Who is calling the shots

Putin and MbS are having talks again,
watch the oil price,
timing interesting near the U.S. election,
output cuts are the logical bet,
there is nothing like petro-nations needing petro-dollars.

Market Quips & Synopsis – Sept 18, 2020

Market Quips & Synopsis Some brief points about selected markets or assets and look for the links within for added musings.

About current markets, I’ll open up by saying..

I notice there is dangerous trading going on, market capitalisations in some companies are extraordinary.
For example, how does $1 billion market cap on revenues of $20,000 sound?

ASX scuttlebutt says, “shorts” are trying to pressure companies into raising capital, some are seeing increased stock “promotion” activity and there are many people in the market “that don’t know what they’re doing or shouldn’t be there”.

I see the AUD and XAU (Gold) in a holding pattern, (see the AUD chart below);
they need to hold 0.7240 and $1,902 respectively,
breaks above 0.7355 & $1,978 should see a new lurch higher

Also watching AUDJPY closely, need to hold 76.00 to confirm “more risk-off”,
A move above 0.7730 suggests “risk-on” and higher equity indices

Another indictor to assess the steam in a S&P 500 decline is whether Japanese 10 Year Bonds (JGB”s) trade below 0.00%.

The S&P 500 is down 6% from recent highs,
Indicators are not clear in calling a new downward trend, however I think 3,272 is the target (a further 2.5% lower).

The Nasdaq 100 has now fallen 11% since its September 2nd high.
Looking for it to ease a further 2.4% to 10,814 before determining the strength of the decline.
The decline wasn’t a surprise, as written by me on August 29 and September 3rd  

Global portfolios have a 3% short position in either (or both) the Nasdaq 100 or the SOX index

My ASX 200 target is 5,803, which is 1.2% below the price as I write.

I’m pleased with calling Oil down from $44 to $39.30. Brent held $39.30 for the past week, 
has since rallied 10% in past 4 days….quick rallies are not always a preferred scenario

VIX remains relatively high at a reading of 26, the call option phenomenon has influenced this increase

The De-Equitisation story combined with rising money supply & low interest rates leads to my thesis that higher equities is the dominant and over-arching long term theme.

While we accept near-term rates will stay Lower for a while,
I think the long end of interest rate curve will rise.

AAII Survey exhibiting narrowest bull/bear spread since June 11, which is when S&P 500 had a 8.2% decline.
Since March 5th, more retail investors have remained bearish (than bullish). This survey remains a reasonable contrarian indicator as markets bottommed on March 26th and never looked back.

Oil Rig count showing no meaningful change of increase, see attached, number of rigs in operation has halved

I remain long term bullish on the Oil price and continue to accumulate positions (proxies) to benefit from this opinion.
Incidentally, I have a view there is a coming crisis in energy prices which will stoke inflation (albeit it may be 18 months away) 

In another edition, I’ll expand on various investing themes and I hope to soon publish my bullish thinking about Platinum on my Linkedin page.

That’s all for now…

warm regards,
Rob

My Oil Juxtaposition

I am (long term) bullish on the price of Brent crude oil, which will be another note for another day…..

but I am bearish on the equity prices of large oil companies, especially those listed in the U.S. due to their declining oil reserves, poor exploration and production cost management, awful capital allocation towards acquisitions, debt laden balance sheets while insisting on maintaining historical dividend distributions at any cost.

Furthermore, a recent brainstorm with a client (and friend) confirms the industry is operating with technology and a mentality that hasn’t changed for 50 years which has resulted in a dearth of innovation and lack of efficiencies being sought.

Shareholders of Exxon Mobil, Chevron, ConocoPhillips, Occidental, Apache and the like, should allocate ample time to assess their holdings, hedging and strategy,

while shareholders of oil field service companies…….

August 20, 2020
by Rob Zdravevski
rob@karriasset.com.au

Timber !

The 3 best commodities trades since the March 2020 lows have been Long Oil, Silver and Lumber.

 

Yes…..Lumber. (see chart below)

All have doubled over the past 4 months.

Where to next….
Oil’s bullish trend is still intact,

Silver is overbought, at extremes and warrants caution if you are long (susceptible to a pullback to $18),

and Lumber is a Sell. With its 3 standard deviation above its ‘weekly’ mean and an outside reversal week, it’s time to cash in the (wood) chips.

by Rob Zdravevski
July 27, 2020
rob@karriasset.com.au

A Picture Of Crude Oil Reserves Tell Me A Thousand Words

What is this Crude Oil Reserves graphic saying to me?
It tells me that Australia is a minnow and it’s more of a LNG nation.
It tells me why integrated European and American oil companies enter joint ventures in foreign lands, ’cause that’s where the oil is.
And the U.S. is playing an interesting game of being the worlds largest oil producer against reserves that don’t suggest that status being sustainable.
Prior to the March 2020 collapse in oil prices, the U.S. was pumping a world leading 15 million barrels per day.
If the U.S. reduces daily production to let’s say 12 million barrels (not because Trump thinks he can force privatised companies to do so but more so relating to the global supply glut), then when dividend into their reserves of 37 Giga barrels, the United States will have 3,083 days or 8.4 years of reserves left.
That’s acute enough to create tension across politics and the oil price.
Incidentally, Saudi’s daily production is 12 million barrels.
– May 26, 2020, by Rob Zdravevski
No alternative text description for this image

Activate link to view larger image.

Lower Oil Prices By 2020?

Venezuela is the largest holder (18%) of the world’s proven oil reserves. If we discount any government inflated figures and the difficulty and costliness of extracting from the Orinoco Belt, let’s agree that they may come in slightly lower than Saudi Arabia.

Although, this comparison is between one country to another. It is worthy to note that Middle Eastern countries collectively hold 48% of these reserves.

Recently, it has been reported that Venezuela may default on its debt sometime in 2013.  I don’t believe they will, but they will create tensions and ransoms surrounding such a possibility.

They will simply produce more oil receipts to service or extinguish their debt. The IEA, OPEC and Saudi’s have also said that they would like to see oil prices lower than their present levels.

Recently, it seems that the oil price has been supported by speculation or anticipation surrounding geopolitical tensions and probabilities.

Israel’s equally hostile reaction to Iran’s previous threats has bid up the oil price of late along with populous Arab uprisings, although geopolitically, it would be wise for Israel to seek counsel from the United States before any pre-emptive missile attacks.

Although Iran would prefer a better scenario, but covertly they would welcome higher oil prices as it would ease the fiscal pain associated with new rounds of sanctions while Venezuela needs higher prices to make their tar, economically viable.

Much of America’s foreign policy is oil based and higher oil prices wouldn’t help America’s economic plight. Look for more diplomatic focus towards South America and  the former Soviet Republics.

The fundamental case for lower oil prices includes a subdued global economy, cheap coal and abundant gas (shale or otherwise) and record levels of oil production capacity will help keep the price of oil low.

Furthermore, there is so much oil in the world, we are not close to a “peak oil” scenario. In fact, the value of the world’s proven reserves amounts to at least $150 trillion, which is more than the combined value of all of the worlds gold, bank deposits, government debt and the market capitalisation of the worlds listed companies.

Yossie Hollander’s TED Talk summarised it well. There is not enough money in the world to buy all of the world’s oil, thus oil is too expensive.

When investing, you should avoid owning an asset where there is excess supply for I would prefer owning an asset that is in demand but in short supply.

 

 

 

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