- 17 days to the next OPEC summit…
- … and our Matt Insley is calling the Saudi princes’ bluff
- China and Russia put another dent in the dollar’s armor
- New and bigger estimate for the Internet of Things: Not too late to invest
- Asinine Twitter flame war among business-TV egos… Debating the gold-silver ratio… Will Congress revisit the Fed’s “dual mandate”… And more!
Don’t look now… but oil is creeping its way back to $80.
As recently as last June, a barrel of West Texas Intermediate was nearly $110. As recently as last Wednesday, it was sinking toward $76. But as we write this morning, it’s up to $78.98.
For the last three weeks, the princes of Saudi Arabia have been making waves…
- First, they let it be known they’d accept prices as low as $80 for the next year or two
- Then as prices approached $80, they refused to follow their usual script when prices fall. “Cut production? Heck no, we don’t want to lose market share!”
- And last week, Saudi Arabia announced it was cutting prices for U.S. buyers, even as it was raising them for European and Asian buyers — the better to undercut U.S. shale players.
On Thursday, Nov. 27, OPEC ministers convene in Vienna for their next big meeting.
“Over the past decade,” explains Matt Insley of our energy desk, “these jamborees are where the cartel gets together, smokes cigars and chokes the world’s supply of oil — to goose prices higher.”
But not this time: “OPEC member nations are facing the lowest price of oil they’ve seen for four years,” Matt goes on. “Many OPEC member nations are struggling. After all, countries like Venezuela, Nigeria and Ecuador are feeling a real pinch with prices well below $100 a barrel.”
Of course, so is Saudi Arabia: One of the 7,000 princes, Al-Waleed bin Talal, believes his family needs $90 oil; without it, there’s not enough government revenue rolling in to buy off the restless rubes who otherwise might revolt against the House of Saud.
Hold that thought…
“The Saudis are playing a calculated game,” says Matt.
“You see, if you want a bigger bargaining chip at the OPEC meeting, and you’re the Saudis, all you need to do is hold a lit match over the proverbial barrel of oil. (‘They’ll do it!’)
“By making strong, publicized moves in the days leading up to this meeting — saying they’ll unilaterally lower prices and increase production — the Saudis are doing nothing more than making their poker hand look better to the rest of the OPEC cartel.”
Motive? Who knows. “Maybe they want to increase their share of the OPEC quota?” Matt speculates. “Maybe they want to control the outcome of the November meeting? Truly, I’m not sure what logic the Saudis are using.”
And the logic doesn’t matter: “I’m calling the bluff,” says Matt.
“By the time we see a result from the Nov. 27 OPEC meeting, the bottom will be in for the oil market. Heck, the bottom may already be in!”
Matt says oil’s 30% tumble in four months is rather modest if you think about it: “The U.S. is bursting with oil. A Republican-controlled Congress should further ramp up U.S. oil production. Emerging markets and Europe are struggling. And the biggest OPEC producer is threatening a price war with the world.
“All said, the market is dropping some pretty large hints that this Saudi action isn’t what it’s cracked up to be. With all of the bearish news listed above, the price of oil is still rather close to $80 a barrel. Meanwhile, shale producers that pulled back on the latest Saudi announcement are already starting to recover.
“This has all the markings of a bottom in the price of crude.”
[Ed. note: While oil has swooned since June, readers of Real Wealth Trader have been able to parlay the drop into big gains of 136% in six weeks… 151% in five weeks… even 74% in a day.
If oil is turning around, the potential gains are even bigger and faster… as Matt shows you right here.]
China and Russia have signed their second big energy deal this year… marginalizing the dollar just a bit more.
In May, China agreed to a $400 billion, 30-year deal to buy Russian gas. This morning brings word from a summit of Asia-Pacific leaders in Beijing of a follow-up agreement — not quite as big, but also for 30 years.
“Once deliveries begin,” according to Bloomberg, “China would supplant Germany as Russia’s biggest gas market, even as relations have soured with the U.S. and Europe over the Ukraine crisis.”
Western sanctions have all but pushed Russian President Vladimir Putin into the arms of Chinese President Xi Jinping. But China benefits too. Reuters points out, “Curtailing the dollar’s influence fits well with China’s ambitions to increase the influence of the yuan and eventually turn it into a global reserve currency. With 32% of its $4 trillion foreign exchange reserves invested in U.S. government debt, China wants to curb investment risks in [the] dollar.”
President Obama, meanwhile, offered some sideshow entertainment at the Beijing summit.
“We look to China,” he said during a speech, “to become an innovative economy that values the protection of intellectual property rights and rejects cybertheft of trade secrets for commercial gain.”
Surely, the other assembled leaders suppressed guffaws in their sleeves: As we noted back in March, thanks to the Snowden documents, the world knows the NSA routinely penetrates the servers of the Chinese telecom giant Huawei.
Major U.S. stock indexes are all in the green as a new week begins. At last check, the Dow is inching higher into record territory, less than a point away from 17,600. Ditto the S&P 500, at 2,037.
“A correction is starting to look more likely, even if it’s just a quick one,” suggests our Jonas Elmerraji as he examines the S&P’s upward channel going back three years…
“The S&P has basically moved straight up since the middle of October, and that’s not sustainable forever. I think we’ll still see higher ground this week, but I doubt it’ll be a whole lot higher.”
Gold’s big gain on Friday couldn’t last. As we write, the bid is down more than 1%, to $1,163.
Here comes a new estimate of the massive potential that lies within the Internet of Things.
The “IoT,” as those in the know call it, encompasses everything from coffee makers that order you more coffee when you’re running low… to street lights that turn on only when they sense a car approaching from the distance.
Already a $1.3 trillion market last year, the IoT will nearly triple to $3.04 trillion by 2020, according to the research firm IDC… with 30 billion connected devices.
That puts our estimate from August — 18 billion devices by 2018 — in a whole new perspective…
Readers of Technology Profits Confidential are already raking in profits: They’re up 64% in less than five months on a niche player that turned in terrific quarterly numbers on Friday.
And no, it’s not too late to get in, says editor Ray Blanco: “This company is worth holding for the long term as the growth trend plays out.” Indeed, it could still make you eight times your money. Ray makes his most compelling case at this link.
And now the dangers of business TV.
Some years ago, we recall some reader praise for our sister publication The Daily Reckoning: “More sense in one email than a month of CNBC.”
With that in mind, we tiptoe into a Twitter war that began with Fox Business unveiling an ad touting reporter Charlie Gasparino, who was once with CNBC…
That prompted Ron Insana, still with CNBC, to fire back on Twitter… and it quickly went downhill from there.
If “GFY” doesn’t register, suffice it to say it doesn’t meet the Presbyterian Standard set by Agora Inc. founder Bill Bonner — don’t publish something you wouldn’t want your mom to read.
But wait, there’s more!
Damn, we’re feeling our brain cells dying with each passing tweet. (There were at least a couple dozen.) We quickly move on before any more damage is done…
“Question on the next arms race,” reads the subject line of an email from one of our regulars.
He then went on to quote Byron King from our Friday episode: “The next arms race won’t necessarily be based only on which economy — capitalist or communist.”
“I’m sorry,” our reader interjects, “but if there is an arms race or war, would you mind telling me which side of the capitalist/communist divide the U.S. is now on?
“If I am to be a glowing orange corpse (cf Obama’s ‘corpse-man’ malapropism) after our Nobel Peace Prize-winning prez bombs Russia (making it seven countries he will have bombed, versus five for Bush), I would like to at least know on what side I died. Thanks!”
The 5: We count seven already that Obama has bombed — Afghanistan, Pakistan, Iraq, Syria, Yemen, Libya, Somalia.
Maybe throwing Russia in the mix would make it look as if he doesn’t have it in for only Muslims?
“The government of the USA was the original entity responsible for the 16-to-1 gold-silver ratio,” a reader avers after it came up in Friday’s mailbag.
“When the U.S. Treasury first decided to coin money for use in the USA, they decided to use silver, and issued a standard weight in grains that all silver dollars must contain. Several years later, they decided to issue a coin containing gold and determined that one solid-gold coin, equal in weight to the silver dollar, would be equal to 16 silver $1 coins.
“The exchange rate would vary over time, and people were free to exchange them as they wanted, but the 16-to-1 ratio is what our government declared when the first gold coins were issued.”
“The reason for the gold-silver value ratio,” another reader writes, “is that historically, before the Industrial Revolution that started consuming more silver than gold, the amount mined and purified from the ground was about 16 times as much silver as gold.
“So simply by setting the monetary utility equal then, gold’s scarcity presumed to make it more valuable.”
“In the end, this ratio will not make any difference at all,” a third jumps in.
“When gold begins its zoom after all the hedge funds and big banks have completed their manipulation trick, silver will climb accordingly. Just watch! The crooks will soon have to cover all their historically high short positions. Then they will do the flip and go the other way.
“Prediction: Silver will zoom at an even faster rate than gold. Lots more leverage here, in my opinion, with silver. Forget the ratio! And these manipulating dudes have also hit the silver futures on the Comex, but they will be covering in haste in the not-too-distant future.”
“Can the new GOP-controlled Congress change the rules the Fed operates by without the president’s permission?” a reader inquires.
“The Fed has a dual mandate,” he goes on: “keep inflation low and try to keep employment high. Thus, we have seen constant lowering of interest rates and stimulus programs.
“If a GOP Hill changes this mandate, it would change the rates we see and reorder the economy. Some will win, and some will lose.”
The 5: We’re not holding our breath.
It would literally take an act of Congress, signed by the president to boot. Congress would have to amend the Humphrey-Hawkins Act of 1978, which bequeathed the Fed its dual mandate. (And to be precise, it’s not “low inflation.” It’s stable prices — a task at which it has failed miserably.)
There’s a line of thinking among certain conservatives in Washington that if the “full employment” part of the mandate is repealed, the Fed could focus on stable prices and everything would be peachy-keen. Never mind that it wasn’t repealed when the GOP controlled both houses of Congress and the presidency from 2003-07.
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. “I’m at an exclusive investing conference,” read a message on Friday from our microcap specialist Thompson Clark.
“And I just had an incredible conversation with a young biotech CEO. He filled me in on an ingenious way to make money with biotech stocks. He proved that ‘value’ investors like us can safely make big, fast gains in biotechs — 50-200% returns are not out of the question. I’m still jacked about it.”
Hmmm… He got our attention.
For the moment we’re still in the dark. But he’s promising his readers a full update tomorrow. And for the moment, there’s a little bit of room for new readers. We keep a strict cap on membership, but a few slots remain available. Grab one while you can.