World rattling economic disaster averted…for now

Tuesday, 16 October 2018
Melbourne, Australia
By Bernd Struben

  • We’re going with the ‘rogue killers’ angle, right?
  • Green gold rush
  • Mailbag

Well that didn’t take long.

In yesterday’s Port Phillip Insider, I posed the question, ‘Oil to US$60 per barrel…or US$200?’

It wasn’t a hyperbolic question.

Regular readers will know I’ve been forecasting West Texas intermediate crude (WTI) will fall below US$60 per barrel before the US midterm elections on 6 November. It’s currently at US$71.83.

That 15%-plus fall is based on a few facts…and a few reasonable assumptions.

One fact is that Donald Trump wants the oil price a lot lower. That would give Republicans a much needed boost in the midterm elections. And regardless of how you feel about his often tactless tactics, Trump’s adept at getting what he wants.

Another fact is that there’s plenty of oil on hand to meet the current demand at significantly lower prices. Even without Iran and Venezuela.

The US is set to beat its 1972 oil production record this year. And it’s expected to handily set another new record in 2019.

Then there’s Russia and Saudi Arabia, rounding out the world’s top three producers. Both nations have the capacity to pump more oil.

And here’s where one of my assumptions looked to be in doubt yesterday.

More, after a look at the markets.

Markets

Overnight the Dow Jones Industrial Average closed down 89.44 points, or 0.35%.

The S&P 500 lost 16.34 points, or 0.59%.

In Europe, the Euro Stoxx 50 index finished up 15.96 points, or 0.50%. Meanwhile, the FTSE 100 gained 0.48%, and Germany’s DAX closed up 90.35 points, or 0.78%.

In Asian markets, Japan’s Nikkei 225 is up 69.05 points, or 0.31%. China’s CSI 300 is down 0.05%.

In Australia, the S&P/ASX 200 is up 35.50 points, or 0.61%.

On the commodities markets, West Texas Intermediate crude oil is US$71.83 per barrel. Brent crude is US$80.88 per barrel.

Turning to gold, the yellow metal is trading for US$1,228.41 (AU$1,721.19) per troy ounce. Silver is US$14.73 (AU$20.64) per troy ounce.

One bitcoin is worth US$6,510.28. That’s up 5.0% since this time yesterday. In a sign of its continuing volatility, bitcoin peaked at US$6,946 overnight — up 12% — before retracing.

Where to next for bitcoin? Find out here.

The Aussie dollar is worth 71.37 US cents.

We’re going with the ‘rogue killers’ angle, right?

My assumption for lower oil prices, which looked a bit dubious yesterday, is that the Saudis will toe the line, alongside Russia, to increase production as Iran’s oil exports get hit with US sanctions.

There are a lot of moving pieces in these geopolitical puzzles.

One that I hadn’t taken into account was the fate of journalist Jamal Khashoggi. On 2 October, the outspoken critic of the Saudi royal family appears to have been tortured and killed inside the Saudi embassy in Turkey.

It took some time for the horrific news to percolate around the world. But with Turkey claiming to have video and audio evidence of the murder, the Saudi’s denials were becoming untenable.

Over the weekend Trump was forced to act against his royal mates in Riyad. He vowed ‘severe punishment’ if the Saudis were linked to Khashoggi’s disappearance.

That’s where the US$200-per-barrel oil — and the world-rattling economic disaster — come into the equation.

Turki Al Dakhil heads the Saudi owned Arabiya news network. As noted yesterday, Bloomberg quotes Dakhil as writing:

If there are U.S. sanctions against Saudi Arabia, we would be facing an economic disaster that would rattle the world… If President Trump was angered by $80 oil, nobody should rule out the price jumping to $100 and $200 a barrel or maybe double that figure.

If that sounds a lot like sabre-rattling bluster to you, that’s because it is.

Here’s what I wrote to you in Port Phillip Insider yesterday:

Look, anything could happen in the short term. But the Saudi royals are unlikely to survive for long if their own nation devolves into an economic disaster. Especially lacking US military support.

I expect the Saudi rulers will trot out some mid-level scapegoats in due course. And their literal or figurative beheadings will put an end to this latest flashpoint.

That ‘due course’ I mentioned now looks to have been less than 24 hours. And it all appears to have been settled during Trump’s 20 minute phone call with Saudi Arabia’s King Salman.

Following the call, Trump told reporters Salman denied having any knowledge of what happened to Khashoggi.

Shocking!

Trump went on to suggest, ‘It sounded to me like maybe these could have been rogue killers.’

The latest spin from the Saudis would have you believe the ‘rogue killers’ were instead bungling intelligence agents.

From the AP:

Citing two unidentified sources, CNN reported on Monday that Saudi Arabia is preparing a report that would acknowledge Khashoggi was killed as the result of an interrogation that went wrong…

‘The New York Times, citing a person familiar with the Saudi plans, reported the crown prince had approved an interrogation or rendition of Khashoggi back to Saudi Arabia. The Saudi government, it said, would shield the prince by blaming an intelligence official for the bungled operation.’

Well there you have it.

Crown prince one. Yet-to-be-named scapegoats zero. Crisis averted.

It’s no stretch to imagine King Salman will feel indebted to Trump for helping deflect suspicion from the crown prince. And that he could be prodded into repaying some of that debt by opening up the oil taps in time for the US November midterms…

Green gold rush

Moving from black gold to green gold, tomorrow is the big day. The day that Canada becomes the first developed nation to fully legalise marijuana for medicinal and recreational use for all adults.

Senator David Leyonhjelm is making an admirable push in Canberra this week for Australia to follow suit.

According to Leyonhjelm:

Apart from keeping it out of the hands of minors and preventing adverse effects on others — as we attempt to do with alcohol and tobacco — there is no longer any justification for maintaining laws that make possession, use or supply of cannabis illegal.’

As you’d expect, this is all a bit too much for our mainstream pollies. His proposed bill is facing opposition from both the Coalition and Labor.

Change can be frightening, after all.

And admitting you’ve got it wrong — and have been wrong for decades — is a tough pill to swallow.

Liberal Senator Jane Hume, for example, fell back on the same old, tired rhetoric.

As quoted by the AAP, Hume said, ‘It’s unfathomable that anybody in this place could support a bill that increases a likelihood of teen suicide and of youth dropping out of school.

Hume chose to ignore the fact that part of the idea behind legalising its use is to help keep marijuana out of the hands of teens in the first place. And that despite decades of prohibition, some 35% of Aussies admit to smoking cannabis at least once in their life.

So we return our attention to Canada. The standard-bearers opening up a brand-new multibillion dollar market to their citizens at home. And to companies and investors around the globe.

It’s an event that our in-house pot stock investing pro, Sam Volkering, calls the ‘$22.6 billion cannabis jackpot’.

And for good reason.

The following headline comes from today’s Bloomberg, ‘Pot Stocks Climb to Record Highs With Canadian Legalization Imminent’. The article continues:

Several marijuana stocks received a late boost into Monday’s close, ahead of Wednesday’s legalization of recreational use in Canada.

While shares of most pot companies outperformed throughout the day, the last few minutes of trading saw stocks including Aurora Cannabis Inc. and MedMen Enterprises Inc. reach all-time highs.

You can see the hefty intraday share price gains for Canopy Growth Corp, Canada’s biggest pot stock by market cap, in the chart below:



chart image

Source: Bloomberg
Click to enlarge

So, I hear you asking. Does this mean the boat’s sailed on this opportunity?

Far from it, according to Sam Volkering.

Sam’s made a number of recommendations for international pot stocks — largely US and Canadian — to subscribers of his premium investment advisory services, Revolutionary Tech Investor and Microcap Global Trader.

But maybe you’re not comfortable buying overseas stocks. Or perhaps you’re hesitant to fork over the not-insubstantial subscription fees for one his premium services.

No worries. Sam’s got a great alternative for you over at his introductory service, Australian Small-Cap Investigator.

He recently recommended an Aussie listed pot play he expects could see its share price rocket 495% on the back of Canada’s legalisation move. That call remains in place.

You can get all the details and backstory from Sam himself right here.

But don’t wait too long. As Sam says, ‘The biggest “legal drug deal” in history is going down tomorrow.’

Mailbag

Thoughts on the botched Saudi rendition and what it means for oil? Or what the future holds for Australia in a world moving towards legalised weed?

Send your questions, comments and correspondence to letters@portphillipinsider.com.au. If we publish your letter, we’ll only use your first name.

Finally, here’s the latest on the fight for religious schools’ rights to discriminate from The Australian Tribune:

‘Calls to Cut Funding for Discriminating Schools’

‘The Australian Tribune has long bemoaned taxpayer money given to any school or institution that discriminate on the basis of sexual or religious orientations.

Ironically, the review into religious freedoms that sought to cement schools’ rights to discriminate, has opened a Pandora’s Box that’s seen voters and pollies cross party lines to oppose this right.

While the right to discriminate against…’

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