Oil gave us all some nice excitement this week. Oil opened the week around $47, surged to over $54 on Tuesday, fell back below $48 on Thursday, then finished the week north of $52.
What do we make of all of this? In the end, probably not too much. It is likely that the surges in oil and related stocks are due to short selling and speculation. It may be a worthwhile time to open a max 1% position in select oil and gas companies, but the bottoms likely won't be in until sometime in the second quarter of this year. This allows for some pain to start showing up with oil companies and I expect we will begin seeing recovery in oil beginning late spring, early summer time.GREECE AND EUROPE
Greece and Europe continue to slug things out over what kind of a bailout and overall grace the EU is going to extend to the deeply ailing Greece. Athens has threatened that they will run out of money in weeks without immediate assistance. If they do run out of money, there is the danger of Greece financial collapse and leaving the Euro. So far, the threats have not shown any impact on Germany.
It's hard to blame Germany and the rest of the EU. Greece has spent money they don't have for years and too many of its people view taxes as optional. Who should bear the burden of Greece's financial mistakes? Are Germany and the rest of Europe being too strict with their terms or is Greece just unwilling to admit mistakes and take responsibility for the mess they have found themselves in? These are the questions waging in Europe.
I will note that these questions extend much further than Greece's finances. Financial stress and extremes can cause much more than political arguments. The future of the EU and an overall unified Europe will be influenced not only by current decisions regarding Greece, but whether countries like Greece are willing to change their ways. Countries like Germany will only babysit for so long. Add to the equation Greece's unique ties to Russia and some very interesting potential scenarios develop.
An opinion page in The Wall Street Journal this weekend interviewed Lt. Gen. Frederick Hodges, commander of U.S. Army Europe. According to Hodges, "the Russians are mobilizing right now for a war that they think is going to happen in five or six years-not that they're going to start a war in five or six years, but I think that they are anticipating that things are going to happen, and that they will be in a war of some sort, of some scale, with somebody in the next five or six years."
I don't know what will come of all of this, but every indication seems to be that tensions are rising across Europe and have been for years.GLOBAL FINANCE
Back to the financial world, Gold and silver both saw a big plunge in prices on Friday. While if I had no positions in gold and silver, I think now would probably a good time to open positions in physical gold and silver, I do think there is a strong likelihood of lower lows to come in 2015. Personally, I do not intend to do any buying until then.
Australia jumped on monetary easing bandwagon by lowering interest rates due to concerns over slowing inflation and economy growth. Rates are now at a record low of 2.25%.
Russia's GDP is expected to fall by 3% in 2015 thanks to low oil prices and Western sanctions. Inflation is expected to be around 12% and the countries credit rating was reduced to "junk status."
The global fiscal merry-go-round continues. It seems everyone continues to struggle and with the backdrop, the U.S. continues to look good and the dollar continues to dominate.
Our YELLOW ALERT continues to be in play as there seem to be yellow, or red flags waving around lots of places. Cash positions of 25-50% may not be a bad idea.ARTICLES OF NOTE
Saudi Concerns: Exporting Shale Oil Technology - Discusses role of shale oil and current situation and concerns for Saudi Arabia.
Oil Price Soars, Rig Count Plunges Worst Ever, But Bloodletting Just Beginning - Worthwhile article on current situation for U.S. rig counts and production.
"To put a positive spin on the current state of the natural gas market, which is difficult to do at this point, prices are heading for $2 and this level may not be sustainable for very long. Each time over past years, this market traded down to $2 or below huge upside corrections followed. In early 2002, the price traded $1.905 - by September of that year the price more than doubled to $4.20. In February 2003, the price traded at almost $12. In 2012, when prices touched $1.902 a steady rally followed, bringing prices to highs of $6.493 by February 2014." - Natural Gas: Bears Win
"My guess is that the worst of the bear market is over and we will start to see signs of a recovery. However, that recovery will probably mean more two-way action in the crude oil futures markets in the days and weeks ahead. This is a time for traders; remember to take profits because in volatile markets profits can melt quickly into losses. The deeper we go into 2015 the more opportunities in the world of oil will bubble up to the surface." - The Best Oil Opportunities: What To Avoid And What To Embrace
"It is starting to appear that the Fed spoke too soon in 2014 when they declared that rates would rise in 2015. It is likely that they are regretting that statement. A unanimous vote for patience gives us a clue. In 2014, the Fed rarely voted together with several hawks voting for immediate rate hikes.
It is my opinion that the Fed will honor its word, but the action will be symbolic with very little backbone given the global economic environment." - Patience - The Fed That Called Wolf
"Looking out a year or eighteen months, if the world economy does not slow and the pace of capital cutbacks continues globally, prices seem certain to recover and oil stocks should reward patient money. There is no need to heap risk on risk, so I will stick to quality names with solid balance sheets." - Oil Stocks May Be A Big Win In 2015
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Disclosure: I own physical gold and silver.
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