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Tuesday, August 16, 2022

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Manic Monday – Saudis Cut 600,000 More Barrels and it’s Still Not Enough!

As we predicted on Friday, the Saudis have unilaterally cut production.

It was less than we recommended, however – 600,000 barrels vs. 1Mb needed to make enough impact to get Brent Crude back to $50 so we'll be back to shorting oil once the bulls get done reacting to the headline.  At the moment (8am), US Oil (/CL) is trading at $46.06 and hopefully we can short it at $46.50 but we'll take a short under $46 with tight stops above as they may not get there on this half-assed effort.

The Saudis have to act in loco parentis at these meetings but it was hoped by oil bulls that holding the OPEC meeting in St. Petersburgh meant Russia would be joining in with more cuts.  Not only didn't that happen but both Nigeria and Lybia have room to INCREASE their production under today's agreement, which offsets most of the Saudis' new cuts.  The success of this deal rests on the rest of OPEC complying with November's production cut – something they are notoriously bad at.  

Long-Term, the OPEC nations face a disaster of biblical proportions as their oil-dependent economies are running headlong into the end of the oil era.  According to a new book. Burn Out: The Endgame for Fossil Fuels takes the view that oil prices will not just be “lower for longer”, as BP chief Bob Dudley predicted, but lower forever.  The evidence for author Dieter Helm’s case rests on plentiful supply unlocked largely by the US shale revolution, “unstoppable” global action on climate change, and technological advances.  

My view is that oil prices will probably carry on falling forever, and $50 is a high price for oil, not low,the University of Oxford professor told an audience in London.    

Helm described his book as “very bleak” about the fate of the Middle East’s oil producers, who he warns face challenges “at best uncomfortable and at worst close to existential”.  Of Opec, he writes: “The popular narrative … assumes that these countries still have the power to move the price, and hence assumes that, eventually, Opec will restore order and return to the good days of ever-higher prices. This narrative is profoundly wrong.”

This does not bode well for long-term tensions in the Middle East as many of the oil-producing nations face very rough economic times ahead and even Saudi Arabia, who have been the richest from oil production – may not have time to execute their planned pivot to a broader-based economy before sustained low prices unbalance their budget.  In a desperation move, the Saudis are IPO'ing their state-run Aramco Oil Company but, with oil hovering around $45 a barrel in the US – who's going to want to buy a $2Tn oil IPO?

Speaking of economies, the EU has been growing at a much slower pace this past Quarter so maybe Draghi was not crazy last week when he said he felt it was too early to withdraw stimulus.  The Regional PMI dropped to 55.8 for July from 56.3 in June indicating GDP is growing at a 2.4% annual pace – not very exciting and those same low oil prices are keeping inflation under the target 2% rate the Central Banksters like to see.  

Image result for japan deflation 2017Over in Japan, the BOJ is still worried about deflation and their new projection have cut CPI estimates this year, next year and for 2019 as well.  8 of the Governors see risks “tilted to downside” for their price forecast for fiscal 2019 — the year when the BOJ currently hopes to reach its inflation goal.  Put another way, the chances of prices dropping below forecast are way higher than beating it.

The chart on the left shows you what's happening with Japanese Household Spending and it's NOT pretty.  Frankly, US and European spending isn't that different but the numbers tend to get propped up by the spending of the Top 1%, making us look healthier than we are.  

In fact, one trend I'm noticing now that didn't even happen in the recession is nursing homes in Florida are emptying out as people can no longer afford them and parents are moving back near their kids (who can help them out) or even into the homes of their children – which is a dream for some and a nightmare for others!  Either way, it doesn't bode well for the nursing home industry nor for the overall economy as we are shrinking the number of households yet again.  

Related imageIt's coming at us from both ends as new households are not forming with a 5% increase in 18-34 year-olds living with their parents as well.  That's why home sales are still generally on the low end of the scale and also why consumer goods are not doing so well – without household formation, a lot of things fall apart.

Once upon a time we would have expected immigants to fill that gap and come to this country and form households but the Trump Administration has put a stop to that as well, so it's all on our shoulders to fix the economy and get things in gear – I'm sure they have a great plan to do that…

Well, maybe I'm not sure but the markets sure are sure as we maintain that record-high pace into the end of July.  People are willing to buy Amazon (AMZN) stock at 200 times earnings and Netflix (NFLX) for 250 times earnings so why shouldn't the market keep going up?  We've been defensively bullish recently but we just added money to our hedges last week – just in case we get an August collapse (as predicted by Hussman and others). 

We're getting into the heart of earnings season so we'll see what's what as about 20% of the S&P 500 report this week (see last week's analysis of the S&Ps Top 10 for more details):

It's a low data week but that doesn't matter as we have a Fed Meeting on Wednesday and another look at GDP on Friday, so the week is all about those two data-points.  Germany's Business Climate will be out tomorrow, followed by our own Consumer and Investor Confidence Reports.  UK GDP is on Wednesday morning and we have Durable Goods on Thursday ahead of our own GDP report Friday morning.  

Be careful out there, 

– Phil

 

 

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FNSR looking strong today.

Approaching the 200dMA.

FNSR / Albo – And still relatively cheap… I am betting they get to $35 again which the structure of my play.

what is wrong with ABX and the miners today?

gold is flat

Tillerson mulling resignation per CNN

Hi Phil and All –

What do you think about ADI for a potential trade idea? 

Here's a recent article from Motley Fool describing its areas of business: https://www.fool.com/investing/2017/07/24/heres-how-analog-devices-inc-makes-its-money.aspx?yptr=yahoo. 

ADI recently acquired another company, Linear Technology, and it pays a dividend of around 2.3%.

Thanks! Ilene 

Jabo / ABX – see earlier news article on Acacia mining and its woes in Tanzania. ABX is a majority owner of Acacia mining. 

thanks winston!

Phil – gold miners have not been tracking gold price, and my guess(hope) is they are due for a good rise up. Depends on the FED – hike and QT. if neither happen it should be good for miners.  I have an legacy trade in AEM.  Bought 30 calls Jan 18 55 at $7.4.  Heavily underwater. Can you suggest something or should I switch to a new ABX trade when you say?

Ilene,

~Analog Devices (ADI)
At last month's Analyst Day, ADI laid out its future growth plans :
• Annual revenue growth in mid-single digits.
• EPS Growth of 8-12% per year
• Free cash flow (FCF) growth of 8-12% per year
• Revenues will grow faster than op-ex
• Return 80-100% of annual FCF less debt service to shareholders
This sets a two-year EPS target of about $5.10. FCF less debt service should be $5.92 in FY 2018 and about $6.75 in FY 2019.

FWIW – I'm short the Jan 75 puts.
 

Phil after watching oil stay in a very tight rage all day, do you still think you will be shorting at 46,50 again or do you think "they" are now going along with the idea that rebalancing is happening and will drive the price higher?

Phil

Killing the XOM trade?

With so much time left?

That's the same trade we did in Gegas, right? It seemed to be profitable last week when XOM was at 81.50

Thanks Albo, that seems pretty conservative. Looks like you can sell the $75 puts at around $4 and then get into ADI (if it drops) at $71. About a 9% discount. 

Hi Phil, I'll see if I can find out that information. Don't know off-hand. 

Well, interestingly, ADI is active in the Internet of Tomatoes:  http://www.analog.com/en/landing-pages/001/iot-internet-of-tomatoes.html 

There's a short video at the left of the page. 

I'll have to look more into the money side of things. I know they did an acquisition so I would imagine their revenues should go up due to that, but I don't know anything about how all the factors play out. I believe they are somewhat dependent on Apple products. Maybe Albo knows more(?) I suppose if the company is just too expensive, waiting for a proper selloff would make sense. Kind of forgotten what that looks like. smiley Thanks! 

WYNN – starting to move on the 145 calls.   Higher lows followed by higher highs each round trip.

Follwing up my dicusions of yesterday with Winston, I liquidated today some 100 option positions mainly short puts

Is there a futures symbol for DAX?

Anyone ready to reload on CL short at $46.5 when it reopens?

FDAX = FUDAX?  lOL 

I am going short on CL with 2 contracts, if it touches 46.50.   I am also carrying a few long on NGV7, which dropped today and is causing me a bit of heartburn.  avg 2.97

Yodi – liquidating short puts – same from my side, although not so many. Putting in low bids at the moment to catch market at its most manic. 

Maya / Liquidating Vegas XOM. Initially I had the same reflection – why close out a relatively recent pick with so much time left? But it takes a strong discipline to know when to walk away from a position. That kind of strong discipline would have saved me a fortune over the years! There is no dishonour in changing one's mind. "When the fact change, I change my mind. What do you do, sir?" – John Maynard Keynes

"When the facts change, I change my mind. What do you do, sir?""When the facts change, I change my mind. What do you do, sir?""When the facts change, I change my mind. What do you do, sir?""When the facts change, I change my mind. What do you do, sir?"

Took one TF short at 1439.5.  Looking to DD on CL at 47 from 46.55

Or is 47.20 the bounce line?

Good morning   Decided not to DD CL or short TF  wait for them to bounce first  

What a bunch of sleepy heads ????

Latch I'm quietly watching . Phil's call on YM is keeping me from being too upset about my CL  losses at 4:45 this morning when I saw my oil shorting gains disappear in a .40 move up. I had sold at 46.63 and knew I should have taken my little bit of profit and waited until I was more awake, but I dozed off and woke up to find myself down . Oh well, lets go Dow futures.

Looks like Europe is popping and our futures are up.

As I have learned many times Phil. 

Phil,

Did you get out of your /DX long?

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