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6 November 2017

Summary

Further Rising Oil prices

Tax bill uncertainty

Saudi Arabia's beautiful future

The portfolio performed better this week thanks to oil prices and  AAPL, FB stocks going up. As mentioned in the previous post, oil prices have not lost its momentum. I reduced my positions by half in the anticipation of price correction but that did not realize so, I added back some. Overall, exposure to oil is 2/3 of the portfolio which is quite speculative. I will try to be more cautious in the short-term but my long-term view in oil has not changed in the past months. I expect WTI prices to reach 60$ in the coming months. Some have raised their concerns about shale oil’s environmental damage as chemicals used in the process of fracking is likely to pollute waters. The US Shale oil future is currently getting bleak but EIA forecasts rising oil production for the next year. However, financial strengths of shale companies are not optimistic. If the world economy keeps accelerating thanks to US and EU growth, oil demand and supply can get back in balance. As mentioned before, Saudi Arabia and Russia are keen on keeping oil extension deal longer as the former needs to take Saudi Aramco to Ipo and the latter needs better economic prosperity before Putin’s ratings start to plunge ahead of presidential election in Russia and even for later periods.

BOE increased the interest rates due to rising inflation and growth projections were lowered from 2 -2.25% to 1.5%. The UK stays to be the most uncertain economy and will likely to stay that way in the foreseeable future owing to Brexit.

Trump declared to choose Jerome Powell for the next Chairman of the FED. The market is optimistic about his appointment as far as I see. He will likely continue with the footsteps of Janet Yellen. I do not think his appointment is that much important for the financial markets at the moment. His actions and thinking are quite unknown currently. So, I am not adding him as an input into my analysis for now.

R’s introduces the details of a tax bill. By keeping the higher tax bracket, it seems they want to get Dems on their sides. The response of Dems on the bill in the coming days and weeks will be very crucial. There is a high likelihood that few Dems can vote for the tax bill reform but uncertainty is still large to speculate for now. I will keep a close eye on the matter. However, I have not reduced my alert levels.  I am still very cautious on the bill. If I start to smell the problem, I will start shorting S&P index futures. Alert level is still in Code RED.

Another matter to watch is Trump’s visit to Asia and NK, trade is going to be the major discussions. Any unexpected speech can impact the currency markets.

It seems Saudi Arabia is on the fast track to reform the country. Saudi Princes and high government officials were detained on Saturday on corruption charges (seems, someone has watched too much of Game of Thrones). MBS ( Muhammad bin Salman) is interested to take one of the most conservative countries into the 21st century. Hope, he does not get assassinated before he takes Aramco to IPO, otherwise, oil prices will be likely hit as Saudi’s commitment to stick to extension deal will be under question even for the short-term but that is not my main concern at the moment. If the current King Salman abdicates and his son takes the throne, as far as I know, he will be the youngest Saudi King in history and might rule the country for decades to come. That creates an opportunity to invest in Saudi Arabia for the coming decades. Financial institutions are likely thinking about it and looking for clients to take to SA.