Showing posts from March, 2016

Monetary Policy Review

Yesterday at an event hosted by the Economic Club of New York, local economists were fortunate to hear the Federal Reserve Chairwoman Janet Yellen speak about monetary policy. After a dovish conclusion to the March meeting, remarks from Fed members such as Bullard, Lacker, Williams, Lockhart, and Evans confused the markets when they provided a more hawkish outlook. The conflicting comments highlight the ambiguity of the Fed's monetary policy which often proves to be discouraging for investors. Unlike the impressive show of coordination during the financial crisis in 2008, central banks across the globe have settled for a fragmented approach to monetary solutions in the current global slowdown. The ECB continues to expand its quantitative easing, the Bank of Japan experiments with negative interest rates, all while the Federal Reserves tries to find ways to raised the Fed funds rate. Amidst the chaos, Janet Yellen's speech sought to clarify the Fed's unkempt thought process…

Oil Prices and Real Interest Rates: An IMF Paper

One of the great economic conundrums of today that continues to stump economists across the globe is the failure of low oil prices to spark a consumption-based boom. Lower prices are supposed to stimulate more demand from the average consumer and lift economies with a boost in sales. Across almost all sectors, firms see their input costs decreasing, especially the transportation and industrial sectors. Consequently, the availability of extra capital allows business and residential investment to increase and offset the losses in the energy industry. Finally, the total gross domestic product rises. This theoretical flow-chart can be followed by most college economic students and has much power for policymakers across the globe.

The question still stands, though, why hasn't the low price of oil supported growth? Average quarterly global GDP growth slowed to 1.98% in 2015, down from 2.50% in 2014 and 2.46% in 2013. The average yearly price of crude oil in both of those years was signi…

Fundamental Friday: 25 March 2016

Crude oil: Production of crude oil dropped by 30,000 b/d this week accelerating a trend that appeared to have flattened in the past month. The decrease in output is accompanied by a drop in refinery inputs by about 180,000 b/d. The current pattern reflects a peak of refinery inputs, which almost reached 16 million b/d, quickly giving way to the maintenance season. The drop in production is most likely oil firms' response to less demand for their immediate, extracted crude. Look for inputs to fall more as refineries close and weekly production to continue to respond in tandem.

Stocks of crude oil grew by about 9.4 million barrels from last week. The gains were sharper this week because of the reduction in inputs forcing more crude oil into storage. The trend continues to be bearish on price, but the retraction of the export ban could release some of the pressure on growing stocks. In an Energy Information Agency report, U.S. petroleum exports increased by 467,000 b/d over the 2015 …

Terrorist Attacks and the Stock Market

Just months after tragic events in Paris, the city of Brussels is attacked by Islamic State-inspired terrorists. On Tuesday, two bombs blasted the a Belgian airport and later a train in the capital's metro station. Authorities across Europe remain on high alert as they continue to search for one of the three attackers on the run. The death toll has reached 31 with 270 wounded in the explosions. The attacks raise questions about the ability of counter-terrorism agencies in Europe as well as adding more tension in the debate over Syrian refugees. The Islamic State claimed these assailants as their own soon after, heightening the urgency surrounding the war against ISIS.

This terrorist attack comes only four and a half months after a massacre in the capital of France. A death toll of about 130 with hundreds more injured was the first sign of danger from ISIS after the Charlie Hebdo attacks. The response from the authorities and the population were aimed at ensuring the safety and mor…

Book Value Analysis of the Energy Sector

One of the most popular, timeless types of security examination is the cut-and-dry view provided by fundamental analysis. Investors who subscribe to this school of thought find buy and signals in the data of the financial statements. This form of investing, often called value investing, looks to find the best bargain on the market. Because quarterly statements only come out every three months, most trades made using fundamental analysis are long positions in the long-term. But these decisions aren't impulsive or speculative, instead, loads of data and valuation techniques can be packed behind a buy or sell signal. For this reason, it is extremely helpful to visit this perspective even if it's not an investor's specialty.

Today, we're going to be value investors and analyze energy stocks using one of the most popular tools of fundamental analysis. The book value alone represents what a potential shareholder is buying into. To calculate it, look at any balance sheet and …

Fundamental Friday: 18 March 2016

Crude oil: For the week ending March 11th, U.S. production shrunk by 10,000 b/d week over week. After a slight gain the week before, a 0.1% change showed the continuing pressure of low oil prices on domestic producers. Over the past month, production power of 67,000 b/d has gone dormant reflecting the current trend of supply tightening. Daily output level now sits at 9,068,000 b/d. The last time wells were pumping this much, the weekly WTI spot price had fallen to $78.42 for the week ending November 7th, 2014.  Keep an eye out for the 9 million b/d mark which might be identified as a signal of building momentum.
Stocks of crude oil in the United States grew by about 1.3 million barrels last week with companies still looking to store crude while waiting for higher prices. A jump of 1.6%, or about 20 million barrels, for the past month shows the constant pressure on storage and refinery capacity. With every weekly increase, total stocks of crude oil (excluding SPR) sets a new all-time r…

Why Shale Producers Will Never Stop Pumping

This week in crude oil, prices sit in the high $30's after three straight losing sessions are erased by a 6.14% gain in WTI price today. While the worst appears to be over, analysts still assert that an excess of supply will dominate growth in demand. Those from Citigroup blame institutional investing and bets on short-term trends for the rebound that has occurred over the past month. Data from the large investment bank shows a record number of bullish bets that hedge and pensions funds have placed on a rebounding Brent. The current market "equilibrium" feels wedged between the unrelenting force of a saturated market and strong, short-term volume behind WTI and Brent gains.

Scheduled maintenance that is expected to start soon will limit the demand for crude in upstream operations. Despite the fact that this shutdown period occurs every year, this year the seasonality trend could disrupt a critical point on the timeline of the glut. The Energy Information Administration a…

Emerging Markets Are The Key

Most investors and financial analysts keep their eyes locked on the U.S. and European markets in order to take the pulse of the global economy. Shares on the New York Stock Exchange and the London Stock Exchange are among the most traded in the world, drawing money from every continent in just about every currency. The DJIA, S&P 500, and the FTSE 100 are the most popular indices in the world, representing constituents that make up trillions of the globe's wealth. But what if I told you that something's driving them? That developed economies are being driven instead of driving?

By 2030, ExcelFunds reports that emerging markets equities are expected to represent 55% of the global market capitalization by 2030. China's will, by itself, account for 28%. There is no questioning the power of developing economies. Their businesses and governments become power hungry vacuums demanding infrastructure, cheap services, construction, and just about every kind of raw material out t…

Introducing Black Gold Disease: Predictions

Black Gold Disease is beginning its journey into the world of prediction where mathematical models and precognitive ability are often mistaken for each other. Most articles on this blog have addressed the current economic or financial situation of an entity with suggestions of what the future could look like. The BGD: Predictions page will focus on something different with a different structure and purpose. A visitor there will see a long list of links that connect to predictive tools along with explanations of each. The information found on those links will be open for anyone to use with downloadable Excel spreadsheets a goal for the future. Currently, only two links are listed (Deviation Moving Average), but more indicators and models will be uploaded over time. 
I ask everyone who reads my blog to at least come check out those tools to support the blog and the information it offers. Getting feedback and traffic are what keeps the additions coming. Any interest in collaborating or a…

Earnings Review: EOG, Marathon, and Continental

With the fourth quarter and annual earnings reports coming out, analysts are able to get a better look at the oil and gas production scene in the United States. Crude oil sits at just over $34.00 today after a small bullish boost lifts it from the high $20's of last week. Just about a year and a half ago, oil executives and energy analysts might have called someone crazy if they had predicted those prices in 2016. Bewilderment aside, oil and gas firms have actually proven to be quite resilient under these sudden bearish conditions.

At the peak in 2014, prices as high as $107 prompted large revenue streams to flow into the coffers of oil and gas companies just beginning to reap the benefits of the new develops in shale technology. New discoveries in North Dakota, Eagle Ford, and the Bakken fields became more viable as fracking allowed deeper and more unorthodox ways of drilling. During these days, equities like Exxon-Mobil and Halliburton's common stock were among the most trad…