Crude Oil Sinks on Continuing Glut, Slack Demand, Alternatives

While stocks have zigzagged and gone nowhere the first three days of the week, oil has been more consistent in direction, with WTI crude dropping by two dollars a barrel on Wednesday under $46, a nine-month low.

There's been a glut of oil on world markets for some time now, but it's been especially painful to producers since the market riggers lost control in 2015, sending the price from imaginary levels - forced upon the planet by the myth of "peak oil" - around $100 per barrel to where it stands today.

Oil's recent swoon brings up a good question. With all the oil sloshing around and a myriad of factors leading to lessened use of the "fossil fuel," what exactly is fair value for crude?

There are many arguments with which to weigh the answer, whatever that may be, but one element that is undeniable about the current condition, is that producing nations aren't exactly in love with what they're being paid for a barrel of the slippery stuff. That's because many of the producers - OPEC and Middle East nations, primarily - had budgeted for steady sales around the high-water mark of $100/barrel.

Since that price turned out to be completely unsustainable, these countries have had to adjust their spending and programs, leading to some degree of discontent among their citizens. Americans, who benefitted from fracking and shale drilling, have been the biggest beneficiaries, seeing the price of a gallon of gas fall from an average near four dollars to today's prices in the low two dollar range.

One of the largest factors contributing to the glut is purely demographic. Many established economies - Japan, US, Europe - are aging, and older people simply don't drive as much. Add to that the improvements in fuel economy, plus alternatives such as cars which run on natural gas or electricity and he trend becomes more pronounced.

As the price of crude continues under pressure, alternative fuels, such as increased use of coal, solar, and wind in the United States, will only exacerbate the condition.

Back in the good old days of the 70s and 80s, oil used to be under $20 per barrel. Then along came the "peak oil" sham, which sent the price through the roof and consumers to the poorhouse. The true price may or may not be found in the current regime of futures prices, a system that has and probably continues to be gamed, but the real price, taking into account the massive amounts of oil on and off the market, the stagnation of the global economy, and emerging alternatives, is likely to be found at levels well below what it is pinned at today.

Try thinking of oil at about $32-36 per barrel and gasoline at $1.60 and you're probably on the right track.

At the Close, 6/7/17:
Dow: 21,173.69, +37.46 (0.18%)
NASDAQ 6,297.38, +22.32 (0.36%)
S&P 500 2,433.14, +3.81 (0.16%)
NYSE Composite: 11,667.73, -3.73 (-0.03%)

A Disturbance in the Farce? Stocks End Lower Second Straight Session

Stocks turn red for the second straight session, this being the first full week of June, suggesting that there may be a revised adage for the new Wall Street, "Sell in June and avoid the swoon?"

Obviously, two days of smallish losses does not constitute a trend. Three days might. A close on the Dow below 20,600 would. Not only would that be a nearly three percent decline (OMG!), but it would be below the previous low close, a line of demarcation that could signal the oncoming of a bear market.

Those who deny the possibility of a bear market are either under the age of eight and have never seen what one looks like, or has forgotten prior bear markets, which generally occur when stocks are overstretched, overvalued and/or overbought.

To imagine that after eight years of somewhat spectacular gains that investors might disinvest and actually pull some of their support from the lofty prices of stocks on the Dow, NASDAQ, S&P, et. al., is not so far-fetched. It's happened before. It will, in all likelihood, happen again.

Trying to time such an event is the task of fools. With the FOMC ready to raise interest rates again, despite the incongruous activity in the bond markets (10-year-note yield at seven month lows, 2.15%), continued declines may become not a nuisance, but a feature this summer, one of the big hits that Hollywood will miss completely.

At The Close, 6/6/17:
Dow: 21,136.23, -47.81 (-0.23%)
NASDAQ 6,275.06, -20.63 (-0.33%)
S&P 500 2,429.33, -6.77 (-0.28%)
NYSE Composite: 11,671.46, -22.22 (-0.19%)

Unconvincing Open To the Week; Inflation/Deflation Debate Grows; Oil Continues Slide

In the ongoing inflation/deflation scrimmage, it's a draw, but, depending on where you've placed your bets, the victories may be huge.

For the investing crowd, stocks are golden and likely will continue to be so. Rough spots ahead include the June FOMC meeting (next Tuesday and Wednesday) and the coming fight in the congress over President Trump's proposed tax plan, which would constitute not only a major victory for the president, but also a big one for the American people, so it's far from a sure thing.

Congress, in case nobody has noticed, remains, for the most part, useless. Unless one is interested in hearings which lead to nothing or vacation time for rich Senators and soon-to-be-rich members of the House, neither the Republicans nor Democrats seem willing to actually legislate upon anything that will benefit anybody outside the District of Columbia. Truly, congress has become a closed loop between special interests represented by K Street lobbyists and insider deals that benefit one's own district (and that's becoming something of a rarity).

Noting that the government - outside of President Trump's ongoing efforts for change - remains powerless to do anything positive, Wall Street is probably giddy over the prospects, being that the major corporations which own, buy, and sell debt and equity are well insulated against any untoward legislation or outside shocks within their own cozy club.

Thus, it makes little sense to do anything except invest in the only asset class returning gains and/or dividends. Precious metals have floundered for the past four years, and oil has been in the dumps over the past two.

The slide from the low $50 range for WTI crude continued on Monday, dipping as down to 46.86 before recovering late in New York into the low $47 range.

So, in a nutshell, food and many other consumer staples remain without pricing power, restaurants are varyingly in a race to the bottom or towards diversifying menus with many of the large chains offering enticing deals. Retail overall is a basket case, now that online shopping has gone mainstream and will soon overtake brick and mortar from a gross revenue standpoint.

It's stocks for appreciation, though the wizards of Wall Street are somewhat blind to the disinflation, deflation and decimation of Main Street.

At the Close, 6/5/17:
Dow: 21,184.04, -22.25 (-0.10%)
NASDAQ: 6,295.68, -10.11 (-0.16%)
S&P 500: 2,436.10, -2.97 (-0.12%)
NYSE Composite: 11,693.65, -25.04 (-0.21%)

Stocks Gain Again With No End in Sight

The rally continued this past week, despite a weak outlook for employment with the May NFP data coming in well short of estimates and the prior two months (March and April) revised lower.

As has been the case for the better part of the last eight years, stocks charted their own course, without regard to underlying fundamental data. As the market entered the first full week of June, the ancient adage of "sell in May and go away" did not apply. Stocks were higher (the DOW, NASDAQ and S&P all making new all-time highs) the past two weeks and up in eight of the last 11 overall.

Bonds are telling an odd story as well, with the 10-year note falling below 2.20% yield on Friday, the lowest level since the election. The action in bonds is unusual, considering that the Fed is prepared to and has hinted at raising the federal funds rate another 25 basis points at their June FOMC meeting, which will be held next week, on the 13th and 14th.

Entering Monday's trading, futures are pointing lower, though that means little, except that the expected levitation will be delayed a few minutes or maybe even a few hours.

At The Close, 6/2/17:
Dow: 21,206.29, +62.11 (0.29%)
NASDAQ: 6,305.80, +58.97 (0.94%)
S&P 500: 2,439.07, +9.01 (0.37%)
NYSE Composite: 11,718.70, +18.91 (0.16%)


For the week:
Dow: +126.01 (0.60%)
NASDAQ: +95.60 (1.54%)
S&P 500: +23.25 (0.96%)
NYSE Composite: +86.83 (0.75%)

To Start June, Stocks Soar Without Reason; Dow, NASDAQ Set New Marks; NFP Disappoints

Just because...

At The Close, 5/1/17:
Dow: 21,144.18, +135.53 (0.65%)
NASDAQ: 6,246.83, +48.31 (0.78%)
S&P 500: 2,430.06, +18.26 (0.76%)
NYSE Composite: 11,699.79, +101.76 (0.88%)

Updating, at approximately 9:00 am ET:

May Non-farm Payroll data disappointed, coming in well below expectations of 185,000 net new jobs, at 138,000.

April was revised lower, to 174,000. The May figure is the second-lowest since November 2016, and is the sixth month of the last eight that job creation was less than 200,000, dating back to October, 2016.

Is this showing the real nature of the US economy? That job creation is still stagnant or slowing, with the economy remaining in favor of large corporations with significant barriers to entry by smaller firms.

This is the turret of the US economy. The myriad of regulations and laws, engineered and gamed by lobbyists for major firms, favor big business at the detriment to small business and entrepreneurism. The rules, regulations, licenses, and filing requirements for business favors larger firms because they - due to their vast monetary advantages - can pay the onerous fees, lawyers, accountants and compliance costs without much of a dent to their bottom line.

Smaller firms lack the financial resources to deal with the myriad of federal, state and local laws, finding themselves at such a disadvantage that many people considering starting up their own business, do not, once they research the complications of tax laws and other regulations. Thus, the number of self-employed people in the USA is lower today than it was in 1990.

That figure is depressing because there are 72 million more Americans now than there were in 1990. Worse yet, according to Michael Snyder's Economic Collapse blog:

...the percentage of “new entrepreneurs and business owners” declined by a staggering 53 percent between 1977 and 2010.

So, while Wall Street funds the well-heeled huge corporations, Main Street and small town America is still stuck in the depression that began in 2007 (some say 2000) and has not ended, despite the "recovery" meme from the past eight years.

If working for some gigantic global corporation at slave wages and having 40% of your paycheck stolen from you in the form of taxes and contributions is any American's idea of freedom, growth, or prosperity, one wonders what a recession or depression really looks like.

Americans could have and should have destroyed the corporate-government partnership back in the sixties, but, after the youth revolution was crushed by the military-industrial complex, the Baby Boomer generation blindly went along their merry way, co-opted into the system. Now they are all retiring, wondering if the $500,000 or $1 million they've squirreled away over the years will last them the rest of their lives.

Meanwhile, the country they were born into and suckled upon no longer resembles the one of their youth. They will leave to future generations a small shadow of a once-great nation, Donald Trump or no Donald Trump. Sadly, to this point, the evidence points to the president favoring big business over small. Perhaps that is just perception, or maybe it's too soon to judge him on the small business front, because, after all, he was - long ago - a small business - and has dealt with many small business owners in the past.

There may yet be hope for small business in America, but the rules favoring big business are choking it down.