Markets tumble…is oil next?

Tuesday, 20 March 2018
Melbourne, Australia
By Bernd Struben

  • World’s biggest IPO in doubt
  • The buck stops with you
  • Follow the money trail

Australia’s banks aren’t the only stocks under pressure.

American and European markets all took a hefty tumble in yesterday’s trading. And at time of writing, Aussie and Asian markets are following their downward trajectory.

The days of steady gains to new record highs, and with minimal retracements, are over for US markets. At least for now. Just have a look at the one-year chart of the S&P 500 below.



chart image

Source: Bloomberg
Click to enlarge


Volatility anyone?

Since topping out at 2872 points on 26 January, the S&P 500 has given investors a wild ride. Though it recovered from its initial plunge, yesterday’s 1.4% loss leaves the index down 5.6% from its record high.

Now it may well reach new highs again this year. But if so, I expect it to be a rocky journey higher.

So, what caused the latest selloff?

First there was the Facebook, Inc. Common Stock [NASDAQ:FB] fiasco. A violation of 50 million customers’ privacy that illustrates why you won’t find your editor on Facebook.

If you post your family album, your personal diary, and your correspondence with friends and colleagues online, you should be aware of the risks.

Those risks were spelled out by the duplicitous actions of Cambridge Analytica over the weekend. And investors were quick to punish Facebook, sending the share price down 6.77%.

From The Australian:

Facebook shares tumbled 6.8 per cent as Chief Executive Mark Zuckerberg faced calls from both US and European MPs to explain how a consultancy [Cambridge Analytica] that worked on President Donald Trump’s election campaign gained access to data on 50 million Facebook users.

The stock had its worst day since March 2014 and was down 10.8 per cent from its closing record hit on February 1, to put the stock squarely in correction territory, a drop of 10 per cent from its high.’

Aside from the hit to Facebook and tech stocks in general — the Nasdaq lost 1.84% overnight — investors are pricing in an interest rate rise from the US Fed.

All eyes are on new Federal Reserve Chairman Jerome Powell as he makes his first decision as the Fed’s top dog. It’s almost certain he’ll nudge up the rate on Wednesday, US time.

Punters are now wondering if there will be three, or even four, rate rises this year. If Powell indicates there may be four, markets will likely face another round of heavy selling. The floundering bull market, after all, remains highly reliant on cheap debt to keep on running.

The other big blow to investor confidence is the continuing uncertainty surrounding global trade.

And so long as Donald Trump is in office, that uncertainty isn’t going anywhere. Well, not unless China and the rest of the world meekly comply with his demands.

US Treasury official David Malpass set off the latest round of trade jitters. He said the US was pulling out of formal economic talks with Beijing. And then he claimed to have misspoken.

Oops.

Let’s have a look at the markets now. Brace yourself.

Markets

Overnight, the Dow Jones Industrial Average closed down 335.60 points, or 1.35%.

The S&P 500 lost 39.09 points, or 1.42%.

In Europe the Euro Stoxx 50 index finished down 42.61 points, or 1.24%. Meanwhile, the FTSE 100 fell 1.69%, and Germany’s DAX shed 172.56 points, or 1.39%.

In Asian markets, Japan’s Nikkei 225 is down 148.64 points, or 0.69%. China’s CSI 300 is down 0.48%.

In Australia, the S&P/ASX 200 is down 29.73 points, or 0.50%.

On the commodities markets, West Texas Intermediate crude oil is US$62.20 per barrel. Brent crude is US$66.22 per barrel.

Gold is trading for US$1,316.66 (AU$1,708.61) per troy ounce. Silver is US$16.32 (AU$21.18) per troy ounce.

One bitcoin is worth US$8,596.88. That’s up 5.2% since this time yesterday.

(To keep atop of all the latest on bitcoin and cryptocurrencies, as well as when to buy and sell, go here.)

The Aussie dollar is worth 77.06 US cents.

World’s biggest IPO in doubt

The oil price is arguably the most manipulated of the major commodities.

OPEC has long tried to keep prices above where market forces — supply and demand — would pin it. They do this simply by cutting the supply end of the equation. Cheating among the member nations is often rampant. But since mid-2017, most OPEC nations have actually followed through and reduced their output.

To date, this has had the desired effect. At least from OPEC’s point of view.

As you can see on the one-year chart below, Brent crude topped US$60 per barrel back on 27 October 2017. That was after hitting a low of US$46.02 on 20 June.



chart image

Source: Bloomberg
Click to enlarge


Brent hasn’t dropped below US$60 a barrel since 27 October. But that could change soon.

US oil producers are still pumping at or near record levels. And the latest news from Saudi Arabia indicates the Saudis may not have the incentive to continue the hefty supply cuts they pushed through OPEC in recent months.

Why?

As The Wall Street Journal reports:

Saudi Arabia is scaling back its ambitions for a public offering for oil giant Aramco, moving ahead with a listing next year solely on the Saudi stock exchange.’

Apparently, the Saudis are concerned with the legal risks involved with listing in the US. And supposedly the higher price of oil means they’re not as strapped for cash.

But if the US$100 billion (or more) IPO is off the table, the Saudis also have less incentive to cut their own production. Even if that means seeing the price of oil fall back into the mid US$50 range. As my colleague Greg Canavan pointed out last year, the higher the price of oil, the more money the Saudis could get by selling part of Aramco.

Time will tell if the Saudis open their oil taps wider now that the IPO looks to be off the table. But you certainly won’t hear any complaints at the petrol station if the price of fuel comes back down.

The buck stops with you

Before moving on to our small-cap investing guru’s ground-breaking new research paper, a word on personal responsibility.

Our editors go to great lengths to highlight the risks of every recommendation they make. Even blue chip stocks aren’t immune to big falls. Just look at Facebook. As mentioned above, it closed down 6.77% in Monday’s trading.

Small-caps and cryptos carry even more risk. Though they offer far larger potential gains as well.

Before you put a single dollar on the line, it’s vital you understand what you’re buying. Most of our readers understand this. But many Aussies, apparently, do not.

I mention this as the royal banking commission churns into its second week. We touched on some of the fraudulent practices in yesterday’s Port Phillip Insider.

The latest to come out is the staggering amount of ‘junk insurance’ the Commonwealth Bank of Australia [ASX:CBA] managed to sell to customers.

According to The Age:

The commission heard yesterday that more than a quarter of the 245,000 income protection policies held by CBA’s credit card customers in 2015 was junk insurance that would never be able to be used by the customer.’

It turns out some 50,000 people bought insurance to cover their credit card repayments if they lost their jobs. There was only one problem. They had no jobs!

Obviously, CBA’s staff were not acting in these customers’ best interests in spruiking income protection to the unemployed. But the customers themselves are not without blame.

At the end of the day, the buck stops with you.

Follow the money trail

Speaking of which, small-cap guru Ryan Dinse’s new Whitepaper won’t cost you a cent. That is, not if you’re a paying subscriber to one of Port Phillip Publishing’s investment services. Which, if you’re reading this, I assume you are.

But you’ll only receive it if you register your interest.

The yet to be released research report is titled ‘How to Land Mega-Baggers from “Silent Crossovers”’. If all goes to plan it will be published on Monday, 26 March.

Having just had a read of the full draft, I can tell you this may be the most important piece of research we’ve ever published.

I can’t share the specifics with you here. But it boils down to following the money trail. And being able to accurately identify an obscure but specific ‘pattern change’ in institutional money flow.

And I’ve never seen Ryan this excited before. Not even when bitcoin was rocketing towards US$20,000.

As Ryan says, ‘The “Silent Crossover” is the single most powerful indicator for picking future superstars that I’ve discovered in my 20-year investing career.’

To be among the first to get your hands on his new Whitepaper — at no cost to you — simply register here.

Now before you log off, check this out from The Australian Tribune:

Labor May Have Breached Electoral Act with Fake Twitter Account

In the age of social media, people increasingly depend on outlets like Twitter for their political information.

That’s one reason foreign agents have targeted Facebook and Twitter in recent years to influence the outcome of elections.

But it’s not just the Russians tampering with social media. Far closer to home, Western Australia’s Labor party is up to similar tricks…’

If you’re fed up with sanitised, politically correct dogma cut and pasted from one mainstream source to another then The Australian Tribune is for you.

And it’s absolutely free.

Sign up here to get The Australian Tribune delivered free to your inbox five days per week.

You can visit our website at https://www.theaustraliantribune.com.au/ to read the complete article above now.

Cheers,
Bernd