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(Bull) Market May 2021

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Currently Tech. is the hated segment of the market:



The leaders:



Semi's to lead the broad market lower? Never heard that one before. Keep 1 eye on it.



I do have XLU back on my watch list (XLU, XLY, CARZ, ROBO, XLY).



Not being talked about a great deal currently is the $11T in short term government Treasuries that roll over soon. Now just suppose that the Treasury decided not to issue new debt.

The REPO market would go into a major meltdown. Short term Treasuries are used as collateral. Ok, so this won't happen. Who is going to buy? Or does the Fed. simply monetise? With debt/GDP at 130%+ this could turn into an issue.

We remain in churn range.




With Tech. being currently so weak, the indices will struggle, but the right sectors will continue to power ahead. I'll be keeping an eye on Tech. to try and get a good entry back in, assuming that it doesn't collapse the broad market.

jog on
duc
 
Inflation data.



Inflation is as much psychological as actual expansion of credit. That Rubicon seems to have been crossed. This is something that can quickly spiral out of control of the Central Banks as they no longer have the ability to raise interest rates.

Fed. Chair Volcker raised rates to combat inflation in the late 70's early 80's markets. He could do so because the Debt/GDP ratio was 33%:



That is simply not tenable today. Can you imagine the effect of raising rates to the levels in 1980 (see chart below). The Great Depression would look benign by comparison. In 1929 the Debt/GDP was 16%. Today it is in excess of 130% and growing fast.



So if inflation does take hold, what exactly can be done? After 2008/09 the idea was that the economy could 'grow' out of it. Clearly that failed miserably. The ratio simply continued to grow.

Therefore debt has to fall. And fall by a huge amount. Estimated is an $11 Trillion handle. We are back to (Krugman) discussions of a platinum $1T coin or revaluing the US gold reserve to $50K/oz. and paying off that $11T short term debt. Unfunded liabilities sit at $130T (Medicaid, Social Sec.) which are not even in the equation.

So of course crypto's are another way that people are trying to hedge inflation out.



While I am not a fan of cryptos, it is better than doing nothing.



jog on
duc
 
Market caught whatever ails the NASDAQ:




No particular rhyme or reason by sectors.

Yields across the world are rising. Inflation becoming a far wider concern.


VIX:



Mr flippe-floppe-flye:



Gold off today, but....



It is a different type of market, again.

My yield model shows 1.7%. Actual yields are 1.63%, so moving up, but lagging the model. If past is prelude, those yields will continue to move higher.

Not what 'growth' particularly wants, which largely means Tech. Commodities could also slow or fall. The problem is what is the 'real' rate of inflation? As there are no real numbers, it is largely guesswork.

My model suggests inflation sits here:



The last time commodities had a run (oil, gold) was also circa 2009 - 2011. Which is more or less where we sit currently. The big spike in 2020 was not as noticeable because of C19 and lockdowns, and the Fed's crushing of rates across the curve was felt to be necessary.



So gold sits at about the same level as in 2011 on a par with the then and now inflation. Oil of course is (still) much lower. DXY is much higher. All eyes will (should) be on DXY and/or oil.

This is why currently the Fed. is not so worried about inflation. The Fed. is very worried about DEFLATION or debt defaulting. Corporate debt sits at +/- $16 T. Sovereign debt at $150 T. GDP is in the toilet. Currently after 2020, any number for GDP looks good. It still sucks.

Inflation and lots of it, is one way, the primary way, that governments try and reduce the debt burden. No way does the Fed. let rates rise much above 2%. YCC control will be implemented. Yes, DXY is f***ed. Worse would be widespread defaults which could include the government.

The big RISK is that an inflation runs so hot, it morphs into a hyper-inflation. Without the ability to halt an inflation via raising the short end of the curve, because you blow everyone up, an inflation can just run and run until you blow up the currency.

Which raises all manner of questions of how to protect what you have.

jog on
duc
 
One way postulated by the crypto crowd are crypto currencies. The only 1 that really matters is BTC. If BTC fails, pretty much all of them go into oblivion.

Companies that have BTC on their Balance Sheets. Not so great.





TSLA has its BTC in Cash/Short Term Inv.



You can see the impact from the Annual Statements:



There seems to be an argument that BTC should be valued equivalent to gold, based on its equivalent monetary value:

BTC could trade for $250K within five years: Morgan Creek Capital CEO

Speaking to CNBC, Morgan Creek Capital Management’s Mark Yusko predicted Bitcoin will tag $250,000 in the next five years.
cointelegraph.com

NNT:




BTC is looking very vulnerable on the charts currently. While I would love to SHORT it, there is no real acceptable way to manage its volatility apart from small size.

Oil news:

- U.S. natural gas production posted the largest monthly decline on record in February, according to recent EIA data.

- Production averaged 104.8 Bcf/d, an 8.1 Bcf/d decline (7%) from January.

- Texas accounted for a 4.3-Bcf/d decline, the largest on record.

Market Movers

- The UK’s largest asset manager, Legal & General, said that it would back the activist hedge fund’s slate in the ExxonMobil (NYSE: XOM) shareholder meeting later this month.

- Motiva Enterprises cut production at its refinery by 45% because of the Colonial Pipeline outage. Total (NYSE: TOT) reduced output by 25% at its Port Arthur refinery.

- EQT (NYSE: EQT) announced the sale of $1 billion in debt to finance its takeover of Alta Resources Development.

Tuesday, May 11, 2021

Oil prices eased on Tuesday as some resolution to the Colonial pipeline outage came within sight. “As most operational service is expected to be restored by the end of this week, traders have removed yesterday’s price premiums, realizing there are enough commercial gasoline stocks to tide over the currently expected duration of the crisis,” Rystad Energy said in a statement. But gasoline shortages were starting to emerge due to panic-buying.

Colonial Pipeline outage fallout. The Colonial Pipeline carries gasoline from Texas to the Northeast, delivering 45% of the East Coast’s gasoline supply. The ransomware outage has left the pipeline offline for days. The Biden administration declared an emergency, which opened up a few paths to ease the bottleneck. “Colonial Pipeline is ultimately the jugular of the U.S. pipeline system. It’s the most significant, successful attack on energy infrastructure we know of in the United States.”

Colonial outage and rerouted gasoline flows. A record-high amount of gasoline from the Mideast is being rerouted to the U.S., and European gasoline is also likely heading for the East Coast. “With the loss of Colonial's roughly 1.5 million b/d plus of gasoline, inventories will reach 5-year lows (52.4 million barrels seen in October 2017) after 8 days of outages,” Platts Analytics said, referring to Atlantic Coast inventories.

Gas stations running out of fuel. Some gasoline stations on the East Coast are starting to run out of fuel. An estimated 7 percent of gas stations in Virginia were out of fuel as of late Monday, according to GasBuddy analyst Patrick DeHaan.

Oil industry adds jobs. In March, the U.S. oil and gas industry added 12,000 jobs, the largest monthly gain in 30 years.

OPEC’s production increases. OPEC’s crude oil production is estimated to have increased to a three-month high of 24.96 million barrels per day (bpd) in April, thanks to a major jump in Iran’s output.

China shuns Australian LNG. At least two Chinese importers of LNG were told by the government to stop importing gas from Australia, another casualty in the two countries’ worsening trade spat.

Colorado drillers merge. Bonanza Creek Energy (NYSE: BCEI) and Extraction Oil & Gas (NASDAQ: XOG) announced plans to combine into a company valued at around $2.3 billion. The two companies will together become the largest pure-play driller in Colorado’s Denver-Julesburg Basin. The combined company will be renamed Civitas Resources Inc.

Dutch government grants $2.4 billion in subsidies for carbon capture. The Dutch government has granted a consortium that includes Royal Dutch Shell (NYSE: RDS.A) and ExxonMobil (NYSE: XOM) $2.4 billion in subsidies for what is set to become one of the largest carbon capture and storage projects in the world.

Rystad: Oil majors run out of reserves in 15 years. The proven reserves of the oil majors declined by 15% last year, and the remaining reserves are on track to run out in 15 years, according to Rystad Energy. “The task is becoming more and more challenging as investments in exploration shrink and success rates slump,” Rystad said.

Indian refiners cut output. Due to the drop in demand from the pandemic, India’s refiners have trimmed processing. Indian Oil Corp, the country’s largest refiner, reduced runs to about 85-88% capacity. "We do not anticipate that our crude processing would be reduced to last year's level of 65%-70% as inter-state vehicle movement is still there ... (the) economy is functioning," a company official told Reuters.

Jet fuel demand remains down. Long-haul flights are not returning anytime soon, so jet fuel demand could average around 5.8 mb/d in 2021, up 30% from 2020, but down from 8 mb/d in 2019, according to FGE.

Shell announces Gulf of Mexico discovery. Royal Dutch Shell (NYSE: RDS.A) announced a deepwater discovery in the Gulf of Mexico.

Gas flaring declined by 5%. Gas flaring worldwide decreased by 5 percent last year due to lower demand for oil and a knock-on decline in drilling.

IEA: Renewables surging. In a new report, the IEA said that renewable installations soared to 280 GW globally last year, up 45% from 2019. The strong additions are set to become the “new normal,” the agency said, with renewables accounting for 90% of global electric capacity installations in 2021 and 2022.

Vitol’s carbon trading surged. Vitol Group’s carbon emissions trading soared by 61% last year, a sign that oil traders are pivoting into carbon trading.

Shell to get half of energy from clean sources within a decade. Royal Dutch Shell (NYSE: RDS.A) CEO Ben van Beurden said that half of the company’s portfolio will come from clean energy “somewhere in the next decade.”

EVs to be cheaper in every segment in the coming years. EV cars will be cheaper than gasoline and diesel vehicles by 2027, and larger electrified SUVs will be cheaper by 2026, according to BNEF.

$1.7 trillion in mining needed for energy transition. The mining industry needs to invest $1.7 trillion over the next 15 years to develop enough copper, cobalt, nickel, lithium, and other metals to fuel the energy transition.

S-curve for renewables. A new report argues that renewable energy is about to enter the steep portion of an S-curve adoption scenario. That is, solar and wind are on the cusp of rapid growth as costs decline and coal gets phased out.

Qatar plans to dominate LNG. Qatar really means business when it comes to leveraging this cost advantage in global markets. Qatar has put other mid-decade FID’s on notice, that without rock-bottom cost economics their projects may not be competitive.

Vineyard Wind approval expected. The Biden administration is set to give the final approval to the U.S.’ first large-scale offshore wind farm, an 800-megawatt project off the coast of Massachusetts. The project could come online in 2023.


jog on
duc
 
Mr Ducati,
DXY is fxxxed:
DXY: that means for us Aussies and NZ residents, that all USD investments will basically fall a bit: any return from swing trades , wise ETFs moves etc will see a few percents lost to USD overall down move [against the AUD/NZD].
How do you cover yourself? with a few Euro plays on the USD market, a bit of gold..and maybe one day BTC ;-) or are you happy with no share local exposure to RE etc?
The US market is fascinating with its size, diversity and potential but for us, it always adds a touch of currency exposure.
I think this issue is of interest to many of your follower..even if not strictly a bull market subject
 


Monsieur Frog,

The obvious answer would be short DXY. Or short UUP. You could also be short USD in the currency markets. Another possibility would be long $TNX or short the 10yr. The issue of course is that if the Fed. goes to YCC, that trade is dead.

Then you have as you say, long gold, silver or their respective mining shares as a paper position. You could also buy the physical. There are some advantages to the physical.

(i) If and it is only an if currently, the Fed. blows up DXY, then paper assets will if they survive, have an extreme volatility event. All manner of shenanigans could ensue. Therefore, limit your total exposure to financial markets, as if you could suffer a 100% loss.

(ii) The only way to save the 'system' is to immediately back a new currency to gold primarily, with silver in a subsidiary role. This would push gold to an unbelievable +/- $500K/oz. to cover the liabilities, based on the US reserve of 8000 tons. Silver is currently sitting at 64:1. Silver goes much higher than gold as it will revalue also, but return to that 15:1 ratio or lower. This is the physical. In your hand.

(iii) At those values, you don't need a significant volume of physical to protect your wealth. You'll actually turn a massive profit. The idea is not to speculate, just provide an insurance against the inconceivable proposition that they blow DXY the f**k-up. I hold 50Kg of physical silver.

(iv) Get rid of your mortgage. Banks will seize hard assets where possible. Even better if you hold land that can be productive.


All the above seems EXTREME. It is.

This comes down to the original work completed by Bernoulli in 1738 and 'Utility Theory'. This was modified by Tversky & Kahneman in 'Prospect Theory'. Essentially, it boils down to risk avoidance and risk taking behaviours under uncertainty or the future.

This is currently being discussed by Gundlach, Dalio and others, as the 'Forever Portfolio'. So you should be something like 80% property (productive is better) 10% stocks, 5% cash, 5% gold/silver/other. Bonds are a 0% allocation. Which means, worst case you lose 15% of your assets. You could go 4% cash, 1% cryptos without any issues or whatever ratio you want in that allocation.

Re. cryptos: 99% of them are pure junk and will disappear. They are purely speculative vehicles. Treated as such, I have no issues. When they preach that I need to drink the kool-aid, that is something else altogether.

Thought experiment: if in a hyper-inflationary collapse, would you accept a crypto coin as payment for real goods or services? If you would, then you should invest in cryptos. If not, then unless you are purely speculating, there is no value for you in crypto.

I'll be travelling down to Christchurch tomorrow on business, so it is unlikely that I will update the thread until my return Saturday NZ time.

jog on
duc
 
Have a nice trip.
Will read your posts with high interest at the end of what could be an interesting week
 
This strange market continues.

From Bespoke:

Although equities are lower today, for a large portion of stocks these declines represent reversals from 52-week highs. In the charts below, we show the daily readings in the net percentage of stocks reaching 52-week highs across the S&P 500 and multiple sectors since 1990. While not even 1% of S&P 500 stocks have reached a 52-week high today, yesterday a net of 44.55% of stocks did so. Going back to at least 1990, that is the strongest reading in net new highs on record. The same could be said for Materials, Industrials, and Financials. The latter saw the strongest reading of these as 84.62% of the sector hit a 52-week high. Materials were also strong with three-quarters of the sector at a new high while the Industrials sector reading was lower but also at an impressive 63.51%.

While they did not hit a record high, Consumer Discretionary and Energy both also saw elevated readings of 47.62% and 52.17%, respectively. For Consumer Discretionary, the only higher readings came in April of 2010 with some similar but slightly lower readings also in the fall of 2013. Meanwhile, just over half of Energy stocks were at a 52-week high, and although the reading as recently as March was higher almost hitting 70%, yesterday still managed to land itself in the 99th percentile of all days since 1990.



As for other sectors, the readings yesterday were not as close to record highs but were still impressive. Just about every other sector saw a reading in the top 5% of all periods with a single major exception: Technology. Only 14.67% of stocks in the sector traded at a new high yesterday. While that is still indicative of solid breadth in the 88th percentile of all periods, it pales in comparison to the rest of the S&P 500.



Elsewhere in blogoland:



Mr flippe-floppe-flye into the close:



This is a map of the last 5 trading days for the ETFs and their sectors:



Leadership:

Economically sensitive, reflation groups (Materials, Industrials, and Financials), continue to lead while Energy remains neutral. I am watching the base-building process in the defensive sectors (REITs, Staples, and Utilities) for trend changes.

The 'Sell in May' meme is not dead, like a zombie, it is back:





jog on
duc
 
VIX:

let's wait to see the end of the session:

would be interesting to see the sector base movement today: is it just the tech?
 
So from Christchurch....

I see that this has already been covered:



The P/C ratio indicates an extreme, which we haven't seen for a while.



Breadth at a level that isn't good, but we could expect a reversion to mean short term.



VIX



Yesterday the weekly was touching the EMA, which always likely meant a pullback today, which currently we have.





The Fear Index



Mr flippe-floppe-flye:





All manner of explanations will be put forward for yesterday's sell-off. The inflation number will probably be the main culprit. Whatever the real reason, the market needs Tech. and the leadership stocks to stop going down, even if they can't go up. MSFT, GOOG, AAPL and a few others. ATM that is a possibility. But the question is more of: is it just an oversold bounce, only to be followed by more selling?

Without a doubt, there has been serious technical damage to the NASDAQ. In 2000 the technical damage was similar and Tech. rolled over gradually taking the S&P500 down later in the year. This break is similar, in part because of the tremendous run higher.

So my point is this: if XLK, XLC do not hold the line here, then we will be looking at a mess heading into the summer. Short term, next couple of days, we bounce. Once the bounce is over, comes the test of whether we have a far more serious issue or not.

If inflation is the thing...oil is the thing.



The sell-off or rise in oil prices has a big (outsized) impact: oil currently is selling off.







jog on
duc
 
Home from Christchurch and half a weekend to enjoy.

Markets.

Volatility exploded higher, markets fell. Where to?



Well VIX came down sharply, markets predictably rose. Pretty bog standard stuff.

Stocks are back up to 67% participation above the 50EMA. That is enough to create upward pressure on the index. Now that doesn't mean we will explode higher, but, for the moment it means that we don't explode lower either.



We are back in the mid-range. That means choppy. Little bit up, little bit down, indices kinda go nowhere overall. The key to this market is to be in the right sectors and out of the wrong ones.



Which are the right sectors?

This week it was:




The individual names:



That being said, Tech. is ready to bounce:



Which can only be good for the over-all market.

The 'inflation' thing:





So you wonder why the inflation number came in hot!

Is that SUSTAINABLE? Errr, probably not. However, it's not the CPI number that is important. It is the PPI number. That number currently looks a lot stickier as DXY is not in a great place. The PPI number is governed by DXY and yields. One is falling, one is rising. How fast (the ratio between them) is the rate of inflation.

Rates are 1.63%. My model has 1.66% atm. Rates for the moment at least, could pause. That will also help Tech. bounce. What they do further down the road, obviously depends.


Credit spreads didn't budge during the sell-off.



Which means that the threat of default, which WOULD cause a massive stock meltdown is not a threat Monday. Mostly look at earnings. Earnings across the board have been outstanding. Analysts are so far behind the curve that they should seek new employment. Clearly that will not last either. The point is however that defaults are not in issue currently. No credit panic. No stock market meltdown.


Mr flippe-floppe-flye:



Oil news:

Friday, May 14th, 2021

Oil prices rebounded on Friday after a midweek selloff. Neither the bullish nor bearish narratives are taking hold at the moment, and Brent crude is trading in the upper-$60s.

Colonial pipeline restarts. The Colonial Pipeline restarted product flows on Wednesday, although localized shortages will take time to ease. The company reportedly paid the ransom, but the operator of the ransomware group Darkside said on Friday it had lost control of its servers and some of the money it had made through ransom payments.

Exxon ratchets up Guyana production. ExxonMobil (NYSE: XOM) has boosted its 2025 forecast for oil production in Guyana to 800,000 bpd, with plans for a fourth project in the Stabroek block. “Production is expected to begin at year end 2025 with an expected field life of at least 20 years,” Exxon told Guyana regulators.

Fed presses banks on climate risk. The U.S. Federal Reserve has asked lenders to start providing information on the measures they are taking to mitigate climate change-related risks to their balance sheets, according to Reuters.

Qatar to partner with China on LNG. Qatar is in talks with Chinese firms to make them partners in its LNG expansion.

Enbridge runs Line 5 despite shutdown order. Enbridge (NYSE: ENB) continues to operate the oil pipeline through the Great Lakes, reiterating that it is up to the U.S. federal government to say if the pipeline should continue operations. Michigan revoked Enbridge's easement for the operation of the twin Line 5 pipeline last November, citing repeated violations of the easement and the need to protect the Great Lakes.

Oil prices drop. Oil prices fell on Thursday as concerns about rising inflation filtered through to market expectations. “Oil’s getting sucked into the inflation fear scenario,” said Bob Yawger, head of the futures division at Mizuho Securities, according to Bloomberg. Inflation tends to drive up crude, but knock-on concerns about weaker growth can drag down commodities. Similarly, expectations of interest rate increases can undercut rising prices. By Friday, oil was regaining ground.

IEA: Glut cleared, demand revised down. The IEA said that the global oil supply glut that resulted from the pandemic has disappeared, due to a steep drop in supply, aided by the OPEC+ production cuts. Inventories have drained off. But the agency also revised down its oil demand forecast for 2021 by 270,000 bpd, due to lower consumption levels in Europe, OECD Americas, and India.

Iran proposes oil sales via Saudi Arabia. Iran is looking to persuade its regional rival Saudi Arabia to help it to sell Iranian crude oil on international markets in exchange for limiting attacks from the Iran-aligned Houthi rebels in Yemen on Saudi oil infrastructure.

Occidental sees stock fall after 1st quarter results. Occidental Petroleum (NYSE: OXY) saw its stock fall by 8% on Tuesday after reporting a net loss of $300 million in the first quarter, but a strong $1.6 billion in free cash flow. Higher Permian production and strong earnings from its chemicals unit boosted cash flow. But the company’s incremental cash flow will be dedicated to whittling away at its $30 billion debt pile.

EIA cuts supply forecast. The EIA cut its supply forecast slightly for U.S. oil production for 2022 due to the ongoing spending restraint from E&Ps, lowering its expected output by 20,000 bpd to 11.84 mb/d.

ESG bubble bursts. Clean energy has so far been the worst-performing sector, with investors yanking cash from the sector at the fastest pace in a year. The iShares Global Clean Energy ETF (ICLN), a catch-all bet on clean energy, has sunk 26.7% in the year-to-date while the market’s only pure-play solar ETF, Solar Invesco ETF (NYSEARCA:TAN), has cratered 32.7% over the timeframe.

Biden's $2.5 Trillion Infrastructure Plan Could Send These EV Stocks Soaring. A massive $2.5-trillion infrastructure plan could send EV companies--and many of their tie-ins--to record new heights. And some investors are getting ready to pile in like never before as the “green tidal wave” prepares to reach tsunami proportions.

Pembina puts Jordan Cove on pause. Pembina (NYSE: PBA) “paused” its Jordan Cove LNG export project in Oregon, a project that has been on and off the drawing board for 15 years, but has been hit by repeated permit denials.

Tesla looks at renewables credits. Tesla (NASDAQ: TSLA) is looking to enter the multi-billion dollar U.S. renewable energy credit market. The EPA is looking at qualifying EVs earning tradable credits under the Renewable Fuel Standard.

Gas faces an uncertain future in Europe. With carbon prices hitting record highs and EU climate policy turning the screws on carbon emissions, coal is on the way out in Europe, but natural gas is also under increased scrutiny. “The window for (building) conventional gas generation does seem to be narrowing. We have the feeling you have to get material gas investments done by the mid-decade unless pairing it with CCS or doing something creative with hydrogen,” Murray Douglas, research director at consultancy Wood Mackenzie, told Reuters.

Renewables post record first quarter. The U.S. added 2.5 GW of wind and 1.2 GW of utility-scale solar in the first quarter, the best start to a year on record.

Now oil is the big PPI threat. Gasoline prices in the US (and shortages) are already causing news headlines.

I like this quote:



I've run out of chart space allocation. I'll probably do a gold update as a follow up post.

Takeaway: Tech. to bounce, markets still meh overall, but hot sectors will remain hot for the moment at least.


jog on
duc
 
Stuff from around blogoland:

The weakness (to date) in Tech.



The 'inflation' thing:



Gold.






Include silver in there. Actually I prefer silver over gold.



Staples (defensive) still outperforming the growth names.



Market still trading higher, although also a value bent.



There is the '2 Year' meme circulating atm.




These chaps have sold (I'm guessing) out of Tech.



Far easier to go with what is working currently than fight the market. There are plenty of sectors moving higher currently, why fight it by trading the hard names looking for the bounce or recovery, whichever one it turns out to be.

jog on
duc
 
The market opens the new week soft. Will it continue?

The top 4 ETFs are all 'inflation' based.

Tech. is (I think) starting to find its low.



Now Soros could change his mind and sell it all before I even finish typing, but it is indicative that there are those out there seeking tech. 'bargains'.



Tech. and particularly yesterday's high fliers got smashed.



Inflation is a thing. Currently.




The numbers, YoY, are coming from March 2020. Of course they will show manic change. The question is does the trend higher continue, or does it as the Fed. suggests, consist of a transitory nature?

Mr flippe-floppe-flye:





Some facts:

(a) Cryptos are a new technology;
(b) They are part of a new industry, DeFi.;
(c) This industry is developing fast;
(d) There have been any number, historically of new tech. creating new industies (Rail, Aircraft, Cars, Radio, TV, Internet etc);
(e) The companies involved have failed and thrived and it was hard to know which will thrive or survive;
(f) Many are still here, many are long gone.

Some opinion:

(a) Cryptos rely on network effects;
(b) Network effects are sticky until they are not;
(c) Which current coins/tokens will survive?
(d) Are you sure? How are you sure?
(e) Network effects seem to evolve with tech. advances;
(f) What are the next advances in tech.?


So to say or imply that any crypto WILL come back, is simply engaging in a very high risk bet. The 'industry' will probably grow. It will probably interact with traditional finance in some way, but possibly not. There is a not marginal probability that something newer and shinier will emerge. The non-shiny goes to zero.

Housing on fire.



For this space, XLRE, XHB as possibilities.


jog on
duc
 
Computers most certainly turned out to be a very big thing for example but just about every computer company and computer operating system which existed in the early days is long gone now and most went bust or simply withered away.

Cryptocurrencies will very likely be the same. The concept may have a big future but almost certainly most of the current coins won't.
 
Bull back on track.

We have enough breadth and vol. is holding below the danger levels.



Some charts on the 'rotation'



If the 'inflation' trade continues, the middle of the field, XLRE and XLV should continue to move higher. As part of that economic situation, commodities will be part of that move. If/when oil is no longer the energy provider (no time soon) then that generation of energy will have to come from somewhere. The 'where' is estimated below.



Mr flippe-floppe-flye:





Tech. is bottoming. It's not yet quite ready as a buy, it will likely base with choppiness for a while, but the big declines are pretty much over for the moment. Which means that the Bears have run out of ammo.

We might see on SPY a bit of a two bites approach at $423, the previous all-time high, but we move towards $427. At $427 we'll see what happens. What will be important are the state of the VIX and breadth, as usual.

The gold/crypto debate. Outside of pure speculation and profiting from vol.

(i) The 4 Horsemen;
(ii) Store of value;
(iii) Independent or dependent;
(iv) Dilution.

(i) If we have a scenario as occurred in Weimar Germany, where the fiat currency is destroyed, this is where an alternative asset that can be used as money becomes critical. Other than money, land etc. are critical. But the ability to transact and exchange are one of the primary functions of a money.

(ii) The store of value is really in situation (i) above. Where your asset is not legal tender and exists outside of the financial orthodoxy, there will be significant speculation. Gold rose to $800/oz in 1979 and then fell to $200/oz over the next 20yrs or so. BTC has risen/fallen with even greater vol.

That is not the issue. The issue is: if/when the currency implodes, what will your gold/BTC be valued at?

Government as an institution will never give up voluntary control of the money supply. That is where they derive their power from. If a fiat currency implodes, that government or the next, need to provide a 'money' to their electorate so that daily life can function. A minor fiat can use a stronger fiat. Zimbabwe used the DXY, as have others.

If the DXY implodes, what can be used? If the DXY implodes probably 90%+ of all fiats will implode. All (most) governments hold gold/silver stocks that they could and would, link to an issued currency: exchangeable at whatever ratio. Commerce could and would continue, as would government's power, although severely curtailed.

What would the value be currently? To cover current US liabilities, gold would have to be valued at $500K/oz. Silver at 15:1 would be $34K/oz.

Now this would ONLY happen in the collapse of DXY. The market price of gold/silver has been diluted and can be diluted further through the continued issue of 'paper' gold/silver, keeping the price somewhat manageable.

Why not BTC? Well the simple answer is that governments do not hold sufficient BTC. BTC being the gold standard of crypto currencies. All the others are simply fiat and worthless other than as speculative vehicles.

(iii) If we enter scenario (i) what happens in the short term? Days, weeks, months? Life continue uninterrupted? Unlikely. There will be chaos and anarchy for a period. Who maintains and looks after the internet infrastructure? Does the internet continue to function seamlessly? Maybe yes, maybe no. If no, how do you access your BTC?

Who exactly will transact with you? You need someone who has a level of trust in crypto. Again, maybe yes, maybe no. With gold/silver, you hold the physical in your hand. You have control over it 100%. There is no reliance on the internet actually working or whether your counter-party will accept it as 'money', it has been used as money for thousands of years, it is deeply ingrained.

As for the paper gold/silver, forget about it, poof, gone.

What triggered this post? I had a client offer to settle his bill in crypto! I opted for the worthless paper.


jog on
duc
 
Oil news:


- U.S. residential energy consumption declined by 4% in 2020, despite people spending more time at home during the pandemic.

- Relatively warmer weather reduced heating needs during winter months, offsetting the 2 percent increase in electricity sales.

- Space-heating and water-heating are usually the most energy-intensive uses in the average U.S. home.

Market Movers

- BP (NYSE: BP) is in advanced talks to sell its 28% stake in a North Sea oil field.

- Natural gas stocks rose in concert with prices following new weather forecasts showing hotter-than-average temperatures later this month. Nymex natural gas was up more than 5% on Monday. Coal stocks also rose on the news.

- Gran Tierra Energy (TSX: GTE) announced that it was shutting some of its oil wells in Colombia due to unrest.

Tuesday, May 18, 2021

Oil prices took a breather Tuesday morning, but Brent is once again testing $70 per barrel, with expectations of improved demand on the heels of widespread vaccinations in the U.S.

IEA: No new fossil fuel exploration. The IEA is out with a landmark report on a pathway to net-zero emissions by 2050. Among the many important points in the 200-plus-page report is the call to end fossil fuel exploration. “[N]o exploration for new resources is required,” the agency said. It also listed a series of restrictive policies that are necessary, including phasing out sales of the internal combustion engine and bans on new natural gas hookups in buildings. The conclusion is a dramatic shift in tone.

Supply crisis coming? The steep cuts to capex and the increasingly stringent climate policy have forced the oil majors to lower their growth plans. Some analysts warn that this could set the market up for a supply crunch in the coming years.

India demand takes 500,000-bpd hit in May. India’s oil demand could be off by as much as 500,000 bpd for the month of May, according to Reuters. The negative effects from the Covid-19 spike are expected to extend into June.

Gas industry faces an existential threat from renewables. The Wall Street Journal details the gas industry’s looming decline from renewables. “I’m hellbent on not becoming the next Blockbuster Video,” said Vistra (NYSE: VST) Chief Executive Curt Morgan. “I’m not going to sit back and watch this legacy business dwindle and not participate.” Vistra owns 36 gas-fired power plants but said it will not build anymore, instead it will invest $1 billion in solar and batteries.

Central banks step up climate scrutiny. A coalition of 90 central banks from around the world – the Central Banks and Supervisors Network for Greening the Financial System – is scheduled to meet next month at a major conference to address risks from climate change.

Gasoline shortages ease. Over 1,000 retail gasoline stations were resupplied over the weekend, easing the shortages from the Colonial Pipeline outage.

Iran planning oil export boost. Iran is preparing to boost production and exports of crude oil as talks on the nuclear deal with the United States continue to progress, government officials said.

OPEC+ production rising by 1 mb/d. OPEC’s oil exports have jumped by 1 million barrels per day (bpd) so far in May, while the OPEC+ group started easing the production cuts by 350,000 bpd this month.

Spain to end fossil fuel production. Spain’s parliament voted in favor of a new climate law that commits the country to cut emissions 23% by 2030, compared with 1990 levels. The law also bands coal, natural gas, and oil production by 2042, and outlaws new permits immediately.

Shell says Nigerian assets not compatible with energy transition. Royal Dutch Shell (NYSE: RDS.A) acknowledged that its operations in Nigeria are incompatible with its green transition. “The balance of risks and rewards associated with our onshore portfolio is no longer compatible with our strategic ambitions,” CEO Ben van Beurden told investors. “We cannot solve community problems in the Niger Delta.” Shell has been selling off assets in Nigeria incrementally in the past decade, so a “full retreat would be an obvious end point,” Bloomberg said.

Offshore wind turbines require 63,000 pounds of copper. Renewables—and especially offshore wind—are set to drive a surge in copper demand that will push prices even higher, as the amount of copper required per wind turbine is staggering, at 63,000 pounds.

Activist investors get another boost against ExxonMobil. Glass Lewis & Co. agreed with investor activist Engine No. 1 in its quest to revamp the board of ExxonMobil (NYSE: XOM), another boost for the effort.

Washington State’s most aggressive climate policy. Washington State just enacted the most aggressive climate policy in the nation, a cap-and-trade system that would take emissions down close to zero by 2050. Utilities need to be carbon neutral by 2030. The law covers more of the economy (70% of overall emissions) than most other state policies.

UK seeks G-7 deal to end fossil fuel subsidies. The UK is helping the G-7 move close to an agreement to phase out fossil fuel subsidies.

Oil industry gets a partial win at Supreme Court. The U.S. Supreme Court gave the oil industry a partial win in a highly-anticipated court case. The City of Baltimore has sued 20 international oil companies seeking damages related to climate change, and the Supreme Court decided that the case should be heard in federal court, which the oil industry views as more favorable terrain. The case now goes back to federal court.

Shell wins backing from shareholders. Royal Dutch Shell (NYSE: RDS.A) won backing from shareholders in a non-binding vote on its green transition plans, with 88% of shareholders voting in favor.

Shale comeback would be disastrous for oil. Experts are now warning that OPEC+ could see its efforts thwarted by a chief rival: U.S. shale. According to the Oxford Institute for Energy Studies, rising oil prices could allow for a significant return of U.S. shale to the market in 2022, potentially upsetting the delicate rebalancing of the global oil market.

Restaurants:



I'm not aware of a pure restaurant ETF.

jog on
duc
 
What a difference 24hrs makes.


Crypto getting smashed and taken to the woodshed.




An unfortunate side-effect of this is that it seems to have crashed markets generally. I guess margin calls will feature in the news later today or this week.

The VIX, weekly and daily:




As far as the cryptos go, this next chart is now pretty irrelevant, but it did demonstrate just how stupid the whole thing had become:



For the diehard dimwit.

Inflation:



I see in blogoland there is a rumour or possibly accurate, that the Fed. has started to talk 'Taper'. The market didn't like it in 2019, probably won't like it now. We'll just have to wait and see.

Credit card debt:



Banks and Amex, etc. are crying that their revenues are drying up.

Mr flippe-floppe-flye:




This market, just in case you have been asleep for the last week or so, has become very treacherous. Everyone has become a flippe-flopper currently.

Gold is holding up well. Silver not as well. But essentially if you are in these sectors you are reasonably happy atm.

jog on
duc
 
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