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January 2024 DDD

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ducati916

Joined
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For 2024, I'll do month by month.

Wrapping up 2023:

Oil which will remain and increasingly grow more critical moving into 2024:



Shale needs higher prices than Russian or Saudi oil. Much higher prices. If prices fall, production is cut and the recoverable oil falls precipitously. As can be seen from the data.



Can't have the Mag. 7 fall to the Fab. 4. Bear markets invariably have narrowing participation driving the market higher.



jog on
duc
 
Let's start with predictions:

24 things we think will happen in 2024

From Trump to Tesla, how 2024 will shake out, according to the Future Perfect team.
www.vox.com

How they did last year:

The 14 predictions that came true in 2023 — and the 7 that didn’t

The 21 forecasts we made in 2023, revisited.
www.vox.com

Oil News:

The Chinese economy has been sending mixed signals to the oil markets as Caixin manufacturing PMI indicated a strong recovery in industrial sentiment with the index rising to 50.8 in December, the strongest since August.

- The problem with that is that Beijing’s official data paint the exact opposite, dropping to the weakest level since June at 49.0, suggesting SMEs are feeling better about the economy than state-surveyed industry majors.

- Following months of quota-capped trading, Chinese refiners are now allowed to go big with their crude purchases after the Chinese Ministry of Commerce allocated 1.34 billion barrels of 2024 import allowances.

- With Shandong utilization rates back above 70% and state-owned refiners Sinopec and PetroChina ramping up output before the lunar New Year holiday, Chinese crude imports are expected to increase to 12 million b/d, for the first time since August.

Market Movers

- The $8.3 billion takeover of US utility firm PNM Resources (NYSENM) by its Spanish peer Iberdrola (BME:IBE) fell through after the latter couldn’t get all necessary regulatory approvals before December 31.

- Chinese private refiner Rongsheng and Saudi Aramco (TADAWUL:2222) are in talks to buy 50% stakes in each other’s refining units, the Saudi-run SASREF and the Rongsheng-operated Ningbo Zhongjin Petrochemical company.

- US oil major ExxonMobil (NYSE:XOM) has formally exited the West Qurna-1 oil field in Iraq and transferred its 22.7% stake to BOC and Pertamina, as well as handing over operatorship to China’s state-owned oil firm PetroChina.

Tuesday, 2nd January 2024,

The first US-Yemen naval clash in the Red Sea, followed by the arrival of an Iranian warship into the Bab-el-Mandeb strait, has prompted an increase in geopolitical risks again, lifting Brent back to the $79 per barrel mark. China issuing its crude import quotas for 2024, coupled with product export allowances, will reinvigorate Chinese buying in the markets, so for the first time in several weeks, the immediate outlook seems more bullish than bearish.

US Oil Output Starts to Decline. According to EIA figures, US crude oil production fell to 13.248 million b/d in October, the first monthly decline since April even if the month-on-month change was a mere 4,000 b/d, with all tight oil plays posting increases expect North Dakota.

Maersk Halts Red Sea Transit, Again. The world’s second-largest container line Moller-Maersk (CPH:MAERSK) halted transit through the Red Sea less than a week after it had decided to resume navigation, with its Maersk Hangzhou tanker coming under attack by Houthi militias.

Nigeria Sets the Deal for Dangote Supply. Nigerian oil producers will be required to supply 483,000 b/d of crude to local refineries in the first six months of 2024, of which 325,000 b/d should be allocated to the largest refinery project currently built, the Dangote refinery.

ADNOC Eyes First LNG Supply Deal. ADNOC, the national oil firm of UAE, and China’s utility major ENN (SHA:600803) are close to signing a preliminary deal for the supply of 1 million tonnes LNG per year for 15 years, the first deal from ADNOC’s Ruwais LNG project, expected to be launched in 2028.

Record BYD Sales Create China’s EV Champion. Chinese EV carmaker BYD (HKG:1211) sold 526,109 fully electric vehicles in Q4 2023, aided by aggressive year-end discounting, suggesting Tesla would need record quarterly sales if it wants to remain the world’s largest electric automaker.

Indigenous Blockades Hamper Ecuador Production. Following several days of force majeure at Ecuador’s Ishpingo oil field, Ecuadorian authorities have reached an agreement with Indigenous communities that blocked the site since last week, restarting some 20,000 b/d of production.

Mexico Orders Pemex to Take Over Hydrogen Plant. Mexico’s government has mandated that the national oil company Pemex take temporary control over Air Liquide’s hydrogen plant located within the confines of the Tula refinery, calling stable hydrogen supply a “matter of public interest”.

Libya’s Growth Marred by Discord. Various Libyan top officials have called for the halt of negotiations over the transfer of the Ghadames NC-07 block from state-owned Agoco to an international consortium led by Italy’s ENI (BIT:ENI), saying the 40% share of production to be given to the consortium is too high.

China Coal Demand to Peak in 2025. China’s state-owned energy company Sinopec expects the country’s coal consumption to peak around 2025 at 4.37 billion metric tonnes, with oil hitting a plateau in 2026-2030 at 16 million b/d and natural gas reaching a climax only by 2040.

Nickel is the Worst-Performing Metal of 2023. Nickel became the worst-performing industrial metal of 2023, posting a 45% year-on-year decline, its largest since the financial collapse of 2008, as new supply from Indonesia and weaker Chinese demand growth halted the price growth of 2019-2022.

Norway Starts to Pull Investments Away from Middle East. In an unexpected move, Norway’s largest pension fund KLP, overseeing $70 billion in investment, blacklisted Saudi Aramco and other Middle Eastern companies, citing an “unacceptable” risk of contributing to human rights abuses.

Russian Pipeline Gas Exports to Europe Collapse. Exports of Russian pipeline gas to Europe plunged by a further 56% year-on-year in 2023, coming in at a mere 28.3 billion cubic metres as Gazprom’s options were narrowed down to TurkStream and one remaining pipeline via Ukraine.

Dry Well Saps Moroccan Hopes of Oil Bonanza. Morocco, a country that has no production of hydrocarbons at this point, has been pinning its hopes on ENI’s much-hyped Cinnamon prospect in the country’s territorial waters, however the release of the rig suggests the wildcat was dry.

Mr flippe-floppe-flye:



Actually it is the USD that you need to watch:



The banks are and remain insolvent.

jog on
duc
 

As someone who has recently switched from active trading to passive investing, the paragraph above resonates with me. The arguments presented by Benjamin Graham and David Dodd that @ducati916 referenced seem timeless and very relevant today.

The idea that investors should focus on buying high-quality companies at reasonable prices, rather than relying on market trends or speculative strategies, is a successful approach over the long term. The evidence suggests that investing over time can be more effective than active investing, especially when combined with a focus on valuations.

It's essential to consider valuations when making investment decisions as @UMike has pointed out and not rely solely on long-term investment. The key is to find a balance between passive investing and a focus on valuations.

Overall, this short paragraph provides valuable insights and supports my decision to adopt a passive investing strategy focusing on valuations. It's a reminder that investing is a long-term game, and patience and discipline are essential for success.

Skate.
 
i abandoned ' passive investing ' about 4 months into 2011 , i still think long term holds , but well there are always some attractive opportunities , i would call what i do as active ( or opportunistic ) investing , which is much easier now that i am retired ( not so easy if a working Joe )
 
Thanks duc. The case for the Fab 4 over the Magnificent if not compelling certainly deserves consideration.

Either way flow on effects to the AAPL downgrade will affect our markets.

Interesting times in which to live.

Watch Da 10y Bond.

gg
 
Obviously someone doing the same thing on the Japanese market and starting at its peak ,into blue ships there Nissan, Fujitsu, Sony, Sanyo etc all very reliable strong companies..much more than our so called blue chips, would have been in the red for what 3 decades?...
Looking at the market (which one? ASX, NYSE, in the last 50y or so do not give us certitudes, just assumptions.
Just saying that black swans are actually very common.
If there is a lesson in my short life and let's say 30y, it is actually rare to not have major upheavals with financial effects in a decade
 


Today is the last day of the Santa Claus rally. If stocks remain lower, it could net be a bust.

US debt and interest payments (not including Social Security, Medicare & Medicaid which take the debt over $200T) is simply out of control. Of course the Fed will not/cannot stand by and allow a debt death spiral to collapse the UST market. So they will inflate. We have the evidence already: (i) BTFP, (ii) Reverse Repo, (iii) suspend issuance at long end and (iv) artificially lowering of USD.



There has been an epic front running of the Fed in Bonds.

The result has been to date, a loosening of financial conditions. This year is the start of massive Treasury and Corporate rollovers. Rates that had been falling, will again rise in the face of huge supply and (very) limited demand.

If POO rises, apart from driving inflation higher (minor risk at this point) it will drive increased demand for USD. If increased demand for USD overcomes the Treasuries ability to keep USD low(er), that will drive USD higher and that shortage of USD drives increased selling of UST from all holders of UST (Japan, China, etc) into an already stretched or illiquid UST market.

We move into the 5'th liquidity crisis, which will require a liquidity bail out from the Fed or the UST market blows up. Which of course will take the stock market with it.

The chart to watch is a combination of the USD and the MOVE index. Once the USD becomes too strong, the MOVE index will become agitated and signal instability within the UST market. Oil will hint at early moves in the USD.

jog on
duc
 

@ducati916's post raises intriguing points about the Fed's bond-buying activities and their potential impact on interest rates, the liquidity crisis in the UST market, and the stock market. However, some assumptions and opinions presented are speculative and not necessarily evidence-based.

It's important to note that the Fed's bond-buying activities have been a topic of interest, but whether it constitutes "front running" is a matter of debate. The relationship between oil prices and inflation is complex, and other factors such as the economy's overall health and the value of the US dollar also play a significant role in determining inflation. The suggestion that increased demand for USD could drive up the dollar's value, negatively impacting the UST market is also speculative.

While it's interesting to consider the opinions of others, it's crucial to evaluate multiple perspectives before forming an informed opinion.

Skate.
 

Skate said:
3. The relationship between oil prices and inflation is complex, and other factors such as the economy's overall health and the value of the US dollar also play a significant role in determining inflation.
Click to expand...



1. Evidence based.

2. The Fed are not engaged in QE currently. Rather QT. The front running is being done by the market in anticipation of (i) the pause which has happened and (ii) the cut in rates, which is being priced in by the market.

3. Not really:



POO goes up/down, CPI numbers go up down.

4. USD goes up UST market volatility goes up:




Lots of evidence. LOL.

While I'm here:



Santa Claus got ambushed by a Polar Bear.

jog on
duc
 
Lots of data charts:



JOLTS is showing signs of slowing. Not an issue yet, but worth keeping an eye on.

Corporate debt liability is as low as it has ever been. With the need to roll-over, how many can hang out for the Fed to cut? If they cannot, their borrowing costs will rise significantly. Will that cut into their margins?

Earning estimates are turning lower. Are the higher borrowing costs accounted for? Who knows.

Oil:


jog on
duc
 
This post will have to be divided into 2 separate posts:

Oil.

There's Record U.S. Oil Extraction, That's Why Oil Is So Expensive

At present, oil extraction in the United States sits at record levels of roughly 13.2 million barrels per day. No wonder oil is so expensive. Wait, what’s that you say? U.S. extraction at record
www.realclearmarkets.com

From Doomberg:







The takeaways from the interview:

(a) lots of hydrocarbons;
(b) cheap when priced in gold;
(c) far from cheap when priced in a rapidly depreciating USD.

Which ties in with the first article posted today.

Friday, January 5, 2024

Oil prices are set to finish this week with a slight gain after Middle Eastern tensions helped recoup losses after US inventory data. Despite a hefty 5.5-million crude stock draw, believed to be the usual year-end clearing of inventory to minimize ad valorem inventory taxes, the immediate reaction was a slight downward correction after both gasoline and diesel posted huge stock builds. However, continued Houthi attacks in the Red Sea and a worsening Israel-Iran confrontation has limited the pricing downside, with Brent trading around $78 per barrel.

Protests Shut Down Libya’s Largest Oil Field. Libya’s largest oil field, the 300,000 b/d capacity El Sharara, has been shut down after protestors lamenting over poor government and inadequate infrastructure took over the field, for the second time in the past six months.

US Oil M&A Deals Still Not Over. US oil producer APA Corp (NASDAQ:APA) agreed to buy shale peer Callon Petroleum (NYSE:CPE) in an all-stock transaction valued at $4.5 billion including debt, adding some 145,000 acres in West Texas and New Mexico as APA boosts its US upstream operations.

Mexico Downplays New Refinery’s Impact. Following years of project overruns, Mexico’s national oil firm Pemex stated its long-awaited Olmeca refinery will process 243,000 b/d of crude in 2024, suggesting the 340,000 b/d plant built in AMLO’s hometown will only reach full capacity in 2025.

European Majors Eye Better US Wind Deals. Europe’s leading energy majors BP (NYSE:BP) and Equinor (NYSE:EQNR) cancelled their agreements with the state of New York to sell electricity from the Empire Wind 2 offshore wind farm, aiming to renegotiate their terms in a new round of solicitation.

Pirate Risk Worsens Red Sea Shipping Outlook. Apart from Houthi missile attacks, the Red Sea is increasingly posing a piracy risk for shippers after a Bahrain-bound bulk carrier was boarded by pirates off the coast of Somalia, a route used by tankers as they sail to the Cape of Good Hope.

Bangladesh Burns Record Amounts of Coal. Bangladesh tripled its coal-fired electricity generation in 2023 to ease power shortages and alleviate soaring generation costs, with a total of 21 billion KWh produced last year, lifting the market share of coal from 9% in 2022 to 14.2% in 2023.

US Becomes World’s Leading LNG Exporter. US LNG exports hit monthly and annual record highs in December, making the United States the world’s largest exporter of liquefied natural gas, as 8.6 million tonnes departed last month, taking the annual total to 88.9 million tonnes, up 15% from 2022.

OPEC+ to Meet Again in February. Without Angola but desperate to project an image of cohesion and unity, OPEC+ intends to hold its first ministerial meeting of 2024 on February 1, seeking to assess the implementation of voluntary production cuts totalling 2.2 million b/d.

China Restores Import Levies on Coal. The Chinese government has restored import duties on coal that were scrapped in May 2022 as commodity prices went into turmoil, slapping a rate of 6% on thermal coal and 3% on coking coal in a move that could threaten Russian coal suppliers.

Uranium Prices Hit Post-Fukushima High. The spot price of uranium soared to another post-Fukushima record this week, hitting $91 per pound amidst supply hiccups and looming Russia sanctions, with Morgan Stanley analysts expecting yellowcake futures to hit $95/lb by March.

India to Launch New Upstream Licensing Bid. India has offered 28 upstream oil and gas blocks in its 9th licensing round, almost evenly split between onshore, shallow-water and deepwater blocks, aiming to expand the list of bidders beyond ONGC, Reliance/BP and the state-controlled Oil India.

Russia Exports Record Gas Volumes to China. Russia’s state-owned natural gas firm Gazprom announced that it had set a new daily record for gas supplies to China through the Power of Siberia pipeline, taking the total of exports to 22.7 bcm in 2023, 50% more than the 15.4 bcm in 2022.

Exxon Signals Huge California Write-down. US oil major ExxonMobil signaled that its Q4 results (to be posted on February 2) would be adversely affected by a $2.5 billion impairment of assets in Southern California, citing a challenging regulatory environment from the state.







Which provides the reasons why US tax collection is as volatile as the market.

Part II
 
Last edited:
Part II

Employment data:



Reported at 3.7%. Actual at 7.1%.







The classic bell curve distribution.

The question (obviously) is what drives the stockmarket and will those conditions pertain into 2024? Is this consistent through time or does it (has it) changed? Is 'it' one thing or multiple things? As a 'trader' does it matter? As an 'investor' does it matter?

jog on
duc
 

As a system trader
I understand the importance of recognising market drivers to make informed trading decisions and manage risk. Timing the market is crucial, and being aware of short-term factors that can impact the market is essential. Traders often focus on short-term market movements and seek to capitalize on market trends, so they must be aware of the factors that can impact the market in the short term. In summary, as a system trader, I aim to enter and exit by timing the market.

As an investor
I believe that "time in the market" is more important than "timing the market." A stable investment strategy can be achieved by investing in companies with a strong long-term record of delivering dividends and franking credits while ignoring short-term price fluctuations. Time in the market is a basic tenet for me.

In conclusion
While it is challenging to predict what will drive the market in 2024, being aware of the historical factors that have impacted the market can provide valuable insights for navigating the "trading and investment" landscape.

Skate.
 
Last edited:


Mr Skate,

You seem to have hedged your bets there to decide which strategy is the most successful.

If we compare (a) Buffett to (b) Simons, who has the best returns? These two chaps are probably the most successful within their respective specialities.

(a) Buffett = 22% compounded
(b) Simons = 66% compounded.

No contest.

For us mere mortals: which method is/would be (probably) the easiest/safest to pursue?

jog on
duc
 
ducati916 said:
which method is/would be (probably) the easiest/safest to pursue?
Click to expand...

Choosing the easiest and safest method depends on various factors, including your personal preferences, risk tolerance, and financial goals. That being said, investing and system trading both have their own advantages and considerations.

Investing can be relatively straightforward for beginners. It involves buying shares of well-established companies and holding them for the long term. While investing does require some research and monitoring, it generally offers a lower learning curve and can be a passive approach to wealth accumulation.

On the other hand, system trading can be more complex and requires a higher level of skill and experience. It often involves developing and testing trading strategies, as well as continuously monitoring and adjusting them. System trading can be potentially lucrative, but it also carries higher risks and requires ongoing dedication and discipline.

Ultimately, the key is to consider the amount of time you can dedicate to thoroughly researching and understanding the options available to make an informed decision that aligns with your immediate goals.

Skate.
 


Mr Skate,

1. Agree with all stated here. But add in level of intelligence possessed by our intrepid investor/trader.

2. LOL. You are surely jesting. Technicals is pretty easy theoretically. It is still (very) hard emotionally. Fundamentals has even greater emotional challenges, because of course you are going to sit through some pretty harrowing drawdowns. But add to that the sheer complexity of fundamental analysis, f**k me, you need some grey matter to even get a grasp, never mind succeed.

3. System trading is about 2 things: (a) coding/software and (b) testing a variety of strategies.

4. Well in time spent, you will spend more time in the fundamentals than you ever will in systems.

jog on
duc
 

1. I wholeheartedly agree with your assessment of the importance of considering one's level of intelligence when choosing between investing and system trading. It's crucial to acknowledge that both methods require a different set of skills and abilities.

2. I must respectfully disagree with your assertion that technical analysis is easy. While the concepts may be straightforward, applying them effectively in real-world scenarios can be challenging, especially for novice traders. Emotional control and discipline are indeed vital components of successful trading.

3. I agree that system trading involves coding and software, as well as testing various strategies. However, I would add that it also requires a deep understanding of market dynamics, trends, and risk management techniques.

4. You make a valid point that fundamental analysis can be more time-consuming than system trading, especially when it comes to conducting thorough research and analysis - but in reality, every bit of known about a company has already been priced in the market and if you believe you have an edge using this methodology, it bordering on being delusional.

4. I understand your point, but I have to respectfully disagree. While it's true that fundamental analysis can be more time-consuming (never-ending actually) than system trading. As I said above, nearly all of the known fundamentals have already been priced into the market, I believe that there are limited opportunities to uncover something unknown through careful analysis. For example, a company's financial statements may not always accurately reflect its true financial health and a "skilled analyst" rarely identifies what is "unknown to the markets".

In conclusion, I believe the market is not always efficient, and there are often instances where "system trading" can help identify opportunities that may not be immediately apparent through fundamental analysis. That's the very reason why "system trading" makes the big bucks.

Skate.
 


Just how healthy in reality is the job market?





You just know, at some point, this ends badly.



And as a follow on from the Doomberg video:



While oil may be plentiful, is peak CHEAP oil plentiful? They priced the oil in gold, not USD.

Essentially, this allows OPEC+ to de-peg their currencies from USD and revalue them to a higher gold peg. This has a number of ramifications which will need to be considered and worked through.

De-dollarisation is picking up speed and momentum. It is definitely not going away, nor will the USD win this fight.

Gold has therefore once again become a currency (it was always money good). The US definitely did not want gold as a currency after essentially getting rid of it in 1971. The only way that the US could have possibly prevented this was, as in the late 1970's and early 1980's was to raise real rates much higher, as Volcker did.

Of course even at 5% FFR, this was nowhere near high enough to break gold. With the Fed now essentially throwing in the towel and focussing on saving the jobs market, gold will rise as rates fall. I would target +/- $3000oz this year. Gold as a currency is the underlying strategy of the BRICS bloc. Putin used it successfully when sanctions were imposed upon him on the invasion of the Ukraine.

The US needs inflation to reduce the debt burden.

And inflation they will have. With some $10T of issuance (rollover + new deficits) into the UST market, massive liquidity will need to be supplied by the Fed to accomodate that need.

Corporates have a huge rollover that also needs financing. Many will be squeezed out by the Treasury. What does that do to jobs? Nothing good.

Hmmmm.

jog on
duc
 

I have re-numbered your post to address the important points.

1. You are essentially citing the 'Efficient Market Theory'. Which has been thoroughly disproven.

2. Here you contradict yourself from your position above. Either the market is efficient or it isn't. Your new position is that it is nearly (mostly) efficient. You state that: financial statements may not always accurately reflect its true financial health but in the next breath state that a skilled analyst rarely identifies this fiction.

3. You move from your assertion of efficient markets to non-efficient markets and state that system trading can identify opportunities that may not be readily available through fundamental analysis.

I find this last statement bizarre.

From the 'Dump it' thread, we have been provided any number of mechanical systems that have been developed.

I have not seen any system that is much above a 50% win rate. Which essentially requires tight money management techniques to make it profitable. Not the initial stock selection.

The point being: system trading cannot identify superior trading opportunities to (good) fundamental analysis. Pure nonsense. There are so many more objections to this point.

Returning to point #2: I agree that financial statements may not reflect true financial health. I would take it further and state that financial statements rarely represent the truth. Some fictions are more dangerous than others. Fraud can be hidden by clever legal language, but it remains morally fraud perpetuated by management. Skilled analysts do regularly pick this up. Due to warped incentives (buy side being far more important than sell recommendations) these are rarely promulgated widely.

But your post goes a long way to explaining your nonchalance to posted fundamentals and comments re. you current portfolio, specifically banks, which are de facto black boxes with huge off balance sheet liabilities.

Banks:



Notice the word 'depositors' not 'investors'. Investors went to $0.00. They were wiped out. Did the 'technicals' warn? No.

There were however analysts that were making noise about the fraudulent reporting. They were pretty much ignored.

The question then becomes: how is the 'investment' managed?

ANZ and CBA both carry significant derivatives positions, only partially disclosed in the financials. Could they potentially blow the bank up? Absolutely. Buffett had enormous issues with General Re. and its derivative book. It took him a couple of years to unwind it with heavy losses.

So is it managed on the fundamentals, which you simply have no idea on or the technicals?

If the technicals, fine. No issues.

But then it is not 'fundamental' investing. It is simply a longer term technical trade.

Fundamental investing (trading) is at its root, buying value. It is understanding where the weaknesses are and waiting for a market break where everything sells off, and buying the value. Very rarely is it buying at peak market values. You need to be very lucky to succeed in that scenario.


jog on
duc
 
2020 effectively proved that governments bail out selected 'mates ' , if the government throws out targeted lifelines ( rather than sector wide ones ) there can be no 'efficient market-place ' because big duds are not allowed to fail/restructure ( the tax-payer unwittingly bails out inefficient whoppers )
 
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