November 26, 2014
- Byron King handicaps tomorrow’s OPEC meeting
- No matter what the OPEC ministers do, here’s what to remember
- The 22% spike in gold you missed
- A market niche more stable and more lucrative than the S&P 500
- Fed misses its inflation target again… bogus economic numbers that don’t come from the government… holiday shopping humbug… and more!
“After Thursday, oil prices ought to begin a recovery,” says our resident oil field geologist Byron King — putting his rear end on the line.
It’s almost “go time.” As we’ve mentioned regularly for the last week or so, OPEC ministers meet tomorrow in Vienna to decide whether they’ll cut production.
In the run-up to that meeting, crude prices are sliding again to four-year lows. As we write, a barrel of West Texas Intermediate fetches $74.11. Brent, the global benchmark, sits at $78.25. As the “fracking” revolution has taken hold in the U.S., the law of supply and demand has been doing its thing…
OPEC honchos will make their announcement tomorrow, around the time the Macy’s parade steps off in New York.
“I expect them to walk out and announce that they’ve agreed to production cuts to support oil prices,” says Byron. “Then I expect oil prices to climb. Farewell, cheap fuel at the pump.
“If OPEC announces production cuts, I expect oil prices quickly to spike into the $80s per barrel. Prices might stabilize for a time over the next couple of weeks, as OPEC dust settles and traders unwind all manner of plays. Then, as production cuts gain market traction, oil prices ought to rise some more as we move into winter. By early 2015, I’m looking for oil in the $90s, moving toward $100.”
Black Thursday, Byron calls it. If Black Friday is the day retailers finally become profitable during a calendar year, Black Thursday will be the day OPEC nations begin recouping precious oil revenue for their national budgets.
Early indications are Byron’s forecast is playing out.
Russia is not an OPEC member, but like many OPEC nations, the Russian government needs a higher oil price to fill its coffers. So President Vladimir Putin has dispatched his leading energy advisers to Vienna, hoping to reach agreement with OPEC ministers from Saudi Arabia, Venezuela and Mexico on production cuts.
Russian media quotes Venezuela’s foreign minister as saying, “Everyone agreed that the current price is bad. We will continue our work. Everyone is concerned about the price.”
That said, the London Telegraph reports the talks ended with everyone ducking the media via a side entrance. “A planned press conference was canceled following the discussions.” Hmmm…
“If production cuts don’t happen, then OPEC is filled with the dumbest, crack-smoking, stupidest oil ministers on the planet,” adds Byron. Not to put too fine a point on it, heh.
“Still, let’s consider another option,” he suggests. “What if OPEC can’t agree on production cuts, leading to firm price increases?
“Oil prices will fall, perhaps into the $60s per barrel — for a time. Instead of Black Thursday, OPEC will be figuratively cutting its collective wrists and bleeding red ink. Red Thursday, anyone?
“In that case, national authorities back in OPEC nation homelands ought to dismiss the senior oil ministers and OPEC reps and hire some new ones.
“Indeed, considering what’s at stake — financially and socially — for many OPEC nations in a time of low oil prices, perhaps home authorities ought to arrest their incompetent oil ministers, charge them with treason and ‘economic crimes against the state,’ line them up against a wall and shoot them. ‘Pour encourager les autres,’ as the French like to say.”
Bottom line: “If OPEC has its act together,” Byron concludes, “we’ll see production cuts, and oil prices will stabilize. If not, I wouldn’t want to be an OPEC oil minister, because it’s going to be a long flight home. That, and my life expectancy would be plummeting.”
Once more, here’s the critical takeaway no matter what happens tomorrow: “For many U.S. oil producers, the break-even price to pull oil from the ground is as low as $40 a barrel,” chimes in Matt Insley of our energy desk.
That’s what Matt gleaned from a recent conference in Houston. “During this closed-door meeting, a ‘senior’ oil market insider revealed that some American oil fields could be producing oil for as little as $40 a barrel.
“That means these oil companies are making money if crude oil goes for $40.01 a barrel. They’re making a fortune if oil is at $80. And they’re minting money hand over fist with oil at $100.”
And Matt’s identified a way to parlay those profits into what he calls a “once-per-generation moneymaking opportunity”… with the potential to triple your money in 60 days.
We’re keeping a strict cap on the number of readers who can seize on this potential… so we’re shutting off access after midnight tomorrow. Before the holiday rush arrives full-bore, take the time to see whether this opportunity is right for you.
Stocks are flat, as the few traders on duty today prefer to twiddle their thumbs and maybe partake in early eggnog. None of the major indexes is showing any movement to speak of; the S&P is up fractionally, at 2,069.
The data gods have delivered a wealth of numbers. Most of them have confounded the “expert consensus” of economists who play the parlor game of guessing the numbers before they come out…
- First-time unemployment claims: Up big to 313,000 last week, highest since early September. One week doesn’t tell the story, but the trend bears watching
- Durable goods orders: Up 0.4%, but once you throw out transportation, almost everything looks weak… and metals and electrical equipment are in outright decline
- Meanwhile, the Commerce Department’s “income and spend” report shows personal incomes and spending both up 0.2%. It’s been seven months since this report indicated Americans were spending out of an empty pocket, with spending rising faster than incomes.
The last of those three reports also includes “core PCE” — the Federal Reserve’s favorite measure of inflation. It’s up 1.6% year over year. Still below the Fed’s 2% sweet spot…
Gold spiked a staggering $270 late yesterday… only to come back to rest near $1,200. Sort of. Maybe.
Here we must take a short excursion into the nitty-gritty of the world gold trade. Gold trades electronically on the New York Globex almost 24 hours a day, five days a week. There’s a 45-minute window between 5:15-6:00 p.m. Eastern Time when it’s closed. The only trading of any consequence during that window occurs in Sydney, Australia.
It was during this window gold appeared to zoom up 22%, topping out at $1,466.38.
“It was live on multiple websites and data feeds across the Web,” writes Nick Laird of the Australian gold bug site ShareLynx. “Gold bugs watched the prices on NetDania, iFeed and eSignal data feeds and on websites such as www.usagold.com and www.bulliondesk.com so the price increase appeared real.”
“Appeared” being the operative word. “Who was doing the watching, and who did the monitoring and then the correction?” Mr. Laird inquires. “Someone in control was watching these live feeds and reacting to them? What was happening to the quote stacks? Who was buying/selling? Did it really happen?”
In the end, we’re left only with speculation… and the reality that gold’s spot price is back to $1,197, around where it’s traded most of this week.
“It’s the closest thing to a sure thing that Wall Street offers,” says our income specialist Neil George — describing an investment vehicle that dates back to 1836.
That’s when the Baltimore & Ohio Railroad wanted to raise money to extend its lines west. But banks and private investors were skeptical. And the firm didn’t want to issue new shares.
“So B&O Railroad introduced a new type of security,” says Neil — “one that offered the benefits of a stock and a bond rolled into one. It would trade on the public markets alongside the company’s common shares, but offered distinct advantages: It was guaranteed to pay a fixed, regular dividend, and anyone holding this new type of security would be paid before common shareholders” if, God forbid, the firm went under.
Many market historians consider this the first issue of preferred shares to the public. “Preferred shareholders no longer had to worry if the expansion projects would be successful,” Neil explains, “because their shares gave them credit-like claims if things went bust. And if the projects did pay off, the shareholders could expect to see the value of their preferred shares increase.”
Today, preferred shares are a fantastic way to shield yourself from the market’s ups and downs.
The S&P 500’s been on a roller coaster ride all year. But S&P’s index of preferred stocks has risen more steadily. It’s up 12.6% year to date… more than 40% better than the S&P 500’s return.
“And that’s not a fluke,” says Neil. “From 2008-09, the S&P 500 lost 20.34%. Yet preferred stocks generated a positive return of 7.75%.”
Neil has several preferred stocks in the Lifetime Income Report portfolio. Each is up nicely this year, while throwing off an average dividend yield of 7.11%. For access to Neil’s income recommendations, look here.
And now two charts to chew on as you gear up for holiday shopping.
“This year, a growing number of retailers are actually open on Thanksgiving Day,” writes money manager and finance blogger Barry Ritholtz, “including Wal-Mart, Kmart, Sears, Target, Kohl’s, Staples and Macy’s.”
Mother Jones magazine has plotted the expansion of Thanksgiving Day hours over the last decade…
“It is all part of the plan,” adds Mr. Ritholtz. “The manipulators at the National Retail Federation and elsewhere work hard to create a sense of consumer frenzy.”
Come Friday — or maybe even tomorrow night — you’re likely to hear media chatter about this year’s holiday retail forecast. Don’t believe a word of it. As Ritholtz reminded us the day before Thanksgiving last year, the National Retail Federation (NRF) survey involves asking people how much they plan to spend this year and how much they spent last year. As if anyone could remember that off the cuff.
And if people suggest they’ll spend less this year, the NRF throws out that forecast and issues its own, more optimistic one. Shocking, we know…
“The NRF doesn’t make it easy to find the results of its past predictions,” Mr. Ritholtz goes on. But his colleagues at Bloomberg have done their best to assemble a decade-long history… and compared it with actual results from the Commerce Department.
“The abysmal track record is why every year, I exhort investors to ignore this data series,” Ritholtz concludes.
“Being open on Thanksgiving,” he adds for good measure, “smacks of desperation, and you should do nothing to encourage the excesses of this anti-family, anti-football behavior.”
For what it’s worth, Costco, Marshalls, Pier 1 and GameStop are among the chains sitting it out. They’re closed tomorrow.
“Not in 1 million years will this be approved,” a reader writes of the Swiss gold referendum this Sunday.
“The Swiss, like Washington pols, will make a deal and rig the count. NEVER will it pass, because it takes away every politician’s free lunch!
“Discipline… are you kidding?”
The 5: A Swiss reader of Rickards’ Strategic Intelligence agrees. “I’m keeping tabs on Swiss public opinion among young voters,” this individual writes. “They are all going to vote no. The party supporting the referendum stands at the far right and won’t gather enough people to vote their way.”
We shall see on Sunday…
Happy Thanksgiving,
Dave Gonigam
The 5 Min. Forecast
P.S. U.S. markets are closed tomorrow and will trade a half-day on Friday. We’re back on Saturday with our weekly 5 Things You Need to Know wrap-up. The weekday edition of The 5 returns on Monday.
P.P.S. Once more, no matter what OPEC does tomorrow, our energy team has identified a way to play America’s shale bounty for up to 200% gains in as little as 60 days. Access to what Matt Insley calls a “once-per-generation moneymaking opportunity” will be closed after midnight tomorrow, so now’s the time to act.