The Market Perspective

Stocks Bonds Commodities Rally for First Time in 20 Years, Soccer Mood Update

Weekend June 28, 2014

Tom McClellan sums it all up in The Only Chart that Matters  It is a graph of a prominent stock index paired with the ever expanding balance sheet of the FED Treasury and Mortgage Holdings. His point is that as long as this chart is headed up the stock market has lots of support adn can only go yes up. 

Don't fight the FED as Marty Zweig put it.

  From stocks to bonds to commodities, world financial markets have rallied in unison during the first half of 2014, a feat not seen in more than 20 years and a reflection of investors' optimism that central-bank policies will boost growth.

Six closely tracked gauges of world stock, bond and commodity performance are headed for gains in the first six months of the year, the first time they have done so since 1993. The Dow Jones Industrial Average is up 1.7% for the year, putting it on pace for its fourth-straight first-half rise.

Through Friday, gold was up 9.7%, the Dow Jones UBS UBSN.VX -0.49% Commodity Index 8.1%, the 10-year U.S. Treasury note 6.4%, the MSCI World Index of developed-world shares 4.8% and the MSCI Emerging Markets Index 4.3%.

Page A1 Weekend WSJ

And there you have it or another way of putting it follows

Yes I ran Bob Precther's comment that the market has to be too high as junk bond yields are so low.

Aparently this chart has escaped their notice at EWT. AGain we run lots of opinions, not necessarilty our own as the name here is The Market Perspective.

Note on page B5 the article Market Stalls at Recent Records, we have probably finally entered the Summer Doldrumns of even this hyper market

So let's do something different now that Tom and the WSJ and the NYSE A/D Monthly line have summed up the markets. 

On page B7 Mark Hulbert as always has an interesting article

To get an idea of just how hot the Eagle Ford play is, check out hte conference fees for this Sept Event

https://www.regonline.com/Register/Checkin.aspx?EventID=1438453

AXAS

 

Whil the low is now obvious, this firm plans on doubling production and apparently has its debt problems behind it. It broke out Friday. 

I am haivng difficulty displaying the charts as one can see above. 

Commodities are having a good run this year as they did in the late stages of the last bull run into 2007-08. Brazil looks promsiing as a commodity producer and it is well under its 50 week moving average. 

Inflation is leaking into the markets with commodities and the countries that produce them surging ahead. 

These may be a better bet than the long in tooth Americann market on a potential percentage return basis. 

I will update again when I solve the chart display problem probably tomorrow. 

Socionomics

Here is a fun article from Minyanville regarding Ann Coulter's take on soccer.

Read the Ann's tongue in cheek column here.

 

As Minyanville observes, Ann's goal is to sell lots of books, getting lots of attention is one way to get the ball rolling. As I plan to roll out my series on How to Go to College later this summer, I will remember that!

in the last few months WWE went from 10 to 32 and back to 12, what's going on?

 

Predictions and Their Authors

Friday June 27 2014

I received a well written comment from an alert reader of TMP. He noted that Elliott Wave has consistently been off the mark, far too bearish. Mark Hulbert noted a while back that EWT had predicted the 2008 crash, but they had been bearish for years before that as well. 

I have continually noted that the NYSE Weekly A/D line remains in solid bull territory. But I have access to the EWT comments and when I see an interesting one, I will pass it along. I think that the all time low yield in junk bonds is simply part of the mania that is still building to the highest ever Dow level. INdeed it is curious that Bob features many graphs except for the reliable NYSE A/D Weekly line.

Just this week the WSJ featured an article that many foundations and funds had missed a good deal of this rally. No wonder, the news is poor, the recovery slow, but as Marty Zweig observed, don't fight the FED, and in this case the FED $ 85 Billon a month boost to the market right out of thin air. That was a run on sentence and intended to emulate the run in the  stock market!

Rambus exited his long gold positions yesterday but just this morning I see John Bollinger is bullsih on gold. There are always conflicting opinions which makes this a most interesting game. 

Prechter on Sentiment

Inside Look: Check out this Unprecedented Bear Market Formation Since 2000
Think the current conditions in the stock market are normal? Think again. Here are 3 characteristics you should expect to see in wave b.

By Elliott Wave International

Editor's Note: Below you will find a sneak peek from the just-published issue of Robert Prechter's Theorist. It provides you an opportunity to see some of the research, analysis and forecasts that Elliott Wave International's subscribers are enjoying inside their latest issue.

Figure 4 (below) is a diagram from Chapter 2 of Elliott Wave Principle. It displays a typical progression of prices and psychology in a bear market. We can apply this picture to the stock market since 2000. The real-life pattern is a bit more complex than this picture, because wave a itself was a flat correction, which ended in 2009. The dashed line in Figure 4 represents what the market has been doing since then: rallying to a new high in a b-wave. The entire formation has been tracing out an "expanded flat" correction (see text, p.47) of Supercycle degree.

Per Figure 4, among the characteristics we should expect to see in wave b are: "Technically weak," "Aggressive euphoria and denial" and "Fundamentals weaken subtly." The volume contraction in the stock market has now lasted over five years, which is extreme technical weakness, albeit only in that indicator. The 30+ charts we have shown of market sentiment reveal historically high levels of optimism regarding stocks. No doubt bulls would dismiss the idea that investors today exhibit "aggressive euphoria and denial." But look at Figure 5.

It shows that the yield on junk bonds has just reached its lowest level ever. Junk bonds did not even exist prior to 1989. In 2009, investors were deathly afraid of them. Now they cannot get enough of them. They are thinking only about yield; they are ignoring risk to principal. That's denial. Finally, fundamentals have not just weakened a bit but rather are awful. The economy is flat, the amount of debt is at a record high, and as shown in the June issue of The Elliott Wave Financial Forecast the quality of debt is at a record low.

There has never been an expanded flat pattern as large as Supercycle degree in recorded stock market history, going back 300 years. It's a first. So, we are getting commensurate expressions of stupendous optimism, which will prove worthy of the record books. People think today's market conditions are normal, because a benign present is always considered normal. But it's not normal. It's unprecedented.

Would you like to see the rest of the issue for free? For more details, the complete wave count, and EWI's forecast for how they believe it will all play out, continue reading Prechter's 10-page June Theorist now, completely risk-free. Learn more here.

---

This article was syndicated by Elliott Wave International and was originally published under the headline Inside Look: Check out this Unprecedented Bear Market Formation Since 2000. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

REIT's Overdone, XES pulls back

Wed June 25 2014

Page C1 suggests Real Estate's Rise Calls for Inspection

Here the Dow RWR for REITs exhibits quite a rally since December, keeping interest rates low probably causes Mom and Pop to exhibit irrational exuberance over any thing yielding a return. 

XES

It looks like XES is headed back to its 200 bar MA, The entire energy complex is now giving back the recent gains sicne May. I suspect this is a consolidation and correction. 

Today's Wall Street Journal

Wednesday June 25, 2014

Here are some examples just today of how reading the WSJ will improve your contextual understanding of what we discuss in class.

Page A 13 SEIU is attempting an union organizaing ruse by actions to boost the minimum wage. This would allow organizing mom and pop franchises like Subway. 

A 14 The WSJ calls it IRS E mail Jeopardy as the service continues to fabricate stories justifying its losss or desctruction of e mails. Try telling the IRS such a whopper during your next audit. 

A 15 Business continues to flee the 39%  US corporate tax rate. ON page B5 even staid Walgreens is considering leaving the US. 

C1  REITs dizzying rise suggests over valuation, Question, what is an REIT and why are they over valued?

A1  The US is set to export oil for the first time since the 1970s, how does this impact our blance of trade, how does this affect Texas, what kind of oil is being exported and why, what you mean there are different kinds of oil, you bet there are, quite a bit different. 

 

 

 

Corporate Profitability

Wed June 25 2014

Mark Hulbert comments on corporate profitability

I suspect this is the start of the summer doldrums for stocks. Energy stocks are way above their longer term moving averages and showed profit taking yesterday. 

Oil, It's Slippery Stuff

Weekend June 22, 2014

The Price of Oil is Abnormally Quiet  Suppose you were on the proverbial desert island, out of reach of the news. And we told you that 

a mere 4,000 warriors had re taken Fallujah, major Iraq oil fields, and great swaths of east Syria and North Iraq. What would your guess be on the price of oil?  A lot higher than $105 I would imagine. But it is very little higher. 

Of the three Es discusses in Chris Matensen's model. Energy is the most important. And here at TMP we have long held that oil is the most emotional of all the markets. While world demand has increased, the price of oil since 1999 has varied far more than thedemand for oil. Now it is happening again. 

We embrace the tenets of socionomics because, indeed, emotions rule the markets. OIl is oil and it does what it does becoming kerosene, jet fuel, gasoline, whatever. But the emotions towards oil and its value vary dramatically. In 1999 oil was $12. By 2008 it was $145, and then by Christmas that year, $35. You may say this is nuts, no it is socionomics. 

A frequent question in Letters to the Editor columns is

If the US is producing so much oil, why is gasoline still $3.50 a gallon ? Good question. 

And the answer is that we are only producing more oil if the net production of oil discovered exceeds the net consumption of oil used to find replacement oil. And that is not happening. 

Sure fracturing produces more oil, but these wells are routinely being drilled to extraordinary depths of over 10,000 feet. Recall the BP blow out well was offshore at 15,000 feet deep. So oil is getting more and more expensive to find. Fracturing pumps now run to the thousands of horsepower to spread the shale at two miles plus below ground. 

So if the cost of finding oil is going up the price has to go up right, well not so fast. Recall that the cost of production varies widely around the world. 

Already expectations are exceeding reality. 

XLE XES, West Texas Intermed, Brent

Energy is the ETF XLE for large oil companies, XES represents large energy service companies like HAL SLB and the last two are the price of Texas and North Sea Brent. As you can see, enthusiasm for the producers and suppliers of energy far surpasses the reality of the increase in price of oil. 

The top of the oil price in 1981 occurred as the number of operating oil rigs in the US soared to 4500 while the rpice of oil began dropping. We had too many wannabes chasing a diminishing brass ring. Could that be happening again?

Frankly this graph is not telling me what one General remarked this week

Iraq is gone. 

Finally the NYMEX futures indicate that oil for delivery a year from now is trading a solid $10 lower than current prices. So traders are not worried about future supply, indeed they are seeing either plenty of supply or less demand or both. 

CRB The FED money machine is beginning to feed inflation.

The downtrend line has been broken.

We do not have a crossover of the 13 above the 34 week EMA for gold  quite yet, but it is getting very close. Numerous sites including stockcharts have declared we have buy signals in gold and gold shares.

GDX, GDXJ

We shortened this to 185 months for clarity. clearly we are starting to see some of that same commodity inflation that we had in 2008. 

 

hanks for reading The Market Perspective

[email protected]

 

The Market Perspective bases its information on techniques and sources that have been found to be reliable in the past, and The Market Perspective tries to base opinions on sound judgment and research, however, we do not guarantee that future results will match past performance ands no guarantee can be made that advice will be profitable. The Market Perspective accepts no money for stock recommendations and is purely motivated by its own research in recommending any stocks.  Put another way, the responsibility for decisions made from information contained in this letter lies solely with the individuals making those decisions. The editor and persons affiliated with The Market Perspective may at times have positions in securities mentioned.  Nothing contained herein represents an offer to buy or sell securities. The Market Perspective encourages investors to be diversified, and to maintain sell stops and risk control over their valuable investment capital.  No guarantee can be made to the accuracy of text or charts.

 

 

 

Setting Things Straight

Weekend June 22,2014

Crash Course in What is Likely to Happen  This is linked from the Of Two Minds blog by CH Smith wich is a link to Chris Martensen's Peak Prosperity Weekly site. I will address this three Es a bit later.

As always Of Two Minds Has some interesting insights, many of which have been reported here.  In particular he notes that the markets do not move on fundamentals, Proctor and Gamble after all does not radically change in a short time, but people's emotions about investing in a  low beta stock like PG do, not to mention a high beta like RAX or LULU. 

An alert reader points out that my 1973-74 analogy has broken down, In fact the markets have just roared to new heights.  Here is the explanation. 

Markets rarely do exactly the same thing two times in a row. This makes it all the more frustrating to attempt to learn from experience. If that worked we could all quit our jobs and get rich, or at least make a living trading the market. Notably those that claim they do this, brokerage firms, seem the most likely to go out of business (Goodbody, Spencer Trask in another era, Lehman, Bear Stearns in this era) or need to be taken over as Loeb Rhodes or White Weld were in the 1970s or Merrill recently by Bank of America. Amazingly have you noticed that Merrill now proudly claims to be a wealth manager after missing bankruptcy by an hour (Then CEO Thain sold it to Bank of AMerica an hour before Lehman went toes up). But Americans apparently buy the story in mass. 

Anyway, the crisis in the Presidency has unfolded right on time. But there is no crisis on Wall Street, in fact it just hit new highs. So the principle of alternation is at work. Here are more examples alternation, then and now. 

Nixon was Republican, Obama is Democrat.

The press loathed Nixon, they embrace Obama. 

Tens of thousands of column inches were devoted to Watergate. A massive investigation was begun, and televised, before C Span. There were actually two crises, the Watergate break  in, a third rate burglary in Nixon's words, and the collapse of Viet Nam after a horrendously long war. Now we have multiple domestic scandals, try telling the IRS you lost your expenses on your hard drive, Benghazzi, Fast and Furious, VA, border security, NSA spying, Obamacare, etc.  and the US is throwing away whatever 'gains' it had in Iraq.

Now the press ignores all the domestic scandals but were fixated on Watergate back then. 

Back then the market slowly melted from January 1973, DOW 1051,  to December, 1974 at 577. NOw is soars every day putting CNBC back in Year 2000 cheerleader mode. 

So the logical conclusion, yep, is that the final market high will be in, yes, December, 2014, a fitting climax to a bizare 40 year two generational market. And yes that is  a prediction. 

Another difference is that then the FED was not actively stimulating the stock market. Today that is the cornerstone of its strategy. This is the Economy  of the three Es in the Crash Course referenced above. The FED merely creates the money from thin air. 

Is this a Normal State of Affairs?

 

The markets have been buoyed by

• the creation of all sorts of leveraged instruments like stock index futures, options, derivatives which are unregulated and traded and created off exchanges
• ETFs making the traditional mutual fund a trading device rather than a long term commitment
• computerized trading on your own PC making you the equivalent of an NYSE specialist in the 1970s
• Oh I almost forgot, High Frequency Trading by computerized programs, no humans involved once the switch is flipped
• huge investing pools of hedge funds and 'banks' leading to the creation of 'whale traders' who put the entire Federally insured FDIC at risk
• Stock Options  created from thin air to 'reward' dubiously talented CEOs and their minions for ratcheting stock prices higher, often on projections never met or inflated accounting earnings
• FED injections of money into the banking system which find their way into the stock and commodity rather than the job markets

Other than that things are perfectly normal. That was a sarcastic comment. Let's move in closer for a look at just how dangerous, well okay, how about stretched to the upper Bollinger Band,  the current set up really is. 

DOW with Bollinger Bands

Stock Charts tells us that Bollinger Bands can be used to identify market tops and bottoms. So I put that idea to a test. Here is the monthly chart of the DOW going back 18 years. This captures the last two important tops and bottoms. Presumably the next top is well along into the making now. 
And then it caught my eye. After the Dow peaked in 2000 and 2007, the upper Band briefly exceeded the top rail of the expanding megaphone. Now that has happened, see third blue arrow,  again. And

• MACD has topped 1,000 which it did in 2000. It was unable to do this in 2007 despite the leverage of the sub prime mortgages
• price has been hugging the upper band just as it did prior to the previous two tops, but now has pulled away, moving  a bit lower
• price is about 6,000 points above the 200 month MA, that is just a casual eyeball estimate, but that equates to past market tops
• the shorter term MAs are moving up again, this supports the we are in 'a new bull market theory' which is now rather popular, or we are in a final wave up

Is Everyone On Board Yet?

In the blue rectangle,the  market was moving in fits and starts, ups and downs, lots of hesitation especially given the recent memory of the crash. But since that last test of the 50 week MA in  2012, confidence has soared. Price has stayed well above all the MAs, hugging the upper Bollinger Band. 

Bullish Percentage of Stocks

As confidence has soared, the sell offs are fewer and more shallow. Let's label this graph, 

What Me Worry?

Nothing is Going to Change until this Line Turns Down

And it is going to take quite a jolt to do that. 

So for now things are up up and away. 

Okay at 1,000 words, that is enough for this post. And again please read the links at the start of this post. Economy, Energy, Environment  coupled with an exponential population increase, Malthus may be his day at bat yet. 

Emerging Markets Improve, US Strong, Interest Rates Turning Up

Weekend June 15,2014

Five Advisors suggest you stay long.

 

We suggest you link to ISW   Note the name, none of this namby pamby Defense jargon. 

 

Of all the things going on we suspect the most over looked is the continuing turn in the 30 year bull market of lower interest rates. 

The thirty year low in rates was recorded, indeed, thirty years from the high in rates way back in the summer of 1982. Percentage wise, rates have soared since from 2.5 to 4% on the long end, the thirty year bond. Notice that rates re traced right to the 125 week MA. Of all the blogs and updates I see, TMP is still the only one that has subdivided the tradition 50/200, and found those other intervals quite useful. The above picture is a great example, notice how thee green MA is moving up. And notice how all the MAs are clustering, typical of what happens before a long term change in direction. 

Rates need to get above the 3.25% level to get things going to the upside again. It is going to happen. Notice here the market is back testing the breakout to the upside. 

TBF Short Treasuries

The flip side is TBF. And here as well the MAs are coming together. Price needs to exceed 30.5 on a  weekly basis to get things going again. A market turns slowly after a thirty year run. It may take till year end for this to be clear but it is underway already, the move ot higher rates. 

Frankly stockcharts has now added a third analyst and he is from Canada. 
This adds more perspective. Stockcharts has added Decision Point with its host of other indicators. 
For the money a subscription to their work in the Extra mode appears to be one of the better deals going. I won't make it to their symposium in August. They are headquartered in Seattle, a nice place to be in August, but not particularly handy to the rest of the country. 

This week the group points out that emerging Markets, are well emerging again after a three year period of correction. 

EEM

EEM is breaking out or at least trying to. The BRIC components are attempting to do so as well. All this suggests that a 12 year period of correction to the 18 year run from 1982-2000 has ended. 

Central Fund

Did you notice the op ed in the WSJ this past Thursday?  It reported that Paul Volcker was wanting  or suggesting a new Bretton Woods Agreement. This was the 1944 meeting in Bretton Woods, New Hampshire when it was decided that the US Dollar would become the world's reserve currency. which must have ben a bitter pill for Winston Churchill. At any rate, the article went on to observe that at the time Henry Hazlitt syggested this would lead to inflation. No kidding, the article then observed that the US Dollar was worth less than 1/1200th of one ounce of  gold. And on that day, last Thursday, gold shares and gold jumped to the upside. Rambus reversed his short positions and got long Friday.  Central Fund is still trading at a 4.5% discount to Net Asset Value as of this writing. 

CEF Daily

 

June was due to be a cycle low for gold and it looks like that came in right on time.  

 

Gasoline

The Middle East conflicts are as always pushing gas and oil prices higher. Is this a re play of the summer of 2008?

US Dollar

Interestingly the US Dollar bottomed a month ago. The Euro topped as well. The fighting in the Middle East has no doubt made the dollar a safe haven again, more on that later. 

NYSE

The Stock Market roars on with no sign of let up. The weekly A/D indicators remain in uptrends. Best  guess is that this will continue into the fourth quarter of this year. 

The Bottom Line

Stocks look to continue their up move into the end of the year. The rise in rates and unsettling world conditions have not affected stock prices yet. Interest rates have or should soon complete their correctoins Gold may have bottomed. Oil and gasoline will likely move higher. 

Observations - Social Mood

Befitting various new highs in stock indexes, my Weekend WSJ included a slick paper 112 page, no less, advertisement for Casas, Haciendas, Ranchos. Start to page 97 comprises Central Texas properties, and yes it is House Porn at its best, lavish monuments to success and ego far beyond the idea of a the house we all grew up in. The remainder are properties all over the world. 

By the way I am posting my weekly newspaper column in the next post. 

Let's take a look at the Weekend WSJ. Our friends at Elliott Wave and Socionomics make the point that news is white noise. In bull markets all news is bullish. How else can one explain the Mad Max photo of the New Minute Men on the front page. The caption describes these fellows as 'tribal fighters' Shiites armed against the Sunni ISIS invaders. See our link to ISW. No doubt the NRA would find a few new members in this group. Best I can tell that is a .30 caliber machine gun does anyone know if that is Russian or NATO .308, just wondering, the cartridge looks longer than a .308. Others are well equipped with AK 47s which use the 7.62 x 39 Russian Cartridge. 

But our point of course is that the average citizen of Iraq is armed and ready. 

Regardless of what one thinks of the ultra violent ISIS, one has to be impressed that with a mere 4,000 troops they have taken eastern Syria and are now on the outskirts of Baghdad, having over run Mosul and Tikrit and various oil fields.

Now flip to Page A 14, the last on the first section. What do you see?  It is truly a sight to behold. A younG fashionably casual attractive woman has just Taken a photo of a burned out personnel carrier in 

 Mariupol, Ukraine. Click to enlarge the map and it is easy to see why the Russians are there, this is the first port on the Eastern Ukraine side. 

But the fashionably casual woman, hair well done, would be at homE in any Western setting, in coNtrast to what we was in my lifetime in this area. What a contrast of modern lifestyle with centuries old grudges and war's inevitable thrust, the conquest for land and territory. 

Russell Mead on page C3 notes that we need a preventive foreign policy, not a reactive or passive one. 

Our prediction of a 14973-74 political fiasco has come true. Now the IRS cannot find two years of e mails, on either the sending or receiving end. Imagine if Nixon had tried that rather than just lose twenty minutes of tape. Eric Cantor was massively upended, his opponent spending a mere $122,000. Cantor spent more than that on steak house dinners, as Karl Rove suggested no doubt to consultants how failed him. This reflects the New Civil War within the Republican Party. Remember social mood takes place in fractals. 

Buried on page five, Treasury prices fall, which is our main prediction now. 

And finally where I am going with the my writing, addressing college. 

Escaping the Student Debt  Trap applies yet another band aid to astubborn problem. This time it is ISA, income Share Agreements. The idea is that one lends money to a college student and then shares in his success in later years. This does nothing to alleviate the problem the very article lists. 40% of those starting do not finish in six years. 45% of those finishing do not have jobs requiring a college degree. THe suggestion of an ISA does nothing to alleviate the problem. Yes I said that already but appraently it escaped the person writing the article.  Page B 6 lists 'the bets options for graduates with  student loans. That is NOT the topic I want to write about. The best option is to never borrow the money to start with! But this is exactly  the 'advice' that college financial aid offices dispense. 

I am moving forward on the idea of a series of self published  books al about 

how to succeed in college

how to avoid college debt

how to pick the right college, what to look for

how to pick the right major

getting ready, the right things to do for college preparation, most of which you won't get in the public schools on a required examination

Any interest in these topics?

More on this in the next post.  

Thanks for reading The Market Perspective

[email protected]

 

The Market Perspective bases its information on techniques and sources that have been found to be reliable in the past, and The Market Perspective tries to base opinions on sound judgment and research, however, we do not guarantee that future results will match past performance ands no guarantee can be made that advice will be profitable. The Market Perspective accepts no money for stock recommendations and is purely motivated by its own research in recommending any stocks.  Put another way, the responsibility for decisions made from information contained in this letter lies solely with the individuals making those decisions. The editor and persons affiliated with The Market Perspective may at times have positions in securities mentioned.  Nothing contained herein represents an offer to buy or sell securities. The Market Perspective encourages investors to be diversified, and to maintain sell stops and risk control over their valuable investment capital.  No guarantee can be made to the accuracy of text or charts.

 

The Middle East Weekly Newspaper Column

Weekend June 15, 2014

The Middle East Wars Ramp Up

All the golfing world’s eyes are on Phil Mickelson, as well as the Department of Justice but that’s another story. Phil lacks just a U S Open win to complete his grand slam, joining  Sarazen, Hogan, Nicklaus, Player, and Woods.

Meanwhile the San Antonio Spurs have become the poster boys for what an NBA team Should Be, rather than the ‘out on probation’ roster that so many display. As of Thursday, the Spurs are 2-1 over the Heat, with Spurs emblem clothing selling briskly at all outlets.

Meanwhile in Brazil, that erstwhile permanent ‘country of the future,’ the World Cup kicks off today with Brazil facing Croatia.  A scant three host nations have won the Cup in the past forty years, where’s Pele when you need him, eh?

The reports form Iraq and Syria however are not so cheery. The International Organization of Migration estimates 500,000 people have fled the city of Mosul. That’s a considerable exodus of a city of 1.8 million.   For perspective, imagine 68,000 fleeing Midland-Odessa and you get the idea. Few in Mosul  are concerned with the fortunes of Phil or Brazil.

What’s going on and how does all this affect the oil price?  Let’s take a look. The Islamic State of Iraq and al Sham group is anything but a ragtag militia group’ as it is portrayed in some of the media. Indeed this is a group with a written plan of action, bolstered by captured US Weapons meant for Iraq.

ISIS is fighting both Jabhat al-Nusra JN as well as various rebels and local tribal groups in Syria. The focus of this fighting is the oil fields located around Deir ez-Zour. ISIS represents the Sunni branch of Islam while JN represents the Shiite group. ISIS is attempting to control the area stretching from these Eastern Syrian oil fields right to the outskirts of Baghdad.

The best information as I write Thursday June 12 is that ISIS has taken Mosul, and has now occupied  Bajii and Tikrit. Recall that US Marines took Tikrit from Sadam Hussein in April, 2003. What a difference ten years can make.

The upshot is that a serious Civil War continues to rage in Syria. Iraq for practical purposes is under siege. Some of the major cities are more occupied than under attack. Taking Shiite controlled Baghdad will be more difficult. But with reports that the Iraqi Army has simply abandoned its posts even before fighting has begun, maybe not.

Which brings us to the price of oil.  The Organization of Petroleum Exporting Countries OPEC would have you believe that, well, here it is from the OPEC website. OPEC is is a permanent intergovernmental organization of 12 oil-exporting developing nations that coordinates and unifies the petroleum policies of its Member Countries.    To paraphrase Ned Pepper replying to Rooster Cogburn, that’s big talk,  considering the range since Year 1999 from $12 to $145 to $35 and now to $100, more or less.  Hmm, when was it just right, eh Goldilocks?

The problem is that the majority of the twelve have no exports other than oil. The result is that most are exceeding their quotas for which there is no enforcement mechanism anyway.  Now with Syria, Libya, and Iraq all in chaos, about 3.5 million barrels a day is out of production. While that helps support price, technology continues to bring more oil on line world-wide.

Major oil companies are now cutting spending. Many are selling leases in the Eagle Ford and Permian. The return on capital has not been adequate to continue leasing, drilling, and producing. While that might also support prices, this is clearly a delicate game.

Indeed the oil fields are in play. And the rebel forces like ISIS will certainly start selling oil again as soon as possible. And, again, with so many ‘exporting countries’ have nothing else to export, and technology producing more oil every day, one has to wonder about price.

In World War II, families hung  maps of Europe and the Pacific to follow the war. One might consider doing that again, but substituting Baghdad and Damascus for Berlin and Tokyo.

The Sunni Shiite War for the Middle East, and its oil, moves into a higher gear.  Hmm, will Phil win his elusive Grand Slam?

Contact Dennis Elam PhD CPA at [email protected]