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Showing posts from 2015

Evaluating A Year In Oil

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It's finally the end of the year, and oil producers across the globe sigh in relief as one of the worst years in crude oil trading finally closes. But as they turn around to face 2016, the shaky ground they tread provides little respite of the past 365 years. Losses for the WTI and Brent spot prices amount to about -38% and -43% on the last day of the year. Both petroleum benchmarks underperformed other commodities traded on that market with general losses for the year traced by a plunge of about -23% for the CRB basket index. Because of these drops, commodity-based corporations, like Glencore, saw major squeezes on their top lines as slashed prices put many firms in danger of default. Exploration and production companies tracked by the S&P Sector Select ETF saw a total yearly return of -37.5% compared to a general S&P yearly loss of about -0.8%. There's no question when it comes to deciding the losing sector of 2015, that is if investors found themselves with a long p…

Paranoia And A Change In Political Expectations

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Merry Christmas! This trading week is cut short by the holidays as a lunch time closing bell is to be heard on Christmas Eve and no trading on Friday. Analysts begin to wrap up 2015 with their "year in review" articles. Retail stores hope for the last of the shoppers to trickle in and spend the extra cash they've been able to hold onto with low gas prices. The investing world as a whole looks forward to fourth quarter reports and 2016 projections. The joyous feelings appear to reverberate through the market today with all major market averages up attempting to put last week's slide behind them. Earlier in the day, both the Dow Jones Industrial Average and the S&P 500 saw large, early gains parsed down to 0.12% and 0.16% respectively. The midday drag shows just weak the crowd of sellers are in this current market. The same goes for crude oil. Larger losses were pared back to a drop of -0.20% on the price of WTI benchmarked crude oil. Major forces might be slowing …

Painting Pictures Of Weakness

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We saw earlier this a year in October when investors shocked seasonality trends and made October excessively bullish in nature. Energy and mining shares lead rallies that returned value lost in the August corrections. The winter months were approach with the same seasonality assumptions with a Santa Claus rally looming over the hopeful wallets of investors. Black Friday brought the first bad news with sales and traffic numbers down from last year. A drawing off of consumer confidence and consumption from earlier in the year weighed on the hopes of shoppers spending more on their gifts. December's rallies were finally dashed by energy pressure from OPEC acknowledgement and encouragement of their peak production still seeking to destroy shale producers. A quarter point rate hike seemed to be just subtitle to that the larger headline. In just two weeks from December 4th to the 18th, U.S. priced oil has dropped a stunning -15.46% with no signs of higher demand. At the same time, natur…

A New Era?

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After hours of deliberation, the FOMC committee emerged exhausted. It had been six hours since the beginning of what some called "the changing of an era in monetary policy." The governors now stood aside and below their public leader, Janet Yellen, as her dreary eyes blinked in front of the long-awaited press conference to announce a change in the Federal Funds rate of .25%. That's right, the price of money just recently increased from 0%-.25% to .25%-.50%, a move that left the financial sector groaning and the world, wary of overheating, applauding. In at least one article, the words "day of reckoning" were used to describe the fateful day as if they were just assembled to discuss plans for the necessary destruction of the all-powerful Ring. The Federal Reserve, known for its beaucratic leisure and quiet nature, was made out to be game-changing where suddenly Yellen has decided the fate of the economy. Arguments still exist for no rate hikes but quickly become…

Broken Pricing In The Oil Markets

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Market headlines constantly pore over crude oil price, and how they've taken over the market. As if they had never missed a beat, OPEC's oil shenanigans came back to bite global stocks as they appear to mishandle their petroleum policies once more. The Saudis continue to push OPEC production despite all-time highs in the numbers. Member states of the cartel continue to gnaw at the heels of the Saudis while their wallets are drained by the low prices. But is OPEC and Saudi Arabia really to blame? Are the shale producers to blame? I don't think so. My hypothesis suggests a problem in the pricing mechanism where emotional investing has convoluted proper assessment of supply and demand fundamentals. In a previous article, a swift calculation was produced to show the imbalance in changes between supply and price, but the issue has become accelerated with the recent declines. Look at theses charts and notice the scales:

The dates correspond roughly to the length of the supply gl…

Following The Leader

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This upcoming week, the FOMC finally meets for the much-anticipated meeting where interest rates are expected to hop upwards. Their opening act was a terrifying slide in both equities and commodities, something that will speak loudly to dovish central bankers deliberating on the 16th. Weekly losses for some of the largest indices are those voices: the Dow Jones Industrial Average fell -3.26% and the S&P 500 dropped -3.79% over the past five trading sessions. With more bearish sentiment being activated, stocks are threatening to decline back to August correction levels. A truly harrowing prospect indeed. The Global Dow saw similar losses as well at -3.51% implying that weakness was not restricted to the U.S. Some of the most vulnerable parts of the economy revealed fragility that hadn't left. EEM, the GSCI index following major emerging market stocks lost -5.99% over the past week, almost twice the Dow Jones losses. The Russell 2000, monitoring volatile small-cap stocks, slide …

Dead Stocks Walking

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The day of reckoning is just under a week out, but markets don't seem to be focusing too much on the potential for interest rate changes during the FOMC meeting. Instead, all eyes rest on movements in the commodity market where oil has recently dropped to a 7 year low and other commodities continue their trend of low prices. WTI stooped to a low of $36.51 which mirrored levels that defined the global financial crisis. The international Brent benchmark fell to a low of $39.80, also a low for the years since 2008. On the whole, stocks are moving quite differently than their commodity counterparts as pared gains represent buying across most of the sectors. The S&P 500 is up 0.51% and the NASDAQ up 0.43%. The Dow Jones Industrial Average is up about 0.64% with gains from Exxon and Chevron leading the index. The Euro STOXX 50 also shows some growth at 0.22% for the day. As lagging in energy becomes the biggest financial issue, look for broad-based movements to follow the sentiment …

Too Quick To Jump Off A Cliff

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It appears most investors took more away from the OPEC meeting than expected. Once again I must take the time to explain that on Friday of last week, the member countries of the oil cartel met to discuss the possibility of price supports, but to the chagrin of the hurting resource economies, Saudi Arabia declined to even bring the topic to debate. Instead, they adjusted the official ceiling of production to meet their current known levels of daily supply additions. There was nothing new in these announcements. None of the countries declared augmentation of operations. Saudi Arabia did not even threaten to flood the earth with more of its cheap oil. The simple fact of acknowledging their current production levels sent the market into a tailspin, and when I say tailspin, I mean falling out of the sky in a blaze of glory. Major market averages are building on the losses of Monday with the Dow Jones Industrial Average down about -1.45% and the S&P 500 losing -1.18% over the past two d…

Rate Hikes And Iranian Oil

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The end of the week has come and only two things seem more apparent than before: rate hikes appear to be almost guaranteed and oil prices continue to be extremely volatile. Trading for Friday shows positive movement as the S&P 500 and Dow Jones Industrial Average jump 1.83% and 2.00% at about midday. The Russell 2000, a measure of small-cap stocks, lags behind at 1.05% with stress over rate hikes more significant for them. Small cap performance has continued this trend of lagging since September 28th where, over the six past months, the S&P Small Cap 600 has fallen -2.53% versus the S&P 500's drop of -0.46%. A stronger dollar over the past couple of months has also been injurious to competitive advantage for smaller firms looking to do business internationally. After a peak on August 24th at about 1.16 USD per Euro, the support for stimulus programs from the European Central Bank has inspired a precipitous fall of -7.49% to 1.09 USD per Euro Friday. Nevertheless, the d…

Oil and Gas Trends for 2016

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And we're back! The Thanksgiving holiday winds down into the last month of the year with highlights of the Christmas season. The Federal Reserve also moves into territory for their next decision concerning interest rates in mid-December. Trading on Monday and Tuesday were both mostly flat with small losses at the beginning of the week bouncing to parsed gains on the second day of the week. Today, the S&P 500 trades up 15 points or 0.72%, the Dow Jones Industrial gains 132 points or 0.72%, and the NASDAQ up 33 points or 0.64% at about midday. The bounces seem a bit premature, though, as the ISM manufacturing index reveals a contraction (first in 36 months) in November. From October, the index fell 1.5 points to 48.6 points, new orders fell 4 points to 48.9 points, and production dropped 3.7 points to 49.2 points. The numbers look disparaging at first as one of the largest declines in the year, but looking at October's uncanny rally, November's numbers may be normalized …

Paper on Monetary Policy During Financial Crisis on Second Tab!

Hey guys, over Thanksgiving break, I wrote a little paper on some of the ways Ben Bernanke communicated with the market in order to try and fight the financial crisis. He called it "open mouth operations" a very catchy name that is referenced in my paper. If you would like to read it, go to the second tab on the website! Also, commenting is available for anyone who wishes to share their opinion.

Enjoy,
Jacob

Thanksgiving Markets

Trading resumes on the last full week of November with one of the biggest retail days in sight. After Thanksgiving feasts in the United States, consumer, both online and off, will spend copious amounts of money trying to capitalize on their favorite stores' sales. Like a proverbial"run of the bulls" at Pamplona, hordes of people will wake up early just to partake in the opening of the most robust season of spending in the world, the road to Christmas. Just like those charging bulls in Pamplona, investors will tend to trade in an uptrend as many sectors feel a boost of demand. While prospects for consumption are sure to increase going into December, trading sentiment is currently dragged down by bearish energy shares. Therefore, we should see a lot of flat movement as buying and selling in the overall market will be about equal. individual industries might experience different trends, but broad-based gains and losses should cancel any clear trend through the rest of Novem…

How Low Can Oil Go?

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Today, investors trade off of gains in Wednesday from the release of the FOMC meeting minutes that supported rate hikes in December. As a result, the S&P 500 gained 1.35% at the signal of stronger economic growth as well as the conveying the belief that rate hikes are the right move. Some of the more hawkish Fed members already voiced regrets of not raising rates earlier and the tide seems to be turning in their favor. In my opinion, the major delay of rate hikes this year has splotched Janet Yellen's credibility as a central banker who can rule on the middle ground. Her decisions demonstrate her dovish tendencies in FOMC meetings which may have appeared desirable coming out of the financial crisis with a sizable unemployment but not during stabilization periods of the business cycle. While most lost faith in the free market system during 2008, it remains the single most effective pricing mechanism for the value of goods and the value of capital. The Fed cannot facilitate limi…

Oil Shares Lead a Market Supporting Solidarity

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The biggest story of the weekend, which has already begun to pour into the following week, was the terrorist attacks in Paris along with the manhunts and retaliations that followed. Most people understand the political ramifications of the ISIS attacks but aren't often as privy to the consequences in the markets. This is exactly the premise of successful terrorism, that the target experiences detrimental changes in political, social, and economic structures which either hinders growth or disrupts the ability to strike back. In this case, ISIS sought to limit the political will to conduct an air campaign in Iraq and Syria. The results? Well, let's say they came out in favor of solidarity.

The S&P 500 of the United States actually grew 1.51% over the past two days with Monday's movement more intense than today's flat movement. Small cap stocks remained solid as well despite bearish movement last week and the attacks in Paris. Gains of 0.73% were sustained even though…

Islamic State's Oil: An Attempt at Legitimacy

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Just three days after horrific attacks in Paris that leave over 120 dead on a Friday night, military responses intensify as France and coalition-lead forces have revenge on their minds. Consequently, dozens of air raids over some of the Islamic State strongholds occurred early today.Among the targets, spread over lands in Syria and Iraq, French bombers leveled the unofficial capital of the terrorist organization in Raqqa. While many military bases and industrial structures were successfully hit, a news website associated with ISIS reported that there were no casualties from the attacks although that is most likely not the case. These attacks introduced the conflict to more aggressive plans from Western forces that include President Obama's "amplification: of air campaigns as well as special operations that will be employed strategically in order to continue towards the objective of containing the Islamic State and the organization's desire to increase the amount of terror…