The Market Perspective

Apple Closes Russia On Line Store

Tuesday Dec 16,2014

Three Reasons Oil May be Bottoming

Russai raises interest rate to 17%

Apple closes Russia On line Store  The reason of course is that the ruble has fallen so far this year 50%, Apple is unable to hedge against further falls. Apple is no longer willing to deal in rubles. 

Is Russia the micro cosm for the rest of comodity exporting dictator run economies, think Africa, Venezuela and on a larger scale, Brazil and Inida. 

Central Fund discount to NAV soars to 11.9%

The Bear Takes Center Stage

Weekend Dec 13 2014

I am amazed at the comments regarding oil. I walked by a CNBC screen yesterday and the gal suggested that so and so was warning of $40 by next spring or summer. My take would be how about $40 oil by Christmas.

WTIC Crude Oil

 

 

The weekly close below the $70 level suggests next support at $40, Period. This is about s clear as a chart gets. As I continue to read various articles, I am amazed at teh level of denial, ie that this will have a negative effect. Some 40% of all the drilling rigs in the US are in the Permian Basin, west Texas my former home, or south of San Antonio, my present home, in the Eagle Ford.  One story today noted that many of the rigs are under long term contracts to keep drilling. No doubt,but it is hard to believe drilling will continue as the price drops so much that the cost cannot be easily recovered in production.

Bullish Percent

Not surprisingly this monthly chart of energy stocks in bullish formation is back to the 2009 lows, again suggesting the ultimate ow in oil price has no yet been seen. 

No One Could Have  For Seen This, Really?

 The blue arrow marks the moment of truth. As the US Dollar soared past the price of oil, oil fell, period.

Now while everyone in the media is claiming NO ONE can tell what will happen next, the history of  2008-09 suggests otherwise.  As the dollar soared, right to where it is now, oil fell to $40. end of story.

Then the problem was over leveraging on oil bets. Now we have both that and an OPEC determined to squeeze out the competition. So prices could easily go lower than $40, at least n my thinking.

XLE

 

As I was completing this post I got an  mail from a reader regarding XLE. XLE as he notes is completing five waves down. On Balance volume is at a higher low than on the third wave confirming this idea. An A B C bounce back to the gap at  85 seems reasonable. But since this decline hapened in five waves, the new trend is down. Thanks for the e mail!

 

Summation Index and NYSE Stocks

 

The summation index has been weaker than the price index of the NYSE. Now the NYSE is joining it to the downside. 

DOW  30 2 Hour Chart

The Dow was dowwn hard Friday, 1.79%. As the two hour chart is right on the 200 bar MA, we could see a bounce. 

Central Fund

Gold and silver have rallied in recent days amid the world chaos. Central Fund is still trading at a 9.5-9.7% discount to its net asset value. This might be a way to take a position at an extreme low. CEF has been cut in half the last three years dropping from 57 to 11. Now at 12 it is at least over its 50 day MA. 

Bonds TLT

I bought some TLT just under 120. it is about to re test the former high. I added the PAR SAR as a reminder to put a stop sell under a position. But if we are right taht stocks are puttingin a multi decade high, bonds should remain in an uptrend well into the spring. 

HDGE Weekly

while HDGE is up 3.95% ths week we do not have a clear weeekly buy signal. It seems to be lagging the overall market But then oil stayed up a lot longer than I thought it would as well. 

HDGE Daily

On the daily chart things are getting underway with an assault on the overhead MAs. A five year bull market will not be quickly reversed, the FED will fight this, and apparenly did with th Octo to December counter rally. Patience. 

Europe Asia Far East

This fund excludes the US and Canda. This is how aninternational bear market begins, slowly and then gaining momentum. 

BRIC the place to be just three months ago

 

The strong US Dollar and falling  oil prices have crushed Brazil and Russia.  China has been on a run lately but I am wondering if that is just hedge fund money chasing a market still going up. For all the talk of emerging markets they just managed to re visit the 2012 high. 

 The Bottom Line

The Dow Jones Industrial mazingly registered its final high right to the day Dece 6 from 40 years ago. The Dow was the last man standing as other indexes like the Russell 2000, NYSE, Dow Transports and Composite peaked months ago or in the case of the last few, Nov 25. And in the same time frame, gold made a low, real money, and has rallied the last few days. 

Social mood is turning sharply negative, imagine a President of the US calling on Al Sharpton for counsel!  Not surprisingly near riots erupted across the country. This is yet another fractal on our on going New Civil War. 

Watch the US Dollar which has been quite strong. A pullback could stimulate short covering in commodity markets.

I am long bonds and HDGE probably the best safe havens at this point. 

thanks for reading TMP.

 

 

Social Mood

The oil soaked opera Dallas was brought back amid the Permian Eagle Ford Oil Boom. It was certainly fun to see Larry Hagman in fine form as always portraying the ver scheming JR and going toe to toe with Bobby, his Brother, over of course Southfork. 

The Western Company was an oil field service company alongthe lines of Halliburton. However its advertising was quite different in the 1970s. Tv ads featured beautiful women clad in hot pants claiming, if you don't have an oil well, get one, you'll love doing business with the Western Company. Western of course went out of  business. But positive social mood generates a herd instinct. I ran across this ad on finance.yahoo, in putting this post together. It says it all about where mood was just three months ago. Interestingly I believe this firm is headquartered in San Antonio. Isn' that the same style hat that JR wore on the Dallas tv show?

Our friends at The Socionomist note that Gary Gasparov and I would add, Ralph Peters, think Putin is the most dangerous man in the world. I agree, and the fall in the price of oil makes it more so. He is not about to give up on his abitions. A dictator always needs a punching bag to place the blame for his failed policies. Fidel Castro spent his entire life blaming the US for its embargo on Cuba. Sensing European weakness, and needing more territory which produces real goods, Putin is much more liable to ramp up his aggression than pull it back. Insiide Track has identified mid April 2015 as the beginning of a war cycle. With markets now falling as well as the price of oil. that is about the length of time it should take for the reality of what cheap oil mans for exporters like Russia. Putin is not about to blame Putin for putting all his chips on oil to support Russia, oil is one half their national income. Recall it was the depressed social mood in Europe at the worst of the Depression that allowed Hitler to come to power. Take look at the BRIC chart above, that is where conditions there are headed. And Putin realizes he has a two year window with a US administration that is liable to do little to oppose him. 

 

[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.

 

Stocks Drop with Oil

Weekend Dec 13 2014

Zero Hedge sums up the markets this week  This is a classic TMP presentation, please take a look, no point in my spending an hour or two to post the same charts. 

We have continuously warned that the oil collapse would take more prisoners than most are thinking. 

we ran a link to Two Minds comments last week which are now coming to light already, see the following quote from the WSJ. 

To be sure, this is going to have an effect on the markets. The Dow Jones Industrial Average on Thursday was up more than 200 points. When oil crossed under $60, the bids disappears. The index closed up, but only by 63 points. In Europe Friday, mainboards were down sharply across the continent.

The concerns around energy’s effect on the high-yield market are gaining in appreciation; energy-sector debt constitutes about 16% of the market, and 40% of them could default over the next few years. Most if not all of that issuance came from smaller players, and those are the ones getting hit the worst. The S&P 600 SmallCap’s energy sector is down more than 50% this year.

It seems obvious that the banks that financed all that debt may take their lumps. But banks may have company. Sterne Agee ran the numbers on life insurers, which always end up holding large amounts of debt. “Using publicly available data from SEC filings, financial supplements and/or statutory filings, we compiled energy sector exposure within the fixed income portfolios of life insurers,” analyst John Nadel wrote.

When measured against shareholder equity, Unum Group has the highest exposure. Its energy-related fixed income assets of $6.3 billion amount to 68% of equity. Lincoln National Corp. is at 44%. AMP Ltd. and Symetra Financial Corp. are both at 40%. American International Group Inc. is at the low end at 11%.

You think insurance companies were the only ones buying energy bonds? We don’t at this point know how this is all going to shake out, of course. But it’s one more example of the fact that the crash in oil prices is going to have an effect on companies outside the energy patch.

Tom McClellan disagrees, thinking the oil effect will be delayed ten years,  Well it certainly did not look like that Friday. 

 Here is the most important oil chart from Zero Hedge.

The same thing happened in 1981. Prices began falling but the rig count stayed high, Wiley Coyote was chasing the elusive Road Runner off the cliff. Returns on high righ rental collapse. And that is showing up in the collapsing prices for energy service in particular. 

As always, C H Smith links several articles on this topic worth reading.

This article in particular makes the point that the only jobs 'created' in the Obama administration have been in the energy sector, something Obama fights on a daily basis. The number of part time workers has soared as well as the last number I saw, 48 million  on food stamps. This is probably covering an economy much weaker than most think. Yes car sales are up, but on zero interest rates. 

The mainstream conventional wisdom is that things are just fine. That was confirmed for me this week as I attended an Economic Forecast by a Wells Fargo Bank Economist. He is based in North Carolina, which is the result of bank mergers in the last 1986 bust. Back then North Carolina National Bank, NCNB took over the failed First National Bank of Midland. FNB Midland had been the largest stand alone bank in the state until oil collapsed to $12. Which reminds me oil was $12  as recently as 1998. At any rate NCNB has apparently been absorbed by Wells Fargo. At any rate, the economist thought oil prices would re bound quickly, and of course, yours truly asked why. He looked at me with that you must have just alighted from a flying saucer look, and said well it will. 

I mention this as one reader of TMP recently worried that too many are bearish. Indeed, EWT, TMP, Of Two Minds, Insiide,  are in the minority in our belief that this is at least a forty year peak i nthe markets. 

His graphs no housing suggested house purchases are already falling, apartments construction and occupancy is rising. He did not show the graph of millenials moving in with their parents. We have previously noted this is another trillion dollar debt bubble about to burst, student loans. At any rate, connect these dots - 

Administration loosens down payment requirements

Housing sales slow

College grads without jobs, our point being there is no one to buy Mom and Dad's house

So we have 

the financialization of ol collapsing

the reality that leveraged oil loans and bets are  a much larger part of the economy than the main stream admits

a drop in employment will accelerate millenials moving back home

student loan debt still the trillion dollar elephant in the room

We have continuously pointed to this date of December 6, te 40 year anniversary of the 1974 low as pivotal, it is now coming true. 

If you read all these links and take in all the charts in the first zero hedge link, this in itself is more than our usual weekend posting.But we will hve more given the apparent turn we have been expecting. 

We will post our weekly newspaper column tomorrow as that is when it apears in the papers. 

 

 

 

 

Santa Claus Rally in the Making?

Thursday Dec 11, 2014

Recall that we are in the 40th year anniversary of the low in the Dow from Dec 1974 at Dow 577. The Dow Industrials are the last hold out in the deflationary collapse.

Russell 2000 now making a  lower high from its two earlier highs this year

NASD 100 just rolled over from its Dec 5 high, S & P rolled over as well

Dow Transports and Composite both peaked Nov 25

Value Lione Arithmetic and Geometric in triple top formations this year

Wilshire 5000 peaked Nov 25

Oil, iron ore, copper, gold, silver, all in downtrends

Meanwhile bonds are up and expected to advance for a few months

Hedge HDG has been slow to react but appears to be putting in a bottom. We suspect it will being an multi year advance.

There are two other areas which are tipping their hands for what is about to happen.

Luxury goods on your favoriet chart service put in these symbols

COH, EL, GPS, LVMUY, KORS (DORS AND COH THE WORST) PVH, LUX,

with RL likely naking a final high,

Casinos are also an early warning are consider these charts

BYD, BJK, ISLE, LVS, MGM, WYNN

My apple laptop that i use for the charts blew up and I will be bringin the desktop back from school but meanwhile the home florring project winds  up and I have an FEI meeting today, graduation tonight which I emcee, a faculty meeting tomorrow, and then final grades this weekend

But the topping process is underway, my money is in the bond market and shows some profits

Cheers, more later this weekend.

Oh, typically markets have a Santa Claus Rally this time of the year into Christmas week. Maybe we shall see what the FED has left in its stocking.AFter a 268 p9oint down dayyesterday, the Dow is up 160 today. The FED will definitely fight the sell off. But this sort of stair step down, sell off followed by a strong rally is what to expect, all the better to keep the bulls alive.

 

 

 

 

40 Year Anniversary

Tuesday Dec 9 2014

The Dow celebrates its 40th anniversary of the December 6  1974 low at  577 this week.

Fittingly it hit a high Friday stopping just short of 18,000.

The last two days, anniversary week, the Dow violently reversed to the downside. The move up from the October low appears to have ended.  If so the final top to the forty year bull is in the making this month.

The summation index for the NYSE looks toppy.

The NYSE index itself is in triple top formation.

The Dollar is key here. It is finshing a rally from 80 to  89 and looks to be tuning over. This explains the rally in gold and silver. Silver was up 4.64% today after dropping from 21.5 to 15. Let the rally begin.

If that is the case for metals we may be coming into a low for oil.  It at least closed up 80 cents today after falling from 105 to 65. INdeed the XES Energy Service INdex looks to have completed five waves down, from 48 to  28.

My Apple lap top computer is in the shop, so no charts, I am on a PC.

We should be on guard for an unexpected rally in oil joining gold and silver if the Dollar rolls over.

Stocks have no doubt been goosed by the FED and their partners in arms. But I suspect the stock rally is on borrowed time. The Top in 1973 came in January, we will not miss that far this time around.

Gas Price Wars, Coming to World Wide Neighborhoods

Monday Dec 8 2014

The Return of Gas Price Wars,  World-wide

It took $1.99 and about four hours for the gas war to break out in Oklahoma City.

Bloomberg, 12/3/14

Younger readers may be surprised to learn of the gasoline price wars of the 1950s and 1960s. Yes when gasoline sold for less than $.50 a gallon,  service stations (another 1960s relic) would engage in lowering gasoline prices. As in the Oklahoma City example, they might drive prices below cost. Often they would sweeten  the deal with ‘free steak knives’ on a fill-up of more than ten gallons. Now this practice is back, world-wide.

We have been predicting a severe drop in the price of oil for the last few months and now that is a reality.  Those outside the energy industry tend to lump all the players into one pot; this is hardly the case.  There are production/exploration companies and there are energy service companies. And those two categories are divided into the greater and lesser. We noted that Halliburton HAL quickly circled its wagons buying Baker-Hughes BHI in the blink of an eye.  Today we examine how the markets have re-valued the large and small in each of these categories.

Large Energy Producers

We were all relieved when the Exxon CEO announced this week that XOM could weather $40 oil.  Whew, that’s a reassurance.

Firm	Price	Mkt Cap	Trailing P/E	Price/Book
XOM	94.95	402.07 Billion	12	2.21
COP	70.80	87.15 Billion	9.39	1.54
CVX	113.71	214.96 Billion	10.47	1.38

 

Exxon XOM, Conoco Phillips COP, and Chevron CVX have of course weathered this drop in fine form. Market capitalization is the size of the firm measured by stock price times outstanding shares. The P/E is the price earnings ratio. This represents how many dollars investors are willing to pay for one dollar of the firm’s earnings. International oils typically trade in the low double digits.   The higher the P/E the greater expectations are for the future. As we will see, expectations for the smaller producers were priced like high tech Tesla or Amazon, way too high for pumping oil out of the ground.  The higher the price to book value, the more assured investors are of the future of the company. Investors are willing to pay a more than the company paid for the use of their assets. The point here is that things have not changed a great deal for the international firms. Their strong clash flows and ability to tap into large capital markets for financing keeps the price to book ratio high.

Eagle Ford / Permian Basin Producers

Firm	Price	Mkt Cap	Trailing P/E	Price/Book
AXAS	3.25	339 Million	5.32	1.89
CHK	19.90	12.99 Billion	24.57	.98
SN	9.94	555 Million	26.51	.52

 

Abraxas AXAS, Chesapeake CHK and Sanchez Energy are all active in the Eagle Ford. Sanchez has lost 73% of its market value since June, falling from $37.50.  Chesapeake has lost about one third of its value. The differences between these firms and the internationals however are dramatic. CHK and SN are trading below book value. The 52% ratio for SN indicates a severe lack of confidence in the ability of the firm to meet its obligations. The last man standing here will be the one best able to shoulder a likely an outsized debt load with revenue down 30%.

Energy Service Companies

Firm	Price	Mkt Cap	Trailing P/E	Price/Book
SLB	86.76	111.64 Billion	16.77	2.71
HAL	40.75	.4.56 Billion	10.25	2.20
NOV	67.58	29.1 Billion	11.32	1.32
RIG	19.57	7.98 Billion	N/A Loss	.48
PTEN	17.54	2.54 Billion	21.18	.89

 

It’s the same story here with Slumberger SLB, Halliburton HAL, National Oilwell NOV, Transocean RIG, and Patterson PTEN. The larger the firm the better able it weathers the down turn.. SLB is the largest service company. The value of HAL will soon be much higher after it acquires Baker Hughes, which was the point of the transaction. National Oilwell is more of a parts warehouse and so is mid pack. Transocean has been hit hard, now trading at 48% of book value. The off shore drillers all merged to weather downturns like this. Finally, PTEN is representative of the small energy service companies in the Basin. As we noted last week, the price was subject to a further drop, it did, and now trades at 89% of book value.

A complete analysis is beyond the scope of a column. Do not purchase or sell any security without a complete analysis subject to your suitability. But our point here is to show that the smaller players have been hit hard while the larger firms  have simply corrected.

As we write Thursday December 4 the oil price is still in a downtrend. It appears to be consolidating under $70 after the big drop.

But this gas price war has not likely ended.

Corporations Buying Stock Back Supports the Market, the Yen Carry Trade

Weekend

As Smith says, this is all you need to know as to why the market stays up.  Corporations are using chep money to buy their own stock back. These stokcs have wildly outperformed the market vesus those not buying stock back. There is a further corelation with the Japanese Yen. 

Smith has a four part series on oil which reflects my thinking. Basically 

we have numerous countries with nothing but oil to sell, most are monarchies or quasi dictatorships where those in power must have the oil revenue to prevent their over throw

more bets ahve been made on high oil prices than anyone realizes

this reflects a slowing economy as juch as it reflects too much supply

it will be a few months before this is obvious, right now it is being hailed a a tax cut for the masses

I was gone this weekend to a 70th birthday party for an old friend now suffering from the long term effects of Agent Orange. He is on a prosthetic leg from the knee down on one leg and has double vision in both eyes but remains positive. Use this time of the season to contact someone you have not visited, they will be delighted to hear from you.

I am now back in SA, more later. 

I will post my  most recent newspaper column. Note as I concluded in the column, the low is not in yet. And sure enough, oil is down again today. 

The oil market isnow trending as stocks did in 1973-74. 

Ruble at New Low, Oil Still Falling

Monday Nov 30 2014

The Ruble is down to a new low, over 50 to 1, against eht US Dollar. This may really test Putin's hold on the country. 

And oil prices are still falling. The Head of Continental Oil who dropped his hedges last week, wrong move, is now talking $30, I guess he is short again. 

But the question of course remains, where ist the bottom in oil prices. 

The Saudis made it clear they want to curb US production. So the price will fall until the House of Saud believes enough damage has been done that the US will significantly curtail fracking and production. 

I doubt that price is $65. The Cry Uncle Level is surely much lower.