Unprecedented Oil Glut Appears Inevitable

The U.S. has voiced its concerns over the Saudi-Russian oil price war, but thus far, those concerns appear to have fallen on deaf ears. In an interview that was broadcast on CNBC, Senator Ted Cruz (R-TX) answer the question, “Do you think President Trump should try to use his influence with Russia or Saudi Arabia to try to get them to stop producing so much oil?”

“Absolutely. I think that is a major priority especially for my home state of Texas. And if you look what happened, right in the midst of the coronavirus crisis, a public health crisis that is dominating our focus, and an economic crisis that is flowing from it. Millions of people losing their jobs.

“The Saudis and Russians decided to take advantage of that crisis by flooding the market and driving the price of oil way, way down. And that was opportunistic. It was designed with a very specific purpose. The Saudis are trying to drive out of business American producers, and in particular shale producers, largely in the Permian Basin in Texas, North Dakota and in a number of oil producing states across the country.

“That behavior I think is wrong. I think it is taking advantage of a country that is a friend.

“A couple of weeks ago, I joined with thirteen senators in a letter to the Saudi Ambassador to pull back and stop trying to drive the price down to artificially low. Nine of the thirteen did a conference call with Saudi Ambassador that was as candid a call and direct a call as I’ve ever had with a foreign leader. The nine of us unloaded on her. And their defense was but Russia is doing this.

“I said but Russia is not our friend. We treat them accordingly. We are aware of their Continue reading "Unprecedented Oil Glut Appears Inevitable"

Why Inflation?

The simple answer is that is what they are doing, inflating.

The slightly less simple answer is that they inflated in 2001 and it worked (for gold, silver, commodities and eventually stocks, roughly in that order). It also worked in 2008-2009 (for gold, silver, commodities and eventually stocks, roughly in that order).

The more complicated answer is that we are down a rabbit hole of debt and the hole appears bottomless. What’s a few more trillion on top of un-payable trillions? As long as confidence remains intact in our monetary and fiscal authorities – and COVID-19 or no COVID-19, stock mini-crash or not, confidence to my eye is intact, speaking of my country, anyway – they will inflate, and what’s more, they will be called upon to inflate.

Confidence may be failing in other parts of the world but the average American is behind this thing they don’t even really understand, known as the Fed. The average American expects the bailout checks from the fiscally reflating government too. Angst, of which there has been plenty lately, is much different from lack of confidence.

I can’t include here all the ways and means the Fed has (frankly, I don’t know about them all) to prop the system, but if you go to the St. Louis Fed website you will find a whole slew of Keynesian egghead stuff. They are on it! Continue reading "Why Inflation?"

Are Silver & Gold Mirroring 1999 To 2011 Again?

Today, we are writing about a pattern that our research team sees in the Gold/Silver ratio which is correlated to the price movement of Gold. What does this mean and how can we profit from this setup? Let’s get started trying to explain this chart pattern/setup.

Gold/Silver Ratio Chart From A New Angle

This first chart highlights the pattern we have identified and how we believe a similar pattern is setting up again in the current market. The setup of the pattern is explained in the text below, but quickly scroll down and look at the first chart and the pink shaded areas “A” to get an idea of what we are talking about.

Prior To “A” Pattern Setup

After a moderate price decline in Gold (1996 through 2001), a bottom sets up as the price of Gold begins to base near support.

The Gold/Silver ratio (BLUE), falls throughout this pattern setup as both Gold and Silver prices decline somewhat in unison. Continue reading "Are Silver & Gold Mirroring 1999 To 2011 Again?"

"Stay Home Save Lives" Drives Oil Futures Lower

Crude Oil Futures

Crude oil futures in the May contract is trading lower for the 2nd consecutive session after settling last Friday in New York at 22.63 a barrel while currently trading at 22.23 down about 40 cents for the trading week continuing its bearish momentum.

Fundamentally speaking, the energy complex sold off sharply, with oil prices sinking after the Trump administration canceled its plans to buy crude oil to replenish the Strategic Petroleum Reserve (SPR). Then the energy complex extended its losses Thursday on dire predictions from the International Energy Association (IEA).

I am not involved, but I do think prices will break the $20 level as I'm certainly not recommending any bullish position as weakening demand due to the Coronavirus causing millions of Americans to work from home while not driving.

Crude oil prices are trading far below their 20 and 100-day moving average as the trend is to the downside as unleaded gasoline is right near an all-time low as that is also putting pressure on oil in the short-term. If you are short a futures contract, I would place the stop loss at 28.50 as an exit strategy as I do think $15 a barrel is a realistic number that could happen in the coming weeks ahead.

TREND: LOWER
CHART STRUCTURE: POOR
VOLATILITY: HIGH

Silver Futures

Silver futures in the May contract is currently trading at 14.51 an ounce after settling last Friday in New York at 12.38 up over $2 for the trading week experiencing high volatility as prices hit an 11-year low last week. Silver has been mirroring the gold market, which is also having tremendous price swings daily. Continue reading ""Stay Home Save Lives" Drives Oil Futures Lower"

Seeing Beyond The Black Swan Event

Just before the COVID-19 pandemic struck the S&P 500, Nasdaq, and Dow, Ray Dalio was recklessly dismissive of cash positions, stating "cash is trash." Even Goldman Sachs proclaimed that the economy was recession-proof via "Great Moderation," characterized by low volatility, sustainable growth, and muted inflation. Not only were these assessments incorrect but they were ill-advised in what was an already frothy market with stretched valuations. I'm sure Ray Dalio quickly realized that his "cash is trash" mentality, and public statements were imprudent. The COVID-19 pandemic has been a truly back swan event that no one saw coming. This health crisis has crushed stocks and decimated entire industries such as airlines, casinos, travel, leisure, and retail with others in the crosshairs.

The S&P 500, Nasdaq, and Dow Jones have shed approximately a third of their market capitalization, with the sell-offs coming in at 33%, 29%, and 36%, respectively, through March 20, 2020. Some individual stocks have lost over 70% of their market capitalization. Other stocks have been hit due to the market-wide meltdown, and many opportunities have been presented as a result.

Investors have been presented with a unique opportunity to start buying stocks and take long positions in high-quality companies. Throughout this market sell-off, I have begun to take long positions in individual stocks, particularly in the technology sector and broad market ETFs that mirror the S&P 500, Nasdaq, and Dow Jones. It's important to put this black swan into perspective and see through this on a long term basis while viewing this as an opportunity that only comes along in decades.

Most Extreme and Rare Sell-Off Ever

The abrupt and drastic economic shutdown and velocity of the U.S. market's ~30% drop within a month bring parallels to the 1930s. This sell-off has been extreme and rare in its breadth, nearly evaporating entire market capitalizations of specific companies. The pace at which stocks have dropped from their peak just last month from all-time highs is the fastest in history. The major averages just posted their worst week since the financial crisis (Figures 1 and 2). The Dow is tracking for its worst month since 1931, the S&P since 1940. As of March 20, the S&P 500, Nasdaq and Dow Jones have sold off 33%, 29%, and 36%, respectively. Continue reading "Seeing Beyond The Black Swan Event"