To Honor A Hero, BE A Hero

We’re honoring heroes today. Which is well and good and proper.

But why aren’t we following in their footsteps… and trying to become heroes, too?

Most of us don’t have to go to war. But we’re still in a war today. Rampant, choking inflation. Climbing interest rates. Pollution. Dependency on the Middle East.

Brave men and women gave their lives for us to have a better world. And when it comes to our big moment to contribute… to be counted on…

… what the hell are we doing?

Squat.

Here’s something you can do to be a hero TODAY: Drive less. Ride a bike. If you have to drive, drive 55.

We ALL can do that. Right now. This very minute. We can reduce our oil consumption by 10-15%.

Let’s throw out the lead foot (i.e., fast starts/stops) and we save another 10-15%.

Why does this make you a hero?

Because we lessen our dependency on oil politics… whether that’s Middle East or in our own backyard.

Because less oil consumption means less pollution.

Because less oil consumption means less demand and therefore falling oil prices. And — CRITICALLY — there is a one-to-one correspondence between oil prices and inflation. Higher oil, higher inflation.

But LOWER oil, LOWER inflation. Everyone has more money in their pockets. Interest rates are lower. Less pollution so everyone is breathing a bit easier, including the Planet Earth.

And just like that… without government intervention… without having to watch the market painfully spiral downward… without really anything more dangerous than a slight change of bad habits… YOU’RE A HERO.

Just like that.

Btw, if you’re someone who’s saying, “forget that, my freedom is the ability to burn as much gas as I please!” … then you’re someone that doesn’t deserve the sacrifice made by our fathers and mothers… because acting irresponsibly does NOT equate to personal freedom… it equates to you being a selfish, unappreciative jerk.

We’re at war… no one is asking you to risk your life… just sacrifice a little bit of speed for a whole lot of good.

Be a hero. Drive 55.

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Why Do We Import 500,000 Barrels Of Oil A Day From Russia When We Export 8.4 Million To Other Countries??

Oil prices are going through the roof.

Certainly all the uncertainty in the world isn’t helping.

But gas prices have skyrocketed. Which means inflation is skyrocketing, since the price of a unit of energy affects everything we purchase.

It’s killing me that all the DRILL DRILL DRILL folks are coming out of the woodwork and screaming, “we told you so!”

It’s killing me because, lest we forget, climate change is absolutely an existential threat to our very existence, too.

Seriously. Next time we get back-to-back “once in a century” storms, you’ll remember how much climate change sucks.

Or, just look at pictures of Beijing at noon to remember just how disgusting pollution is.

Now, we’re contemplating banning the import of Russian oil. And for some reason, this has spooked the oil market even higher.

Really? They supply about 5% of the world’s oil. Only about 1/2 million barrels a day to us. Why the hell do we need to drill more? We’re already exporting 17 TIMES that amount every day!

Maybe we should ask our national oil producers to keep U.S. oil in the U.S.? Or maybe they should just know to do that, as in, knowing the right thing to do in this situation?

AND… maybe the entire world doesn’t have to freak out about a lousy 5% of oil… how about we all just use 5% less energy? Walk to the store? Ride a bike to school? Use public transportation? Carpool? Take one car to a restaurant rather than two?

Seriously, simply combining weekly errands into just one or two trips a week would probably do it.

C’mon, America. We can tell Putin where to shove it AND help clean up the environment with so little effort… it will hardly feel like the WARTIME we’re in.

If I Were President: Here’s The Solution To Gas Prices (And Inflation And Pollution)… Stop Driving For A Month

I’m not suggesting we go into lock down, but there certainly were a few unintended yet welcomed consequences from the early days of Covid.

We learned that we could work remotely, at least those in corporate America.

We learned that we could hold meetings — work or personal — quite reasonably on Zoom.

We learned that even a month of reduced driving made a big impact on our environment. CO2 levels started coming down. You could see fish in the Venetian waters again. And all kinds of other miraculous things, too.

Most importantly, we learned that even a month of reduced driving made a big impact on oil supplies and gas prices…

… and since the price of a unit of energy affects the price of everything else in our world, we were reminded that the price of everything in the world comes down as oil prices come down.

So if I were the President of the United States, here’s what I’d do:

(1) I’d gather the top 50 employers in the country to an emergency meeting at the White House… hey, I can do that, I’m POTUS! :) I’d remind everyone that we’re in a time of extraordinary crisis… whether it’s Ukraine, Russia, China, inflation, deficits, interest rates, supply shortages, pandemics, whatever. I’d ask the CEO’s of all of these companies if they would consider voluntarily having their workforces work at home, just like they did during the early days of Covid. I’d suggest 90 days, to correspond during the spring, where temperatures would not be too cold nor too hot, so easy on home heating and/or cooling needs.

(2) I’d address the nation… and remind all Americans that we’re in facing multiple, life-changing crises… and just like great Americans have done through difficult times, we all can make a contribution. Nothing is locked down. But walk to a local restaurant or shop. Ride your bike to school. Take public transportation. If you have multiple cars and have to drive, take the one that gets the best gas mileage. Plan trips better, do all your errands in one trip rather than three. Get together with your friends and neighbors and carpool when possible. Want to show solidarity with the Ukrainians? Want to stop run-away inflation and pay less money for everything? Want to put a lid on pollution? Want to sock it to Russia (and the Middle East while we’re at it) where it hurts, in their oil pocketbook? For the next 90 days, let’s make a wartime-effort to reduce or eliminate driving if we can.

(3) I’d met with the leaders of other countries, talk about what we’re doing in the United States, and ask each and every country if they would join the battle.

Here’s what I love about this plan: It literally has a huge impact ON DAY ONE.

And it shows that we control our situation… our situation does NOT control us.

Why We Won’t See Negative Oil Prices Again

There should be no doubt that greed makes people do funny things.

Take investing in oil.

Sure, there’s a lot of companies that truly want to buy oil.  To create gas.  Asphalt.  Lubricants, paint thinners, and dry-cleaning solvents.  Charcoal briquettes.  Wax birthday candles and crayons.  Polyester shirts.  Plastic drinking cups, toothbrushes, and hair combs.  And so on.

But there are also a lot of people that simply want to trade in oil… without never, ever taking delivery of oil.

These traders have played a rather interesting game.  They buy oil contracts.  But these contracts actually oblige them to take delivery of oil, because, after all, that’s what they’re buying.

But remember they never, ever really want to take delivery of oil… I mean, where are they going to put it, in their swimming pool?

So the plan is always to sell the contracts before having to take delivery.

That’s the way it’s worked for a long time.

Until this week.

Hoping for a last minute Hail Mary (i.e., something that would spike the price of oil higher), it looks like a group of oil contract holders held on to their contracts a bit too long.

Normally this isn’t a problem.  There’s always a buyer at the right price, right?

Not if there isn’t readily available storage for that purchased oil!

And that’s what happened this week.  There was no readily available storage… which caught a group of traders with their proverbial pants down.  Faced with the prospect of actually having to fill their swimming pools with black oil, these traders literally had to pay companies to take it off their hands.

And, thus, we saw the first NEGATIVE oil prices ever.

It didn’t last long.  And it wasn’t for that many contracts.  But it was a spectacular flame-out… an absolute spectacle to watch.

The lesson?  If you’re an oil trader and there isn’t any oil storage, DON’T WAIT UNTIL THE LAST MINUTE TO GET RID OF YOUR CONTRACTS.

And, except for a few isolated cases, chances are most oil traders won’t come anywhere close to doing that again.

Duh, right?

But, you never know.  :)

Oil… What’s Stronger: Reality Or Contrarian View?

Anyone that reads this blog knows I root for oil to go down, down, down… because, while that doesn’t benefit an outdated oil industry, it does benefit every other person on the planet… and, oh by the way, it benefits the planet, too.

The facts all virtually guarantee oil will keep driving lower… because of lack of demand (remember the world has shut down!)… because of geopolitical bickering… and because — go figure — the world is really, truly almost out of oil storage.

Ha, those are some pretty great facts!

So why would anyone take a flyer on oil going up now, with oil trading in the low teens?

Because that’s what contrarians do… the opposite from what everyone else thinks.

Case in point:  After oil getting absolutely crushed over the last few days, it had a rather big pop today.

So oil can go up, if no other reason than a dead-cat bounce.

Or, let’s say there’s a threat of war… like what may have happened this morning given Trump told the military to shoot at any harassing Iranian gunboats they want.  Military disruption like that tends to spike oil prices.

Or, let’s say Trump just can’t help himself and he starts levying tariffs on foreign oil.  The U.S. is (sadly) the world’s biggest consumer — by a wide margin — so tariffs would mean the price of oil would be artificially raised in a rather meaningful way.

Or, let’s say that the world gets unbelievably creative and somehow finds a lot more storage space… like old train storage containers… or old storage silos or such… because it’s the lack of storage space that caused the extreme oil pricing mania yesterday.  (“What do you mean I have to keep all the oil in my swimming pool?!”)

Or, let’s say of the 70 vaccines in testing right now, one of them makes it to the finish line relatively soon.  The real possibility of the world reopening for business would also cause oil to spike.

Or, let’s say OPEC decides that their 9.7m barrels a day cut from a week or two ago was completely and utterly insufficient… and so they call another “emergency” session and cut oil by 30, no, 40 MILLION barrels a day… way more than anyone would expect… because they know the time for horse-shitting around is over.  That would send oil prices skyrocketing.

And, let’s say Trump can’t stand being out of the spotlight for more than 12 seconds and he politically forces the Saudis and Russians to cut supply… by offering guaranteed cuts from U.S. producers (something that was left off the table the last time OPEC got together).  With oil at perceived negative prices, he just might have the go-ahead to make that type of commitment.

Note that nothing above is, “when aliens invade the planet” crazy.

So, call it contrarian or whatever, but I just don’t trust that something, ANYTHING won’t happen to interrupt the greatest “fuck oil!” party ever.

Sadly.

V-Shaped Recovery? More Like A W…

Dow is a hair away from 24,000 as I write this.  Nasdaq a shade over 8,500.  We’re back to being closer to the top than the recent bottom.

Today’s action felt like it’s really, truly going to be a V-shaped recovery… that we should be back at our old highs in no time at all.

But… b-e-w-a-r-e.

Because it was just a few weeks ago that it felt like the crashing would really, truly never end.

And that’s what happens during a crisis… the mania swings in both directions.

Don’t get me wrong:  We have a lot going for us in this crash.  Oil is really low… and that’s my #1 requirement for an advancing economy.  Companies headed into this crisis with a lot more going for them, too (i.e., real growth, real revenues, and real profits).  And lots of technology companies are going to absolutely thrive in this crisis, for example, Amazon, Netflix, DoorDash… anything to do with the cloud… and so on.

And, critically, the government has backstopped everything with TRILLIONS in bailout money.  (“Oh, yeah, that.”)

But let’s call a few spades spades here:  THE ENTIRE WORLD JUST STOPPED!  That’s going to affect many, many more companies than will benefit.  Stocks ran up waaay too much before the crash, too, so even without a crash, they needed a 10-20% correction just to whack them back in line.  And — most significantly — no one really knows when we go back to normal.

This last point is the key.

This V-shaped rally — where stocks go straight down, then go straight back up, forming a “V” pattern — is almost entirely predicated on us getting back to normal soon.

As in, investors already know this quarter is going to be a disaster, but they think they might have the next one in the bag.

But what about the next quarter?

If I’m the CEO or CFO responsible for offering public company forward guidance… in this environment… there’s no way I’m touching that with a 10-foot pole.  That’s a guaranteed lawsuit just waiting to happen.

So, unless I’m one of the handful of companies that are crushing it during this crisis, there’s no way I’m going to be even the slightest bit optimistic about the future.  Because everything is uncertain.  How long this will last.  What the 2nd wave looks like.  Or the 3rd.  Or if people really are developing immunity.  And so on.

So I either give the biggest low-ball guidance in history — or what is happening more and more — I simply refuse to offer any forward guidance.

That’s when the next shoe drops.

When analysts and investors see this negativity… then try to understand this negativity… then realize they’re now really, truly flying blind… that’s when the rug gets pulled out from under them…

… and the market, too.

Because that’s not going to feel like “soon.”  That will, for a period, feel just like FUD (Fear, Uncertainty, and Doubt).

It’s inevitable.

Because mania is inevitable.

Why Do American Presidents ALWAYS Get Oil Wrong?

Oil — really the cost of a unit of energy — affects the cost of EVERYTHING on the planet.

Which means that when oil prices go up, that FINANCIALLY HURTS everyone on the planet…

… including EVERY AMERICAN.

So why is Trump actively trying to drive oil prices higher?  In fact, why do all American presidents feel the need to do this?

I know people will say, “to protect America’s oil producers” … and so that we’re not strategically dependent on foreign oil.

Hogwash.

The way to do this is NOT to artificially raise set prices.  It’s to innovate.

Either we figure out a way to extract oil less expensively…

… or we figure out economically viable energy alternatives…

… say a conversion to natural gas, where we have a 100-year supply… or, electric cars… or solar-driven residential and commercial buildings.

And so on.

Anything but charging Americans MORE, which means we just end up FUNDING THE VERY PEOPLE THAT WANT TO DO US HARM MORE.

Sorry, energy industry.  Innovate or die.  Just like every other industry has had to do.  But don’t drag the rest of the country down with you.

A Silverlining: Happy St. Patrick’s Day To The Soon-To-Be Greener Planet Earth

Unless you’re short — and other than the great St. Patrick’s Day holiday where we all get to be green — not many silverlinings these days.

Except one big one:  The planet Earth is happier.

Maybe shutting down everything will give the planet a chance to breathe again?

After all, in terms of our stewardship of Earth, we’ve all acting like kindergarteners…

… so it’s fitting that the solution to climate change might very well be a global time out! 

Letting Some Air Out Of The Balloon

There’s a lot of noise in the market.

But there’s usually a lot of noise.

By definition — at any point in time — 50% of people think there’s enough bad in the market to sell their shares to the other 50% who thinks there’s good.

Can’t have a market otherwise.  That’s why I always scoff when someone refers to “easy” trading periods.  It’s never easy.

What helps guide you through the noise is whether your fundamental investment thesis is still intact.

Is mine?  I think the two biggest drivers of corporate profits — which drive the market — are the price of oil and interest rates.  Let’s see where they stand:

* While oil took a little run to the upside, I wouldn’t call it misbehaving.  In fact, it’s shed much of its 2018 gain

* Interest rates are spooking everyone… but 10-year is sneaking back down… and Trump’s on fire about the Fed messing things up — so much so that a few Fed governors have had to reiterate that they won’t, uhm, mess things up (i.e., “will still be accommodative for quite a while”)

* Sentiment is negative.  While that’s not comfortable, as a contrarian I prefer this

So, for me, at least right now, the noise is… just noise… and what we’re seeing is some healthy “letting some air out of the balloon”… which we like… so it doesn’t pop.

 

P.S.  A great example of “noise” was Caterpillar earnings.  They beat top & bottom line.  But everyone was fretting about China and tariffs… and the stock got pounded… even though if you read their commentary, you find CAT itself wasn’t so worried about the effect of China or tariffs on its business.  Here’s some commentary from their 10/23/18 earnings call:

* CATERPILLAR SAYS FEEL GOOD ABOUT EQUIPMENT DEMAND IN CHINA NEXT YEAR

* CATERPILLAR SAYS EXPECT BUSINESS TO CONTINUE TO IMPROVE IN 2019 VERSUS 2018

* CATERPILLAR SAYS CONTINUE TO EXPECT INDUSTRY SALES IN CHINA FOR 10-TON-AND-ABOVE EXCAVATORS TO BE UP ABOUT 40 PERCENT FOR THE FULL YEAR

* CATERPILLAR SAYS EXPECT IMPACT OF 25 PERCENT IMPORT TARIFF ON ADDITIONAL $200 BILLION CHINESE GOODS TO BE ‘QUITE MINOR’

These are all good things, right?!

What Does It Mean That OPEC Is So Quiet?

It scares me that OPEC is so quiet.

OPEC countries usually love to grab the spotlight during big meetings (and the media loves to shine the spotlight on anyone that looks anywhere close to being an oil minister!).

That’s not happening for the big confab tomorrow, though… where everyone universally believes OPEC will extend their production cuts.  After all, the leading OPEC members said as much in a press conference on Monday.

Quiet is a bad sign… as is the Middle East unanimously agreeing on anything.

Could there be some hugely negative surprise tomorrow?

There have been little chirps here and there about Iran (the #2 player in OPEC) not wanting production cuts to apply to them…

… but nothing disruptive.  Indeed, everything seems civilized… which is a word not many would associate with the players involved.

Unbelievably, I think there’s a really good reason why OPEC may be in agreement:  The production cuts seem to be working.

Crude oil is trading about 15% higher than before the production agreement was announced last Nov.  Maybe more significantly, it dramatically changed the trend line.  Before the announcement oil was spiraling downward, everyone (there’s that “universally” thing again) was sure it would soon be trading in the 30’s.  OPEC’s agreement seemed to single-handedly stop the decline in its tracks…

… and there in lies the major motivation for cooperation:  Oil in the 50’s is a lot better than oil in the 30’s.

Guess we’ll see how it plays out in the next 24 hours or so.

 

OPEC Games?

To say the oil market is sensitive to news coming out of the Middle East is an understatement.

In November I wrote, “If I Were A Bad (Oil) Guy“… essentially wondering if countries in the Middle East might be jerking oil markets around on purpose to earn a little side money.

Guess we’ll find out this week… there’s another very big meeting on Thursday… and while everything seems quite hunky-dory right now… it will be interesting to see if anyone tries to upset the oil cart this week.

Stay tuned.

P.S.  It’s quite possible that something like this already happened… UWT (which tracks crude oil 3x) was trading just under 23 about a month ago… about two weeks ago it his just above 13.50… that’s a pretty sizable drop in such a short period of time.

There Is Something Wrong With WTI, UWTI, and DWTI

UWTI and DWTI are wildly popular 3x ETF’s that track WTI oil.

That means they approximate three times the daily move by WTI oil… and there’s a lot of daily volume so there are no weird trading patterns.

WTI was up about 0.33% today, which means UWTI should have been up about 1% today… and DWTI should have been down about 1%.

But, UWTI was up about 5.5%… while DWTI was down about 5.5%.

That makes no sense.  I’ve tracked these ETFs daily for years and I’ve never seen this.

There are some extracurriculars going on here, most notably it was announced yesterday that Credit Suisse AG is going to shut down the wildly popular UWTI and DWTI ETFs.  I don’t think this affected price because if it did, it would have had an equally negative impact on both.   Instead, both issues had completely mirrored performance today, just as you would expect — only, the mirrored performance was off by almost 6x!

Also, it could have been some kind of rumor out of the “practice” meeting at Doha, but, if that were the case, that would have affected WTI price first, which it did not… WTI was relatively calm today.

I’m trying to figure out whether this is one of those rare times when some kind of inefficiency affected price.  If that’s true, you would expect a snap back rather suddenly on Monday, possibly an interesting trading opportunity.  Problem with that thinking is these ETFs trade in such high volume, that kind of inefficiency is almost impossible.

This one certainly has me scratching my head.

If I Was A Bad (Oil) Guy…

The great historical fiction writer Leon Uris characterized in The Haj how difficult it was to negotiate with the Middle East… I roughly remember the language he used:  “Do you know how hard it is to negotiate with horse-traders that have been negotiating for 1,500 years?”

That’s not a direct quote… just something I read a long time ago that made an impression on me.

It’s also what I’ve observed when it comes to the Middle East.

Sometimes I wonder — since oil is incredibly sensitive to any comments coming out of Saudi Arabia — and since the Saudis clearly have a cash flow problem these days — whether they’re speculating on the side.

In my experience, almost all professions do it… it’s said that an honest bartender only steals 10% of the evening’s take… and that’s why we have insider trading laws and regulators.

I can only imagine how ineffective any kind of laws and/or regulators are in an area of the world as wild, wild west as the Middle East.

If I was a bad oil guy and wanted to make a chunk of cash speculating in oil in the next few weeks, I would have a “practice” meeting and leak that it was an utter failure.  That would send oil plummeting.  Then, miraculously, at the final meeting, I would triumphantly declare success, grabbing victory straight from the jaws of defeat… and, of course, sending oil soaring.

Even though people would eventually unravel the terms of the deal and find that it was mostly hype over substance…

… as a bad oil guy, short term I would still win on both ends of that horse trade.

Just sayin’.

(Note:  The “practice” meeting is in Doha, Qatar tomorrow… and the final meeting in Vienna, Austria on Nov 30th.  Stayed tuned.)

NOV 30 UPDATE:  Well, the timing was a bit off… they mostly waited to about a week before the meeting… but, yes, oil, which had a dramatic move downward in the last few days, is now soaring this morning on the heels of a (still unconfirmed) deal… so there may be bad oil guys in OPEC after all.  Go figure.

The setup:  Since last Friday, it seemed like a deal was completely and utterly dead.  First, it was announced the Saudis would not attend the preliminary Monday session, which was viewed as being a negative sign that the Saudis were putting their feet in the ground, including horrible “R” word rumors:  That they may be reneging on prior agreements.  

Then came the slew of press releases stating things like, “the Saudis can go pound sand, we’re not cutting!”… and “we think a freeze right now is the same thing as a cut in 2017″… and such.  

Over the weekend the head Saudi oil minister was even quoted as saying, “oil is rebalancing, anyhow, so if there’s not an agreement, everything will still be fine.”

Then came the last 24 hours where things appeared to be so bad, the Saudi oil minister even resorted to “sneaking in a side door” to avoid having to face the press and other countries.  Understand there is a lot of pomp and showing of strength (i.e., “mine’s bigger”) at these meetings so not making a formal entrance was also considered very negative.

Magically, though, an agreement — even bigger than what was expected — emerged this morning.  And now oil is soaring.

Imagine that.

 

 

 

Which News Outlet Is Right? Ouch!

Data is one of the things that moves the oil market these days.

Every Tuesday at 1:30pm pst we get data from the American Petroleum Institute (API).

I have found Marketwatch does a great job covering this report — which we mere mortals can’t actually get directly since we don’t pay the big bucks for a data subscription.

Yesterday Marketwatch reported a 3.65 million barrel build… compared to a 2 million barrel decline that analysts were expecting.  Relatively speaking, that’s a big miss… and would be quite bearish for oil prices.

CNBC, on the other hand, reported a 3.6 million barrel build… BUT as compared to analysts expectations of a 1.5 million barrel INCREASE.  That’s obviously a less dramatic miss.

So who’s right?

Who knows!  In this highly automated news era, it’s impossible to get in touch with any news agency to ask them to verify potentially big typos in reporting.  I’ve been trying to leave comments on the CNBC site… and am logged in correctly (since I got the “Welcome, Royal!” message)… but for some reason (maybe a bug) my comments aren’t posting.  (And, no, I don’t post a lot of comments so I haven’t been banned or anything.)

Technology is absolutely wonderful but still has a ways to go, eh?

Guess we’ll find out the true answer when the U.S. Energy Information Administration (EIA) reports at 7:30am pst today.

That is, if the news agencies can get the reporting right.

UPDATE:  The EIA reported that the actual build was 5.3 million barrels… which I’m happy to say both news agencies got right… BUT, Marketwatch still is using an analyst figure of an expected decline of 2 million barrels… while CNBC is still using an analysts figure of a 1.5 million barrel increase.  Ugh!  Go figure.

Time To See If Contrarian Theory Works In Oil

OPEC just announced some “kinda” agreement about production levels and freeze.

Oil just skyrocketed on the potential “news” (up 5.3% @ $47.05 for the Nov ’16 contract).

Everyone has been waiting for this moment… a signal from OPEC that the strategy it’s employed the last few years is changing.

Everyone — 100% of all analysts — have come out saying this will put a floor under oil prices now.

The contrarian in me says when everyone thinks one way, the opposite usually happens.

What could possibly go wrong?

Maybe this inspires more U.S. shale oil to be produced… that was one of the reasons oil dropped from the triple digits not so long ago.

Maybe the “cuts” aren’t real cuts, just natural scale-back given the time of year (between summer driving and winter heating)… so any temporary euphoria in the market will soon get replaced with the commonsense observation that everyone is still pumping at near-record levels.

Maybe it’s just all of the OPEC members playing games with each other — and the world — again.

Who knows, but it will be interesting to see!