Weekend March 6, 2016
Price Records a Bottom
"It's been seven years, eight years since we had the last recession in the U.S and normally, historically we have them every four to seven years for whatever reason—at least we always have," he said. "It doesn't have to happen in four to seven years, but look at the debt, the debt is staggering."
"If you look at the … payroll tax figures [in the U.S.], you see they're already flat," he concluded. "Don't pay attention to the government numbers, pay attention to the real numbers."
“There is a 100% probability of a US Recession Within a Year.”
Legendary Investor and Singapore Resident Jim Rogers on Bloomberg
Two weeks back we noted that most economists put the recession probability at 17%. I commented it was therefore much more likely to be 83%, just the inverse. Now we have Jim Rogers verifying my suspicions.
We have been a consistent contrarian in this space for the last few months. We maintained that crude oil would make a price bottom first at $33 and then perhaps in the high $20s. We maintained this stance in spite of massive negative sentiment towards oil which noted the over supply around the world. However, it is social mood that determines the prices of oil as a financial commodity, not traditional supply and demand.
The bottom occurred on February 11 with an intra day low of $26.05 and a close of $27.30 on the continuation chart. Yesterday the daily close was $34.69, which is enough to turn the daily trend higher.
This reality has clearly dawned on investors. In the last three days Apache soared from $36 to $45. The XLE energy ETF has risen from $50 to $60 this year. The XES energy service ETF jumped from $15 to $17 in the last two days.
Over the last few weeks, the components of the energy complex are in lock step as well. Hearing Oil jumped from 85 cents to $1.12. Unleaded gasoline has gapped from 90 cents to $1.30. I suspect that recent buyers of fuel thirsty pick-ups and large SUVs will be surprised at the pump in three months. Gasoline prices are likely headed much higher.
One component however has not joined the party. And that would be natural gas. Natural gas futures sagged to $1.63 on Thursday’s close. This violates the prior low of $1.93 back in mid-2012. Still natural gas stocks like BP Prudhoe Bay, Chesapeake, and Devon are all on the rise.
The stages of a bear market are denial, acceptance, and finally, capitulation. Sadly a final capitulation took place this week. Aubrey McClendon former CEO of Chesapeake CHK, was indicted for price fixing various oil and gas leases. The next day he drove his car into an embankment at high speed resulting in his death. In the next two days CHK soared from $2.75 to $4.27.
At the same time, are stocks peaking? Stock indexes have soared since the January 20 lows. We expected topping action in this time frame. Today after the jobs report, stocks are mildly up. We suspect a peak within the next week. So the next question becomes, can energy stocks fade an overall stock market decline? Will energy stocks shine while the general market falls?
Are there other clues on what is about to happen, yes there are? An article in today’s Wall Street Journal headlines Bets Rising on an Uptick in Inflation. The yield on Treasury Inflation Protected Securities TIPS is the highest in two months. This if further confirmation of the low in oil prices in February. In his interview noted earlier, Jim Rogers notes we have never had ALL the Central Banks of the world printing money at the same time, but we do now. This is just the start of an inflationary move they Bankers will not likely be able to control. Copper prices are already up from $1.95 to $2.20.
Our expectation then is the exact opposite of what you are reading in the rest of the media. Commodity prices will be advancing much faster than conventional wisdom expects. We are not in for years of depressed oil prices. We are much more likely at the very start of an extended rise in consumer prices of all kinds.
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