GM May Hit $200 Before Oil Does 26 comments
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I posted on July 17th that a historic reversal was at hand in Oil has Peaked, Banks have Bottomed, and that has proved prescient advice. Shorting commodities and resource stocks has been a great trade in the last few weeks, and one I have consistently recommended since late April, despite the continued hype and ludicrous price targets from many investment bank analysts, who have yet again revealed themselves to be glorified cheerleaders dancing around the latest momentum trade. The short banks/long energy trade was dangerously crowded, as evidenced by hedge funds suffering their worst month in years in July in a stampede for the exit.
I wrote back on 26 May in It's the oil price, stupid, but for how long more?, that:
Peak Oil is not at hand but peak speculation in oil may well be. Given the weight of resource stocks in key global indices (and earnings), it will be interesting to see how markets react to a looming reversal in oil; some pretty brutal sector rotation would certainly result and the dollar would resume its stalled rally.
The CRB index suffered its worst month since 1980 in July, US financials had the biggest one week move of any sector ever, and there's plenty more where that came from.
Although I believe there is a secular bull trend in commodities and indeed emerging markets, both asset classes had become a classic bubble in the face of a global demand slowdown (China still growing at 10% is about as credible as George Bush winning a Nobel Prize) and are now in the throes of a deep medium term correction that will probably see most commodities halve or more from their peaks.
The chart below nicely summarises the characteristic behavioral pattern of an investment bubble such as Nasdaq, US Housing, and now commodities (and particularly oil).
Although there will be volatile ' Bull Trap' rallies, the uptrend has been decisively broken and I'd avoid long exposure until we get to that capitulation phase a few months down the road.
All major emerging markets have now underperformed developed markets from their peaks, and are in bear territory, but not compellingly cheap yet. I've said before that investment is like a beauty contest where the least ugly contestant wins, and that's the dollar and US equities right now.
Not only is there a huge rotation of cash imminent from the commodity/emerging market reversal, but the ratio of money market funds to equities stands at an all time record high, equivalent to 27% of total US market capitalisation.
Two conditions have been required for a sustainable rally in US equities; firstly, a bursting of the oil bubble, which has evidently begun, and secondly stabilisation in the housing market, which is also tentatively becoming apparent in many regional markets, although not yet nationally.
All this is good for the US dollar (and very bad for commodity currencies like the Canadian and Austrlian dollars), and good for blue chip US equities, which will resume a tradable bear rally that should take the S&P to 1350 or so over the Summer. It's wise to ignore momentum (and headline) chasing 'star' analysts whether they're calling oil at $200 or Citibank (C) at $2, and take some sober perspective on the markets. If anything, their guru status is usually a contrary indicator.
Although we are in a structural bear market that will last well into the next decade, and we may well see a final cathartic sell off in the Autumn to test the 1100 level (marking a classic 30% peak to trough correction), it's now a good bet that on a 12m view, inflation concerns will have abated, the dollar will be in a surprisingly strong uptrend, and US equities will be materially higher from here.
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This article has 26 comments:
Seems to me like you have all the bases covered!
I guess the large US deficit is not important.
If everyone knew what the future held, we'd all be millionaires.
But against the opinions of the short sighted momentum cheerleaders the article rightly derides, that makes it a fine time to gradually accumulate stocks. Cost averaging works if you avoid the peaks themselves. When the average retail investor can't see a single line on his mutual fund past performance statements without a minus sign in front of it, the next bull can begin.
'I believe there is a secular bull trend in commodities and indeed emerging markets'
'Although there will be volatile ' Bull Trap' rallies, the uptrend has been decisively broken and I'd avoid long exposure '
'Although we are in a structural bear market that will last well into the next decade... it's now a good bet that on a 12m view, US equities will be materially higher from here.'
Hm, understand your reasoning , but the problem with that kind of analysis is that you will be constantly switching between all sorts of secular and non-secular trends. Also, while i can't deny the existence and growing influence of sector rotation by hedge funds and other large institutional investors, I will certainly not adopt to their approach and trade in and out of my positions whenever THEY feel like changing moods.
And finally, that 'money market funds' argument is a bit of a stretch. a lot if not most of the assets held in these 'money market funds' are higly illiquid paper that cannot be sold - and that finances to a alarge extent the big banks and keeps their house of cards intact - sort of. So you might in fact not see large outflows from there anytime soon
Even the cheerleaders for the oil producers/extractors (CERA, EIA, and IEA) have indicated that global oil production is peaking.
Interestingly, the U.S. Energy Information Agency and International Energy Agency still have not given the world a specific time frame for global peaking.
Sometimes I wonder what happened to my tax dollars :(
And the U.S. Federal Emergency Management Agency has said nothing about what to do when oil production is so low that the highways and power grid fail in the not too distant future :(
All of the documentation and references for this are available in a free 48 page report that can be downloaded, website posted, distributed, and emailed: www.peakoilassociates....
I used to live in NH, but moved to a sustainable place. Anyone interested in relocating to a nice, pretty, sustainable area with a good climate and good soil?
I think the article means oil has peaked (refering to the price of oil)
"peak oil" as cjwirth defines it means production has peaked and we are in a phase of declining availability.
You don't reach peak oil with twice the Exxon Valdez spill seeping into the Gulf of Mexico every year: www.sciencedaily.com/r...
Ever heard of abiotic? oilismastery.blogspot..../
Alternative energy has been getting a free ride on subsidies throughout the world, particularly the US and western Europe. Wind cannot survive without it and now new studies suggest that due to generation fluctuation on windmills (the wind sometimes doesn't blow) the required infrastructure to back up a reliance on wind is almost as much as if you didn't use wind in the first place. Without any evidence I still like solar way long term, but we have some time to go. Nuclear power is the obvious choice for power generation, which would leave more and more oil available for transportation fuel until battery technology comes around. No way doe this all happen in 5 years. Oil will be around for awhile. And we will keep finding more of it until we find something cheaper, which eventually we will.
Now you mean to tell me that the USD should make a strong come back based on these facts???? Not only that, why should Americans get to have everything on the cheap? The days of living the dream are done.
200 cents maybe YES YES not dollars. You screwed up the sign buddy. GM in bankcrupt already. Liquidity will not help them since they are insolvent. Consumers are choked, so they won't be buying hammers and other p.o.s GM cars. It would be hilarious if some japanees or german manufacturer bought them out cheap. Entire auto industry is in trouble and this foo is screaming $200. Oil yes, GM f@ck no.
OMG dude. The only illusion is your fantasy story you're picturing in your brain. U.S peaked in 1980. That is known fact bud and also U.S would not import 60% of oil from unstable regions like middle east and spend billions of dollars and drive national deficit to 9 trillion dollars if oil would be plentyfull. Dude stop!! Please !!!
Here educate yourself. BTW he is/was advisor to G.W Bush.
uk.youtube.com/watch?v...
Part of the trap that has been set for us by big business is the idea that we must buy a big fancy car and spend big money for tires and maintenance. It’s the only way to prove you are a real man. It’s a sure fire way to get laid. This building selling and maintaining of cars forms one of the major key stones for the American economy (other keystones are big houses, flat screen TVs and designer frocks). When the folks who can’t afford the gasoline for a big car start riding the bus or switching to one of those silly little puddle jumpers, this keystone is going to be radically diminished. Just think about the cascading numbers of people who earn their livelihood serving the millions who currently depend directly on the auto industry for their daily bread. It boggles the mind. I suspect that most common stocks are only going to sell for a small fraction of their current price when the idea finally sinks in that Americans can only really afford one of those silly little low cost, cheap to maintain puddle jumpers, like the ones they drive in Europe.
Here is another scary thought. The same thing can be said for airline industry, only worse.
As for your title,GM will belly-up within a year and you will never see even $100 oil(on the downside) in your lifetime.