“We had low commodity prices for almost 20 years. I think we’re going to have high commodity prices for almost 20 years.”
-Ian Telfer
Gotta guy? You know, a guy? Because, for whatever reason, every good rumor I’ve ever heard on the Old Wall has come from “a guy.” No, no, no. Never a girl. Always a guy. “My guy is saying that he and another guy were standing above a hole and …”
Yep. They say they found Gold.
Telfer is a British born Canadian mining exec (currently Chairman of Goldcorp) who has a lot of guys. Oh yeah, mining guys have a lot of stories. For Canada’s sake, I’m just glad he’s not on the record with the aforementioned quote about oil.
Back to the Global Macro Grind…
Obviously there has been an epic level of fictional storytelling about the Oil price in the last 5-10 years. The most comical ones come from the guys who have never been to Texas or Alberta. They just do “charts.”
God forbid you went beyond the last decade of US monetary asset inflation policy (Down Dollar), you’d find that the average price of oil was < $20/barrel during both Reagan and Clinton’s > 4% real GDP economic expansions (1 and 1).
But… if all you care about is monthly performance charts… Oil just crashed, again.
Yep. After a -23% crash since June, the bull case for Energy assets that imply a recovery towards $60-70 crude looks like it has pretty low energy to me. I beat myself up about missing that v-bottom off the Q1 low, but I’m equally thankful I didn’t chase that Q2 high!
Where to from here?
- USD - continues to signal bullish TREND inasmuch the Euro and Pound are signaling bearish TREND vs. USD
- SUPPLY – tell me a story that isn’t, in rate of change terms, showing a rising probability of rising supply in Q3/Q4
- DEMAND – did it ever matter? If it does, US Consumption is currently lapping its peak comp (on a 2yr basis) in Q3
I know. I’m not an Oil man. But those are the Top 3 reasons why I’m not long Oil right now. Most “asset classes” that sustain volatility levels > 30 aren’t my cup of tea (I drink coffee). Oil Volatility (OVX) is breaking out > 45 this morning. That’s scary.
What else is scary? From a @Hedgeye TREND signaling perspective, all 3 of these continue to signal bearish TREND:
- XLE bearish TREND = $67.17
- XOP bearish TREND = $34.95
- OIH bearish TREND = $29.45
In other words, after a nasty 3 year bear market that culminated in Oil capitulating < $30 in Q1 of 2016, both the commodity and the sub-sector indexes took a good look at going from bearish TREND to bullish, and crashed.
My guy says that’s not a good channel check for Global PMIs.
What would have been even better than good (i.e. great, in rate of change terms) is WTI breaking out above both its intermediate-term TREND signal level of $47.52 and its long-term TAIL risk level of $52.11.
But it didn’t.
And I, for one, am staring at this damn oil price this morning … asking you to help me help myself. Tell me the next leg to the bullish story for being long Oil and related levered assets. I have lots and lots of cash. I’m looking to buy something…
But I don’t want some poppycock in your story about “global demand has bottomed” and/or “everyone is too bearish on Chin-er, bro.” I want something I can believe – something I can measure and map without depending on a 50-day moving monkey.
Gotta guy? Don’t send him to me. Guys and/or gals with time-series data we can measure in rate of change terms will suffice. Thanks in advance. There’s always something crashing somewhere to consider.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 1.45-1.55%
SPX 2161-2177
USD 95.25-97.50
EUR/USD 1.09-1.12
Oil (WTI) 39.06-42.73
Nat Gas 2.56-2.91
Gold 1
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
