(Bull) Market April 2021

[qldfrog]

Oil news:


- U.S. energy consumption declined by 93 quadrillion BTUs in 2020, a 7% decline from the year before. That is the largest annual decline since EIA data collection began back in 1949.

- By comparison, U.S. energy consumption declined by 5% from the global financial crisis in 2008-2009.

- Unsurprisingly, transportation took the biggest hit, with a 15% decline in energy use.

Market Movers

- Occidental Petroleum (NYSE: OXY) plans to build a pilot bio-ethylene plant, using sequestered CO2.

- Canada’s Inter Pipeline Ltd (TSE: IPL) received C$408 million from Alberta to build its Heartland Petrochemical Complex.

- BP (NYSE: BP) said it reached its $35 billion net debt target ahead of schedule and will provide an update on share buybacks later this month.

Tuesday Aril 6, 2021

Oil prices sank on Monday as coronavirus cases surged around the world, leading to renewed lockdowns. The city of Mumbai went into lockdown, suggesting a forthcoming hit to oil demand in India. Oil prices rebounded on Tuesday, although the trend is not exactly bullish, with WTI stuck at around $60.

OPEC+ bets on demand. The loosening of OPEC+ production cuts shows the group believes demand will continue to rise.

Oil bounces on stronger economic outlook. The IMF upgraded its 2021 GDP forecast for the second time in three months, noting the speed of the vaccine rollout. The U.S. is now becoming the focus and engine of global economic recovery with a fast vaccine rollout and substantial fiscal stimulus. “We’ve had these wild moves for the better part of the past ten days,” Bob Yawger, head of the futures division at Mizuho Securities, told Bloomberg. “There’s a recovering economic picture, with an improving vaccine situation in the U.S., on one side of the equation. It’s supply versus demand here for control of the market.”

Goldman Sachs cuts Chevron. Goldman Sachs downgraded Chevron (NYSE: CVX) to Neutral from Buy, noting that the oil major already trades a premium to some of its peers.

Exxon sues Energy Transfer over pipeline dispute. ExxonMobil (NYSE: XOM) subsidiary XTO Energy is suing Energy Transfer LP (NYSE: ET) for disputed payments on the Dakota Access pipeline. The suit alleges that Energy Transfer overcharged XTO when the oil producer shifted oil flows to another pipeline.

Soaring methane as drilling bounces back. U.S. oil production remains about 2 million bpd lower than its pre-pandemic levels. Still, methane emissions are already back to their levels from before the coronavirus.

U.S. and Iran discuss reviving nuclear deal. After a rocky start, the U.S. and Iran are making progress on a diplomatic thaw. Iranian oil exports have already been inching up this year, and a breakthrough in talks could see even more.

Iran oil won’t shock markets. “With OPEC+ appearing to manage its exit for now, supply concerns will likely shift to the potential return of Iran to the JCPOA (Joint Comprehensive Plan of Action) agreement,” analysts at Goldman Sachs said in a note on Monday.

India cuts oil purchases from Saudi Arabia after price hike. India will buy some 36 percent less crude oil from Saudi Arabia next month, unnamed sources told Reuters soon after the Kingdom said it would increase its official selling price for oil for its Asian buyers.

European battery majors emerging. Europe is scrambling to build out battery manufacturing capacity as EV sales pick up. Backed by billions in EU subsidies for both EVs and battery manufacturing, competition is heating up between Northvolt AB in Sweden, Britishvolt Ltd. and France’s Automotive Cells Co., and Tesla (NASDAQ: TSLA) and Volkswagen (OTCMKTS: VWAGY). BNEF forecasts Europe’s share of battery manufacturing rising from 7% in 2020 to 31% by 2030.

Lawsuits from Texas freeze proliferate. At least 30 lawsuits related to natural gas contracts have been filed in four states since the February freeze, according to the Wall Street Journal.

Pioneer’s takeover of DoublePoint shows shale’s signs of life. The $6.4 billion acquisition of DoublePoint Energy by Pioneer Natural Resources (NYSE: PXD) is the largest purchase of a private shale driller since 2011. The deal is a sign of further consolidation in the U.S. shale industry, but also one that shows “signs of life,” according to the Wall Street Journal.

JPMorgan cuts Pioneer. JPMorgan cut Pioneer Natural Resources (NYSE: PXD) to Neutral from Buy following the $6.4 billion takeover of DoublePoint Energy. The bank said that the acquisition “fits like a glove” and would improve cash flow, but also noted that the purchase price was high.

Shell invests in aviation fuel maker. Royal Dutch Shell (NYSE: RDS.A) has invested in a sustainable fuels company LanzaJet, which is building an “alcohol-to-jet” facility to produce sustainable jet fuel.

Renewables overtake nuclear worldwide. Renewable energy generated more electricity around the world in 2019 than nuclear, a milestone that is unlikely to be reversed. A separate report finds that renewables account for 82% of total capacity additions worldwide last year.

European companies saw energy transition coming. Enel (BIT: ENEL) and Iberdrola (BME: IBE) began their energy transitions years ago, making them now powerhouses in renewable energy. That puts them ahead of the game compared to the oil majors. Reuters looks at how this unfolded.


View attachment 122460


jog on
duc

An interesting first graph: in 2020, with covid, if you exclude US and Europe, world oil consumption did not even decrease so we should not be surprised to see even stronger demand in coming year regardless of US and EU green battle.
Time will tell but that would explain the OPEC confidence in raising production caps.
Note: @ducati916
Mr Ducati : is this posting of mine just noise in your thread or does it add some value? I can abstain if you consider these out of place?

 

[ducati916]

View attachment 122461
An interesting first graph: in 2020, with covid, if you exclude US and Europe, world oil consumption did not even decrease so we should not be surprised to see even stronger demand in coming year regardless of US and EU green battle.
Time will tell but that would explain the OPEC confidence in raising production caps.
Note: @ducati916
Mr Ducati : is this posting of mine just noise in your thread or does it add some value? I can abstain if you consider these out of place?

Absolutely post!

It gets very boring talking to oneself.

For tomorrow, look at the VIX: I wouldn't be surprised to see an uptick or two and stock sectors or the overall market, get a little jumpier.

jog on
duc

 

[ducati916]

The EOD charts are cautionary:

The breadth just isn't there. This sort of divergence is never good. Add in the range issue in NYMO, stocks are losing some momentum. And the PUT/CALL ratio is at an extreme.

Today, its choppy again: Energy coming back, but nothing much moving.

Mr flippe-floppe-flye:

Cryptos are having a (rare) bad day:

The market just has an eerie feeling to it.

Nothing concrete from stocks.

Bond yields are off. Even at the short end, which pushes them into negative nominal territory. That is a run to safety. That is something that I pay attention to.

VIX is down: but just too low.

Caution is the better part of valour in the current circumstances.


jog on
duc

 

[ducati916]

Things are seriously overstretched. Warning signs everywhere. Timing is of course the crucial question.

The market sitting at or near all-time highs.

Underneath those all-time highs, the internals continue to flash warning signs:

The VIX at its most complacent. But stretched.

NYMO turning down while the market trades higher.

Only 70% of stocks are above their 50 day EMA. The trend is concerning.

Yesterday, lots of PUT buying. We have seen recently that the volumes of Options have gone through the roof. This market can and does have an effect on the underlying market.

Gold is (and particularly the Miners, is looking a wee bit bullish.

10 yr Bonds and the long end of the curve have been losing yield as my model predicted. Of far more concern is the short end of the curve:

This is a classic run to safety. DXY, all set to resume its loss of value has also paused. Why? Does it really matter? Pick your own causation. For the moment, the internals and associated markets are nervous. Will it amount to anything? Who knows.

Mr flippe-floppe-flye:

And a chart on social media use:

I like and use YouTube, the rest, IMO, garbage.

jog on
duc

 

[Smurf1976]

An interesting first graph: in 2020, with covid, if you exclude US and Europe, world oil consumption did not even decrease so we should not be surprised to see even stronger demand in coming year regardless of US and EU green battle.
Time will tell but that would explain the OPEC confidence in raising production caps.

Adding to that, US oil production hasn't rebounded to pre-COVID levels and remains down significantly.

There's an abundance of information here:

US January Oil Production Continues Slow Slide – Peak Oil Barrel

peakoilbarrel.com

No point me repeating it all but if you just want the short version well then scroll through that article and look at the charts. There's a lot of them but pretty much all show the same basic pattern of a steep dive early last year followed by a limited rebound which has now faltered.

Note that Tight Oil is what most call "shale".

Conventional oil - that's oil which isn't shale, isn't tar sands needing to be mined, etc. What most people think of as oil - drill a well in the ground to access it.

There's a lot of charts in the link but all the same basic pattern. Steep plunge, partial recovery which has run out of go.

I'll leave others to work out what that might mean for the price but on the physical supply side, there's no ongoing production boom in the USA.

And no, it's not all due to the Texas power failure:

The US isn't the whole world of course but it's extremely significant when it comes to oil since, pre-COVID, it was the largest producer marginally ahead of Russia and Saudi Arabia. Crucially, the US has also been the primary source of production growth at the global level in recent years. So it's not the world but it's significant.

 

[ducati916]

So starting with oil news:

Friday, April 9th, 2021

Oil prices are set to post a loss this week, following several days of up-and-down trading. The story is the same – a jockeying between market tightness and concerns about demand amid spreading Covid cases and lockdown measures.

Biden admin to decide DAPL’s fate. The Army Corps of Engineers is scheduled to appear in a U.S. court on Friday to decide the fate of the Dakota Access Pipeline. Last year, a court vacated a critical permit issued by the Army Corps during the first days of the Trump administration. The pipeline was allowed to remain online despite lacking the permit, but the court ordered the Army Corps to conduct a more thorough environmental assessment and come up with a new justification for continued operations of the pipeline, or to shut it down. The Army Corps, now under President Biden, has been silent on the issue but will make a decision on Friday.

Permian output to rise. “The number of completed wells in the Permian basin during the first quarter of 2021 exceeded the required output maintenance level, so oil production is set to rise in the current quarter – but will likely slow again later in the year,” Rystad Energy said in a note.

Exxon explores the sale of its polymer business. ExxonMobil (NYSE: XOM) is exploring a sale of its Advanced Elastomer Systems division for as much as $800 million.

Repsol to furlough refinery staff on energy transition concerns. Repsol (BME: REP) plans to furlough 830 workers at two refineries citing lower demand and uncertainty regarding the energy transition.

Shell threatens to leave API and other industry groups. Royal Dutch Shell (NYSE: RDS.A) is threatening to leave the American Petroleum Institute, the Texas Oil & Gas Association and the U.S. Chamber of Commerce unless they take a stronger stance on climate change. API and the Chamber are the most powerful oil and business lobby groups in the country, respectively. Earlier this year, Total (NYSE: TOT) left API for similar reasons.

Shell to turn an upstream profit. Royal Dutch Shell (NYSE: RDS.A) said that its upstream unit would return to profitability in the first quarter for the first time since the start of the pandemic.

Aramco weighs pipeline sale for $10 billion. Saudi Aramco (TADAWUL: 2222) is in advanced talks to sell up to a 49% stake in its oil pipelines to a consortium of U.S., Chinese and local investors.

Oil majors’ rush for offshore wind crowds sector. Oil majors are rushing into offshore wind auctions in the North Sea, pushing up auction prices and crowding out big developers.

Jet fuel demand showing signs of life. Jet fuel demand is picking up, according to refiners.

EPA to propose new auto rules by July. The EPA said it would propose new fuel economy standards for cars and light-duty trucks by the end of July. The agency is rewriting Trump-era rules that weakened fuel efficiency.

EIA cuts oil production forecast. U.S. oil output may average 11.04 million barrels day this year, according to the EIA, down from last month’s forecast at 11.15 million after the Texas grid crisis. The agency lowered its 2022 forecast by 100,000 bpd.

Norway’s sovereign wealth fund invests in clean energy. Norway’s $1.3 trillion wealth fund made its first investment in clean energy infrastructure, buying 50% of a 752-MW offshore wind farm.

GM to make an electric pickup. GM (NYSE: GM) said it would make an electric version of its Chevy Silverado pickup truck.

White House considers 50% climate target. The Biden administration is considering announcing a goal of a 50% reduction in GHG emissions by 2030 (from a 2005 baseline), which would double the previous commitment made under the Obama administration. The U.S. is set to host an international summit later this month, so the announcement could occur in advance of those talks.

Mexico refinery explosion. A massive fire erupted on Wednesday evening at an oil refinery operated by Petroleos Mexicanos (Pemex) in the city of Minatitlan in the eastern Mexican state of Veracruz

Investors rush back to oil stocks. Despite the surge of ESG-related equities, investors are flocking back to oil and gas stocks, at least for now.

Phillips 66 cancels Bakken/Rockies pipeline. Phillips 66 Partners LP (NYSE: PSXP) canceled the Liberty Pipeline, a proposed oil pipeline that would have carried Bakken and Rockies oil to Cushing, OK. The company took a $180 to $210 million impairment.

Equinor and SSE plan the first hydrogen plant in the UK. Equinor (NYSE: EQNR) and SSE Plc are working to develop the world’s first hydrogen power plant in the UK.

White House considers Tellurian executive for Nord Stream negotiations. The Biden administration is considering appointing Amos Hochstein as a special envoy to negotiate the halting of the Nord Stream 2 pipeline. Hochstein was formerly in the State Department under the Obama administration before leaving to work for Tellurian (NASDAQ: TELL).

BlackRock raises $4.8 billion for renewables. BlackRock Inc. has raised $4.8 billion to invest in renewables, double its initial target. Meanwhile, Bank of America said it increased to $1 trillion its goal of financing low-carbon projects.

Biden to announce climate disclosure rule. U.S. climate envoy John Kerry said at an IMF event on Wednesday that the Biden administration “is poised to issue an executive order that will require disclosure” of climate change-related risks by publicly traded companies. “It’s going to change allocation of capital,” he said. Bloomberg reports some details on that executive order.

U.S. Intelligence: Climate change to drive instability. A new report from the U.S. National Intelligence Council says that climate-driven chaos will fuel global instability and migration in the future.

This week ends with Tech. on top and Energy on the bottom:

Bonds & Commodities have been choppy all week:

Market valuations horribly stretched, but that could continue for quite some time.

News:

And Mr flippe-floppe-flye:

Nothing really much to add from yesterday. Mostly noise. No real signal, internals are weak. Various markets are positioning for what they believe might eventuate, but there seems to be low commitment to anything. The Tech. end of the market was the place to be this week, predicated largely on the 10yr coming off of the boil.

The 10yr coming off of the boil is essentially the market discounting the inflation fear. As can be seen, inflation currently is not a thing. With commodities (oil) having a bad week, the market can also lower rates, which it has.

This is potentially (enter your own causation here) in response to lowered growth expectations going forward. Looking @Smurf1976 charts yesterday, I'm taking it that the market believes that the Arabs can fulfil the demand lost from US supply as and when needed. I guess we'll find out when we find out.

Rising (fast) commodities would have been a headwind to stocks. With that fear allayed (for the moment) the bull market is safe to move forward on the macro-fundamentals: the internals are stretched, which means we are still prone to fast sell-offs. For the moment however, that becomes a BTD opportunity.

The one remaining issue is DXY. If DXY (up today) continues weakness and sells off, this will again raise the inflation thing. I still have DXY as a short. If the sell-off picks up steam and particularly if it breaks the recent low, then I think markets will start to boil.

Often currency trends and flows can have significant lead times, with nothing much (seemingly) occurring during periods of weakness/strength. I don't think this is one of those times.

A hard sell-off in DXY will trigger commodities higher and rates will follow pretty quick. All are bad for stocks, particularly as we have seen Tech. and Tech. related.

So because I am short DXY, I am long gold miners and hedged in stocks. We'll just have to wait and see whether that actually plays out.


jog on
duc

 

[ducati916]

Weekly wrap up:

Looking at the market first:

Commercials are selling less.

Market at all time highs.

PE and Yields and 1 yr comparison:

VIX very low.

Where VIX may go: as you can see, the probabilities don't argue lower.

Commercials also selling less.

Commercials buying less.

Commercials buying less, but the last couple of weeks saw a real turnaround.

The overall impression is that commodities are set to move higher, DXY lower and gold higher. All of which are not great for stocks, which are currently pretty much priced for perfection.

Because these markets are such a mess, all can change tomorrow.






Some 'insider' transactions:

A biotech. hand grenade. Does it blow up higher? Certainly the insiders and Options market say yes.


jog on
duc

 

[ducati916]

New week, same old, same old:

Stocks slightly lower

Bond yields slightly higher. DXY slightly higher.

Commodities slightly lower

Cryptos even

Sectors:

A worthwhile read: https://www.marketwatch.com/story/how-much-higher-will-this-bull-market-go-11617981444?mod=home-page

Highlights below:

Mr flippe-floppe-flye:

Related to the article:

Crypto. Wow. If you could have got in near or at the beginning and stuck the wild ride, wow. All I would say is (a) to invest in BTC you have to be a disciple, (b) to trade it, no issues except for the fact the initial difficulty of trading it. Now it is easier.


Markets remain messy while 'stuff' (the fundamentals and projections or best guesses are thrown out there) traders/investors take positions or sit on the sideline awaiting clarity (confirming data) or technical signals.

On the 'Dump' thread, a day trading strategy was compared to a longer trend trading system. It did well. The reason (obviously) is that in a messy market, a good day trader can do really well. Actually a good day trader can do well in any market, however, a really good trend (if you catch it) will generally outperform our day trader. Most day traders rely on massive leverage to generate $ returns. The % returns on capital are tiny, as in 0.2% etc. Therein lies the risk if you are trading in a less than optimal manner.

The 'noise' to 'signal' ratio is very high. So much so that I'm only looking at weekly and monthly charts currently. The day charts are just too full of noise.

This chart is a real concern:

That is the general message: overstretched. The issue (as always) is in the timing. Exit or short too soon, you are an idiot or lose money. Too late, and open profits disappear.

At the end of last week we had the indices rip higher into the close. It didn't make a dent in this chart. Only 70% of stocks are above their 50EMA. That means 30% are below.

With the market at all-time highs, this divergence will, at-some-point, come home to roost if it does not pick up. Now today, with a gentle decline, it will be interesting to see how those numbers change.

jog on
duc

 

[ducati916]

The week's summary:


So the 10yr moved lower in yield as suggested by the model. The model suggested 1.58%, currently sitting at 1.56%. As the chart below depicts, the 10yr is now sitting on a dynamic support point.

Which way it goes is a guess.

Inflation, as a result of the fall in yield, has upticked, indicating that relative to $TNX, commodities are moving higher. This is currently nothing to really be alarmed about, simply keep an eye open.

Stock sectors this past week:

The 'defensives' have outperformed: Utilities and REITS (XLRE). Is that broader participation or signs of a toppy market?

XLRE is also benefitting from

Hedge Funds have (again) moved into this area.

We had consumer news during the week:

Retail Sales. On fire.

Where were these sales concentrated:

You would expect a greater demand for petrol, unless they are all TSLAs and you would be right, at least in the shorter time frames.

Friday, April 16th, 2021

Oil prices moved higher this week after the demand outlook improved. While Covid cases are up significantly from a few weeks ago, and travel restrictions have proliferated, demand still looks strong and on the rise.

IEA raises oil demand forecast. The IEA raised its oil demand forecast for 2021 by 230,000 bpd, citing improving vaccination efforts and U.S. stimulus.

Exxon spends huge sums to defeat proxy moves. ExxonMobil (NYSE: XOM) is spending above $35 million to block proxy votes by activist shareholder Engine No. 1, and could spend as much as $100 million, according to Reuters, although Exxon disputes that figure. Analysts say it could become one of the biggest proxy fights in history.

New Zealand becomes first country to require climate disclosure. New Zealand became the first country to require banks, insurers and investment managers to report the impacts of climate change on their businesses. The law affects banks and insurers with assets over NZ$1 billion, and all equity and debt issuers listed on the country's stock exchange.

Oil majors’ struggle to sell $110 billion in assets. Large oil and gas companies are looking to sell off a combined $110 billion in assets to raise cash and pay down debt. But they may struggle to find buyers, according to Reuters. “This is not a very good time to sell assets,” Total (NYSE: TOT) CEO Patrick Pouyanne said.

California fracking ban dies in state legislature. A proposal to ban fracking statewide in California fell short in the state legislature this week.

Bitcoin power consumption jumped 66-fold since 2015. Energy consumption for Bitcoin mining is up 66 times and the associated emissions are destined to receive greater scrutiny, Citigroup warned. Bitcoin uses more energy than the entire country of Argentina. The New York Times also did a deep dive on the issue.

Chevron invests in offshore wind for first time. Chevron’s (NYSE: CVX) venture capital unit invested in Ocergy Inc.’s floating offshore wind turbines. “To my knowledge, this is the first investment by a U.S. oil major in offshore wind,” said Anthony Logan, a senior analyst at Wood Mackenzie Ltd.

Exxon cuts Guyana production due to compressor problem. ExxonMobil (NYSE: XOM) cut its Guyana oil production by 75% down to 30,000 bpd due to a problem with a compressor on its offshore platform.

BP halts production at Shetlands oil field. BP (NYSE: BP) suspended production indefinitely at its Foinaven crude oil field west of Shetland.

Pioneer warns of price war if shale moves too fast. Pioneer Natural Resources (NYSE: PXD) CEO Scott Sheffield warned that OPEC+ would engage in a price war if U.S. shale grew production too quickly. “If we grow another million barrels a day next year, we’re going to have another price war in my opinion going into ‘23,” he said.

Exxon may exit Iraq’s West Qurna 1. Iraq’s oil ministry said that ExxonMobil (NYSE: XOM) may exit the West Qurna 1 oil field. The ministry said it is looking for buyers. Exxon operates the massive 500,000-bpd field.

Investors around the globe looking for ESG. More than 80% of affluent investors in Hong Kong, China, Singapore and the UK say that environmental and ethical issues matter, and only a third have their investments tied to ESG factors, according to HSBC Asset Management. The data suggests there is an appetite for ESG investments.

WoodMac: Global energy transition to result in $10 Brent by 2050. Stricter climate policy could accelerate the energy transition, and a steep drop in demand could begin by 2023, according to Wood Mackenzie. Demand could fall to 35 mb/d by 2050, with Brent averaging between $10 and $18.

Goldman Sachs: Oil demand to peak by 2026. Goldman has been bullish on oil demand in the short run, but expects “anemic” demand after 2025 and a peak by 2026.

Biden expected to propose 50% cut in GHG. The U.S. is hosting a virtual climate summit next week, and ahead of that meeting, the Biden administration is expected to announce a 2030 greenhouse gas reduction target of 50%.

Report: 2035 100% EVs is possible. A new report shows that, with the right policy, it is technically and economically feasible for all new car and truck sales to be electric by 2035.

Shell opposes climate proxy vote. Royal Dutch Shell (NYSE: RDS.A) is pushing shareholders to oppose a climate resolution filed by activist investor Follow This.

Shell warns of stranded assets. Royal Dutch Shell (NYSE: RDS.A) says that it will have produced 75% of its proved oil and gas reserves by 2030, and will produce only 5% after 2040.

North American oil bankruptcies hit 5-year high. Oil and gas bankruptcies in North America hit their highest first-quarter level since 2016, according to Haynes and Boone. There were eight bankruptcies in the first quarter.

The largest U.S. gas driller wants methane regulations. EQT (NYSE: EQT), the largest natural gas driller in the U.S., called for stricter limits on methane. The Pittsburgh-based company supports Congressional efforts to repeal the Trump-era rollback on methane limits.

Permian pipeline crisis. A few years ago, Permian drillers suffered price discounts due to inadequate pipeline capacity. Now they have the opposite problem: too many pipelines and not enough oil.


Mr flippe-floppe-flye:

Dodgy coin:

Says it all really.

Overall the market has continued to rise this week to new all-time highs.

Obviously you cannot be short this market. Conversely, to be long, means to be holding a frothy position. It comes down to whether you are trading the indices or sectors or individual stocks. The market, is higher. Sectors are marginally higher. The second best performer this week Materials:

Conveys a mixed message. Message 1 is that the world economy is opening up and growing again. Message 2 is that this is likely to be inflationary.

When looking at DXY (which is still looking to move lower) we cannot really just consider what I will call US dollars. We need to look at Eurodollars, which is actually quite hard to find data on, as both positions actually produce the complete dollar situation.

For the moment, DXY is the best we have. As already stated, the chart is suggestive of a continued move lower. A move lower is inflationary. This raises 2 potential scenarios: (a) $TNX continues to fall, which will likely contribute to a lower DXY or (b) $TNX finds support and yields start to rise again.

Re. (a) My model suggests 1.58%. This would mean consolidation for a period of time. The Fed. has reiterated their message that they want higher inflation, which means YCC is still on the table. The rise in inflation (currently as depicted above being only marginal) is not yet a 'thing' and so I think will continue in the shorter term. The move higher this week of the defensives, XLU, XLRE, both of which are yield plays, suggests that bets are being laid that $TNX continues lower or consolidates.

Re. (b) $TNX finds support and yields start to rise again. Any nascent inflation will likely be nixed. DXY may move sideways. Sectors of the market (Tech.) will again struggle. This (could) might depend on why yields rose in the first place: (a) aggressive short sellers forcing prices lower or (b) selling from China/Japan/Europe.

Consumer demand is robust as demonstrated via the data. As economies re-open, that trend is likely to continue. That will continue to drive demand for commodities. Therefore they will rise (broadly speaking) which, if $TNX consolidates or falls (as will DXY), will place increased inflationary forces before the markets. The Fed. will not hinder this process, at least in the immediate future. Rising PPI will eventually cut into profit margins within sectors of the market.

All of this will take quite some time to play out. Therefore, the Bull remains intact, although unstable.


Short term, the market will continue to be choppy, with sectors displaying messy behaviour. I do expect a bit of a dip in the over-all market as stocks are pretty stretched. It will be a BTD situation or an entry point if you have been on the sidelines.

As for 'Black Swans', while far more common than financial theory allows for, they are also far less common than the perma-bears advocate. They (BS) are 'unexpected'. Therefore situations that are contemplated, discussed, argued, etc. are probability wise, unlikely to constitute the next BS. For example the China invades Taiwan issue. The probabilities I would argue are astoundingly low. The reason being that China is and has been waging an economic war that has been resoundingly successful to date: why change a winning strategy.

Therefore absent a true BS, any decline in the indices will be short term profit taking, rebalancing, etc. and becomes a legitimate BTD situation. I think that this will likely happen next week at some point. Sentiment (measured via VIX) is almost at all time complacency levels. Some bad earnings reports, economic data, whatever, could spook the market to take some profits off of the table.


jog on
duc

 

[qldfrog]

The week's summary:


So the 10yr moved lower in yield as suggested by the model. The model suggested 1.58%, currently sitting at 1.56%. As the chart below depicts, the 10yr is now sitting on a dynamic support point.

Which way it goes is a guess.

View attachment 122882

Inflation, as a result of the fall in yield, has upticked, indicating that relative to $TNX, commodities are moving higher. This is currently nothing to really be alarmed about, simply keep an eye open.


View attachment 122886

Stock sectors this past week:

The 'defensives' have outperformed: Utilities and REITS (XLRE). Is that broader participation or signs of a toppy market?

XLRE is also benefitting from

View attachment 122890

Hedge Funds have (again) moved into this area.

View attachment 122885

We had consumer news during the week:

Retail Sales. On fire.

View attachment 122887View attachment 122888


Where were these sales concentrated:

View attachment 122883
View attachment 122884

You would expect a greater demand for petrol, unless they are all TSLAs and you would be right, at least in the shorter time frames.

Friday, April 16th, 2021

Oil prices moved higher this week after the demand outlook improved. While Covid cases are up significantly from a few weeks ago, and travel restrictions have proliferated, demand still looks strong and on the rise.

IEA raises oil demand forecast. The IEA raised its oil demand forecast for 2021 by 230,000 bpd, citing improving vaccination efforts and U.S. stimulus.

Exxon spends huge sums to defeat proxy moves. ExxonMobil (NYSE: XOM) is spending above $35 million to block proxy votes by activist shareholder Engine No. 1, and could spend as much as $100 million, according to Reuters, although Exxon disputes that figure. Analysts say it could become one of the biggest proxy fights in history.

New Zealand becomes first country to require climate disclosure. New Zealand became the first country to require banks, insurers and investment managers to report the impacts of climate change on their businesses. The law affects banks and insurers with assets over NZ$1 billion, and all equity and debt issuers listed on the country's stock exchange.

Oil majors’ struggle to sell $110 billion in assets. Large oil and gas companies are looking to sell off a combined $110 billion in assets to raise cash and pay down debt. But they may struggle to find buyers, according to Reuters. “This is not a very good time to sell assets,” Total (NYSE: TOT) CEO Patrick Pouyanne said.

California fracking ban dies in state legislature. A proposal to ban fracking statewide in California fell short in the state legislature this week.

Bitcoin power consumption jumped 66-fold since 2015. Energy consumption for Bitcoin mining is up 66 times and the associated emissions are destined to receive greater scrutiny, Citigroup warned. Bitcoin uses more energy than the entire country of Argentina. The New York Times also did a deep dive on the issue.

Chevron invests in offshore wind for first time. Chevron’s (NYSE: CVX) venture capital unit invested in Ocergy Inc.’s floating offshore wind turbines. “To my knowledge, this is the first investment by a U.S. oil major in offshore wind,” said Anthony Logan, a senior analyst at Wood Mackenzie Ltd.

Exxon cuts Guyana production due to compressor problem. ExxonMobil (NYSE: XOM) cut its Guyana oil production by 75% down to 30,000 bpd due to a problem with a compressor on its offshore platform.

BP halts production at Shetlands oil field. BP (NYSE: BP) suspended production indefinitely at its Foinaven crude oil field west of Shetland.

Pioneer warns of price war if shale moves too fast. Pioneer Natural Resources (NYSE: PXD) CEO Scott Sheffield warned that OPEC+ would engage in a price war if U.S. shale grew production too quickly. “If we grow another million barrels a day next year, we’re going to have another price war in my opinion going into ‘23,” he said.

Exxon may exit Iraq’s West Qurna 1. Iraq’s oil ministry said that ExxonMobil (NYSE: XOM) may exit the West Qurna 1 oil field. The ministry said it is looking for buyers. Exxon operates the massive 500,000-bpd field.

Investors around the globe looking for ESG. More than 80% of affluent investors in Hong Kong, China, Singapore and the UK say that environmental and ethical issues matter, and only a third have their investments tied to ESG factors, according to HSBC Asset Management. The data suggests there is an appetite for ESG investments.

WoodMac: Global energy transition to result in $10 Brent by 2050. Stricter climate policy could accelerate the energy transition, and a steep drop in demand could begin by 2023, according to Wood Mackenzie. Demand could fall to 35 mb/d by 2050, with Brent averaging between $10 and $18.

Goldman Sachs: Oil demand to peak by 2026. Goldman has been bullish on oil demand in the short run, but expects “anemic” demand after 2025 and a peak by 2026.

Biden expected to propose 50% cut in GHG. The U.S. is hosting a virtual climate summit next week, and ahead of that meeting, the Biden administration is expected to announce a 2030 greenhouse gas reduction target of 50%.

Report: 2035 100% EVs is possible. A new report shows that, with the right policy, it is technically and economically feasible for all new car and truck sales to be electric by 2035.

Shell opposes climate proxy vote. Royal Dutch Shell (NYSE: RDS.A) is pushing shareholders to oppose a climate resolution filed by activist investor Follow This.

Shell warns of stranded assets. Royal Dutch Shell (NYSE: RDS.A) says that it will have produced 75% of its proved oil and gas reserves by 2030, and will produce only 5% after 2040.

North American oil bankruptcies hit 5-year high. Oil and gas bankruptcies in North America hit their highest first-quarter level since 2016, according to Haynes and Boone. There were eight bankruptcies in the first quarter.

The largest U.S. gas driller wants methane regulations. EQT (NYSE: EQT), the largest natural gas driller in the U.S., called for stricter limits on methane. The Pittsburgh-based company supports Congressional efforts to repeal the Trump-era rollback on methane limits.

Permian pipeline crisis. A few years ago, Permian drillers suffered price discounts due to inadequate pipeline capacity. Now they have the opposite problem: too many pipelines and not enough oil.


Mr flippe-floppe-flye:

View attachment 122889

Dodgy coin:

View attachment 122891

Says it all really.

Overall the market has continued to rise this week to new all-time highs.

View attachment 122893

Obviously you cannot be short this market. Conversely, to be long, means to be holding a frothy position. It comes down to whether you are trading the indices or sectors or individual stocks. The market, is higher. Sectors are marginally higher. The second best performer this week Materials:

View attachment 122894

Conveys a mixed message. Message 1 is that the world economy is opening up and growing again. Message 2 is that this is likely to be inflationary.

When looking at DXY (which is still looking to move lower) we cannot really just consider what I will call US dollars. We need to look at Eurodollars, which is actually quite hard to find data on, as both positions actually produce the complete dollar situation.

For the moment, DXY is the best we have. As already stated, the chart is suggestive of a continued move lower. A move lower is inflationary. This raises 2 potential scenarios: (a) $TNX continues to fall, which will likely contribute to a lower DXY or (b) $TNX finds support and yields start to rise again.

Re. (a) My model suggests 1.58%. This would mean consolidation for a period of time. The Fed. has reiterated their message that they want higher inflation, which means YCC is still on the table. The rise in inflation (currently as depicted above being only marginal) is not yet a 'thing' and so I think will continue in the shorter term. The move higher this week of the defensives, XLU, XLRE, both of which are yield plays, suggests that bets are being laid that $TNX continues lower or consolidates.

Re. (b) $TNX finds support and yields start to rise again. Any nascent inflation will likely be nixed. DXY may move sideways. Sectors of the market (Tech.) will again struggle. This (could) might depend on why yields rose in the first place: (a) aggressive short sellers forcing prices lower or (b) selling from China/Japan/Europe.

Consumer demand is robust as demonstrated via the data. As economies re-open, that trend is likely to continue. That will continue to drive demand for commodities. Therefore they will rise (broadly speaking) which, if $TNX consolidates or falls (as will DXY), will place increased inflationary forces before the markets. The Fed. will not hinder this process, at least in the immediate future. Rising PPI will eventually cut into profit margins within sectors of the market.

All of this will take quite some time to play out. Therefore, the Bull remains intact, although unstable.


Short term, the market will continue to be choppy, with sectors displaying messy behaviour. I do expect a bit of a dip in the over-all market as stocks are pretty stretched. It will be a BTD situation or an entry point if you have been on the sidelines.

As for 'Black Swans', while far more common than financial theory allows for, they are also far less common than the perma-bears advocate. They (BS) are 'unexpected'. Therefore situations that are contemplated, discussed, argued, etc. are probability wise, unlikely to constitute the next BS. For example the China invades Taiwan issue. The probabilities I would argue are astoundingly low. The reason being that China is and has been waging an economic war that has been resoundingly successful to date: why change a winning strategy.

Therefore absent a true BS, any decline in the indices will be short term profit taking, rebalancing, etc. and becomes a legitimate BTD situation. I think that this will likely happen next week at some point. Sentiment (measured via VIX) is almost at all time complacency levels. Some bad earnings reports, economic data, whatever, could spook the market to take some profits off of the table.


jog on
duc

Another potential BS trigger:
Ukraine: with Biden and democrats back, the anti Putin rhetoric is back and the Ukrainian president seems keen to put some heat on the issue with the backing of EU and US.
Not big in a world wide view but could be enough to trigger a small fall.
BTD opportunity if this happens in my opinion too

 

[ducati916]

So the BIG picture:

Nothing particularly new here. If you were not aware that the market was historically overvalued, you have obviously been living in a cave.

There are no returns available from Bonds. As an asset class they are dead.

Which brings us nicely onto the really important chart: This is a chart of the final bubble. We have had the stock bubble, 1982 - 2000. Imploded. Fed. bailed out the market via low interest rates, created the Housing Bubble via sub-prime lending. Imploded. Fed. took interest rates to ZIRP. COVID blew up the markets again, which with rates at ZIRP required NIRP and the creation of the Sovereign Debt Bubble, which we are currently in.

Some additional dates on the below chart:

June 8 1946: 121.4%
Oct. 1 1929: 16.34%
Oct. 8 1987: 48.56%
Jun 1 2001: 55.2%
Jun 1 2008: 64.2%
April 2021: 125%

Where were Stocks the last time that the US had debt ratios similar? The peak just before 1950 (identified). Stocks went on to bottom in 1949, just prior to the next great Bull market that ended in 1969.

You can see that Stocks don't do great in an inflationary environment. Stocks prefer DIS-inflation (every thing hates DEflation).

The following charts just provide some context around where relative prices are.

Oil, which can be (historically) one of the most inflationary and volatile commodities is very low as against gold. Now there are many arguments that green energy is here and can replace much of the demand for oil. I personally don't think so.

Current prices for oil I think are at the $55 - $75 range. But if (and we will see that this is the only way forward) inflation takes hold, that range could easily move significantly higher.

So essentially what we have is that the only area not currently in a bubble are commodities.

Housing: Gold, again, very low. Houses as we will see are (a) unaffordable for many and (b) already entering another bubble themselves.

Clearly the NASDAQ has entered bubble territory once again.

Housing is also back into bubble territory.

Real interest rates are negative (-2.56%). This is the 1 year.

After WWII, real interest rates in the US went (-14%) with the YCC implemented by the Fed. In the de-industrialised world (Germany, Japan, Russia, England) they went to (-60%) real yields.

In other words, when Sovereign debt levels go to these levels, INFLATION is the only answer that government has. The 1929 period was where defaults (Company) were allowed to happen. That period was so painful economically, that it has been abandoned as a choice.

The Fed. has already told us that inflation is the only way forward.

The issue is that the Fed. thinks that it can control the inflation once it actually takes hold. You can see from the chart below and the 1970 - 1980 period just how high nominal rates had to move to actually create a real positive return.

So to create that inflation, either (a) nominal interest rates go deeper ZIRP, which destroys your banking system or (b) commodities trade towards bubble levels. There is a third possibility (c) which is that the banking system is shut down world-wide and all Central Banks move to a digital currency, which allows a deep ZIRP.

For the moment, option (b) is going to happen.

The US can no longer sell Treasuries to foreign governments. This means that the only way to service Sovereign debt, Welfare, Social Security, Defence, is to print money. This is pretty much true for all G7 nations as the COVID crisis blew their debt loads out of the water. All will inflate. Possibly 1 or more might be forced into a default and actual deflation. That will be really ugly as it will likely be the falling domino that takes down a whole host of other dominos.

The Fed. has with a % of its newly created money, bought stocks: ETFs. The Fed. is directly a player in the stock market. The Fed's debt liabilities, while the stock market is high, are less than its assets. Obviously, in a collapsing stock market this reverses. This creates another less obvious risk.

Using Germany as the example when the Weimar Republic blew itself up via a hyper-inflation, gold took you through the chaos.

Which raises the argument for BTC. as an extreme inflation hedge. Currently the BTC infrastructure, mining, storing, etc. requires the energy consumption of Argentina. That is a real cost, that in an inflation or even a hyper-inflation, is a real and rising cost, how does that work out?

If you can perfectly time the market at the top, then you don't really need to worry about allocations currently. But on a macro-picture,
Short DXY, Long Gold and most (all) commodities, Short Bonds at the long end higher yields until capped by YCC, which will signal the explosion higher in commodities and Stocks (eventually) Short.

Ray Dalio proposed the 'Forever Portfolio' which he copied from this chap: https://en.wikipedia.org/wiki/Jakob_Fugger


Of course the difference I guess is, investment (like the example above) is about staying rich. Trading is about trying to get rich.




jog on
duc

 

[qldfrog]

A note on oil:
As already mentionned, there is an incredible push in the West for a new "green" economy:
EV s right and left on the news, push to decarbon and basically to bankrupt oil companies with banks and investment funds under massive, sometimes government based push to stop operating: closing wells, stopping exploration....
Yet the most optimistic reports i have heard about, is for a 100% EV for new cars in 2035..which means still producing ICE in 10y time,while using oil burners in Europe and the US all winters
I will not even go into the actual feasibility for a chinese or indian, even less african consumer to purchase an EV considering the cost now and in the future of batteries. if it is possible to get enough lithium etc.
And i witnessed first hand the car ownership in China, still among top priority for the emerging middle class
So considering how oil production especially shale, depends on ongoing exploration for new resources, one does not need to be a genius to predict that either we hand over all production to China...who will do BAU and then resell to us at a premium and with political leverage.
Or we will enter into a penury crisis phase with oil price going thru the roof and creating geopolitical tensions with this time China as the new US in the Gulf repeat scenario.
A lot of $ for the wise move.
So where can we invest in oil, but without the penalties striking the western producers.

 

[ducati916]

Markets open weak:

I guess the story is BTC:

And with the basic story, Mr flippe-floppe-flye:

SPACS and NFTs also having a bad day at the office:

So I guess what happened above is pretty much this:

This market has been compared to any number of past Bull markets. It does share 1 characteristic with the great 1920's Bull market: the huge involvement of the little guy...the retail trader, who really knows very little and is playing to an extent with 'house money'. It will end badly. In a Bull market, everyone looks like a genius. The denouement, when it arrives, will wipe many of them out.

The thing is 'when'. No-one really knows 'when' arrives for real. Yes, we have a 'top' of sorts, but it may well (most likely) just be a short term BTD type of top. The 'actual' top will only be recognised not in the top, but the failure to regain the high and to move higher, with the grind lower. It is unlikely that we get a flash-crash type of top and another speedy descent into a Bear market.

This Bull still has (I'm guessing, another year in it) time to move higher, if, the market is going to move to an inflationary top rather than a deflationary crash. The odds are far higher for an inflationary top than a deflationary crash. The problem will be the high rotation through the sectors. They will remain very choppy.

While that scenario plays out, with the Fed. eventually stepping in with YCC, stocks will continue higher. Commodities will become very volatile, which we are already seeing in Oil, as they contend with rising yields capping the inflationary pressures marginally until the Fed move to YCC and then commodities will unleash.

DXY will in the meantime also fuel inflation through a downtrend. I don't expect a collapse, but I do expect a long grind lower. Gold I expect to bounce between the twin forces of a declining DXY, but, also struggle against rising yields, until they are capped.

Cryptos. No idea. They are 'new' and pretty much untested. I personally wouldn't touch them as a longer term holding. Trading them will also be difficult with the volatility, meaning you have to trade smaller. Trading smaller is a waste of effort if you have cash to allocate. They are also very difficult to hedge or off-set. You are pretty much either long or short and for that reason I have zero interest in them.


jog on
duc

 

[Craton]

Interesting Bull threads, thanks.
Just a thought or two from a retail investor, me...

I'd say from a layman's perspective (and, shame on me, without any facts and figures) that the sectors were not performing all that well before CV19. Lots of issues on the table like climate change, corporate/banking stuff up's, China's muscle flexing, natural disasters, low interest rates so on and so forth. Thus, the down ticks on the markets when CV hit was probably a good thing, certainly was for this contrarian.

I suspect that a lot of people are expecting a rebound across the sectors as the globe comes out of quarantines, vaccinations roll out and there is a sense of general optimism going forward. Well the world didn't collapse totally around our ears did it?

My guess is that markets have been pushed higher in early anticipation of that rebound. Will the push higher last any longer is a great question and one that only history can answer. Ah but to have a time machine, lol.

Keep up will the great posts, fascinating times these.

 

[ducati916]

Interesting Bull threads, thanks.
Just a thought or two from a retail investor, me...

I'd say from a layman's perspective (and, shame on me, without any facts and figures) that the sectors were not performing all that well before CV19. Lots of issues on the table like climate change, corporate/banking stuff up's, China's muscle flexing, natural disasters, low interest rates so on and so forth. Thus, the down ticks on the markets when CV hit was probably a good thing, certainly was for this contrarian.

I suspect that a lot of people are expecting a rebound across the sectors as the globe comes out of quarantines, vaccinations roll out and there is a sense of general optimism going forward. Well the world didn't collapse totally around our ears did it?

My guess is that markets have been pushed higher in early anticipation of that rebound. Will the push higher last any longer is a great question and one that only history can answer. Ah but to have a time machine, lol.

Keep up will the great posts, fascinating times these.

So really from the post above, the last 200 days:

Now if instead you utilised x3 ETFs for some of those sectors:

Not quite BTC, but pretty good.

Other areas of the market and the indices themselves:

jog on
duc

 

[gartley]

Back in Feb the SLTD Delta suggested a major top in this market within the next few months. This could be at hand now:

The static 40 Week cycle projection range has been reached between 4165-4288

The weekly dynamic projection is presently 4450. There are no other projections above this that are outstanding.

The current pattern of trend has formed a rising wedge pattern

The chart below shows that price to have thrown over the upper pink 86 bar cycle band suggesting the excursion away from the nominal is too far too fast. This suggests it's a high probability that a correction back to the opposite 32 bar blue band should materialize at 3185. That's a 10% decline..... If this market does continue trending to 4450, we are talking 5.5%, not worth the risk IMO

 

[gartley]

Sorry bulls.......

 

[ducati916]

Well the correction is upon us. How deep it goes will of course be the question. Currently defensive sectors are holding up the best, some rising XLU & XLRE.

VIX is moving from very low levels:

Obviously keeping an eye on it. If we are going to BTD we want to buy it as close the the bottom as possible. This is not it.

Mr flippe-floppe-flye is less optimistic:

His point is a valid one. We have so many new retail traders in the market currently that lack experience of the markets or possibly the wrong experience. That is to say, they only know one direction. Some magical force will enter and markets will again go up. This time, they are probably right. The Fed. is absolutely committed to higher asset prices. This will be a BTD. Just not today, although I'm sure many will BTD today. We'll see.

Oil News:

Tuesday Aril 20, 2021

Oil prices posted modest gains on early Tuesday morning following reports of an outage in Libya, but demand concerns sent prices falling as the day progressed.

Discounted oil a headache for OPEC. Rising Iranian oil imports into China had forced other producers, including Russia, Angola, and Brazil, to cut the prices of their crude in order to keep it competitive.

Texas landmen switching to renewables. The shale boom resulted in a boom for landmen, who find, sell and flip tracts of land to drillers. These days, more landmen are pivoting to renewables.

BP aims to end flaring by 2025. BP (NYSE: BP) said it would spend $1.3 billion to build more pipelines in order to capture natural gas in an effort to end flaring in the Permian by 2025.

Inventory glut at an end. The inventory buildup during the pandemic is nearing normalization, according to Bloomberg. “Commercial oil inventories across the OECD are already back down to their five-year average,” said Ed Morse, head of commodities research at Citigroup Inc. “What’s left of the surplus is almost entirely concentrated in China, which has been building a permanent petroleum reserve.”

IEA: Global emissions surging. The IEA expects global greenhouse gas emissions to surge by 4.6% this year, one of the largest annual increases ever recorded. “This is a dire warning that the economic recovery from the Covid crisis is currently anything but sustainable for our climate,” said Fatih Birol, IEA’s executive director, in a statement.

U.S. climate summit. The Biden administration is hosting an international climate summit this week, where the U.S. will unveil new climate targets and attempt to woo other nations in stepping up their ambition.

Oil industry looks to carbon offsets for each barrel. Occidental Petroleum (NYSE: OXY) has tested the practice of offsetting the carbon that each barrel of its oil holds. Sources told Reuters that Occidental paid $1.3 million in offsets for a shipload of crude, which added about 65 cents per barrel. The company has marketed its oil as carbon-neutral.

Gas faces $100 billion in stranded asset risk. Natural gas is falling out of favor, and gas-fired power plants could wind up getting mothballed much sooner than expected. Analysts expect major banks to begin tightening financing restrictions on new natural gas projects, and some European utilities can’t find buyers for their gas assets. “Gas will be a repeat of coal but quicker,” said Catharina Hillenbrand von der Neyen of Carbon Tracker.

Lithium giant emerges. A planned $3.1 billion merger between Orocobre Ltd. (ASX: ORE) and Galaxy Resources Ltd. (ASX: GXY) is the largest mining sector M&A deal so far this year and could create the world’s fifth-largest lithium producer.

U.S. refiners looking for heavy crude. U.S. refiners were forced to source their heavy crude from somewhere else after the United States sanctioned Venezuelan crude oil. Now, U.S. refiners may again be forced to resource crude oil as French bank Natixis stops funding the Ecuadorian oil trade.

Banks face pressure to phase out fossil fuel lending. Investors with $11 trillion in assets under management have called on the world’s largest banks to phase out fossil fuel lending.

China's oil buying frenzy may end this month. Higher Chinese crude oil imports and increased domestic production led to a jump in crude volumes directed to storage in the world’s top oil importer in March, according to calculations by Reuters columnist Clyde Russell based on official data.

Libyan oil disrupted. Libya’s oil exports from the port of Hariga have been disrupted over a budget disagreement with the country’s central bank. “If the 120,000 bpd Al-Hariga port remains closed, we estimate that more than 100,000 bpd of Libyan oil production could be shut in,” Rystad Energy said in a note.

Exxon and Shell want to profit from carbon capture. ExxonMobil (NYSE: XOM) and Royal Dutch Shell (NYSE: RDS.A), among other oil companies, are looking into expanding carbon capture services that they could offer to heavy industries such as steel and cement.

Exxon pitches $100 billion in carbon capture. ExxonMobil (NYSE: XOM) said that if the U.S. government puts in tax breaks, it can build a $100 billion carbon capture project near Houston. The idea would consist of capturing 50 million tons of CO2 annually beginning in 2030. There are no signs that the Biden administration is considering the idea.

Can the energy sector maintain its crazy momentum? Is the pessimism in the fossil fuel sector overdone? Can investing in oil and gas still pay off over the long term? After years of underperformance, the U.S. energy sector has been displaying flashes of brilliance that suggest that it’s still got some legs to run.

Coal miner’s union warms up to transition. The head of the U.S.’ largest coal-mining union said on Monday that it would back the Biden administration’s shift away from coal so long as there are specific investments and benefits to Appalachia and priority for coal miners obtaining renewable energy jobs. The shift in position is a major boost for the Biden administration’s infrastructure package.

I'm definitely an oil bull. However, the correction in oil stocks is not yet over:

Still some time to run before we can buy again.

Cryptos:

China already has a digital Yuan. It is trading as we speak. The US has more to lose than most, re. Reserve Currency pre-eminence. So you just know that the digital dollar is just round the corner.

What are the ramifications?

I guess we're going to find out.


jog on
duc

 

[ducati916]

Looking again at the big picture:

Demographics are not moving in the major economies favour:

As a result, productivity is falling:

But productivity is falling for other reasons also. As government, specifically Central Banks increase their Balance Sheets we get government crowding out. More and more of the economy becomes dependent upon central planning or socialism. Productivity also takes a further hit through government keeping zombie companies afloat. Government crowding out also results in greater dependency on government welfare: now euphemistically called 'Universal Basic Income' (UBI).

The disinflation (import) driven by cheap imports, in an increasing zombie economy, is lost to more expensive imports (inflationary) and a lower standard of products. China has a massive problem of companies that competed for market share (cheap prices, actual losses) now need to repair their Balance Sheets (higher prices). The Arabs learned from China the advantages of destroying competition through a loss making grab of market share.

DXY will continue its decline. This is a capital outflow. Capital seeking more attractive returns elsewhere, probably Asia.

The Fed. will never be able to rectify their Balance Sheet. The Fed. however will need to bankroll the next crisis. The only real way that this can happen is to bundle the current $4T in debt into a Perpetual Bond at 0% or 1% interest and inflate it away over decades. This allows them to then build a new tower of debt.

I have spoken re. the forces in 1987 that caused the crash, without any recession into the economy in earlier posts. This looks increasingly probable. All the macro forces are present.

With DXY declining, and rates rising (absent YCC) at some point, probably 2% (possibly slightly higher) allocations move into reverse and Mutual Funds start to rebalance: this can and probably will trigger (a) the algo's and (b) the retail trader/speculator, who was never present after the 2008 top into the 2009 bottom. It will be interesting to see how badly hurt the retail element of the market are.

In 1987:

Earnings:

The consensus seems to be: there is enormous pent up demand that will explode once the economy opens up. Possibly true. That will reflect into 1Q numbers and then fade away. It cannot be sustained as while people have been saving, they are unlikely to spend indefinitely, even if they could, which of course they can't.

There are going to be massive disappointments, probably not this quarter, but, dangerously into the third quarter of re-opening if it continues apace. Think September/October.

In the absence of productivity growth, Companies will increasingly rely on accounting tricks and fraud to make those earnings expectations.

A flash crash, 1987 style is definitely on the cards.

Now I don't think it is until later in the year. However, the shallow dips that we have currently, down 3% - 4% and then buyers show up and the market moves to new highs, conditions those newer retail traders to BTD. Why not? It has proven from the lows last March to be a highly profitable tactic. The issue of course is when the first dip degenerates into a cascade of selling lower.

With the advent of China issuing a Yuan digital currency, potentially the banking industry is broken. I have now sold all banking related ETFs. The banking industry until it proves otherwise is now off limits, certainly for a year or so while the ramifications of all this work themselves out.

President Biden is looking inward to fiscal policy, rather than outward with Foreign Policy. There has been a thread devoted to China's annexation of Taiwan. With the US so internally centric, I think China grabs Taiwan and it is a fait accompli before the US reacts. With Taiwan, China gets control of the semi-conductor industry leader.

Magazine Cover:

Some sort of warning in there.


jog on
duc


*Just looking at the VIX futures:

Up 14%. Probably not a good open tomorrow unless that comes down significantly.

 

[ducati916]

Sectors continue to churn.

Meanwhile:

And Insiders:

So the Insiders are selling their shares, however gained (Options awards etc.) and I suspect retail are buying those shares on margin. As long as stocks only go up, this is not a problem. The problem arises if (a) margin is not continuously extended, (b) there is enough selling to start issuing margin calls or (c) a mini crash that triggers algo. selling combined with margin calls.

Insiders are very aware of the valuations of their own stock. They also realise that they need to sell at these valuations to monetise. They also know that they will always get more stock as a result of Options awards as part of their compensation.

We could also argue that 'margin loans' probably will continue (in this environment) to be extended. Why not, liquidity is everywhere. But unless you believe that the 'margin call' is also history, which we know after Archegos, that it is not, then, at some point there is a problem.

The problem will likely start in the debt markets.

The issue I think is this: markets to the downside, when it is serious, have speeded up. The bear in 2000 was slow motion (which probably was an issue in itself) and even 2008 took a long while to finally roll over. 2020 was very fast. 1987 was very fast. I also think that if (when) this market blows up, it will also be very fast like 1987.

Inflation is starting via PPI inflation to register on CPI inflation:

The 10yr is having a bit of a break currently. We'll see if it remains +/- 1.6%.

The oil glut is gone. Half the world is still in some form of lock down. Re-opening is starting. Oil supply is all over the place currently.

From the 1970's

I was there sitting in the car on days that your licence plate allowed you to fuel. There are some really big numbers being projected for oil: Goldman has $100/barrel, I've seen $300/barrel. I think $75/barrel is likely before settling somewhere in the $60/barrel region. But who knows. What does $300/barrel do to stocks?


Meanwhile Mr flippe-floppe-flye:

While this current weakness remains a BTD and BTD buyers have already shown up, I don't think this is the low of this correction. I still think the Bears have a little gas left in the tank to move prices lower. While the sectors are very messy, up 1 day down the next, the rotation from growth to value continues beneath the surface. The rotation (quietly) to inflation hedges also continues. Gold is consolidating sideways in time, it seems to have found its current low.

The thing with Gold now is: stop watching the 10yr as a prediction of where gold might go. Gold can rise against nominal rate rises that are in real terms less than that of inflation. Currently (but this is subject to revision) real rates are below the inflationary rate. If oil picks up for any reason, that trend will only accelerate. Rates will also move higher, but, if as the Fed. has signalled, YCC is put in place, watch out below. That is when we see a 1987 type of collapse.

jog on
duc