Thursday, 23 July 2015

Summer Ramblings

Amy Winehouse, Back to Black. Or rather going back to oil, as the Black is in the Red. The first dump in oil prices was always going to see support from those looking for supply to fall in response to price. It didn’t. The bounce was mainly short covering and we are now seeing a more realistic pricing to supply. This time we could make new lows.

Resurgence of High Yield/ Oil linked concerns. Companies and individuals can only hold their breath for so long. The first dip was manageable out of cash reserves or lending lines. This second dump is like being pushed back under water just after you broke the surface but before you managed to catch a breath. Nasty. Minor oil stocks reflecting this pushing to lows below those seen when oil was $6 lower than here.

The bauhaus chair model of oil supply and demand is proving valid with price sloshing around between the horizontal sections with no supply side change.

Individuals in the oil industry are also going through a capitulatory transition. Friends I have in the technical side of exploration have given up hope and are running out of cash and are seeking any jobs to plug the gap. 'FX Taxis’ faces competition from ‘Oil Taxis’.

Having said all of that my gut says oil will pause and bounce after its recent move lower, as my pertinent leading dodgy oil stocks stopped falling 2 days ago.

Commodities - Much like oil the second wave downwards is doing more damage than the first. BHP and RIO now coshed to new lows but I feel that the big boys finally falling is part of the last move. Fact of the day. The earths crust is 5% iron and 8.3% Aluminium. Ok, I know it’s density of distribution and cost of purification that counts but it’s still worth reminding people of when they go on about global shortages of stuff.

Almost as good a thing to remind people of as the population of New Zealand. Last night the newswires and twitter-sphere was alive with NZ rates news. I love New Zealand to buts ('bits' in English) and would happily spend the rest of my days there, but for Joe Blogs speculator or Mr Large US bond manager, it is worth remembering that it has a population the size of .. errrr.. West London or let’s say 1/5 that of Sao Paulo, or many major Chinese cities you have never heard the name of let alone can pronounce once you have. The NZD is a great currency to trade, it moves, it has yield, you can pretend you know what it’s going to do by watching esoteric Fonterra dairy price auction websites and you can even pretend you know where New Zealand actually is on a map, but let’s remind all those armchair dairy farmers in the FX market, that it is a tiny economy and a tiny island but the danger is that speculative flows can at times become positively Icelandic. The only contagion that could ever come out of New Zealand is via hot money lost. It could sink without trace and the only ripple in the markets would be a 4 foot break on a beach in the Cook islands. Don’t worry NZ, love ya really.

Gold - So it’s a metal that, much like bitcoin, has no relevant method of valuation other than the price it is at. Large collapse or rally so what? It’s immaterial to all other than those have been buying everyday since 2011. Gold is the ultimate buy and hold as the reasons expounded for buying it never go away. A religion in as much that it is selling a dream afterlife, but you’ll be dead before you see it.

‘Techapple’ - So they didn’t kick the ball out of the park, but I’m reading the price response to the poor figures 2 days ago as much as a comment on the state of tech indices. Flighty and fidgety. With gold and oil falling and Tech rallying it was all looking so late 1990s. But to be honest tech is a nightmare unless you are on the inside. Oh, that's illegal isn't it, in that case I guess Bono is a financial genius. There was me thinking he was just a jumped up singer man with over inflated impression of his worth to the world with good connections. Silly me.

Greece - EU policy has been to cover the turd on the Greek beach with a towel. Still sure the EU just want the problem to go away until September so they can all head off to Antibes for their nice August break. 'Nightmare on Ellas Street 3' is in post production. Odds on any Eurocrat doing the decent thing and spending their holiday in Greece? They should make it compulsory. As banks make their employees do a day’s fence painting in the local community centre so they can tick off their 'caring for the community’ marketing spin, so EU should send employees to Greece for a day’s pro-bono work. For anyone who hasn’t yet worked out why Greece can’t work go and read up on the Mundell Fleming model and realise that the only escape valve is capital movement which is exactly what the EU is strangling.

What else? Ah yes - Jeremy Corbyn leading the polls for next UK Labour leader. Can we really, one day, see a global leaders summit consisting of the world’s mightiest statesmen and there amongst them a guy looking like a 1970’s Open University lecturer?

1 comment:

Mike said...

Great post as always. So you think Kiwi can fall that much further? I spend a month in NZ few weeks back. When making a nice espresso in the morning I caught a local version of BBC with a farm bank analyst women making some very interesting comments with regards to the over leveraging of the local farmer/ high cost producer. It was brilliant in the sense that she was on the ground daily with the farmers. Her point: perfect storm in NZ via currency strength, over investment, large debt and no way of servicing it due to overcapacity. Will go on a lot longer than most think. Can't remember the last time a cup of coffee was so enlightening. Having said that at some point I do see the currency a buy, having played it from the short side at around .73, I think I would be happy to accumulate in the 50s. Am too looking to retire there some day. Great place, scenery alone got to be worth something. Any thoughts?