Texas Tea For Everyone

I told you a few weeks ago that even though the OPEC price cut deal is sill holding together, they forgot about the possibilities of the free market. The US is filling the void. This has not been reflected in the market price of oil as it remains in the low $50s. It won't stay there. The test will be at $47.85 and it will test that retracement. The volume in contracts at that time will tell us all we need to know. Check the facts:
* Rig count has reached the "magic" number of over 1000 in use in North America.
* 2017 oil inventory builds are 3x greater than the 10-year rate.
* US shale oil production is up. The Energy Information Admin(EIA) says it will approach 5m barrels by the end of March. If this happens, US production should hit 10m barrels = #1.
Now, here is two other tidbits that you can enjoy with your Texas tea.
Gasoline
US consumption is at its weakest in 15 years. Buyers use less gas than refiners need less oil. If you put this fact into the global picture, it makes global demand less due to the fact that the US uses 9% of all demand.
Could it be all those uncounted long-term unemployed? Could it be all the new electric cars and trucks? Could it be that vehicles get better gas mileage? Could it be that our military is downsizing? Our military uses more oil than most nations. No matter what, the fact that gas demand is down 5.5% YOY is all you need to know.
LNG
Now, here is the other shoe for prices to drop. It covers both sides of oil and gas.
Last week in Germany, Iran hosted the LNG & Gas Summit. Gazprom(OGZPY) had three representatives. Their company is the largest natural gas company. They were checking out the competition. They didn't like what they saw and learned. Iran is exporting LNG and at lower prices than Gazprom. Gazprom has long-term contracts, but they are tied to present prices. Their clients want new deals with cheaper prices. In addition, Gazprom has new pipelines with China and elsewhere, but roadblocks are surfacing. Not good for Gazprom or Russia, but great for consumers.
The EIA also reported that Iran and Iraq will both increase their oil production by over one million barrels by 2020. This is like a new large producer coming online and it will more than supply any future increase in demand.
Lower prices as supply builds EVERYWHERE.

A Wild and Crazy Idea

Do you ever wonder why the dollar didn't hit new highs after the Fed tightened in December? In fact, now, it looks like it will retrace back to 96? The fundamentals haven't been this strong for the dollar in decades, so why?
Here is a list of countries and what they pay for a 10-Year Note, and how I feel about the return.
* Germany, world export power= .30% Get real!
* Switzerland, old world leader in gold and today? Negative fiat= .18% See above.
* UK, London finance center= 1.21% Like in 10 years, there will be less than 2%, inflation&Brexit!?
* France, election blues approaching= 1.03% See UK and Brexit above.
* Italy, banks ready to implode= 2.17% Won't even be in EU in 10 years.
* Greece, basket case= 7.58% Do you know 100% of nothing yields? Same as this note.
* Japan, 3rd largest economy= .08% If that's so, how come Japanese cars cost more than this yield per year in price increases? You would be better off with a Greece note and that is simply crazy.
* India, rising economic power, uses more oil than China= 6.85% Great, but lose it back on currency exchange and Modi wants to get rid of cash, period!!!
* Australia, nice, safe country= 2.80% Best in Show!
US= 2.41%
You get the world currency in a safe, secure nation. You could also get currency appreciation if Fed comes through with the three proposed rate hikes which would make it the new crown winner for Best in Show!
What about the US debt and other factors?
This is the thorn in the side of the fundamentals. At present, the world holds $5.94T or 43% of all US government debt. In addition to the notes, there are other bills like Medicare and Social Security which is pushing US debt to $20T or 100% of GDP. Big, big issue with no resolution on hand, but then again, this is about a wild and crazy idea. Japan holds the most debt and China holds $1T, however both of these buyers are buying less as the debt market is down from 50% by 7%. Then, there is the danger of Saudi Arabia and the Petro-dollar. Every transaction in oil must be in US dollars. The Saudi's use this as leverage in our foreign policy. Do as we like or we will find another currency in the oil trade. Big problem, especially with the new Trump administration and a possible policy change?
Some people believe something is in the works about the dollar, but it hasn't hit the fan yet. World debt buyers of US debt are worried about Trump's plans for our trade imbalances. They will try to use their holdings as leverage against us. I say...
Bring It On!!!
That's right. Sell all your holdings and our Fed will buy them all with fiat money. Your money is worthless fiat currency and we will give you ours. Now, we will be free from all world threats to our economy and policy. Then, to be totally free and clear, we have Congress null and void the Fed because of all the mistakes and corruption that they are responsible. FREE and CLEAR!  NO DEBT! We can return to the gold standard like our Founding Fathers directed us. Yea, Baby!
Dear reader, there you have it.

The Doctor Is Busy

His phone is ringing off the hook for an appointment. No, this has nothing to do with Obamacare or the ACA. This doctor has his degree in housing, plumbing, electrical wiring and hundreds of other applications. He has been on vacation as demand had been lacking.
$COPPER
came alive around October 25th in 2016, maybe as an early Christmas present. It went from $2.10 a pound to $2.55. This is a huge, huge move. It has formed a classic pole/flag chart pattern. The good doctor filled in the flag section in a $2.45 to $2.65 consolidation range.
New Year
It rang in 2017 with a new pole/flag bullish continuation pattern. The doctor filled the flag from $2.61 to $2.70. Then, with last Friday's close, copper formed yet another continuation bullish pole/flag chart pattern. It sits at $2.77 a pound.
Copper is a global indicator that gets most of its momentum from China and India along with the expectation of Trump's infrastructure package. China is on holiday which should give all of us a chance to make an appointment as in an entry price. 
Medicine
BHP Billiton's(BHP) flagship copper mine in Chile went on strike, so all the other players are benefiting. In addition, Freeport-McMoRan(FCX) is having trouble in its flagship copper mine in Indonesia. The government won't issue an export permit and this too, is medicine for Dr. Copper.
TGB
is a nice cheap, copper stock. Taseko Mines has followed the same pole/flag chart pattern. It could test $2.50 and if volume comes behind it, all the way to $3.50. Smart traders picked it up at .30cents. They have already received 5x their money. Good for them and maybe good for the rest of us. I am making an appointment at $1.23 which is the 200-day average for Taseko. If your cell can't reach him, try a landline. Later.

What's Happening With Oil?

Ever since the OPEC meeting and the tie-in to Russia on oil cuts, oil spiked from $47 to $57. The market paused at that price in December 2016 to see if the deal had conviction. At the moment, it looks like all the players are cooperating except there is a new swing producer in town - US. The market is aware and the oil price is testing a decline. Let's take a closer look.
Rig Count
has crossed the magic threshold for North America(US & Canada) of 1000 or more working wells. This means that US can produce up to 10 million barrels per day, especially if shale comes back to previous levels. Dear reader, unlike mines, well sites can resume production in as little as two weeks. A new well site can produce in six months. It can take ten years to get a mine into production. With that said, let us look at the recent past US production along with global figures.
US : reached a 25 year high in 2015. By the way, we led the world in production in 2015.
World: averaged 80 plus million bbl/day in 2015. This level is 40% higher than 2008 when oil hit its all-time high of $147 per barrel.
Today, world demand is 93mbbl/day. Supply exceeds demand by one-half million per day.
Pluses and Minuses
New world discoveries are a real problem with only 2.8b on the books while present demand is 29b.
US oil inventory is approaching 500m.This is up 5% year over year(YOY) and a record amount.
US gasoline is up 1% YOY.
US distillates is up 6.9% YOY.
US demand is down 2% YOY on oil.
US demand is down 5.7% YOY in gasoline.
US demand is up 5% YOY in distillates.
China's oil production is down and demand is up. It is now a big importer of oil.
India needs more oil than China.
The Baltic Shipping Index is down 50% since the Trump win. Even though this is dry goods, less boats, less need for oil.
US demand is down and now, is an exporter.
Iran is upping its production. It could reach 4 million bbl/day, however there is new tension with the US and Trump. Iran says it will answer Trump on the 10th of this month which is the anniversary of the Iran Revolution. It turned out to be a big nothing. No shake up of the market, for now. Could only be temporarily like the oil cut agreement.
Then, there is this future aspect...
Electric Cars.
Production of this cleaner burning fuel surged over 60% in 2014 after rising 44% in 2013. Bloomberg predicted that there will be over 200 million electric cars in the world by 2035. British Petroleum sees 100 million. So, let us average it to 150m. That is still a big number and it means less fossil fuel going forward.
All in all, I see oil testing the $47 level. Iran could put a $50 floor, but long term, I see oil back at $40 a barrel.

Short Cup

No, the title is not a nickname to describe my girlfriend, but refers to my morning medicine, java, a cup of jo. I could care less in what size my elixir arrives at a local establishment as long as the mug is clean and they offer refills. I do like the aroma of vanilla and the taste of hazelnut, but a good smooth bean is all I really need. Since Starbucks made headlines on Friday, I decided to take a closer look at the coffee king. Under disclosure, I like Starbucks coffee, but their prices are high and no refills keeps me walking to a more price friendly venue.
BOGO = Buy One Get One Free
The chancellor of Germany, Angela Merkel blasted the coffee chain as a poster child for avoiding taxes and even questioned whether Starbucks pays any taxes to any country? She was attacking two political issues with one target.
First, she was changing the political atmosphere in Germany from refugees and offering a reason for Germany's recent recessionary situation. Starbucks hurts German coffee houses and pays no local taxes while local merchants still have this burden. This gives Starbucks an unfair advantage. The anti-American fast food theme always plays well in Europe. Secondly, she was sending a message to Trump concerning international trade. She is testing the waters for this issue in 2017. She is also seeking another term in office in this election year. She plans on hammering on this nail using Starbucks as the villain in her election campaign.
EU and Taxes
The EU is also after Starbucks. They say the company owes back taxes in Europe to the tune of $32 million. Starbucks is fighting the claim as it says, it has a deal with the Netherlands and Luxembourg.
In Hollywood, they say there is no such thing as bad publicity, but poor public press doesn't play well on Wall Street.
Charts, Gap and Refill
As I refill my cup from my GLW coffee pot(they make the best home perked coffee), I checked the charts on Friday's price action. SBUX gapped down by 4% on huge volume. This is never a good sign. I further checked back in time all the way back to 2009. Starbucks may not offer refills, but they filled the pockets of investors to the brim. The stock rose from $3.50 a share to over $64 in 2016 in a straight upward move. Sorry, I missed that.
Now, I see a different opportunity. As stated, the stock went straight up like a rocket ship, but as time passed, the volume of buyers is shrinking. This is also not a good sign. The market at present is very bullish, especially with the recent milestone of 20K. I think the gap gets filled, however it will only need one point to accomplish this window. With a PE/ratio only a fraction under 29(high), with more bad press in the works, problems with coffee beans in Brazil and international trade as a political issue in 2017, Starbucks could retrace back to $40 to which makes it a nice short as in short cup. The key will be the volume refilling the gap. If it stays light that will be a green light to short this cold cup of coffee.

In Defense of Protectionism

In our present environment the two most hated words is to be called, "a liberal." I'm not going to enter that fray here. However, I will say that my approach to my fellow man is open minded. The other word is to call for protectionism. It is a populist mantra, but condescended by the elite. They control the media and school system, and especially the military. Their shills spend half the budget on the military and decry the expense of social security which is the worker's money that already has been paid into the system. In addition, they pound out misinformation year-after-year in defense of free trade.
In theory
one cannot argue against free trade, but in reality, it is a fantasy. In my unpublished work, I have a meme that all things are connected. If I go off on a tangent, it is because there is a connection. However, space limits of a blog do limit in depth discussion.
The free trade idea is that the best product at the best price gives consumers the best choice without tariffs. It does sound like economic Darwinism, and to me, this is flawed because I BELIEVE. The flaw in this economic survival is the unseen hand of the state behind its national company versus the single entity corporation. The state uses tricks of the trade to help its domestic like passing regulations, currency manipulation, corporate espionage, stealing or violating patents and delaying licenses amongst others. If I was in charge, I would've put huge tariffs or even banned trade with countries with such violations. If we were strong right from the beginning, we wouldn't have these problems now.
Anyway, the root of free trade dates back to the English aristocracy who financed the push to industrialize Great Britain. In those days, they used the term, "Trade Society." In seeking to expand(self-interest) their market, they had to defeat the European guild system. At that time, due to limited growth, the system was stagnating. Its one big strength, the use of monopoly(protectionism) under the master concept, was put under attack by the English. A master could make a better product, but he couldn't compete with price and mass production. Although its time passed, the system forged the first economic freedoms for citizens and it is the root of the middle class.
As a result, industrialization wiped out the value of labor. The respect of labor would not return until the power of unions developed. This is the heart of the struggle. It is the value of labor to run the machines versus the value of money to build a plant with the machines. Look at it this way. Your state spends money to build a bridge and they put a toll on it to pay for it. How come when the tolls receive enough money to cover the cost of the bridge, the tolls not only don't come off, but go up in price? The owner of the plant not only becomes rich, he wants more. In seeking better returns, he betrays the labor who originally made him a success.
1st Protections
The English won, but the rest of Europe caught up with them. A new thinking emerged, "Social Democracy." It found a voice for the abuses of the industrial revolution. The thinking leaned heavily toward socialism. It took hold in Germany. Chancellor Bismarck introduced the first pension(social security) and concepts that we classify today as the welfare state. He spoke out against the idea of free trade which was the new name for a trade society because he said the idea was a mask to cover self-interest. He was right back then, and still, even today. He put tariffs to protect German industry and he utilized the assistance of government to develop large corporations. This is the root of Siemens and many other German international companies. Protectionism helped Germany become the top economy of Europe.
Globalism
In nation after nation, protectionism follows the same playbook as Germany. In Japan, the root falls under cronyism with the "Keiretsu bank." In South Korea, the root of government favoritism is the "Chaebols." In China, it is the Communist Party. This is why a Jeep cost over $100,000 in China(protectionism). They use the government to pass laws and you can't buy a Harley over there. In Tokyo, a pink US grapefruit cost $8.00 (protectionism) and on and on in every nation. Free trade is a lie! Every nation uses protectionism. It is also an unwritten law in many nations that if you buy American, you are buying luxury and possibly, putting your neighbor out of work. Proof in the pudding? How many Mustangs, quite possibly the greatest car ever made for price, style, durability and performance were purchased in foreign lands? There is no such thing as free trade! Even in the US, we have protectionism under a mask called agriculture subsidies and government contracts. We just don't have anyone with the guts to call a spade a spade. Trump does and so do I.
Fiat v. Private
No company can match the resources of a state backed corporation and the writing is on the subway walls just like the guild system. Capitalism has brought up our living standards and along with our freedoms developed our great nation. By betraying our labor, capitalism is destroying itself with outsourcing. They will lose to state sponsored entities. Our middle class has been gutted.  Gresham's Law states that bad money will drive out good money. You cannot find a silver dime today. Heck, you can't even find a copper penny.
JFL's Law: fiat nations will drive out capitalist nations and labor will return to the abuses of earlier eons, if we don't protect. This is why I hope Trump can do it. If he fails, there will be nothing left to protect and nations like China could threaten us with all the value of the bonds that they hold. We will be economic indentured servants to agencies like the WTO and IMF and nations like China. Let's hope he can do it.

From La Dolce Vita to Brutto Vita

One of the global risks in 2017 will be the state of Italian banking. The IMF recently declared that Deutsche Bank of Germany as the riskiest in the world. Dear reader, Italian banks as a whole industry is in the worst shape compared to any other banking industry. As a group, they have the most non-performing loans than any other Western nation. Why are their loans in such a sad condition? I do not know, but I have my suspicions.
EU
As a member of the European Union, they are subject to price limits, quota exports and currency value. In addition, their yearly budget can only fall 3% below balance. This got me thinking that my fellow pisans are suffering from the same ills of globalization just like we do in America. We lost our electronic industry and most of our manufacturing too. I think the Italians lost their motion picture industry along with many other businesses. When I was young, the choices for a flick generally included foreign films. I was not a big fan of English movies, but the Swedes and Italians made some good genres. In my opinion, the best cowboy movie ever was, The Good, The Bad, and the Brutto. Today, we never see a flick from them or from anyone except the English and Chinese. The movie industry hires many types of people from costumes to carpentry and lighting to computers. Consider what would happen to Los Angeles if Hollywood dies? How many business loans and mortgages would crumble? I could see small Italian firms suffering from this loss of business. Here are a couple of their leading banks.
World's Oldest Bank
is the Italian institution, Monte dei Paschi di Siena. It just received a government bailout of 5 billion euros. Even with this cash flow, the bank is still stuck in the mud.
Another Italian behemoth is UniCredit. They are seeking to raise 13 billion euros with a rights-offer to which is exactly the current market value of the company. You buy this offering and the one sure outcome will be the value will decrease by 50%.
Both of these companies will approach the European Central Bank(ECB)with their plan to go forward. Germany doesn't want to throw good money after bad = big obstacle. What will happen? Only the Shadow knows, but the ECB will do the waiting game like with Greece. They hope with time that things will turn a corner. Nevertheless, this means more low or negative financing at a time when the US central bank is raising rates. This also implies a strong dollar compared to the Euro. A smart move by European citizens would be to buy gold to protect their own economic situation. Anyway, you throw the pound into the mix with Brexit and you have currency volatility. Not good. However, as in the US, the EU will find ways to tax which should bolster the euro and their banking system. This is why the sweet life in Italy has turned ugly.
Tax and spend across the pond? It will sound like the influence of the Democrats onto the socialist continent. Who would've thought ? In this year of the rooster we may not find Rocky Balboa chasing the bird, but governments looking for revenues.