Is your portfolio prepared for these shocks?
Monday, 26 November 2018
By Bernd Struben
- Golden opportunities
- It’s the supply glut stupid
‘Easy come, easy go,’ a mate of mine quipped at a barbecue over the weekend.
He was referring to the tumbling bitcoin price.
Then he searched his pockets with growing anxiety and began rummaging among the cups and plates spread across the picnic table. ‘Anyone seen the bottler opener?’
His concern over the misplaced bottle opener clearly ran deeper than his worries over the rout in crypto markets.
This time last year the same friend, among others, was obsessed with bitcoin. And no wonder. The world’s largest crypto by market cap was roughly doubling in price every month in 2017.
The virtual token minted a wave of new millionaires…and even a few billionaires, like the Winklevoss twins.
I hope you took Sam Volkering’s advice and got into the crypto market early. I also hope you sold out somewhere near the top.
The friend of mine in question did neither. He remained on the sidelines, salivating over bitcoin’s massive weekly gains. But with each new record breaking high he was convinced, like most mainstream investors, that the bitcoin bubble was ready to burst.
That was the popular mantra when bitcoin hit US$4,000…and US$8,000…and US$16,000.
As you now know, bitcoin would hit over US$19,500 in mid-December before reversing course, alongside the broader crypto market.
It’s been a largely downhill slog since then. And last week marked the worst week for cryptos this year. This headline comes from Bloomberg, ‘Crypto’s Worst Week Since Bubble Burst Puts Loss at $700 Billion’.
The article continues:
‘After an epic rally last year that exceeded many of history’s most notorious bubbles, cryptocurrencies have become mired in a nearly $700 billion rout that shows few signs of abating. Many of the concerns that sparked the 2018 retreat — including increased regulatory scrutiny, community infighting and exchange snafus — have only intensified this week.’
My friend finally located the bottle opener beneath a bag of onion flavoured crisps and popped open a new beer. All was well in his world.
As for crypto investors nursing $700 billion in losses, I certainly wouldn’t want to be the one to tell them ‘easy go’.
Of course, it’s not just cryptocurrencies taking a thrashing.
More, after the markets…
Over the weekend, the Dow Jones Industrial Average was down 178.74 points, or 0.73%.
The S&P 500 lost 17.37 points, or 0.66%.
In Europe the Euro Stoxx 50 index finished up 10.54 points, or 0.34%. Meanwhile, the FTSE 100 fell 0.11%, and Germany’s DAX closed up 54.20 points, or 0.49%.
In Asian markets, Japan’s Nikkei 225 is up 116.17 points, or 0.54%. China’s CSI 300 is up 0.48%.
In Australia, the S&P/ASX 200 is down 52.20 points, or 0.91%.
On the commodities markets, oil continues to tumble. West Texas Intermediate crude oil is US$50.63 per barrel. Brent crude is US$59.30 per barrel.
That’s a 7.3% fall in WTI since I wrote to you on Thursday about the coming tsunami of oil. The plummeting crude price has been blamed, in part, on the wider stock market falls. While there’s truth to that, the net benefit of lower energy costs should help drive an even greater rebound.
Turning to gold, the yellow metal is trading for US$1,223.69 (AU$1,691.28) per troy ounce. Silver is US$14.31 (AU$19.78) per troy ounce.
One bitcoin is worth US$3,948.78.
Yes, you read that correctly. Bitcoin is currently trading at its lowest level since September 2017. Time to run for the virtual hills…or jump in and buy the dip? You can stay atop all the latest crypto investing advice here.
The Aussie dollar is worth 72.35 US cents.
We looked at the pain being felt by most crypto investors above. Despite my mate’s ‘Easy come, easy go,’ dismissal, US$700 billion going up in smoke is going to sting.
But as I said, the pain extends well beyond crypto markets.
Australian property values continue to deflate. And stock markets around the globe have been losing ground. Tech stocks and companies linked to commodities like oil are leading the way down.
Brent crude is down 22.5% since 1 November. That’s seen the share price for Woodside Petroleum Limited [ASX:WPL] fall 7.9% this month. Exxon Mobil Corporation [NYSE:XOM] has lost 6.4% in that same time.
But not all commodities are falling.
Gold is one noteworthy standout. In times of political and economic uncertainty, investors tend to increase their exposure to gold. That’s why you often hear it referred to as a safe haven asset.
Unlike the major stock indices and commodities like oil, gold traded in a tight range this month. It’s currently down about 0.8% since 1 November and up 1.9% from its low on 12 November.
With all the potential crises in the world — trade wars, ballooning debts, shooting wars, and market meltdowns…to name a few — you might expect gold would be heading far higher by now.
Indeed, if investor complacency gives way to anxiety over the multiple flashpoints, many analysts are predicting gold could top US$1,300 per ounce or more in a hurry.
Our in-house commodity guru, Jason Stevenson is chief among them.
Jason’s been keeping a close eye on all the potential minefields that could torpedo global growth and investor sentiment. And with a rising gold price foremost in mind, he’s identified three stocks he believes will benefit the most when investors begin to panic.
He explains everything in a brand new research report due for release tomorrow.
I’ll have more details for you tomorrow.
It’s the supply glut stupid
Turning from the yellow kind back to black gold, there’s no shortage of analysts saying crude’s price rout could indicate a weakening global demand. And this could mean trouble ahead.
While there may be trouble ahead, oil is not the canary in the coal mine in this instance.
As I’ve been writing for months, the big picture here is all about the supply glut. And that glut shows little sign of abating in the mid-term.
The US, Russia and Saudi Arabia now pump more oil than the 15 member OPEC block. And as Bloomberg reported this morning, new pipelines in the oil rich US’ Permian Basin are scheduled to deliver an extra two million barrels of oil per day to the Gulf Coast within 18 months.
Anything could happen. But with the supply picture in mind, it’s hard to imagine crude prices rebounding to anywhere near their October highs in the foreseeable future.
Now as I mentioned in the market’s section above, the tumbling crude price has also been linked to the wider stock market falls.
There’s some obvious truth to that. When the oil price drops, it takes the share price of the energy companies — big and small — down with it.
But that’s just the free market at work. The oil price was artificially high. And investors who bought into oil stocks in the final months of crude’s bull run are suffering the consequences of their decision.
As for the rest of us…what’s not to love about cheap energy?
It’s good news for airlines, freight, and consumers’ wallets…to name a few. Less money spent on energy costs means more money available to spend elsewhere…or for companies to buy back shares and drive up their stock price.
For some confirmation bias, let’s turn to Anatole Kaletsky, the founder and chief economist of Gavekal Research Ltd.
‘Crude oil below $60 is “fantastic” for importing nations, Kaletsky said at a seminar in New York on Wednesday. He assumes oil will trade in a range of $60 to $80 a barrel, and sees benefits everywhere from emerging markets such as India to European consumers.’
Deutsche Bank is on the same page. The article continues:
‘Deutsche Bank AG economist Torsten Slok said in a note Wednesday that lower energy costs coupled with a stronger dollar is “exactly what the doctor ordered for the U.S. economy if you want the expansion to continue.” Fundstrat’s Tom Lee wrote in a report that falling oil “is $182 billion of household stimulus.”’
With that said, tumbling crude prices have, apparently, put the Bank of Japan into a bind.
Because once again inflation in Japan is refusing to cooperate. As Bloomberg reports:
‘The sharp slide in oil prices threatens to halve Japan’s inflation rate over the next six months, while cheaper mobile-phone bills and free nursery education could even push it below zero.
‘This view from private-sector economists is very much at odds with the Bank of Japan’s forecast for its core inflation gauge to average 1.4 percent in the fiscal year starting in April. It also points to BOJ sticking with its monetary stimulus program for longer.’
A stable yen. Cheaper energy. Cheaper mobile phone bills. And free early education for the littlies.
Pity the Japanese.
That’s all the time we have today.
Don’t forget to check out the latest in Aussie politics from The Australian Tribune:
‘Liberals Ponder Victoria Election Thrashing’
‘Victorians voted on Saturday and the results have left the Liberals in a weaker position. But the party’s leaders insist that their vision on a national level remains the best for Australia.
‘Federal treasurer Josh Frydenberg denied his party needs to recalibrate its policies following the shellacking in the Victorian state election.
‘Speaking on ABC TV, Mr Frydenberg, who will…’
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