Just a reminder that I’ve moved my blog over to the Uncommon Wisdom website. You can read my latest post, which is about gold and my appearance on CNBC today, by pointing your web browser here: blogs.uncommonwisdomdaily.com/red-hot-energy-and-gold
Remember to update your links and RSS feeds. See you over at Uncommon Wisdom. And I’ve got a new column coming out there on Friday — about the Pharaoh’s Treasure!
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Now that we’re getting Global Wealth Report off the ground, you can read my blog at http://blogs.globalwealthreport.com/red-hot-energy-and-gold/
And here is my latest post: http://tinyurl.com/dyq77s
Remember to update your links and RSS feeds.
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World Bank Offers Dire Forecast for World Economy
In a bleaker assessment than those of most private forecasters, the World Bank predicted Sunday that the global economy would shrink in 2009 for the first time since World War II.
The World Bank also warned that global trade would contract for the first time since 1982, and that the decline would be the biggest since the 1930s.
Meanwhile, at the Wall Street Journal, they’re writing: Dow 5000? There’s a Case for It. I’d take this as a sign that a rally is imminent. On the other hand, the last fourth of the story is people poo-poohing the markets tumbling to record lows, so maybe the Wall Street Journal isn’t bearish enough yet.
They should read their own stories. Here’s another one from the Wall Street Journal: New Fears as Credit Markets Tighten Up. From the story: “The credit markets are seizing up again amid new anxieties about the global financial system.”
AIG is trying to blackmail us again in: AIG Told U.S. Failure May Cripple Banks, Money Funds. The sad thing is, it will probably work.
Now here’s where it gets weird, as Broon would say. All this bad economic news, and crude oil looks like it’s putting in a bottom …
Oil at $50 Looms as OPEC Plans Fourth Cut, Complies With Production Quotas OPEC’s record production cuts are draining the glut in world oil markets, leading traders to bet that $50 crude is two months away.
Now let’s look at the chart …
But how about all that oil stored in oil tankers? Well, Bloomberg tells us …
The drop in global inventories is shrinking profit earned from storing crude, paid from a so-called contango, where prices for delivery in the future are higher than costs for immediate consumption. The potential $17.93-a-barrel profit available in December to speculators who bought and stored oil for a year has plunged 57 percent for London’s Brent oil.
Dubai crude, a benchmark for OPEC oil exports to Asia, now costs more for immediate delivery than in the months ahead. The so-called backwardation is a sign of tightening crude supplies. In the last two weeks, BP Plc, the world’s third-largest oil company, sold and unloaded more than 2 million barrels stored on the supertanker Eagle Vienna it had moored off Scotland’s Orkney Islands.
So, is this the bottom for crude? I’m taking a “show me” attitude. If it is, there will be plenty of time to get onboard.
Anyway, the markets aren’t exactly happy campers this morning.
The current decline is happening faster than the 1929-1932 rout. Floyd Norris at the NYT writes:
It has been 513 calendar days since the stock market peaked on Oct. 9, 2007. Since then, the S&P 500 is down 56 percent and the Dow is off 53 percent.
On Jan. 29, 1931 — the identical number of days after the 1929 market peak — the S&P 500 was down 49 percent and the Dow was down 56 percent. The 1929 crash got off to a much faster start, but we have now more or less caught up.
IN OTHER NEWS
Scientists to Issue Stark Warning Over Dramatic New Sea Level Figures
These revisions suggest sea-level rises could easily top a metre by 2100 - a figure that is backed by the US Geological Survey, which this year warned that they could reach as much as 1.5 metres (5 feet). Rising oceans will also contaminate both surface and underground fresh water supplies, worsening the world’s existing fresh-water shortage.
The Greenland and Antarctic ice sheets represent vast reserves of frozen fresh water. The former would add 7 meters (23 feet) to sea levels if melted completely; the latter would bring a further 60 meters (197 feet) rise to the levels of the world’s oceans.
Florida Highway Upgrade Goes Private. Sean’s note: I’d like to think this won’t end in embezzlement and fraud, but considering the history of Florida politics, the odds are against it.
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There is news on guns. First, it turns out that gun sales and applications for concealed weapons permits are soaring in my home state of Florida. In material that was editedfrom the Gold, Guns and Spam article, I talked about how crowded my local gun shows were.
Next, we have an analysis by Brent Mattis on the forces driving gun sales, the stocks of Sturm, Ruger and Smith & Wesson and ammunition sales. This is excellent analysis. Brent says we may be approaching a peak; we’ll have to see if that materializes.
Have a great weekend. I’m working on my book. No rest for the wicked. LOL!
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Russia is reducing its holdings of US Agency bonds.
As I pointed out in a recent MoneyandMarkets.com column, the Russkies are buying a lot more gold.
Just in case you were wondering, this is officially the worst bear market since the Great Depression.
From Barry Rithholz, a chart showing that the S&P 500 is STILL not cheap on a historical basis …
Yves over at Naked Capitalism (one of my favorite blogs) asks if our bank rescue programs are setting the stage for more looting? He cites Nobel prize winner George Akerlof (of “markets for lemons” fame) and Paul Romer as saying:
Bankruptcy for profit occurs most commonly when a government guarantees a firm’s debt obligations. The most obvious such guarantee is deposit insurance, but governments also implicitly or explicitly guarantee the policies of insurance companies, the pension obligations of private firms, virtually all the obligations of large or influential firms. These arrangements can create a web of companies that operate under soft budget constraints. To enforce discipline and to limit opportunism by shareholders, governments make continued access to the guarantees contingent on meeting specific targets for an accounting measure of net worth. However, because net worth is typically a small fraction of total assets for the insured institutions (this, after all, is why they demand and receive the government guarantees), bankruptcy for profit can easily become a more attractive strategy for the owners than maximizing true economic values.
XX Sean’s note — Let me translate that into non-economist for you: The “banksters” are operating their banks (and the US economy) like a “bust-out” on The Sopranos. According to this theory, they have their inside guys in the government — first, people like Phil Gramm, Robert Rubin and Hank Paulson, and now characters like Lawrence Summers and Tim Geithner, grease the skids to funnel our tax dollars into their pockets. The obvious thing to do to sort out this mess is to nationalize banks in the short term, sort out their finances and then sell them back to the private sector. It worked in the Savings & Loan crisis, it would work now. And it apparently isn’t going to happen, maybe for the simple reason that it would wipe out Summers’ and Geithner’s bankster friends.
That’s why, in my opinion, adminstration officials officials keep offering plans to save the financial sector that nobody else finds credible.
ON THE LIGHTER SIDE (’CAUSE IT’S FRIDAY)
For those of you who haven’t been scared enough by recent market action, step into Stephen Colbert’s Doom Bunker …
And just because it’s Friday, here’s a creepy spider that YOU can control: http://www.onemotion.com/flash/spider/
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I’ll be appearing on a Chicago radio station today (1:40-1:47pm EST CBS Radio WBBM Noon Business Hour w/ Sherman and Chris Chicago). They want to discuss oil stocks. They sent me a list of four. Here is my analysis below — since I’ll be sharing it with the Chicago listening audience, I thought you might like to read it, too …
I am not bullish on energy now. Exxon Mobil itself said today that it expects global oil demand to stay flat for a couple years. My outlook is a bit more pessimistic than that. Oil demand is falling faster than OPEC can cut production. In general, energy companies are slashing new investment and production far more sharply than analysts projected just a couple of months ago — lowering E&P spending 18% this year — and that does not show confidence in the future.
Then again, Jim Cramer called the bottom in oil yesterday, so I guess it’s going much higher, LOL.
Excess crude oil is a problem for the world. More than 30 supertankers, each with the ability to move 2 million barrels of oil from port to port, now serve as floating storage tanks.
Top Asian oil and gas producer PetroChina has cut its domestic production targets for 2009 by 10 percent to 20 percent at many oil fields because of falling demand. If demand is falling in China, I expect demand to fall in the world.
Outlook on the particular companies:
Exxon-Mobil - (XOM: 74.38 -0.27 -0.36%). The best of a stressed lot in integrated energy companies. It is making new oil discoveries (most recently off the coast of Brazil … again), it is investing $29 billion in projects this year and is going to increase its production in 2009 and projects that its production growth will rise 2% over the next five years. It does have massive reserves.
Compared to its competitors, it is expensive on a price to cash flow (5.45) and price to earnings (7.45) basis.
Exxon will survive the next few years of a downturn in the oil business, which is more than you can say for some oil companies. If your outlook is very long-term and you don’t mind prices going down, you can buy now and hope for the best. But my system gave a weekly ”SELL’ signal on this stock on February 11th.
Chevron (CVX: 76.77 -0.57 -0.74%)- a smaller version of Exxon, and in pretty much the same boat. It is a better value on price to cash flow (3.92) and price to earnings (5.77) basis. The company has nice cash flow, but that’s not saving the stock in this environment.
Chevron is working in Venezuela. Chevron must know something I don’t know about the world’s wackiest dictator. It has other geopolitical woes (Nigeria) and is postponing some development work. Really, I’m not bullish on it at all now. It is declining even faster than Exxon.
Hess (HES: 58.84 +1.28 +2.22%) - another integrated oil company. Not exactly cheap. It is on par with competitors on price to cash flow (3.74) and a bit higher on price to earnings (7.28). The company is under pressure from Libya to lower its stake in a project there. I’d stay away. I had a weekly “SELL” signal on this stock on February 17th.
Schlumberger (SLB: 63.34 -1.20 -1.86%) - this is hard times for oil services companies like Schlumberger. It’s not cheap on price to cash flow or price to earnings.
That said, Schlumberger’s chart is slightly more bullish than the others. It has real snap-back potential when (not if) oil starts moving higher again. If I had to pick one of these turkeys, I might go with Schlumberger. Oil services companies are getting hurt badly in this downturn, but Schlumberger’s phone will be the first to ring when the oil and gas drillers get back to work.
But I can think of better places to put your money to work than in any of these stocks now.
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Nothing goes in a straight line, up or down. Earlier this week, I said the major stock indices could be due for a rally. Boom — we got one yesterday. It may fall apart today. But if we get a rally, how high could it go?
Remember, until proven otherwise, this is a rally in a bear market. And that brings me to my chart …
As you can see, if the S&P 500 could rally, simple retracement targets give us a range beetween 847 and 927. 847 lines up nicely with the 50-day moving average (which is actually a bit lower). So that may be firm overhead resistance.
Of course, the market has to put a rally together first. We’ll see how the day works out.
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The market is extremely oversold right now; a rally wouldn’t surprise me. What would spark a rally? Well, everyone is expecting bad news this week, so if the news is less-bad-than-expected, that may cause shorts to cover their positions. And that, in turn, could spark a rally.
I think that rally should be sold. I have a story on Dow Jones MarketWatch today: Stock Doom and Gold Boom. It is similar to a piece I did for MoneyandMarkets.com two weeks ago; there have been new developments.
In other news …
Silver Beating Gold First Time Since 2006 as `Poor Man’s’ Currency Refuge Silver’s biggest discount to gold in 13 years has investors betting on the best annual return for silver since the Hunt brothers’ bid to corner the market in 1979.
Gold Rebounds From Biggest Drop on Haven Demand Gold climbed for the first time in six sessions in London as stock markets tumbled on speculation that economies are worsening, adding to the metal’s appeal as a store of value. Platinum also gained.
XX Sean’s note — gold’s rally faded and it is now flat. We’ll see where it ends the day.
Canada’s Economy Shrinks at 3.4 Percent Annualized Pace, Most Since 1991 Canada’s economy contracted at the fastest pace since 1991 in the fourth quarter, adding pressure on policy makers to cut the country’s benchmark lending rate to a record low tomorrow.
XX Sean’s note — so many analysts at the Phoenix Investment Conference were bullish on the Canadian dollar. I was a dissenting voice. I think this story on the slowing Canadian ecoomy helps my case, not theirs. On the other hand, the New York Times has a story on how Canadian banks are both well-run and solvent. The U.S. wishes it could say the same.
China’s Manufacturing Shrinks for 7th Month as Global Crisis Cuts Exports China’s manufacturing shrank for a seventh month in February as the global financial crisis cut exports and growth across Asia.
All Around the World, Trade Is Shrinking The world trading system, whose growth was deemed an inevitable part of globalization only a year ago, is now shrinking rapidly … The 17 percent drop for overall Chinese exports, while large, is still modest compared with the declines being felt by other developing economies. The three largest economies in South America — Argentina, Brazil and Chile — reported declines of 27 to 42 percent. Exports from Taiwan were off 46 percent, and those from Singapore fell by 41 percent.
QUOTE OF THE DAY …
From New York Magazine …
‘The top five U.K. banks have $10 trillion of assets and their GDP is only $2.13 trillion. The whole country could fall into the ocean. The top five U.S. banks represent only about 60 percent of GDP by comparison. The other thing is a survey that I just read about in the Times. Over six in ten Americans think that someone in their household will lose their job in the next year. That means six in ten people won’t buy anything other than basics. The economy comes to a full halt even worse than now.’
Ice Melting Even Faster in Antarctic 60 Nation Team Says Seas Could Rise 3 to 5 Feet by End of the Century
Making matters worse, scientists said, the ice shelves that hold the glaciers back from the sea also are weakening.
Econbrowser asks: How low can stock prices go, and how worried should you be? The comments on this one are particularly illuminating when it comes to the mood of investors. S&P 500 at the 200 level, anybody?
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We’ll have to see where gold ends, the day, but it started the morning strong. Strong enough that I made new recommendations for Red-Hot Commodity ETFs and Red-Hot Global Small-Caps. Then gold turned lower. Dang!
These positions are small and we’re using stops, so if the market turns against us, it won’t hurt that much. And meanwhile, we have the potential for some good upside.
Here’s a version of one of the charts I sent out this morning …
We’ll see how it ends the day.
Here are some things to brighten up your weekend. First, a Dilbert cartoon that is very relevant to today’s market.
Have a great weekend.
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In an article I just turned in for Dow Jones Marketwatch (it will be published in March) I wondered about the safety of Caribbean Banks — the ones that promise “ultimate privacy” for discerning clients. Basically, they’re banks where you go if you …
A) think you’re going to get sued and want to shelter some money from potential creditors.
B) Have a mistress/illegitimate child that you want to take care of and don’t want your family to know about.
C) Want to invest in seemingly lucrative, “can’t-lose” investments like those promised by fraudsters Allen Stanford and Bernie Madoff.
D) Have various other reasons that would require you to fly or boat offshore to do your banking.
These banks may be rock solid. On the other hand, they may also be especially vulnerable to the kind of financial shenanigans that Madoff and Stanford are known for. I wrote: “When the tide goes out, we’ll see which of the Caribbean banks are swimming naked.”
Maybe we should expand that to other Latin American banks. I had Panamanian banks in mind of course, but it turns out Venezuelan banks may be particularly vulnerable to Stanford’s shenanigans as well.
Here’s a quote that reflects the mood of bank customers …
“I never thought this would happen, much less to a bank like Stanford with a good name,” said Celia Daniel Metta, 48, who was among 20 clients standing outside a Stanford affiliate in Mexico City yesterday. “Your money isn’t safe anywhere.”
It turns out, Bloomberg reports, that Venezuelans may have had as much as $3 billion invested with Stanford, who the U.S. charged with running an $8 billion fraud. In Argentina, savers probably channeled $400 million to accused $50-billion-Ponzi schemester Bernard Madoff.
Will things get worse? What do you think? I know what the Antigua and Barbuda’s Bankers Association thinks. It warned that: “if customers continue to withdraw funds from Bank of Antigua, this could destabilize not only Bank of Antigua, but the entire financial system.”
So is your money safe anywhere? I think it is, in gold and silver. Physical gold and silver. And a good buying opportunity maybe coming up.
In charts I sent my premium service subscribers yesterday, I showed daily charts of gold. There is plenty of support on those charts. This chart, a weekly chart, shows other support for gold.
I expect that support to hold somewhere along the line. And that will likely be a major buying opportunity.
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