Dot-Com Déjà Vu...
If 2016's stock market scares you, you aren't crazy. You're smart.
Swiss Bankers revealed to Bloomberg in early January that the S&P may enter a bear market this year.
For Steve McDonald, it feels like déjà vu all over again.
Back in 2000, the "dot-com bubble" wiped out HALF his wealth in a single swoop. "It looked and felt a lot like what we're going through now in 2016," Steve said.
In just a few minutes' time, straight-talking Steve McDonald will show why he's never felt comfortable with stocks since that 2000 collapse... and how you can collect $56,744 in cold hard cash without buying a single share of stock ever again.
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Reset Your Expectations... Crude Prices Are Going Higher
 Perception is everything.
Richard Thaler tells a great story in his book Misbehaving.
When Thaler started as a professor, he wanted his first exam to separate the top students - those who understood the material - from the bottom students. So he created an extremely hard exam.
He got what he wanted. There was a wide scattering of results. Out of 100 possible points, the average score for the class was 72. But everyone was graded on a curve. Anything over an 80 would be an A, and an 80 to 65 would be a B. The only threat of failing would be a score below 50.
But his students were outraged. An average score of 72 proved the test was too hard. Their scores were too low.
On the next exam, Thaler created a test that had 137 possible points. Just as before, it was difficult. There was a wide dispersion of results. But the average score increased to 96 points.
His students were thrilled. In the years since, all of his exams have had 137 possible points. No one has ever complained.
It is all about perception here. And 96 is higher than 72.
It's funny, isn't it? An average score of 72 out of 100 is 72%. That's better than 96 out of 137, which is just 70%.
This demonstrates an idea I've discussed several times this year. We have a tendency to place significance on numbers - even if they're meaningless.
When we talk about technical analysis, moving averages, Fibonacci retracements or the Elliott Wave Principle, we're just psychoanalyzing investors.
The numbers mean something because we declare they mean something.
And successful investing is about recognizing the psychology and behavior of other investors.
Which is why I started turning bullish on crude a couple of weeks ago.
Fundamentally, there was no reason for the price of crude to go below $30. The market wasn't that oversupplied. But once oil made its second move below $40 in mid-November (the first was back in August), there was a psychological need to test how low it could go.
Investor sentiment can be more powerful than fundamentals when it comes to determining price.
The price of oil tore through the lows of 2008, which were slightly above current prices, hitting points we hadn't seen since 2003.
After my article "Have We Found a Bottom for Crude?" was published on January 18, oil prices dipped lower. But they have gained more than 23% since January 20.
Now, part of it is the short squeeze potential I've mentioned. But it's also that negativity reached a peak.
There were too many people saying that crude was going to $20 or lower. Shorts got overconfident. Investors were resoundingly bearish. Everyone needed to freak out before they could regain their composure.
In the past five months, crude fell 40%. Since its peak in 2014, it's down more than 70%.
But all it takes is a little push to start that overblown negativity moving in the other direction.
Approximately 10% of OPEC production isn't profitable at $30 per barrel oil. That means 90% still is, but also that 10% - more than 3 million barrels per day (bpd) - could be considered shut-in if prices remain in the $30 range for too long.
Because of low prices, Wood Mackenzie estimates that another $170 billion worth of projects will be canceled or deferred in the next four years. If that happens, the total cost of projects shelved since 2014 will climb to $380 billion.
Non-OPEC supply is going to decline in 2016, led by the United States. And in the year ahead, the difference between global consumption and global supply will be less than 750,000 bpd.
Inventories and stockpiles around the globe are still at record levels. Those can be drawn down in the event of an emergency, but the cushion is shrinking.
In 2011, 2012 and 2013, the supply versus demand balance was negative. That means global consumption outpaced production. And global consumption of crude hasn't slowed in the least. It isn't expected to. In this case, supply just raced ahead of demand.
From 2011 to the end of 2015, global demand for crude increased 6.3%. Total production grew 8.6%.
So, we shut off all the production and wait for equilibrium.
But the spread for 2016 isn't that big. If supply picks up globally - or more likely there's some disruption, natural or man-made - that difference can be wiped out fairly quickly.
I was bearish on crude for all of 2015. I felt we needed to break through some important levels - psychological ones - before reality would set in. It needed to get worse before it could get better. That destruction would need to take place to reset investors' minds.
Realistically, companies can't survive with oil in the $20s... let alone oil in the $30s.
But here's the great thing. Crude, which hit a low on January 20, doesn't need to go back to $100. All it needs to do is move to $52 to achieve a 100% gain from the bottom. And from that same low point, if the price of crude rises to $40 - which was where it was trading in November - it would be a 49% increase.
We've reset expectations. We've changed the total possible number of points on our exam. And that's why I said to be bullish at these lows.
Good investing,
Matthew
"The Seeds of Tomorrow's Price Spike Are Being Sown Today"
There's a reason the billionaires on Wall Street are buying energy stocks...
Carl Icahn... Leon Cooperman... George Soros... John Paulson...
The profit ramifications for an energy spike are enormous. And they know it.
If you're looking for a safe way to play it... here's how you could turn every $25 into $161, all by making a simple trade in today's energy markets... [Continue Reading]
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Billions of barrels of oil are currently stranded underground. And it could lead to a rally in oil prices. Read On... | |
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Gold is running rings around the stock market. I want to show you something that could supercharge the bullish move in gold. Read On... | |
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In late January, we were hammered by "Snowzilla." And it caused havoc for more than just commuters. Read On... | |
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