With the spectacular collapse in oil prices (USO), down a whopping 63% in just 18 months, I am starting to get a lot of emails from followers looking for Trade Alerts to buy the energy companies.
After all, energy is one of my three core industries in which to invest over the next two decades. Why not now?
The short answer is: Not quite yet. Don?t ever confuse a stock that has gone down a lot with ?cheap.?
The share prices for this sector are getting so low, they are starting to redefine the meaning of ?bargain.?
The major integrated oil companies are now trading under book value with single digit multiples.
However, I have seen this situation a half dozen times this year. Short-term speculative traders sense a market bottom and pile in, even though oil industry fundamentals continue to worsen.
It always ends in tears.
It is the classic ?catching a falling knife? scenario. If I were inclined to play this game, I would be broke by now, and wouldn't have any fingers left.
Energy stocks are now at liquidation values, assuming that the fall in the price of Texas tea halts at $38. Those are valuations almost as low as Apple (AAPL) saw a year ago.
The absence of my Trade Alerts in this fertile field is happening because things could get worse for oil before they get better.
There is now a war for market share occurring between the world?s second and third largest producers, Saudi Arabia and Russia (the US is now number one), which has yet to play out.
Both countries desperately depend on rising prices and export volumes to maintain domestic political stability. When that doesn?t happen, budget deficits explode, spending gets cut to the bone, revolutions occur, and governments fall.
And these aren?t countries that send former leaders to country clubs to practice their golf swings in retirement. Firing squads are more the order of the day.
In fact, countries maintaining high oil revenues is a matter of personal survival for their leaders.
Until recently, I would have said that China would step in and put a floor under the market to fuel their insatiable demand for energy. But they have run out of storage, and are unable to take more.
There is just no place to put it. They have even resorted to long-term charters of ultra large tankers, like the 434,000 tonne TI Europe, purely to build reserves.
The shake out is especially bad in the offshore sector, the planet?s most expensive source of crude.
A glut of new drilling rigs is about to hit the market, ordered during more prosperous times years ago, while existing ones can be snapped up for 60 cents on the dollar.
Oil suffers from the additional damnation in that it is being dragged down by the global commodity collapse. Unless an asset class is made out of paper and pays an interest rate or a dividend, it is getting dissed to an unbelievable degree.
All of this means that the price of oil could fall further before we hit bottom and bounce.
If you had told me when I was fracking for natural gas in the Barnett Shale 15 years ago that this process would ultimately cause the collapse of Russia and Saudi Arabia, me and my roustabout buddies would have said you were nuts.
Yet, that is precisely what seems to be happening.
If there is one thing saving Texas tea, it is that the US can?t build energy infrastructure fast enough to get burgeoning new supplies to market.
After the Keystone Pipeline got stalled by regulatory roadblocks, giant 100 car oil trains sprang out of nowhere overnight.
So many railcars have been diverted to the oil trade that farmers are now having trouble getting a record grain crop to market.
This is why railroads have been booming (click here for ?Will the Oil Bust Kill the Railroads??).
The energy research house, Raymond James, recently put out an estimate that domestic American oil production (USO) would rise to 9.1 million barrels a day by the end of 2015.
That means its share of total consumption will leap to 46% of our total 20 million barrels a day habit. These are game changing numbers.
Names like the Eagle Ford Shale, Haynesville Shale, and the Bakken Shale, once obscure references on geological maps, are now a major force in the country?s energy picture.
Ten years ago, North Dakota was suffering from depopulation. Now, itinerant oil workers must brave -40 degree winter temperatures in their recreational vehicles pursuing their $150,000 a year jobs.
The value of this extra 3.5 million barrels/day works out to $115 billion a year at current prices (3.5 million X 365 X $90). That will drop America?s trade deficit by nearly 25% over the next three years, and almost wipe out our current account deficit.
Needless to say, this is a hugely dollar positive development, and my own Trade Alerts have profitably been reflecting that.
This 3.5 million barrels will also offset much of the growth in China?s oil demand for the next three years. Fewer oil exports to the US also vastly expand the standby production capacity of Saudi Arabia.
If you want proof of the impact this will have on the economy, look no further that the coal (KOL), which has been falling in a rising market.
Power plant conversion from coal to natural gas (UNG) is accelerating at a dramatic pace. That leaves China as the remaining buyer, and their economy is slowing.
It all makes the current price of oil at $50 look a little rich. As with the last oil spike four years ago, this one is occurring in the face of a supply glut.
Cushing, Oklahoma is awash in Texas tea, and the Strategic Petroleum Reserve stashed away in salt domes in Texas and Louisiana is at its maximum capacity of 727 million barrels.
It was concerns about war with Syria, Iran, ISIL, and the Ukraine that took prices to $107 in the spring. My oil industry friends tell me this fear premium added $30-$40 to the price of crude. That premium is now gone.
It seems that every time a new group grabs an oil field in the Middle East, they ramp up production, rather than destroy it, so they can milk it for the cash.
This is why 15 tankers are afloat around the world carrying Kurdish crude to sell on the black market.
Once Europe and Asia return to a solid growth track, oil will recover to $70 a barrel or more.
Until then, discretion is the better part of valor, and I?ll be sitting on those Trade Alerts.
It is also why I am keeping oil companies with major onshore domestic assets, like Exxon Mobile (XOM) and Occidental Petroleum (OXY), in my long-term model portfolio click here to view.
https://www.madhedgefundtrader.com/wp-content/uploads/2015/10/Ship-e1444664381379.jpg264400Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2015-10-13 01:07:422015-10-13 01:07:42Is the Bear Market in Oil Over?
?If you put the federal government in charge of the Sahara Desert, in five years there'd be a shortage of sand,? said Nobel Prize winning economist, Milton Friedman
https://www.madhedgefundtrader.com/wp-content/uploads/2014/01/Sahara-Desert-marching-e1444661844617.jpg194300Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2015-10-13 01:05:092015-10-13 01:05:09October 13, 2015 - Quote of the Day
I?ll never forget those immortal words for the hit musical Hair, where I took my senior prom date in 1970.
I had no idea that the entire cast would drop their clothes off at the end of the first act, standing there stark naked. I remember that they guy sitting in front of me almost hard a heart attack. I didn?t know then that such words existed.
My date?s dad would not have been amused.
He was the legendary founder of Wham-O, marketer of famed novelty toys like the Frisbee, the hula-hoop, the Slinky, the Super Ball, and the Slip?n Slide, a multi millionaire, and a famed African lion hunter.
He was a real tough guy.
But he never found out. There were a lot of things he never found out, thank goodness!
But I digress.
I?m sure that California Governor Jerry Brown was humming a few bars of Let the Sunshine In this week, although I doubt he ever saw the play.
Back then, he had just graduated from divinity school as a Jesuit priest (click here for my exclusive interview with the Moon Beam governor ?An Afternoon with California Governor Jerry Brown?.
But the words would have been appropriate, for my illustrious neighbor with the great security detail signed a bill this week that brings into law the most ambitious alternative energy goals seen anywhere in the world.
Jerry?s aspiration is for the Golden State TO OBTAIN 50% OF ITS ELECTRICITY NEEDS BY 2030, IN A MERE 15 YEARS!
In 2014, the state garnered an already impressive 22% of its electricity from non hydro renewables, including solar, wind, biomass, and geothermal sources, already the highest share in the world for a major economy.
There has not been a traditional coal fired electric power plant in the state for more than a decade.
Also included in the legislation are provisions to double the energy efficiencies of homes, offices, and factories. Another goal to cut gasoline consumption by half was axed from the measure after heavy lobbying by big oil.
Lucky for me that I?m already there with my new SunPower Solar installation (click here for ?How to Buy a Solar System? ).
Jerry thoughtfully signed the bill at the Los Angeles Griffith Park Observatory, which offered a panoramic view of the legendary LA smog, the city barely visible.
Some of it is probably still coating the inside of my lungs from my childhood there in the 1950?s.
My readers in all 50 states and 137 countries are constantly begging me to tell them what the Hell is going on in California.
As a technology and regulatory leader, what is adopted here is often imitated across the country and around the world, both the good, and the bad.
You know those seat belts, safety glass, and catalytic converters you find in your cars? They are all the result of laws first passed in California. But then it?s always easy to pile regulation on the industries entirely based out of state.
It doesn?t always work out so well. Adolph Hitler entirely imported the state?s racial purity laws to Germany during the 1930?s, and we all know where that went.
But that is a story for another day.
Of course, there are many who say that the lofty 50% target is unobtainable, or will drive us all broke if we ever get there.
But there is one fact that is utterly undeniable. This will be an absolute windfall of the US solar industry, which has the only technology advanced enough to meet governor Brown?s aggressive targets.
There is, in effect, a solar Moore?s Law that sees efficiencies per dollar spent doubling every four years, such as we have already seen with the faster growth of microprocessor efficiencies since the 1960?s.
Exponential growth of efficiencies will bring exponential growth of company profits.
Annual installations of photovoltaic panels have soared from a token 0.3 gigawatts in 2000 to an impressive 45 gigawatts in 2014, more than enough to fuel 7.4 million American homes.
They are about to grow much larger.
This is all happening because of the simultaneous maturing and cross-pollination of technology, regulation, financing, and venture capital.
A key development was the Chinese entry into mass production of solar panels during the late 2000?s, which led to a near immediate 80% collapse in prices. They now control 70% of the global market.
For the first time in history, solar power is now cheaper than grid power on a non-subsidized basis. Costs are set to still fall dramatically from here.
Fossil fuels are about to become, well?fossils.
The Paris based International Energy Agency, no slouch when it comes to analyzing power data, predicts that solar will account for 27% of the global supply by 2050, and will become the biggest single source.
But futurologist friends of mine, like Tesla?s (TSLA) Elon Musk, Google?s head of engineering, Ray Kurzweil, and cosmologist Dr. Stephen Hawking, believe there is no reason why it shouldn?t be at 100% by 2030-35.
To quote Kurzweil, ?we are only six more doublings away.?
Hillary Clinton wants nothing less than to eliminate all oil and gas tax subsidies worth $100?s of billions, and shift the money to alternatives.
That is a radical move.
Her goal is to increase the solar share of American power generation to 33% by 2027. To expect that this will cause the shares of solar companies to skyrocket is an understatement of the highest order.
Improving solar cell efficiencies promises to take us further and faster into this brave new world.
My own SunPower (SPWR) X-335 panels, with their patented Maxeon solar cells (made in Georgia), convert 20.3% of the sunlight they receive into electricity, the highest in the industry. Cheap imported Chinese panels offer efficiencies as low as 15%.
University labs have perfect cells with 45% efficiencies using advanced silicon compounds. I happen to know that the military has a 65% efficient cell. All that remains are the economies of mass production to bring them to the public market.
This is crucial for the solarization of the global economy. Every 1% improvement in efficiencies cuts that total cost of a new installed system by 5%.
With the trends already in place, it is safe to assume that solar energy costs will fall by at least 10% a year for the foreseeable future.
What are the investment implications of all this? Clearly, the solar industry is about to see its market size increase 30 fold.
Here is the great thing about solar shares.
They have been mercilessly beaten down by the recent collapse in oil prices, which is trading at the $30 handle as I write this, even though its business prospects are vastly improving.
Oil is giving you a once in a lifetime entry point into solar.
Call it guilt by association. Isn?t energy just energy.
These investment plays are the obvious ones that I have been recommending for the past couple of years. They include Solar City (SCTY), First Solar (FSLR), SunPower (SPWR), and more recently, Sun Edison (SUNE).
If you want a broader diversification, you can buy the (TAN).
https://www.madhedgefundtrader.com/wp-content/uploads/2015/10/John-Thomas-Solar-Panal-e1444422199491.jpg296400Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2015-10-12 01:06:002015-10-12 01:06:00Let the Sunshine In!
Featured Trade:
(LAST CHANCE TO ATTEND THE OCTOBER 12 PORTLAND, OREGON GLOBAL STRATEGY LUNCHEON), (THE LONG VIEW ON EMERGING MARKETS),
(EEM), (RSX), (EPHE), (PIN),
(A COW BASED ECONOMICS LESSON)
iShares, Inc. - iShares MSCI Emerging Markets ETF (EEM)
Market Vectors ETF Trust - Market Vectors Russia ETF (RSX)
iShares MSCI Philippines (EPHE)
PowerShares India ETF (PIN)
Come join me for lunch at the Mad Hedge Fund Trader?s Global Strategy Luncheon, which I will be conducting in Portland, Oregon at noon on Monday, October 12, 2015.
A three course lunch will be followed by an extended question and answer period.
I?ll be giving you my up to date view on stocks, bonds, currencies, commodities, precious metals, and real estate. And to keep you in suspense, I?ll be throwing a few surprises out there too.
Enough charts, tables, graphs, and statistics will be thrown at you to keep your ears ringing for a week. Tickets are available for $208.
I?ll be arriving an hour early and leaving late in case anyone wants to have a one on one discussion, or just sit around and chew the fat about the financial markets. I expect a small group, so there will be plenty of opportunities to exchange ideas.
The lunch will be held at five star downtown Portland hotel the exact location of which will be emailed to you with your confirmation.
I look forward to meeting you, and thank you for supporting my research.
https://www.madhedgefundtrader.com/wp-content/uploads/2015/08/Portland-OR-e1440680974469.jpg400313Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2015-10-09 01:08:362015-10-09 01:08:36Last Chance to Attend the October 12, 2015 - Portland, OR Global Strategy Luncheon
Featured Trade:
(FRIDAY, OCTOBER 30 SAN FRANCISCO STRATEGY LUNCHEON),
(SEVEN WORRIES YOU DON?T WANT TO KNOW ABOUT APPLE),
(AAPL),
(PLEASE USE THE MAD HEDGE FUND TRADER TRAINING VIDEOS),
(TESTIMONIAL)
Traders, investors, and pundits alike have bemoaned the lackluster performance of Apple shares since July, when it double topped at $132.50 a share.
In little more than a month, it gave back a heart rending 31% at the August 24 flash crash low, wiping out a breathtaking $232 billion in market capitalization.
The bad news is that conditions at Steve Jobs? creation are about to get a lot worse. At the very least, the $92 handle cries out for a revisit on the next bad day, or earnings disappointment.
Let me give you a list of seven worries if you happen to be an unfortunate Apple shareholder.
1) The iPhone 6s doesn?t have the juice to produce new highs in year on year sales. There are just not a lot of ?wow factor? new features to justify an upgrade for most iPhone 6 owners, including me.
iPhones account for 75% of the profits of the company, and 100% of the growth. All the rest, Apple TV, Macs, laptops, iPads, iPods, and even cars are just so much hot air.
2) Wage inflation in China is rampant, running at a 20% annual rate for skilled workers. That?s why workers in China change jobs every February, to capture a pay hike. Higher manufacturing costs will squeeze Apple?s profit margins.
Watch out for more suicides at Foxcon, the Chinese company that makes the phones.
3) The ?ATM effect? is hitting Apple?s share price big time. That is when investors sell winners to raise cash levels. Apple stock was, at one point, up 91% from where I sent out a Trade Alert to buy it at $385 two years ago.
4) Expect President Hillary to make taxation of foreign profits earned by US multinationals a top priority. Guess who has the biggest overseas stash? Apple, which keeps a major portion of its $200 billion cash horde parked in offshore bank accounts. Pass the suntan lotion!
5) I know this one is an oldie, but it is still a goodie. Everyone in the whole world already owns this stock, either directly, or indirectly through pension funds, ETF?s, NASDAQ index baskets (QQQ), or technology funds. If everyone is already fully committed, where does the marginal new buyer come from.
6) So is the law of large numbers. With a market capitalization at a staggering $630 billion, to eke a mere 10% gain in the stocks requires roughly $63 billion worth of new investment, and possibly more. That is more than the entire stock market sees on a good day.
7) With interest rates rising sooner or later, support from the company?s 1.88% dividend yield will become less helpful.
Mind you, I have not suddenly become an Apple hater. But there are legions of those out there, mostly outside of California. There always have been.
However, I don?t think the next run to a new all time high will begin until next year. That?s when the stock will start discounting the new iPhone 7. That product will have all the new features and gizmos, with different screen sizes and colors. (Rose gold? Really?).
People will pay through the nose to get that, and yes, including me. That?s if my current iPhone 6 doesn?t get stolen first and end up in on the black market China, get hijacked by one of my kids, or dropped in a toilet by my daughter.
This should provide enough rocket fuel for Apple shares to make it to $150, or higher.
https://www.madhedgefundtrader.com/wp-content/uploads/2014/06/Apple-Trucking.jpg239321Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2015-10-08 01:08:112015-10-08 01:08:11Seven Worries You Don?t Want to Know About Apple
I am pleased to announce the introduction of the Mad Hedge Fund Trader Educational Video Service.
An incredibly broad range of individuals subscribe to my services. They include everyone from the beginning college students attempting to educate themselves though online model trading portfolios, to the hardened $20 billion hedge fund manager swinging around huge chunks of money, and everyone in between.
The goal of these videos is to bring the beginners up to the level of the professionals.
During these videos, which last 10-20 minutes, I talk followers through every level of the Trade Alert process with a word for word explanation, including:
Opening Text alerts
Opening Email Trade Alerts
Opening Trade Alert email updates and logic behind the position
Opening Execution via your online trading platform
Opening Daily position sheet
Charts
Closing Text alerts
Closing Email Trade Alerts
Closing Trade Alert email updates
Closing Execution via your online trading platform
Closing Daily position sheet
The plan is for me to knock out one of these training videos a week until every conceivable type of trade I recommend is covered with a video on how to execute it.
Then, in a year, I?ll package together 50 of them and offer it for sale as an online course on How to Trade Like the Mad Hedge Fund Trader.
In the meantime, current paid subscribers get them all for free.
It is all part of a much broader (and expensive!) effort on my part to improve service, expand your education, and boost your trading and investment results.
The inaugural videos on How to Execute a Trade Alert and How to Execute a Vertical Bull Call Spread have already been posted on my website. Future topics will include How to Execute a Vertical Bear Put Spread, How to Manage stop losses, and Introduction to Risk Management.
To find them, go to www.madhedgefundtrader.com and log in then click on: Global Trading Dispatch on the second menu line, click on Learn to Trade, and then click on the blue button that says ?Click Here to Learn How to Execute a Trade Alert? under John?s Welcome Video.
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There is a very high degree of risk involved in trading. Past results are not indicative of future returns. MadHedgeFundTrader.com and all individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, strategies, columns, articles and all other features are for educational purposes only and should not be construed as investment advice. Information for futures trading observations are obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of the trading observations is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. You must assess the risk of any trade with your broker and make your own independent decisions regarding any securities mentioned herein. Affiliates of MadHedgeFundTrader.com may have a position or effect transactions in the securities described herein (or options thereon) and/or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies.
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