Showing posts from February, 2016

The Question Every Investor Is Asking

After a long hard day at work, an investor finds himself retreating to his home office to check on his own investments. Sitting beside the dusty keyboard and piles of notepads scrawled with calculations and stock symbols, a magic lamp sits crested by the soft glow of his desktop computer with three monitors. He rubbed the side because that's what everyone is supposed to do when they come across one of these. A phantasmic figure appeared, filling his office, and said, "I shall grant you one answer to any question about the markets." The tired trader slumped in his chair thinking, then finally asked, "Where is the bottom in this crude oil market?"

Now if you were hoping for an answer then you are among the millions of financial professionals that would ask that same question. Just about everyone has contributed their own opinions on when oil prices will reclaim their hefty price tag (including me), but just about everyone has been wrong at least once. I can remem…

The Current Debt Crisis

Predictions from various organizations regarding crude oil have a tendency to affect investor sentiment more often than the actual fundamentals that the price represents Most recently, the IEA has projected the faltering of many sources of production in the coming months. As daily pumping wanes, the prices should recover later in 2016 as the stabilization process begins. WorldOil reported that exploration companies have already cut capital investments by 17% off of the previous year's level. The trend should continue as volatility keeps prices in the low $30's going into the end of the first quarter of 2016.

In the United States, oil contracts closed at $32.15 on Thursday still about $7.00 dollars from the closing price of 2016. Brent crude oil closed at $35.07 on the same day trailing its high by $4.00. Iranian oil and a slower than expected drop in U.S. output has caused suppressing sentiment to hold prices around its current trading range. Despite support for an OPEC-wide o…

The Fed's Shaky Voice

Last year, the Federal Reserve all but solidified up to four quarter-point rates hikes paired with their positive economic outlook. They based their diagnosis on strong job gains and stable industrial indicators with a careful eye remaining on the low inflation. But that was last year. During the January meeting, Fed officials chose not to raise rates even though only a small quarter-point increase was due. Instead, Yellen and friends blamed volatility on the increase at the end of 2015 coupled with uncoordinated action from the worlds' largest central banks.

The January minutes, that were released on February 17th, allow investors to peek into a very tense, unsure FOMC board that is left with a nonexistent arsenal that they can use to fight the current weaknesses in the global economy. Their words appear to be all they have left in a fight with a trembling global economy. Although, time and time again, the Federal Reserve board finds itself insisting that inflation will eventuall…

The Real Goals Of Russia and Saudi Arabia's Deal

The newest talk over the oil-cooler (yes, I opened with that) in the offices' of hedge funds and investment banks is Russia, Saudi Arabia, Qatar, and Venezuela's new deal to freeze oil output at January production levels. The news prompted oil prices, both WTI and Brent contracts, to set single-day records for the gains at the end of last week. Despite prices rebounding above $30 (WTI) and $36 (Brent), the door closed at $29.04 and $33.48 a barrel respectively.

The deal between the oil producing giants brings a lot of ambivalent sentiment onto the trading floor. While a production freeze signals bullish news to commodity traders, the market will remain oversupplied at January output. The exact production numbers cited as January levels are as listed: Saudi Arabia at 10.2 million bbl a day, Russia at 10.9 million, Venezuela at 2.4 million, and Qatar at 680,000. The freeze didn't fool investors who saw it more as deceitful as large gains were pared to the smaller ones that a…

The Deviation Moving Average

In a previous article, the concept of the equilibrium price was discussed with reference to supply and demand dynamics upon which most mathematical economists agree. Analysts and pundits who throw rough numbers around in news articles and reports are trying to find that magic number that prices may converge. The value could be based on a calculation or a suave observation of historical price movement that suggests a certain number. Often times, these technical and fundamental projections guess at what a "fair price" would look like. A "fair price" meaning that the value reflects what the investor is paying for and how much it may benefit that individual in the future. Any trader knows, though, that actual market price and the "fair price" are dramatically different things, so many analysts turn out to be wrong.

The discussion of what the difference between a fair price and the market price is divided into two viewpoints that see the price mechanism differ…

The Winning Sector and Why

Another day of unsure trading left stocks to move ambivalently today as crude oil fluctuated below $30 and major market indices floated around their opening prices.

After higher supply estimates by the International Energy Agency, traders once again found reasons to sell stocks across the board. West Texas Intermediate contracts which opened at $30.17 fell to just 20 cents off their low at $27.94. Analysts continue to point to a coordinated cut by major oil exporters as the only remedy to low oil prices, a point that is rebutted once more by increased production from OPEC. The International Energy Agency reported that the cartel added about 280,000 extra barrels onto the market with sanctionless Iraq ramping up output in order to join the relentless hunt for more market share. With every day of depressed oil prices, price projections turn bearish and volatility appears to increase. Before this year, only a select few would have guessed contracts could be valued so low.

Because of all …

Bernie's Wall Street

In every country, national and international politics play key roles in the development and sustenance of the economy. Geopolitical conflicts have long been a source of financial crises. The institution of OPEC is a clear example of the way political conflicts over oil can cause swings in the stock market and, hence, the overall economy. Many financial analysts forget to include such analysis in their reports, and investors should be wary not to do the same. The presidential election of 2016 may have major implications for fiscal and monetary policy in the near future. Because the stock market and its assets are supposed to include expectations for future business conditions, investors should recognize that certain fluctuations and trends can be affected by political events. The Iowa caucus, and potentially the New Hampshire primary, are two events that have the potential to add volatility to U.S. and global markets already in turmoil.

Instability could be further augmented by the con…