY), Mobile TeleSystems ($MBT), VimpelCom ($VIP), Millicom International Cellular ($MICF) and Internet search player Yandex ($YNDX). Are you into buying when things are hated and there's blood in the streets? These along with $RSX may be names you may wish to research further. </p>
<p>How low will they go? Just ask Putin. One thing is for certain, the bottom is at zero.</p></div>What About The Santa Claus Rally? S&P500 Top Deja Vuhttp://stockbuz.ning.com/articles/what-about-the-santa-claus-rally-s-p500-top-deja-vu2014-12-15T21:00:51.000Z2014-12-15T21:00:51.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p>According to <a href="http://www.cityindex.co.uk/market-analysis/market-news/35785172014/dangerous-signal-in-the-sp-500-other-equity-indices/?cid=0000215115" target="_blank">Ashraf Laidi:</a>  The following sobering analysis on the <a href="http://www.cityindex.co.uk/range-of-markets/indices/">S&P500</a> reinforces our expectations that recent record highs in US equity indices will not be revisited before at least six weeks.</p>
<p>A decline of at least 10% is expected to follow.</p>
<p>-        Last week’s 3.6% decline in the S&P500 single-handedly erased all of the prior seven weeks’ consecutive gains.<a target="_blank" href="http://wordpress.cityindex.co.uk/market-analysis/files/2014/12/SPX-Oct-207-vs-Now-Dec-15.jpg"><img class="align-right" src="http://wordpress.cityindex.co.uk/market-analysis/files/2014/12/SPX-Oct-207-vs-Now-Dec-15-530x179.jpg?width=530" width="530" /></a></p>
<p>The <span style="color: #ff0000;"><span style="color: #ff00ff;"><strong>last time the S&P500 erased at least three weeks’ of consecutive gains was the week after the October 2007 record</strong></span>.</span> Stocks fell more than 50% thereafter and took six years to regain that high.</p>
<p>-        And for an unprecedented finding, last week’s S&P5 500 decline took place after SEVEN weekly consecutive gains, which had NEVER been seen before in the index.</p>
<p>Seven consecutive weekly gains have occurred in the past (Aug-Jul 1989, Aug-Sep 1993, Apr-May 1997, Feb-Mar 1998, Dec 2003-Jan 2004, Apr-May 2007, Mar-Apr 2009, Dec 2010-Jan 2011, Jan-Feb 2013), but never in any of those cases has the streak-breaking week fallen by more than 2.0%.</p>
<p><span style="color: #ff00ff;"><strong>The fact that the magnitude of last week’s declines was nearly 4.0%, following as many as seven rising weeks, shows an unprecedented departure in sentiment from greed to fear.</strong></span></p>
<p>Kos here.  I've been saying that yes, oil's plunge <a href="http://stockbuz.net/articles/will-oils-fall-hurt-the-rally" target="_self">would affect our rally</a> although <span style="text-decoration: line-through;">CNBS</span> CNBC was telling us no,  For those who like to point fingers at reasons "why", take your pick:</p>
<ul>
<li>Year-end tax selling</li>
<li>Even JNK, a proxy for risk, is seeing heavy selling.</li>
<li>Strong dollar in a weak economy</li>
<li>Maybe this is the market........without the benefit QE.</li>
<li>Who wants to "buy" at these high levels, not me.</li>
<li>There's an over supply in crude oil and price is finally reverting to reflect that</li>
<li>It's not an oil correction, it's a bear market in commodities; period and oil finally joined the club.</li>
<li>Oil and gas names have begun to postpone projects (see massive drop in permits in Oct/Nov. to the right) and ALL of their suppliers will feel the pinch as a result which <em>widens</em> the number of stocks which are weak.</li>
<li>Sure the average American will have more $ in their pocket to spent at Christmas but that's a drop in the bucket compared to the cut in spending in the oil arena as they tighten their belts with low oil.</li>
<li>Risk of defaults from heavily-indebted oil names.  Just ask regional name $CFR</li>
<li>When the VIX for crude oil $CVX is closing on the highs, oil's drop isn't over.  Watch for a capitulation move.</li>
<li>Saudi Arabia announced they will not cut supply even if crude oil is at $40.<a target="_blank" href="http://watchdog.wpengine.netdna-cdn.com/wp-content/blogs.dir/1/files/2014/12/drilling-approvals-dropping-chart-from-seeking-alpha-website.jpg"><img class="align-right" src="http://watchdog.wpengine.netdna-cdn.com/wp-content/blogs.dir/1/files/2014/12/drilling-approvals-dropping-chart-from-seeking-alpha-website.jpg?width=438" height="129" width="280" /></a></li>
<li>They would cut production if someone else does and if Putin were to cut, what would that do to his economy?  Russia's obviously not easily bullied.</li>
<li><a href="http://www.bloomberg.com/news/2014-12-15/ruble-weakens-to-record-before-russia-auction-to-ease-squeeze.html" target="_blank">Russia's central bank</a> announced a rate hike which has sent the Ruble to lows not seen since 1998.  Can you say recession in Russian?  This of course has traders pressuring the central bank to intervene.</li>
<li>Don't expect demand to increase any time soon with much of the globe in recession or with weak economies.   This of course, barring any disruption in supply.</li>
<li>And just how many cars can people buy when they're taking jobs at minimum wage?</li>
<li>The Fed may raise rates mid-2015 however watch the 10 year ($TNX).  It will rise long before the Fed lifts a finger.</li>
<li>All commodity currencies are struggling.</li>
<li>China's economy is slower than we hoped for with still high property prices.</li>
</ul>
<p><a target="_blank" href="http://www.bespokeinvest.com/storage/sectorweights1212.png?__SQUARESPACE_CACHEVERSION=1418402340937"><img class="align-left" src="http://www.bespokeinvest.com/storage/sectorweights1212.png?__SQUARESPACE_CACHEVERSION=1418402340937&width=300" width="300" /></a>So what sector could "step up to the plate" and help lead the market higher..........when we're already stretched in valuation? </p>
<p>I think financials will have their worries.  That's 16% of the S&P500 weighting - not going to rally.  Knock off Industrials thanks to crude. -10% and materials?  Another -3%.  How about Consumer Discretionary?  Poor $F was downgraded today by Deutsche Bank stating that with lower gas prices, consumers may be less apt to shell out cash for a new, more efficient auto, and well all know how TSLA has been falling.  Count them out.  Can technology, staples and healthcare give us a Santa Claus rally alone?  Hopefully there will be no downside surprise with the recent good retail sales numbers.</p>
<p>As volume dries up near the holidays, there tends to be no heavy selling but I'm not placing any bets on anything related to energy.  We shall have to see but it won't be easy.</p>
<p>There's enormous pressure on Russia at this juncture and the other slippery slope is for the Fed........how to raise rates in 2015 after halting quantitative easing and not encourage deflation from persisting. </p>
<p><em>Edited 4:35pm to update Sector Weightings graph.</em></p>
</div>Will Oil's Fall Damage The Rally?http://stockbuz.ning.com/articles/will-oils-fall-hurt-the-rally2014-12-15T00:40:22.000Z2014-12-15T00:40:22.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p><a target="_blank" href="http://www.brimg.net/images/slideshows/investing/2013/investment-ideas/4-reversion.jpg"><img class="align-left" src="http://storage.ning.com/topology/rest/1.0/file/get/1291003?profile=RESIZE_320x320" width="250"></a>I have to throw a flag in from the sidelines calling foul on the learned men on CNBCs Fast Money table Friday (video below) as traders remain bullish on the big screen. In fact, they do not believe crude's fall will impact our rally. Really? Josh Brown stated there was <a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291063?profile=original"><img class="align-right" src="http://storage.ning.com/topology/rest/1.0/file/get/1291063?profile=RESIZE_320x320" width="300"></a>no correlation b/w the price of oil and the S&P500 and did their level best to downplay the selling in crude oil. Alright, overlay a comparison chart (left) and you won't see black gold having an enormous impact on the market with a few exceptions BUT, the energy complex represents an average of 6.9% of U.S. GDP. </p>
<p>If it's a bear market, this changes the scenery. Come on Josh; there's much more that you're <em>not</em> saying and we know it. Stay with me here. So typically if we saw a ten percent correction in crude, another sector in the S&P would merely step up to the plate and help lead such as tech or financials.</p>
<p>This time, however, we see regional banks such a Cullen-Frost (who <span style="text-decoration: underline;"><strong>lend</strong></span> to oil names down here in Texas for oil and gas projects) not only falling, but falling HARD on heavy volume......right OUT of a wide range top. It not only took out a years worth of stops, it fell hard below the 20 month SMA which has historically been solid support for this Texas regional bank. Risk of defaults in regional banks? In these parts, one would say "esto no es bueno".</p>
<p>Concurrently, the Barclays high yield bond fund, $JNK and iShares high yield corporate bond fund $HYG (proxys for risk appetite) have all but taken out not only their 2014 gain, but the 2013 as well......closing in on the May/June 2012 low now. If this isn't telling you this is more than a typical correction, it should be.<a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291099?profile=original"><img class="align-right" src="http://storage.ning.com/topology/rest/1.0/file/get/1291099?profile=RESIZE_320x320" width="300"></a></p>
<p>Now here's where I believe the sell off in crude becomes more important than being said: Capital expenditures being lowered and postponed in energy names and THAT, my friend, is a huge difference than past corrections in black gold. You never had these worries in financials and bonds when crude itself had a 10% correction.</p>
<p>As pointed out by Ashraf Laidi</p>
<blockquote>
<p><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291112?profile=original"><img class="align-left" src="http://storage.ning.com/topology/rest/1.0/file/get/1291112?profile=original" width="259"></a>Yes, Joe the Plumber will have more cash to spend with gasoline near $2/gallon BUT the benefit will be nothing in comparison to the cutback on capex spending. With such low crude prices, companies will postpone capital expenditures, new wells, new machinery, whatever they can which is going to impact every one of their suppliers............and you can see it in all the oil and gas suppliers such as SLB.</p>
</blockquote>
<p>Now *IF* Russia, Saudi Arabia or someone were to balk and cut production, then supply will tighten and prices will rise however at this juncture, no one is blinking. Russia holds almost no debt and tons of cash reserves. They can bide their time as can Saudi Arabia with only $10/barrel needed to remain profitable. Unless a pipeline explodes, this could go on for some time. O&G names with heavy debt I'm sure are already feeling the pain. Just look at the oil services ETF $OIH and you won't want to catch that knife. </p>
<p>If commodities are, in fact, <a href="http://stockbuz.net/articles/reverting-to-the-mean" target="_self">reverting to the mean</a>, I won't be buying any energy names just yet. It could be a while as they postpone projects, tighten their belts, reorganize, restructure and yes, some definite M&A may be ahead. But M&A alone is not a reason for "me" to buy a stock. I want my money <em>working</em> for me; not sitting with losses hoping there's a buyout. Call me crazy but I'm staying away from the energy complex or shorting it further on any spike. By the time all the dust settles, I don't think it will be pretty.</p>
<p>Bottom line on the rally, yes, I think it's going to weigh on the rally. How much is yet to be seen but this is not your typical 10% oil correction. Financials may not be able to help take up the slack. Then there's the strong U.S. dollar. Oye. The holidays can't get here fast enough. With them comes lower volume and <em>usually,</em> less selling pressure. Unless it's different this time.</p>
<p><object id="cnbcplayer" width="400" height="380" classid="clsid:d27cdb6e-ae6d-11cf-96b8-444553540000" codebase="http://download.macromedia.com/pub/shockwave/cabs/flash/swflash.cab#version=6,0,40,0" bgcolor="#000000"><param name="allowfullscreen" value="true"> <param name="allowscriptaccess" value="always"> <param name="quality" value="best"> <param name="scale" value="noscale"> <param name="wmode" value="transparent"> <param name="salign" value="lt"> <param name="src" value="http://plus.cnbc.com/rssvideosearch/action/player/id/3000338656/code/cnbcplayershare"> <param name="pluginspage" value="http://www.macromedia.com/go/getflashplayer"> <embed wmode="opaque" id="cnbcplayer" width="400" height="380" type="application/x-shockwave-flash" src="http://plus.cnbc.com/rssvideosearch/action/player/id/3000338656/code/cnbcplayershare" allowfullscreen="true" allowscriptaccess="always" quality="best" scale="noscale" salign="lt" pluginspage="http://www.macromedia.com/go/getflashplayer" bgcolor="#000000"></object></p></div>Reverting To The Meanhttp://stockbuz.ning.com/articles/reverting-to-the-mean2014-12-14T23:18:59.000Z2014-12-14T23:18:59.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291047?profile=original"><img class="align-left" src="http://storage.ning.com/topology/rest/1.0/file/get/1291027?profile=RESIZE_320x320" width="300"></a>You'll hear "reverting to the mean" or "mean reversion" bandied about occasionally however not on a daily basis......unless you're watching gold's long sell off since it's explosion to the upside. According to Investopedia, mean reversion is:</p>
<blockquote>
<p>A theory suggesting that prices and returns eventually move back towards the mean or average. This mean or average can be the historical average of the price or return or another relevant average such as the growth in the economy or the average return of an industry.</p>
</blockquote>
<p>Case in point is my theory that commodities are/have been doing just that. Click on this long term chart of the CRB Index for a better view.</p>
<p>After decades trading in a wide range, commodities took off as the dotcom bubble broke in 2000. Money had to go somewhere, didn't it?</p>
<p>But with a weak economy worldwide and no shortage of supply in grains or crude oil, just how low commodities will go is anyone's call at this juncture.</p></div>Parabolic Moves Are Never Sustainable - Liquified Natural Gashttp://stockbuz.ning.com/articles/parabolic-moves-are-never-sustainable-liquified-natural-gas2014-12-11T14:31:40.000Z2014-12-11T14:31:40.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291018?profile=original"><img class="align-left" src="http://storage.ning.com/topology/rest/1.0/file/get/1291018?profile=RESIZE_320x320" width="300"></a>China's state-controlled energy giant Sinopec wants to sell some long-term liquefied natural gas (LNG) import deals as a slowing economy makes them unprofitable, sources say, signalling the end of a five-year boom fueled by rising Chinese demand.</p>
<p><em>Kos here: Note <a href="https://dwq4do82y8xi7.cloudfront.net/x/oQLLrVrD/" target="_blank">LNG</a> and <a href="https://dwq4do82y8xi7.cloudfront.net/x/kOqUhGtk/" target="_blank">GLNG</a> are two names in this space. LNG shown left - click chart to enlarge..</em></p>
<p>Asia's thirst for energy has helped drive a "dash for gas" in producer countries from Australia to Canada, with LNG emerging as the fastest growing fuel source since the beginning of the century on the back of soaring Chinese imports. But just as long-planned projects start to come on stream China's economy is stuttering, which is likely to crimp demand and pull down domestic gas prices to levels that make imports unprofitable.</p>
<p>"We talk about China choking on LNG. There's just too much coming onto the market," said Gavin Thompson, Head of Asia Gas Research at Wood Mackenzie. Analysts say falling crude prices, which have dropped around 40 percent since June, are another factor weighing on Chinese gas prices. "Based on the recent fall in oil prices... there is an increased risk that there could be a near-term cut in natural gas price (in China) for the first time," Bernstein Research said on Tuesday, adding that at lower levels "LNG and pipeline imports make little sense for producers". And even if retail prices do not fall, imports may not be needed as the high gas price at home caps demand. "Slower economic growth and higher domestic prices ... are tempering demand," said Michal Meidan, director of consultancy China Matters.</p>
<p>In response, China is trying to find buyers for contracted LNG on the international market, which is already oversupplied due to slowing demand and rising output that have seen Asian LNG prices halve this year, with analysts expecting another 30 percent fall by 2015.</p>
<p>"There is at least one SPA (Sales and Purchase Agreement) being negotiated with a Chinese buyer that has a lot of destination flexibility, including to terminals outside of China," said one source involved in LNG shipments from Australia to China.</p>
<p>UNPRECEDENTED EXPANSION Sinopec is planning to offload LNG from new export plants in Australia and potentially Papua New Guinea to BP, advisory and trading sources with knowledge of the matter said, amid growing unease over the scale of an unprecedented expansion that has seen the construction of 11 LNG import terminals since 2006 and includes plans for 25 more projects.</p>
<p>BP and Sinopec declined to comment, but the sources said that, beyond selling excess cargoes into the spot market, other options being discussed included selling parts of its long-term agreements to another company.</p>
<p>Three industry sources said Sinopec was in early talks to sell off chunks of the 20-year, 4.3 million tonne per annum (mtpa) supply it bought from Origin Energy's Australia Pacific LNG plant due to start in 2015. Sinopec invested in the Australia Pacific LNG in 2011 and 2012, when Asian spot LNG prices averaged $14.8 per mmBtu, compared with less than $10 per mmBtu now. It may also sell excess volumes coming from its 2 mtpa stake in Exxon Mobil's Papua New Guinea LNG, in which it invested in 2009, when LNG prices were low but China's LNG demand was expected to grow for decades to come.</p>
<p>FIRE SALE Tumbling energy prices may make reselling LNG difficult as consumers across Asia also scramble to offload excess volumes, contributing to an emerging glut.</p>
<p>Sinopec is exploring options to sell BP up to 1 mtpa over 2016 and 2017 from its Australian project, which could be extended to run until 2020, the sources said.</p>
<p>While oil traders, including in China, often take advantage of low prices to build up long-term reserves in preparation for supply disruptions or higher prices in the future, stocking LNG is more costly as the gas has to remain liquefied in super-cooled facilities or pumped into pressurized gas storage tanks after being regasified. The sell-offs could also end a race by Chinese energy firms to enter the LNG market. Sinopec, CNOOC, CNPC and PetroChina all made big LNG investments in the past years, racing to outdo competitors from Japan and South Korea, which remain the world's biggest LNG importers.</p>
<p>"The build-out was driven by competition between the companies for market share," Meidan said. LNG importers also face stiff competition from other fuels such as pipelined gas, hydroelectric and coal-fired power generation, as well as domestic shale gas production. "Coal and hydro are hard to beat over price," one LNG trader said. "Russian and central gas Asian pipelines will come in, and one day Chinese shale will add to our long list of competitors."</p>
<p>Courtesy of <a href="http://www.reuters.com/article/2014/12/09/china-gas-imports-idUSL6N0TN1HM20141209" target="_blank">Reuters</a></p></div>Energy Contagion - The Big Unknownhttp://stockbuz.ning.com/articles/energy-contagion-the-big-unknown2014-12-08T17:35:22.000Z2014-12-08T17:35:22.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p><a target="_blank" href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/12/20141208_energy2_0.jpg"><img class="align-right" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/12/20141208_energy2_0.jpg?width=400" width="400" /></a>Indeed, I've read much concern over this area as oil collapsed so it does merit a warning.  From <a href="http://www.zerohedge.com/news/2014-12-08/energy-bond-risk-soars-fresh-record-high-stocks-slump-20-month-lows" target="_blank">ZeroHedge</a>:</p>
<p>The S&P 500 Energy sector stocks are down over 12% year-to-date, tumbling over 3% today to fresh 20-month lows. <strong>The spread (or risk) of high-yield energy credits surged again today, breaking above 850bps for the first time</strong>... The overall high-yield credit market is being dragged wider by this contagion as hedgers try to contain <a href="http://www.zerohedge.com/news/2014-11-30/imploding-energy-sector-responsible-third-sp-500-capex">the collapse that is possible</a>. For now, <a href="http://www.zerohedge.com/news/2014-11-30/imploding-energy-sector-responsible-third-sp-500-capex">the S&P 500 remains entirely ignorant of the fact that over a third of its CapEx was expected to come from this crushed sector</a>...</p>
<p>According to DB</p>
<blockquote>
<blockquote>
<p><strong>US private investment spending is usually ~15% of US GDP or $2.8trn now</strong>. This investment consists of $1.6trn spent annually on equipment and software, $700bn on non-residential construction and a bit over $500bn on residential. Equipment and software is 35% technology and communications, 25-30% is industrial equipment for energy, utilities and agriculture, 15% is transportation equipment, with remaining 20-25% related to other industries or intangibles. Non-residential construction is 20% oil <strong>and gas producing structures and 30% is energy related in total</strong>. We estimate global investment spending is 20% of S&P EPS or 12% from US. <strong>The Energy sector is responsible for a third of S&P 500 capex. 35% of S&P EPS from investment and commodity spend, 15-20% US</strong></p>
<p><strong> </strong><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/11/capex%20spending.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/11/capex%20spending_0.jpg" height="260" width="600" /></a></p>
</blockquote>
</blockquote>
<p>In short, while nobody knows just how many tens of billions in US economic "growth", i.e., GDP, will be eliminated now that energy companies are not only not investing in growth spending or even maintenance, being forced to shut down unprofitable drilling operations and entering spending hibernation territory, the guaranteed outcome is that US GDP is set to slide as the CapEx cliff resulting from Brent prices dropping below the $75/bbl <em>red line</em> under which shale is broadly no longer profitable will offset any GDP benefit unleashed from the "supposed" increase in consumer spending.</p>
</div>Breakeven Price On Oilhttp://stockbuz.ning.com/articles/breakeven-cost-on-oil2014-12-04T21:33:26.000Z2014-12-04T21:33:26.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p>It's been bandied about a great deal lately so I thought I would post these graphics from <a href="http://video.cnbc.com/gallery/?video=3000335240&play=1" target="_blank">CNBC</a> to make things simpler to understand. Clearly some drilling projects require higher prices to remain profitable while others, maybe not so much. To explain a little on the price spreads, it all comes down to "when" each project was established where older ones may be require updating technology speaking and higher maintenance costs where newer ones are utilizing higher-tech equipment and can operate at a lower price on oil to break even. Cost is also affected by how deep they have to drill to reach oil and how many barrels per day it puts out versus how much you invested in the well. Clearly Saudi Arabia has the advantage but as they do, they drain their cash reserves (as does everyone else).</p>
<p><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291090?profile=original"><img class="align-left" src="http://storage.ning.com/topology/rest/1.0/file/get/1291090?profile=RESIZE_1024x1024" width="750"></a><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291127?profile=original"><img class="align-full" src="http://storage.ning.com/topology/rest/1.0/file/get/1291127?profile=RESIZE_1024x1024" width="750"></a></p></div>Energy On Sale But Few Are Buyinghttp://stockbuz.ning.com/articles/energy-on-sale-but-few-are-buying2014-12-01T15:38:12.000Z2014-12-01T15:38:12.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291010?profile=original"><img class="align-left" src="http://storage.ning.com/topology/rest/1.0/file/get/1291010?profile=RESIZE_480x480" width="375"></a>After Friday's spectacular 10% sell off in black gold, I went back to my earlier post on <a href="http://stockbuz.net/articles/short-black-gold-commodity-deflation" target="_self">shorting crude oil</a> and felt pretty darn good as I made myself a turkey sandwich for lunch. Some would say it was a capitulation bottom but I just didn't see the volume which would come with such a move. Yes there was heavy selling but it was funds getting OUT of energy names and forced selling - not buying a dip. Sure, it can snap back and a near term bottom is most likely in but I will not be trading that. The top is in in my opinion. I will view any move higher (without an event risk occurring) as an opportunity to re-short at a higher level.</p>
<p>I still believe the entire sector is extremely over crowded with over 100 oil companies just in the U.S. alone. While deflation in any sector is difficult to swallow, I may not be too far from the truth. According to the <a href="http://online.wsj.com/articles/even-after-selloff-energy-stocks-find-few-buyers-1417376208" target="_blank">WSJ:</a></p>
<blockquote>
<p>Energy stocks are on sale following a five-month plunge in crude oil, but so far few investors are heeding the temptation to bargain-hunt. Portfolio managers and analysts are bracing for a wave of dividend cuts, share-repurchase delays and capital-spending reductions that will likely ripple across the industry.</p>
</blockquote>
<p>Consider Norwegian offshore driller Seadrill (<a href="https://dwq4do82y8xi7.cloudfront.net/x/gVhmAJPa/" target="_blank">SDRL</a>) announced just a week ago it will halt it's dividend payments and refiner CVR (<a href="https://dwq4do82y8xi7.cloudfront.net/x/tT35ZRHv/" target="_blank">CVRR)</a> who only debuted it's IPO in 2013, cut it's dividend by 18% in <a href="http://www.dividendcut.com/2014/10/cvr-partners-lp-cuts-distribution-by-182.html" target="_blank">October</a> and we could be seeing the beginning of a slightly unsettling energy top. No, certainly two dividend cuts does not a top make but consider the five-month drop in crude oil prices and what happened in the past when there was deflation in a sector.</p>
<p>As one of thereformedbroker's readers <a href="http://thereformedbroker.com/2014/11/29/plot-twist-the-oil-crash-kneecaps-high-yield-which-halts-buybackpalooza/" target="_blank">pointed out</a>:</p>
<blockquote>
<p><a target="_blank" href="http://thereformedbroker.com/wp-content/uploads/2014/11/Screen-Shot-2014-11-29-at-10.56.13-AM.png"><img class="align-right" src="http://thereformedbroker.com/wp-content/uploads/2014/11/Screen-Shot-2014-11-29-at-10.56.13-AM.png?width=200" width="200"></a>Energy companies are the 2nd largest issuer of HY debt. With the ongoing massacre in crude oil my thought has been that the highly leveraged players would have debt issues which would just facilitate industry consolidation. But with the state of the credit market excluding sovereigns, we could have something else entirely. The energy sector makes up a large segment of the HY bond market and it’s about to take a big hit.. Sooner or later it’s coming. <strong>If the high-yield market in it’s fragile state is given a push we could see a real route in the markets.</strong> It’s starting to look like energy debt could go bidless for a time and take HY with it if action isn’t taken soon. And that action, in part should be for the orgy of debt issuance that is being used for buy-backs to stop asap.</p>
</blockquote>
<p>So what do buybacks do for the stock market? Push prices higher. What happens when a buyback program or a dividend is cut? Prices fall as dividend funds get out of their positions. They are, after all, THERE for the yield. </p>
<p>Last let us consider their debt vs. increased costs. According to <a href="http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/11024845/Oil-and-gas-company-debt-soars-to-danger-levels-to-cover-shortfall-in-cash.html" target="_blank">TheGuardian:</a></p>
<blockquote>
<div class="secondPar">
<p>The US Energy Information Administration (EIA) said a review of 127 companies across the globe found that they had increased net debt by $106bn in the year to March, in order to cover the surging costs of machinery and exploration, while still paying generous dividends at the same time. They also sold off a net $73bn of assets.</p>
</div>
<div class="thirdPar">
<p>This is a major departure from historical trends. Such a shortfall typically happens only in or just after recessions. For it to occur five years into an economic expansion points to a deep structural malaise.</p>
<p>The EIA said the shortfall between cash earnings from operations and expenditure -- mostly CAPEX and dividends -- has widened from $18bn in 2010 to $110bn during the past three years. Companies appear to have been borrowing heavily both to keep dividends steady and to buy back their own shares, spending an average of $39bn on repurchases since 2011.</p>
</div>
</blockquote>
<p>Right now there's a price war going on in crude oil with OPEC unwilling to cut production (lest they risk losing customers to the U.S. or Russia). The worldwide glut of excess supply will continue to weigh on price and operational costs. This drop will definitely weigh on economies who depend heavily on crude oil for <a href="http://stockbuz.net/articles/countries-hurt-by-lower-crude-oil" target="_self">GDP growth</a> such as the Middle East, Venezuela and Russia. Oddly enough India's economy stands to lose the least as they <em>import</em> over 80% of their energy needs.</p>
<p>With no driver to push crude higher, what will oil and gas companies have to do to offset the lower price of oil? Cut costs - big time. Certainly the stronger names will be able to survive longer than the smaller, heavily indebted ones but we're already seen five months of price decline. If I were the CFO of an energy company, I would already have been exploring the ways to survive. Renegotiate with suppliers, equipment manufacturers, drillers, and railroads who haul it (so watch them all to be pressured as well as the dominos fall). Let's assume they have already refinanced their debt prior to the credit crisis. Now we may see more selling of non-performing assets, restructuring and cost cutting..........and yes, cuts in buybacks and dividends. It won't be pretty. Just ask the airlines how it felt after they went through airfare wars and cost cutting measures. Many didn't survive. Others were merged with large players; thus <em>shrinking</em> the number of competitors. Years of pain.........but once the smoke cleared, they are now lean and mean EPS generators. </p>
<p>Hold on to your hats in you're in the energy sector. It's going to be a bumpy ride.</p>
<p><em>(Edited 10:40am to add EIA data)</em></p></div>Swiss Referendum. A Wrench In The Works For Whomhttp://stockbuz.ning.com/articles/swiss-referendum-a-wrench-in-the-works-for-whom2014-11-11T13:59:22.000Z2014-11-11T13:59:22.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p><a target="_blank" href="http://blog.variantperception.com/wp-content/uploads/2014/11/blogimage12.png"><img class="align-left" src="http://blog.variantperception.com/wp-content/uploads/2014/11/blogimage12-300x197.png?width=300" width="300" /></a>As polls continue to swing around ahead of the Swiss gold referendum on 30<sup>th</sup> November, we expect increased volatility in the FX and gold market.  After the implementation of the EURCHF floor, gold’s share of the SNB balance sheet has fallen to 7.5% from around 30% in 2007 (top chart).  The SNB has already pointed out the untenable nature of the peg should the referendum pass, but the impact on the gold market would also be significant.  Taking the current balance sheet of 522bn CHF and spot gold prices, the requirement to hold at least 20% of assets in gold would necessitate buying 1,800 tonnes of gold over 5 years.  Total global production in 2013 was 2,982 tonnes, thus the SNB would need to buy at least 10% of the annual production every year for the next 5 years.</p>
<p>The bottom chart shows the latest composition of the SNB’s FX reserves.  The requirement to buy gold will necessitate selling reserves, mainly EUR (which makes up 45% of all reserves).  Should these euro selling flows come to pass, it will weigh heavily on the currency.</p>
<p></p>
<p>Courtesy of  <a href="http://blog.variantperception.com/2014/11/10/swiss-gold-referendum-a-spanner-in-the-works" target="_blank">VariantPerception</a></p>
</div>Countries Hurt By Lower Crude Oilhttp://stockbuz.ning.com/articles/countries-hurt-by-lower-crude-oil2014-11-04T21:04:01.000Z2014-11-04T21:04:01.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p>As the price of oil extends a free fall that began this summer, countries around the world that rely on oil revenues are bracing for an imminent economic and budget hit.  The drop is widening budget gaps in the Gulf states like <a class="inline_asset" href="http://www.cnbc.com/id/10000304" data-nodeid="10000304" target="_blank">Saudi Arabia</a>, the <a class="inline_asset" href="http://www.cnbc.com/id/10000308" data-nodeid="10000308" target="_blank">United Arab Emirates</a>, <a class="inline_asset" href="http://www.cnbc.com/id/10000303" data-nodeid="10000303" target="_blank">Qatar</a>, Oman and Bahrain that rely heavily on oil to pay government services.</p>
<p>With oil and gas production accounting for some 70% of Russia's government spending, Moscow also faces a big shortfall—after budgeting based on $100-a-barrel oil for 2015. Russia's economic growth was already slowing before the plunge in oil prices. Trade sanctions imposed by the U.S. and Europe—in response to the invasion of the <a class="inline_asset" href="http://www.cnbc.com/id/10001247" data-nodeid="10001247" target="_blank">Ukraine</a>—will further crimp growth and government spending.</p>
<p>The impact of budget gaps among big producers like Saudi Arabia and <a class="inline_asset" href="http://www.cnbc.com/id/10000054" data-nodeid="10000054" target="_blank">Russia</a>, though, will be softened somewhat by large reserves built up during boom years. But a protracted era of cheap oil would force them to undertake serious belt-tightening.</p>
<p>Note:  Click on a country to see what % of it's GDP is derived from crude oil.</p>
<p></p>
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<p>Courtesy of <a href="http://www.cnbc.com/id/102151869?trknav=homestack:topnews:8" target="_blank">CNBC</a></p>
</div>Short Black Gold? Commodity Deflationhttp://stockbuz.ning.com/articles/short-black-gold-commodity-deflation2014-11-04T15:41:24.000Z2014-11-04T15:41:24.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p><a target="_blank" href="https://dwq4do82y8xi7.cloudfront.net/x/faj76OF8/"><img class="align-left" src="https://dwq4do82y8xi7.cloudfront.net/x/faj76OF8/?width=300" width="300"></a>Oil production in North America is booming, crude oil today hitting new 4-year lows, and it is now beginning to have a huge impact on global hydrocarbon markets. In fact, some believe that the <a href="http://www.reuters.com/article/2012/11/12/us-iea-oil-report-idUSBRE8AB0IQ20121112">U.S. will eventually overtake Saudi Arabia</a> and Russia as the world’s biggest producer of the key commodity, with some calling for the surge to happen by the end of the decade and OPEC is left if in a precarious situation. If they cut production, prices may rise but they also risk losing customers to another provider (the U.S. or Russia). If they do not cut production, prices will likely continue to fall due to excess capacity worldwide. </p>
<p>This push towards energy self-sufficiency is largely thanks to the combination of fracking and oil shale, as previously unobtainable supplies are now being unlocked with relative ease. The amounts are so impressive that the <a href="http://www.iea.org/media/news/MTOMR_2013_OVERVIEW.pdf">International Energy Agency</a> last year declared the production surge as a ‘supply shock’ that is causing ‘ripple effects through all aspects of the oil industry’.</p>
<p>There are also those who feel the U.S. is beginning to see the deflation and crude oil (and other commodities) would seem to signalling he's right. While no one likes to see deflation (falling prices), it <em>is</em> beneficial to those who utilize those commodities when their input costs drop. Lower gas prices is also a form of tax cut to the U.S. consumer, giving them more net income to spend within the economy. Deflation in commodities will also force more M&A and closures as smaller players are forced out of the game and larger players take out their competitors in an effort to shrink the playing field.</p>
<p></p>
<p>Falling commodity prices also impact emerging market countries which <em>produce</em> and depend on their exports to support their GDP. <a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1290975?profile=original"><img class="align-left" src="http://storage.ning.com/topology/rest/1.0/file/get/1290975?profile=RESIZE_480x480" width="375"></a>According to <a href="http://blogs.barrons.com/emergingmarketsdaily/2014/10/31/citi-cheap-commodities-hurt-all-emerging-markets-but-help-curb-inflation/" target="_blank">Citi:</a></p>
<blockquote>
<p>“Our results suggests that a 10% decline in oil leads to 70-90bp lower rates in Brazil, Chile, Turkey, Korea and Thailand. Meanwhile, 10% lower oil results in 50-80bp higher rates in Hungary, Indonesia and Russia. But since lower oil leads to weaker EM exchange rates by and large.”</p>
</blockquote>
<p>The CRB index (left) has been falling and you chartists out there may agree; it doesn't appear to be bottoming yet (mean reversion?). Click on image to enlarge.</p>
<p>From a contrarian point of view, one may feel it's too late to short black gold but for those who day trade or believe the weakness will persist and see setups going forward, these are the names I would recommend.</p>
<p><strong>Proshares Ultrashort Oil & Gas: ($DUG) Shorts oil & gas companies directly impacted by lower crude oil prices.<br></strong></p>
<blockquote>
<p>ProShares UltraShort Oil & Gas seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the Dow Jones U.S. Oil & Gas Index. Component companies include oil drilling equipment and services, coal, oil companies-major, oil companies-secondary, pipelines, liquid, solid or gaseous fossil fuel producers and service companies.</p>
</blockquote>
<p><span style="text-decoration: underline;"><span class="font-size-4"><strong>2x Short Oil ETF Choices</strong></span></span></p>
<p><strong>ProShares UltraShort DJ-UBS Crude Oil ETF</strong> ($SCO)</p>
<blockquote>
<p>Easily the most popular in the short oil ETF market is SCO, a product that tracks the daily performance of the Dow Jones-UBS Crude Oil Sub-index. This approach gives twice the inverse performance, on a daily basis of WTI crude oil (see <a href="http://www.zacks.com/stock/news/97338/More-Trouble-for-Oil-Services-ETFs">More Trouble for Oil Services ETFs?</a>).</p>
</blockquote>
<p><strong>PowerShares DB Crude Oil Double Short ETN</strong> ($DTO)</p>
<blockquote>
<p>For an ETN approach to inverse crude oil investing, consider the popular DTO for exposure. This product follows a benchmark of crude oil futures contracts with -2x exposure that rebalances on a monthly basis. Thanks to this monthly rebalancing, the decay is likely to be less in the product, while it is also a relatively cheap choice in the space, coming in at 75 basis points a year in fees. While AUM isn’t that great for DTO-- $65 million—the volume is relatively solid at about 200,000 shares a day so this product should be quite tradable.</p>
</blockquote>
<p><span style="text-decoration: underline;"><strong><span class="font-size-4">Other (less popular) short oil ETFs. </span></strong></span></p>
<p><strong>A warning: trading names with lo</strong><strong>w volume can make <em>exiting</em> a trade riskier to get a fill price.</strong></p>
<p><strong>PowerShares DB Crude Oil Short ETN</strong> ($SZO)</p>
<blockquote>
<p>This is arguably the least risky of the bunch, offering investors -1x short exposure to WTI crude. The ETN is rebalanced on a monthly basis though, so decay rebalancing issues are minimized, while it also adds in the yield from short-term T-bills as well. The product charges investors 75 basis points a year for exposure, making it a relatively cheap choice in the inverse ETF market. SZO doesn’t have that much volume though, so bid ask spreads might be a little wide in this fund.</p>
</blockquote>
<p><strong>VelocityShares 3x Inverse Crude ETN</strong> ($DWTI)</p>
<blockquote>
<p>This product is one of the riskier plays in the short oil market, utilizing -3x exposure with daily rebalancing. This is accomplished by following the S&P GSCI Crude Oil Index, which offers up exposure to WTI crude oil. This note is also a bit on the pricier side, as costs come in at 1.35% a year, putting at the high end even in the leverage market. Additionally, volume and assets are quite low, so this might not be the most tradable note out there.</p>
</blockquote>
<p><span style="text-decoration: underline;"><span class="font-size-4"><strong>Bottom Line</strong></span></span></p>
<p>The outlook for oil in the near term isn’t that great. Demand from key countries is quite sluggish while a strong dollar is keeping a lid on commodities as well. Then, when you add in the incredible production statistics that are hitting the oil market, you get a great case to be bearish in the near term. Fortunately though, there are a number of ways to play this trend with ETFs, allowing investors to profit from a bet on a supply shock and lower oil prices in the near term.</p></div>