USO

Extreme Volatility in Crude Oil Prices Continues

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After a short-lived reprieve on hopes that OPEC will suddenly abandon its strategy of share retention instead of price support and that US oil production was modestly lower through the first five months of the year than previously expected, reality is now setting back into the oil futures market (USO). At the time of this writing, West Texas Intermediate crude oil prices for October delivery are hovering in the $43-$45 per barrel range, and futures have traded wildly between “recession” and “bull market” the past several months and days, respectively. There are three major areas of concern that may continue to impede any sustainable rise in crude oil prices, however. 1. OPEC is not caving in. OPEC’s strategy to deal … Read more

Batten Down the Hatches – Another US Market Crash Probable

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A global financial contagion like that of the Financial Crisis just six short years ago cannot be ruled out. The magnitude of wealth lost in China’s (FXI) equity market is simply staggering, and we’re already witnessing bad loans soar across China’s Big 4 banks. We’re hearing that property, used as collateral for stock margin trading in China, is often being sold for 90 cents on the dollar as speculators look to cover losses. We expect the fallout from the collapse in Chinese equity markets to eventually reverberate through their property markets, impacting loan-to-values in the commercial and residential arenas, sparking significant loss rates and asset write-downs across the Chinese financial system. We continue to assess the tangible evidence of an … Read more

3 Observations

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Bulls raged back in a big way during the week of trading ending August 28 to erase some of the massive losses experienced from the May 2015 highs of 2,013 on the S&P 500. Though no longer staring down at 1,800, the S&P 500 still closed comfortably shy of 2,000. No matter what next week will bring, almost everybody is expecting more volatility. Could this then mean that we’re back to normal? The market has a very interesting way of disappointing the majority of investors the majority of the time. Here are 3 observations that are worth noting. 1. The Fed Doesn’t Have the Right Data…Yet The stark reality is one of two things: a) either the Fed knows exactly what’s going on … Read more

The Debt Bubble Is Deflating; Will It Pop?

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The fundamental concerns surrounding the financial health of China-dependent companies across the globe are tangible, and the risk of a currency crisis and eventual credit crunch are real, if they aren’t already happening. Fortescue Metals Group (FMG), the fourth-largest iron ore producer in the world, announced over the weekend, that profits were nearly completely wiped out (down nearly 90%) for the fiscal year ending June 30, even as the firm shipped 33% more tons of iron ore during the period over last year’s mark. The largest iron ore producers, BHP Billiton (BHP) and Rio Tinto (RIO), are only adding to production overcapacity, conditions that are wreaking havoc on the commodity price. Iron ore prices are to remain under pressure as … Read more

The Story of Chemical Giants: Sales Down, Margins Up

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Chemical bellwethers’ second-quarter results reflect the impact of unfavorable commodity prices and demand, but cost cutting efforts and savvy execution are driving margins higher. Let’s go around the horn for incremental industry insights across the space. Dow Chemical is executing the best at the moment. DuPont (DD), Dow Chemical (DOW), and Eastman Chemical (EMN) all reported negative impacts from pricing on their top lines in the calendar second period. DuPont’s Performance Chemicals segment, which was spun-off into The Chemours Company (CC) on July 1, reported the largest negative impact for the company with pricing lowering sales by 6% in the period. Each of Dow Chemical’s operating segments experienced sales falling due to pricing, the largest of which came in its … Read more

Friday Evening News

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Square to Go Public According to Forbes, San Francisco based mobile payment company, Square, is expected to go public sometime in 2015. In fact, sources close to the situation report that the firm is expected to file a confidential registration statement very soon, if it hasn’t happened already. Under the JOBS Act, emerging, growing companies can file for an IPO confidentially if they meet certain requirements, including having less than $1 billion in annual revenue. Internal debate over the ideal time for the firm’s IPO has clouded the situation, as has the appointment of co-founder and CEO Jack Dorsey as Twitter’s (TWTR) interim CEO. Also this week, Square launched a new credit card and phone reader designed to allow businesses … Read more

No Fly Zone: Airlines’ Economic Profitability Still Unproven

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Image Source: Amy McTigue We’ve said it before, and we’ll say it again: the airline industry is not well-suited for long-term investors. The industry that we’re talking about is the airline industry and includes companies such as United Continental (UAL) and JetBlue (JBLU), not the aerospace industry and its constituents such as Boeing (BA) and Precision Castparts (PCP), which are involved in aircraft-making and have fantastic business models. More on commercial aerospace here >> Today, we’re reiterating our view that most airline stocks should be viewed as nothing more than boom-or-bust, speculative vehicles. Perhaps the biggest issue with airlines is that the factors that drive their revenue and costs are largely out of their control. In other words, an airline … Read more

The Market Top?

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For those that are following along closely, you shouldn’t be surprised if the market corrects 5%-10% in the coming months. Let’s talk about this. From a technical standpoint, it may not be too far of stretch to say that we’re likely going to test the bottom of the S&P 500 (SPY) uptrend, and that could feasibly mean a drop to the 200-day moving average (blue line above). My technical alerts are telling me that with respect to the S&P 500, we’ve just dipped below the 50-day moving average, an arbitrary simple rolling average but one that is no less self-fulfilling than value investing itself. Don’t panic though. We’ve cut through the 50-day moving average many a time before during this … Read more

When “Bad” News Is “Good” News…Take A Euro Trip?

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Pack the bags, kiss the grandkids, it’s time to do some traveling!!! Maybe to Europe? From a global perspective, for those whose wealth and income is generated in US dollars, you can arguably buy more with one US dollar today than at any other time in the past 12 years, according to a popular index that measures the value of the dollar versus a basket of other currencies. Expectations are being ratcheted up for impending interest rate hikes by the Fed, and this means that assets are flying into US greenbacks from all over the world. The dollar is strengthening against the euro, the pound, the loonie, the aussie, the rand, and the list goes on and on. This decade … Read more

$20 Oil Prices…For Real? Investors Drinking Too Much Coke?

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I had to do a double take. Citigroup’s commodities research department issued a warning that crude oil prices (USO) could plunge to $20 per barrel “for a while.” They believe this time is different. Pointing to an oversupplied market and full storage tanks, the research outfit believes shale-oil in the US has changed the game and may sound the death knell for the cartel. We haven’t seen $20 crude oil prices since the 1990s, and even then, only for a short period of time. This is a big call. Our view, however, is that OPEC remains as powerful as ever. The fact that crude oil prices have reacted so negatively to the cartel’s commitment to producing regardless of the price … Read more