Making Money No Matter the Oil Price

October 21, 2014

  • Is the bottom in for oil? Even if it’s not, one expert says U.S. producers are just fine
  • Home sweet home: Bargain-hunting in a sector left for dead
  • Big gold doings in Russia, India, Switzerland…
  • Losing your paid-up home over a $94.85 tax bill… how “trickle down” really works… diving into an extra carton of Ben & Jerry’s… and more!

  “This may be the end to crude’s big downswing,” suggests Matt Insley at our energy desk.

Crude is demonstrating resilience this week. A barrel of West Texas Intermediate trades this morning for $83 on the nose.

As we’ve pointed out more than once in the last couple of weeks, conventional wisdom has it that $85 is the low-water mark for U.S. shale drillers to be profitable.

Not so, insists our resident oil field geologist Byron King: “The U.S. has plenty of players with sites to drill and a business model to drill ’em,” he said in this space one week ago today, “and a good many can afford to conduct business all the way down to $50 per barrel and lower.”

But if our own expert isn’t good enough, take it from Edward Morse, global head of commodities research at Citigroup…

  “The costs of finding and producing oil and gas in shale and tight rock formations are steadily going down and will drop even more in the years to come,” Mr. Morse wrote last spring in Foreign Affairs.

“Efficiency gains stemming from new technology,” he explains, “are driving down break-even drilling costs. In the oil sector, most drilling now brings an adequate return on investment at prices below $50 per barrel, and within a few years, that level could be under $40 per barrel.”

Something to keep in mind the next time you see hand-wringing in the elite media about the demise of the shale industry if crude prices fall more. And as we’ve already seen, the big drop this month might already be over.

[Profit alert: Score another winner for readers of Real Wealth Trader — 130% gains this morning on a crude position they’ve had open for only six weeks. And that’s on top of 151% gains one week ago today. Whether oil prices rise or fall, there’s money to be made from America’s shale boom. Click here to start collecting your cut.]

  U.S. stocks are solidly in the green today. Every major index is up at least 1% as we write, with one exception.

The Dow is up 0.94% — a not shabby 150 points — despite earnings “misses” from both McDonald’s and Coca-Cola. The Nasdaq, meanwhile, is up nearly 2% — goosed by an outstanding report from Apple.

Only one economic number is in view this morning — existing home sales up 2.4% in September. But the year-over-year figure is down 1.7%.

  “Ignore the housing numbers this week,” interrupts Greg Guenthner of our trading desk.

[Sure, just when we’re on a roll…]

“It’s all just noise,” he says. “Let the rest of the investing world confuse themselves with the financial media reports about consensus sales estimates. While they’re trying to figure out why home sales are a point or two off in either direction, price is telling us that a major change is brewing for the homebuilders.

“While the market has churned higher this year, the homies have dropped as much as 15%. Investors left this group of stocks for dead months ago. Why? They figured rising rates would squash any chance the housing market had for growth this year.

“But of course, the analysts predicting higher rates were dead wrong. Mortgage rates dropped below 4% once again — just in time for the lemmings to sell the last of their homebuilder stocks.

Homebuilders Wake Up

“The SPDR S&P Homebuilders Index ETF (XHB) is now up 7% over the past four trading days,” Greg goes on. “And while that’s a huge move, I think it’s only the beginning of a much bigger comeback. Homebuilders could be one of the best performing groups on the market heading into the last two trading months of the year.”

[Ed. note: In a few more hours, we’re shutting off access to the four days of training by a mystery trading expert. We’re keeping his identity hush-hush right now because his trading strategy is modeled after the NSA’s most controversial technology.

Don’t get the wrong idea. He doesn’t compromise anyone’s privacy. And his “hit rate” is more accurate than the NSA’s — correctly forecasting stock market moves 86.4% of the time.

All we need right now is your email address, and we’ll take it from there. The window of opportunity is closing at midnight, so take advantage while you still can.]

  Gold has crested the $1,250 mark for the first time in six weeks — $1,252, to be more precise. Silver’s catching a bid too — up nearly 1%, to $17.59.

 

  Russia’s central bank added 1.2 million ounces to its gold stash during September — the biggest one-month increase on record.

The total now stands at 37 million ounces…

Loading Up

According to people who keep track of these things at websites like Smaulgld, Russia has likely surpassed Switzerland as the world’s No. 7 gold holder.

  Speaking of which, polling data is now out on the Swiss gold referendum… and the “ja” forces outnumber the “neins.”

As we mentioned at the start of the month, the Swiss go to the polls on Nov. 30 to decide on a ballot measure that would, among other things, require the central bank to buy enough gold to equal 20% of the country’s foreign-exchange reserves.

According to a poll by the German-language daily 20 Minuten, 29% of survey respondents say they’d vote yes, and another 16% are leaning that way. Meanwhile 28% say no, and another 11% are leaning no.

Careful, though… This is an online survey, albeit one whose designers say they’ve weighted the sample to resemble the demographic and geographic makeup of the Switzerland’s voting population.

A “yes” vote, we remind you, could amount to the snowflake that sets off a financial avalanche — both a demand shock and a supply shock, Jim Rickards told readers of Rickards’ Strategic Intelligence. We’ll continue to keep a watchful eye on the sky…

  If gold is to get a further boost in the weeks ahead, it won’t come from India.

Last year, India’s government imposed what’s called the 80:20 rule. Under the rule, gold imports were allowed only if 20% of the imports were then exported. It was a cockamamie scheme to stop the inflow of gold, which was sending India’s trade deficit sky-high.

The 80:20 rule was relaxed last May. But now comes word from India’s Economic Times that “the government is looking to reimpose curbs as the country’s insatiable appetite has led to a surge in the yellow metal coming into India.”

Nothing like driving the gold trade underground again. Maybe India will see a resurgence of imported tube TVs with capacitors made of gold…

  And now a reminder property rights are a fragile thing — as we learn from the case of Norcross, Georgia, resident Xui Lui.

Ms. Lui paid cash for her two-bedroom condo in 2011. Last week, she got a notice telling her the place had been sold at auction. She had to be out by Nov. 25.

It was the first time she had any idea she was in arrears on her property taxes.

“Someone can rob your house, rob your property? This is not American style, right?” Lui pleads with Atlanta’s WSB-TV.

She paid her property taxes on time each year… except the first year. City Hall sent out warnings of an outstanding balance totaling $94.85. But someone messed up and the address was incomplete… so those certified letters were returned.

“We are going back and doing our due diligence,” says City Manager Rudolph Smith. “[The city contractor who handled the sale] will try to work something out.”

How, we don’t really know. The property has been legally sold to another buyer, right?

But being in government means never having to admit you’re wrong…

  “‘Trickle down’ actually works, you know,” a reader writes.

[Hmmm, where’s this going?]

“At least, it does when the politicians let it happen — or cause it to happen. As they did these last few years. Their lawyerly laws and regulations trickled down through society and caused millions of people to lose their jobs, or be forced to take work at levels lower than their abilities in order to survive.

“In the past, many of these people would have started some kind of little business on their own, and perhaps have grown it into larger businesses, but now the ‘protective’ government has often made doing so overly difficult, or even illegal, with a slough of ‘protective’ laws and regulations that largely protect the fief owners and make most of us into mere serfs, at best.

“And the politicians control the number crunchers, who make it appear that things are going to be hunky-dory. What a laugh!!”

The 5: So true. Although we just checked the calendar and the next unemployment report from the Labor Department isn’t due until three days after the midterm elections…

  “I always said every 20 years, the Feds should charge off these credit cards to get things rolling again,” a reader writes in reply to another reader’s “stimulus” suggestion yesterday.

“Would make a world of difference from what the Feds expect you to keep up with in this day and age.”

The 5: Hmmm… Jefferson proposed as much in a 1789 letter to James Madison. Not that credit cards were around then; he was talking about all debts, personal and governmental.

“[T]he earth belongs to each of these generations, during it’s course, fully, and in their own right. The 2d. generation receives it clear of the debts and incumberances of the 1st. the 3d of the 2d. and so on,” he wrote. “For if the 1st. could charge it with a debt, then the earth would belong to the dead and not the living generation. Then no generation can contract debts greater than may be paid during the course of it’s own existence.”

Your editor is a huge Jefferson admirer, but we’re compelled to point out there was no small amount of self-interest tied up in this proposal: The property he inherited from his father-in-law was loaded down with debt.

  “Kudos to Ben & Jerry’s!” a reader writes after the parents of a hazing victim took exception to the name of one of the company’s new flavors.

“I’m going to go buy some Hazed & Confused ice cream just in support of their decision (my longtime ice cream addiction notwithstanding ).

“Far too often we see companies rolling over to cater to some whiney extremist who, God forbid, might get ‘offended.’ Enough already. Time for common sense to take its rightful place over political correctness.

“You have a right to life, liberty, property (as long as our benevolent dictat-, er, um… rul-, um… duly elected representatives… allow you to) and the PURSUIT of happiness. No guarantees that you will find them, and sorry, but there is no right to never in your life ever possibly be OFFENDED.

“Get real. Yes, they had a personal tragedy. But really? I, for one, am glad that B&J stood their ground. And I can’t help but wonder if there were any other motivations there, but we will give the couple the benefit of the doubt of just being one of the many ‘dumb masses.’ Don’t slur those together when you say them.”

  “So I found an empty cup of ice cream on the nightstand beside the bed where my mother passed away at age 83,” writes our final correspondent.

[Lordy, where’s this one going?]

“In the freezer was a partially used container of ice cream called ‘Death by Chocolate.’ Should I blame the makers for insensitivity and request that they change the name of their ice cream?

“Personally, I think it was Mom’s wry sense of humor at play.”

The 5: Alrighty then…

Best regards,

Dave Gonigam
The 5 Min. Forecast

P.S. Final reminder: Four days of training get underway tomorrow for all aspiring traders looking to capitalize on an NSA data-collection technique with an accuracy rate of 86.4%. Here’s where to sign up for access.

rspertzel

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