Apr 7, 2014
FluxCap Hi folks,
Per earlier request, I'm creating this thread for general discussion of macroeconomic forces affecting the entire market or large segments of the market, from the perspective of and for the benefit of Tesla Motors investors.
I'll start with a few links I find useful (others, please feel free to suggest links you find useful for macroeconomic analysis):
First, here is an Economic Calendar for the markets that is worth paying attention to, as it displays important current and upcoming market indicators & reports and times of release.
Second, here is a decently-written market update link I check periodically from Yahoo via Briefing.com that provides updates pre-market, during the day, and post-market close.
Third, I wanted to share some market contra-indicators I track to gauge fear and/or flight to perceived safety on down days, including gold, treasuries, and expected market volatility. The tickers I often use for that are GLD, TIPS and VIX/VXX, the latter of which is often called the "fear index."
Looking forward to some good discussion.
Thanks,
Flux�
Apr 7, 2014
marvinat0rz I thought this was an interesting writeup:
This Extraordinarily Ferocious Selling - Yahoo Finance
However, I am in the camp that large macro trends nine times out of ten cannot be predicted by nine out of ten people, so I'm largely agnostic with regards to the macro developments. If anyone wants to know, I sold myself down to 50% of my initial Tesla position (from about 80%) when we crossed 250. I put 15% of the proceeds back into Jan 15 270 calls (bought at $212 approx. two weeks ago) and leave the rest in my savings account in preparation for a potential period of voluntary unemployment after I finish my Masters degree in a few months. I am thinking double benefit: The possibility of taking some time off work and also the ability to buy back in in case there is a big market event in the meantime.
My overall view is neutral to slightly pessimistic, but I don't think this is an indicator of anything other than the recent decline.�
Apr 7, 2014
Gwgan Marketwatch has expanded on this idea throughout the day
U.S. stocks extend losses ahead of quarterly reports - Market Snapshot - MarketWatch
They postulate that with Q1 forecasts generally downbeat there is a sell off now before things get worse when the actual data arrives. Even if Tesla did well in Q1 they could get lost in the weeds.�
Apr 7, 2014
FluxCap It's an interesting thesis, and thanks for sharing. Personally, I don't really see too many signs of investors selling because of expectations of coincidentally bad earnings reports for every single company in the index. I think today's weakness comes from economic data and expectations of economic movements. Right now the market is heavily paying attention to Russia/Ukraine with some uncertainty/fear and volatility making traders wonder if they should take cash out of the market. Additional fear of weak employment in US, fear of Chinese economy cooling slightly, and fear of the Fed tapering QE too soon for the market's taste. I'm pretty sure if Putin's Russian marine hadn't murdered a Ukrainian officer this weekend, we wouldn't be seeing so much red in the market today.
Incidentally, the ticker VXX is a very interesting contra-indicator of market sentiment. It tracks short-term expected market volatility and is often called the "fear index." I watch that, TIPS and GLD for quick indications of negative market sentiment / flight to safety. Can be a useful barometer for trading decisions, and even a decent hedge for the bold.
The "Fear Index" did simmer down towards the close today which is a good sign, so hopefully the market will resume a more normal trading pattern in the days to come this week.�
Apr 8, 2014
FluxCap This morning, I am growing increasingly concerned about Putin's actions in Ukraine as is our Secretary of State:
There is a lot of chatter about a general market de-risking among traders I follow, but that noise could just be salivating shorts.
The challenge now, I think is to start to strategize about what an all-out invasion by Putin of Ukraine would do to the markets, the global economy, the US economy, and Tesla Motors specifically. I am thinking of this in stages, as in immediate effects lasting several weeks/months, medium-term effects lasting several months to a year, and long-term effects years in the future.
Short-term, I see a catalyst for a catastrophic risk-off and market crash.
Medium-term, I see a moderate recovery as markets figure out whether war is imminent or diplomacy can help.
Long-term, regardless of whether there is larger-scale military conflict, I see a realization that petroleum and fossil fuels in general create liabilities and national security risks for all Western nations, and a MASSIVE move into renewable solars, batteries, and electric motors replacing combustion engines all over the place.
I have not translated any of this into valuations other than to personally exit my riskiest short-term trades for the time being. I hold TSLA LEAPS and an abundance of stock.
Anyone have thoughts?�
Apr 9, 2014
FluxCap Just a reminder, at 2pm today the Fed (FOMC) releases minutes of its latest meeting. These releases can sometimes move the market significantly, so stay tuned.
Release should be posted here at 2pm.�
Apr 9, 2014
Mario Kadastik Looks like the market likes the minutes. Anyone got an interpretation or why they do?�
Apr 9, 2014
FluxCap From Briefing.com link I posted in first post:
"Most notably, the minutes revealed that several FOMC members believed that forecasts presented by the FOMC have overstated the expected pace for an increase in Treasury rates. This suggested that the expectation for an increase in rates during the first half of 2015 may not be on solid footing.
Accordingly, Treasuries regained all of their losses, sending the benchmark 10-yr yield to 2.69% after hovering just below 2.72% ahead of the release. Also of note, gold futures spiked from their afternoon lows back to their flat line ($1309.50/ozt)."
This is going to move NASDAQ stocks significantly higher, I believe. 220+ TSLA close today is my bet.�
Apr 9, 2014
Mario Kadastik Well I took some QQQ straddles and sold the puts the moment the stock started to move. Now nicely in the green and if indeed the guideline now is low interest rates continuing, then I'm holding on to those callsTSLA going up too is nice and might help us get back above the down channel.
�
Apr 9, 2014
FluxCap Now would be a perfect time for Elon to stick a fork in the shorts with a numbers release to ride this wave up. Not saying he will, just saying I'd like it.
Edit -- there are some odd yarns being spun in the press now. It's like a competition to see who can write the more meaningless article. I mean here are two news outlets with polar opposite headlines about the same minutes release. So who is right, the Washington Post or Reuters? /facepalm
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Apr 9, 2014
surfside @fluxcap, any thoughts on this article re: the unrest being resolved (one way or another) within 48 hours? the markets seem to be less concerned about ukraine the last two days...�
Apr 9, 2014
FluxCap I tend to oscillate daily between panic that WWIII is imminent and thinking Putin will pull back to Russia. I just honestly don't know right now.
I like this live news feed to stay updated, if you're interested.�
Apr 9, 2014
surfside hard to decide what to do with TSLA (to some degree) and solar stocks (to a large degree) both feeling like they are poised for a recovery barring any negative news from the ukraine. thanks for the link; i'm going to be watching closely.
surfside�
Apr 9, 2014
Familial Rhino The annexation of Crimea went without a hitch. If you are Putin, you want to know to what extent is the West prepared to push back against further expansion.
I hope that NATO reasserts its presence in the Eastern-most members, and also that the U.S. and E.U. convince the Russians that they are ready to inflict serious economic pain if Russia takes another bite. This is a dynamic system that became unstable when the old equilibrium broke. Now it's searching for a new equilibrium, which will only be reached when all forces acting on it balance each other out.�
Apr 9, 2014
FluxCap Well said, Familial. The market is definitely in "searching" mode right now and things like Fed comments, news from China, and of course Ukraine tend to overshadow news about individual companies.
I'm seeing a lot of hedge fund tweets about "de-risking" and "shorting small caps" but so far those tweets have not translated into any profitable trades I'm aware of. Something to watch though.
Today, VXX the "fear index" also retreated quite a bit, which is a good sign at least for now.�
Apr 9, 2014
mershaw2001 I also fear that Putin may want to push until he hits serious resistance, and that sort of resistance would come from armed fighting. If the VXX is retreating, that means investors aren't bracing for such an impact. Putin will want to strike without warning, and if people aren't wary then it will hit the market all the harder.�
Apr 9, 2014
Auzie My expectation is that Putin will be happy with his gains so far and will not push as far as to invite active resistance from others than the Ukraine. So far he got internal support for his move, resistance comes from Ukraine only and some diplomatic protestations from the rest of the world. Ukraine might be in turmoil for a longer period of time due to many pockets of rusian majority population and their uprising. Such conflict may stay isolated and localised and it may simmer for many years to come. Or it might spill outside. My expectation is that it stays confined to Ukraine.�
Apr 10, 2014
FluxCap The fear index, gold, and inflation protected treasuries are all up a bit this morning as the NASDAQ dips. We will see if this nervousness holds throughout the day.
Some of this movement is reaction to this:
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Apr 10, 2014
Mario Kadastik We'll welcome them�
Apr 10, 2014
FluxCap Today was a bloodbath, pure and simple. Total panic selling across the entire market. I believe that the market-makers created a story about a correction that became a self-fulfilling prophecy.
Basically, my current hypothesis is that institutions and big fund managers talked to each other and decided they needed to short the market and make money on a fabricated "correction" story with no fundamental economic basis. They tested this by shoving the market down and selling on every peak over the last few weeks, then pounced full force today. They will buy everything back up at bargain basement prices when they decide to stop the bleeding. Question is when.
There was no Lehman brothers collapse today.
There was no dot-com bust.
There was no war.
There was no housing bubble bursting.
There were simply some "momo" stocks that got de-hyped.
So my theory is, self-fulfilling prophecy by the small group of men that control the vast majority of the planet's wealth.
We will see if this continues tomorrow or not, but there is now no question about the sentiment.
Incidentally, I do believe that this is a "stock pickers market" for buy and hold investment over a multi-year time horizon, but that doesn't ease much of the short-term pain. Honestly, I'm positive there are some overvalued companies out there, particularly in biotech, but TSLA is simply not one of them. Not selling my core shares for years.�
Nov 15, 2014
Words of HABIT jhm, you have made some good points. however I will agree to disagree with you on my main point.
The adoption rate of EVs is very slow. EV crushing ICE will not happen with the introduction of the Model 3, again due to supply constraints and lack of EV choices (not everyone will want/need a compact sedan). IMO this "crushing" will happen around 2030 - 2040. By then oil will likely be significantly higher and having appreciated faster than the electricity rates. My thesis remains for the next +-10 years, an increase in oil will increase TSLA SP, a decrease in oil will decrease TSLA SP. Let's look at extreme cases: Current US gas at the pump is +-$3/gallon.
1) If US gas sold for $1/gallon at the pump, IMO TSLA SP would decrease substantially based on this fact alone.
2) If US gas sold for $7/gallon at the pump, IMO TSLA SP would increase substantially based on this fact alone.
If in agreement with the above two statements as extreme examples, would this thinking still not apply on a lesser degree based on more realistic changes in the price of oil? I think so.
Let's watch in the coming months and compare notes in the new year.
- For each day oil price increases or decreases by over 1.5%, is TSLA SP correspondingly up or down? If TSLA has more up days on increased oil days and TSLA has more down days on decreased oil days, than vice versa, I win. Otherwise you win. I'll throw in the Nasdaq for good measure and wager $1 CAD. I'll post on February 1st, 2015 with the results.
Cheers.�
Nov 15, 2014
jhm I am making no claims about the share price. I am talking about Tesla's earnings. There are a lot of idiots moving the TSLA share price around every day, and it has little to do with future earnings. If enough traders think the share price has something to do with the price of oil, then it will trade that way. This is why I suggest that long-term investors be prepared to make an opportunity of it. If you want to play with the short-term traders on this, buying when oil goes up and selling when it goes down, be my guest. But the whole game is irrelevant to the franchise that Tesla is building.
BTW, for gasoline to get down to $1/gallon, the price of oil needs to be about $25/bbl. I have serious doubts that we will ever see oil that cheap in the future. Moreover, if oil were that cheap, electricity would be cheaper too. There is an arbitrage inequality that prevents oil from becoming cheaper than electricity, basically you can make electricity from oil with higher efficiency than what an ICE in a vehicle can deliver. If oil were to become that cheap, it would be used to make electiricity and drive down the cost of electricity. So there is always a positive spread in the cost per mile between gas and electricity, albeit low oil prices will compress this spread. But all this is academic, oil cannot go that low for any sustained amount of time. The Saudis would have to put just about every other oil producer out of business to do that. And even if they had the reserves to do that, it would not be worth it to them to undercut the whole industry so egregiously. Currently, the Saudis produce under 10 million barrels per day, and world consumes about 96 million barrels per day. But at $25/bbl, demand would go up substantially, perhaps to 120 mbpd. So the Saudis would have to expand their production tenfold to make that happen and deplete their reserves ten times faster. This is an absurd scenario.
Regarding your $7/gal scenario, that would mean oil goes well above $150. While I do belive that is plausible, it would probably trigger a global recession. It would definitely motivate big time investment in all EV makers. So as a Tesla shareholder I'd be pretty happy, but we would all be dealling with a really crappy economy. Would this constitute a good environment for Tesla's earnings? Not sure.
My basic outlook is that the price of oil will generally stay within $60 to $120. I believe that is sufficiently high not to compromise Tesla's earnings potential or growth rate. However, I do agree with you that the share price will show some correlation with oil, but the underlying premise behind this is the belief that Tesla is demand constrained or quite nearly so. So this correlation is simply a product of bearish sentiment. Will bears attack more aggresively when oil prices drop? Likely. Will shorts become cautious when oil prices go up? Perhaps. Will bears try to scare investors with exaggerated alarm regarding falling oil prices? You bet. It's called FUD. Should long-term Tesla investors worry about any of this? Not so much.�
Nov 16, 2014
Robert.Boston Also keep in mind that natural gas prices are loosely linked to oil prices. (There are some uses where one can substitute for the other.) NatGas prices had been heading up towards $6 in the first half of this year, but are now looking to stay at $4 for as far out as they are traded. Natural gas sets the price of electricity throughout most of the US, so there's an additional ripple effect improving Tesla's margins as oil (hence natgas) prices fall.
Problem is, too few Americans do a TCO calculation. There's a psychological effect of high-priced gas, squeezing ones budget unexpectedly, that drives some people to reconsider why exactly they're driving that Suburban. At <$3, I don't think we'll see that effect as much.�
Nov 16, 2014
Words of HABIT jhm, I agree with your comments as above. We are on the same page.�
Nov 16, 2014
AlMc Well, as macroeconomics go, this is not good news for Japan, and possibly will have some ripple effects: http://finance.yahoo.com/news/japan-says-economy-contracted-1-6-pct-july-000851820--finance.html�
Nov 16, 2014
blakegallagher
Well darn ....
this line seems confusing "The 1.6 percent drop in annual growth for the world's third-biggest economy was much lower than expected"�
Nov 17, 2014
FluxCap Indeed. The bears in my twitter feed have been salivating all night over this. I'm less convinced this situation translates to long-term weakness in US equities, but today will be a market down day, most likely.�
Nov 17, 2014
tftf Japan is in a catch-22 situation. As one Japanese economist aptly described it: "If interest rates rise in Japan, the country goes bankrupt. If the government tries to prevent rates from rising, the yen collapses.��
Nov 17, 2014
Robert.Boston The decline in world oil prices is a huge gift to Japan; should help Q4 numbers. The Japanese economy is being dragged down by extraordinarily high energy prices at home; not only did taking the nukes off-line destroy Japan's trade accounts, turning it from an net exporting to an net importing economy, but the cost of production has driven a lot of jobs out. And, it's hampered the disposable income of a lot of people there.�
Nov 17, 2014
FluxCap Indeed, thanks Robert.
Tangentially, I think this is yet another compelling case for large-scale solar deployment. Some cheap, broken solar panels in the aftermath of an earthquake are easily replaced and nearly harmless to the environment in comparison to Fukushima, and distributed generation rather than centralized means less single points of failure. Plus you know, free sun.
Photovoltaic usage is increasingly looking like good national security and economic security policy, worldwide.�
Nov 17, 2014
Theshadows I have never heard of a solar panel breaking in an earthquake. There are gaps between the panels to allow them some flexibility. Also seismic zones are taken into consideration when designing systems.
I guess Solar City will find out when a big one hits California.�
Nov 17, 2014
jhm Glad we could work it out. All the best.�
Nov 19, 2014
FluxCap Just an FYI, Fed just released minutes of meeting:
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Nov 21, 2014
FluxCap Today's market plan will be: buy everything.
China rate cut, Draghi QE, Philly Fed numbers that were insanely high, there will be some short covering around the market today.
If the market makers want to defend flat prices they will have to spend an enormous amount of capital today, and I doubt they have the will / stamina for that. I think they will cover.�
Dec 9, 2014
FluxCap Today's market plan will be: sell everything.
Market does not like Chinese equities frothiness and Fed is floating a test balloon to remove the "considerable time" language, potentially signaling rising Fed interest rates. Oil hammered with no real end in sight despite slight uptick.
S&P down significantly premarket.
Grim outlook market-wide right now, less fear and more uncertainty.
Fasten your seatbelts.�
Dec 10, 2014
FluxCap Reposting a little of my macro analysis here so it doesn't get lost in the short-term thread:
You need to do some math to understand the scope of what you are saying. Saudi Aramco / Saudi Arabia has SO MUCH MONEY in reserve (over $30 *trillion* in 2012) that it can literally sustain market-breaking prices almost indefinitely for purposes of investment. They do not have to break even to survive.
On the flipside, all the heavily leveraged US producers very much DO need oil above breakeven to survive. Many of them won't. That is the plan. And if they default, the banks that backed them potentially get hammered too. And jobs are lost, and chaos ensues, etc.
We also have central banks all over the world scrambling to increase QE, while our own Fed is getting ready to raise rates.
This is spooky stuff. It's either the buying opportunity of the year, or a disturbing preview of further carnage.
Bank of America sees $50 oil as Opec dies - Telegraph
Further, jhm you do a great job with statistics, but you used flawed variables to analyze market movements. You cannot use historical correlation to oil prices to judge the current and future correlation. The market has decided this recently, so it does not "Show up" in any regression. The market prices equities on expectation of FUTURE profits, not past.�
Dec 11, 2014
FluxCap A couple charts to start your morning:
First up, here's the cost to produce oil for the Saudis vs. everyone else (oil is currently at almost $60/bbl and falling):
Next up, here's what is keeping Janet Yellen up right now (or should): look at the portion of US jobs that were created largely from this recent shale boom, and imagine what happens to the US economy if those jobs vanish:
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Dec 11, 2014
FluxCap [Memorializing some more charts on the oil situation]
First up, here's the cost to produce oil for the Saudis vs. everyone else (oil is currently at almost $60/bbl and falling):
Next up, here's what is keeping Janet Yellen up right now (or should): look at the portion of US jobs that were created largely from this recent shale boom, and imagine what happens to the US economy if those jobs vanish:
View attachment 65704�
Dec 11, 2014
RobStark When you transfer wealth from the shale boom economies to the rest of the US economy then we will do just fine. Better than fine. Low energy prices are good for the overall US economy.
Texas,North Dakota, Oklahoma may not do so well.
And maybe Louisiana and Alaska will suffer a bit from low overall oil prices.
But every other State will greatly benefit from lower energy prices. As will the overall US economy.
Oil prices rise dramatically leads to US recession. Low sustained oil prices leads to economic boom.
Hopefully, in the near future our economic destiny will no longer be so tied to the price of oil.�
Dec 11, 2014
techmaven I think the fear is that low oil demand is a leading indicator of a poor economy. However, this time around, a lot of the other data does not seem to agree. As a country, we have also worked hard at reducing our oil consumption. This does not mean that we cannot talk ourselves into some sort of collapse however.
You would think at some point the data coming from the boost of low oil prices will start to gain the upper hand. That's why I don't think we stay below the global average of the cost to produce oil for long. Matter of fact, this could set us up for even higher oil prices in 2015 if the low prices does succeed in cutting production in the U.S.�
Dec 11, 2014
ckessel This chart makes no sense. It says that unemployment wouldn't have improved anywhere except Texas since the end of 2008. Or even budged significantly this year, which individual state employment numbers even from just this last year seem to contradict (Over-the-Year Change in Unemployment Rates for States).
And how can Texas employment go up 12%? What was it's unemployment before, 15%? Unless HUGE quantities of people have relocated to Texas and only Texas.
Something is very odd about that graph. I won't outright call it a falsehood since I don't know the source or the method the numbers were derived, but it could certainly use more context.�
Dec 11, 2014
Robert.Boston It means that a lot of companies and people moved to Texas in the past decade. It's not all oil, either; Austin was the fastest growing major city recently, and most of those jobs are tech and education. Good article on this: Why everybody is moving to Texas - Sep. 29, 2014
- - - Updated - - -
Some posts were shifted to http://www.teslamotorsclub.com/showthread.php/29648-Tesla-Investor-s-General-Macroeconomic-Analysis-Market-Discussion-Thread�
Dec 11, 2014
GenIIIBuyer 2008 oil price decline was demand-driven, this is clearly supply-driven this time around.. Very different implications..�
Dec 12, 2014
FluxCap It is not so much the cause of the decline as the effect that is worrisome to me, as it relates to the massive amount of capital thrown at this industry/commodity, and the very real risk of corporate and/or national defaults that have cascading effects on the banks that backed them. Food for thought:
Or this:
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Dec 12, 2014
Familial Rhino Is the food for thought link publicly available? I'd be interested to read the whole thing.�
Dec 12, 2014
FluxCap ckessel, that is not a graph of the unemployment rate. It is a graph of relative change in employment in Texas.
- - - Updated - - -
Snagged from this tweet, sorry I don't have the source yet.�
Dec 12, 2014
RobStark 
We are still a net importer of oil and energy. With lower prices perhaps knocking out 20% of frackers our net imports should increase. Overall, low oil/energy prices should still be good for the US economy.�
Dec 16, 2014
GenIIIBuyer I agree there will be some contagion/cascading effects. However, it is different that 2008 mortgage-crisis. 1) The debts that will go bad are rated BBB or lower, not AAA as the mortage bonds were. This implies a different class of investor (presumably more sophisticated). 2) Not drilling an additional oil well due to reduced corporate cap-ex budget has much less dire cascading economic consequences than foreclosing on a home.
- - - Updated - - -
Big Fed Day tomorrow folks, FOMC statement released at ~ 2:15 PM at http://www.federalreserve.gov/monetarypolicy/fomccalendars.htm
with a Yellen Press conference in the afternoon following the release. On the table is whether or not to remove 'considerable time' from when to begin raising short-term interest rates. The market believes considerable time to be about "6 months", removing it would open the door to raising rates early summer 2015.
Oil would probably break below $50/barrel if considerable time is removed. God knows where the Ruble would end up.�
Dec 17, 2014
yesla Deleted - I should not read itsh in the middle of the night on my phone. It really looked legit... and gives an inside story to whats happening now... economic warfare. Anyways... yeah.. its stupid.�
Dec 17, 2014
Robert.Boston You do realize that this is (a) a fictional "wouldn't it be interesting if..." opinion piece, not news, and (b) published 14 months ago? No country today would want to be in a currency union with Russia.�
Dec 17, 2014
FluxCap On today's Fed release, I agree with Krugman's guesses here (as usual).
FOMC minutes released at 2pm or shortly thereafter. All eyes are on two words being included or excluded: "considerable time." Here is where you can read the note yourself (links will go live next to the "December 16-17" row):
FRB: Meeting calendars, statements, and minutes (2009-2015)
Look for equities markets to react sharply at 2pm EST.�
Dec 17, 2014
mershaw2001 thank you flux for providing us with a background of what is going on in the larger pic.�
Dec 17, 2014
FluxCap Quite welcome! Glad people find this useful.�
Dec 17, 2014
MikeC Definitely useful. Did they keep "considerable time"? Can't find any news.�
Dec 17, 2014
FluxCap It's in there:
"Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program in October"
FRB: Press Release--Federal Reserve issues FOMC statement--December 17, 2014�
Dec 17, 2014
MikeC Actually, it looks like they replaced it with "patient" and then said that was consistent with "considerable time", right? Which is a little different from reiterating "considerable time".�
Dec 17, 2014
FluxCap Well, the market ate it up like sweet sugary candy. S&P ripped higher, I think maybe highest one-day % gain of all year?�
Dec 17, 2014
austinEV She should have changed it to "appreciable period" just for the head scratching...�
Dec 17, 2014
Familial Rhino Or, she could have said "we will start normalizing rates at 12:00 am on July 1, 2015, unless stuff gets worse than we think it will". I mean, everyone knows it already. I wonder what would happen if they spoke clearly and unambiguously for a change.�
Dec 22, 2014
FluxCap Latest from the world of the dinosaur juice market:
Saudi's Naimi says OPEC will not cut output however far oil falls - MEES - Yahoo Finance�
Dec 22, 2014
Familial Rhino Wow. I detect a tinge of desperation there, going all in like that. They must really feel threatened.
We'll see who blinks first.�
Dec 23, 2014
Gerasimental
So I'm a total newbie when it comes to commodities and global markets, so please feel free to tell me if I'm just being very stupid, but here's my view on the oil situation.
To me, oil seems like a brilliant investment at the moment. Saudi is now basically unable to artificially reduce the price of oil any further via their oil output. They've pretty much tried that, no holds barred, in an attempt to suffocate US oil production but have fallen far short of that (thus, I assume, statements like the one you posted, in the hope of scaring the market and driving it down further). US output looks pretty resilient and prices look like they will need to stay severely depressed (below $60) for a sustained period in order to substantially dent US output. The vast majority of US oil has a break even price of $50 or lower.
Now the Saudi's are in a bit of a pickle. Even with disappointing growth in emerging markets and low global demand, prices don't look likely to plunge below $60, leaving the US market mostly unscathed (even if some investment might be delayed). The low of $58(ish) was reached at a time of panic and I imagine speculators waiting for it to bottom out.
At some point Saudi will have to recognise that they don't have enough clout to suffocate US oil output and will then likely re-adjust their output back down to avoid the market becoming massively oversupplied for a long period of time.
There's already a growing consensus that oil will end 2015 above $70 and there aren't many substantial catalysts left that could put downward pressure on the price (increased output, disappointing growth, speculator panic have all been 'used up' already), short of another full-scale global economic slowdown.
Tl;dr: Even with many strong downward pressures, oil has refused to fall well below $60. OPEC will want to address market imbalance soon. Price can only really go up. Views?�
Dec 23, 2014
FluxCap No one knows how low it can and will go, otherwise we'd all be filthy rich betting accordingly. And the Saudis very much do have the capability to bankrupt debt-laden, high-cost oil producers. It's already working, as rigs begin shutting down:
I am pleased, however, that the fluctuations in crude prices have decoupled somewhat from the price of TSLA. Let us hope that continues to be the case.
I am still short oil at the moment.�
Dec 23, 2014
Gerasimental Right, I suppose it's no surprise that I didn't just outfox the entire oil market. Could you explain in more detail how Saudi can still do that?
I would argue that the drop we see in the graph you posted are the 'low hanging fruit', i.e. the marginal rigs in areas with break even prices of around $60. In order to push MOST producers out of the market, oil would need to go lower.
Also, it's a fall of 5% during a period in which oil fell by around 35%. Also there had been that sudden rise in rigs earlier this year, while oil prices were totally flat with no indication of much change, so are other factors not at work here? I don't really know the oil business so I don't know what these could be, but I'm just wondering if the correlation you pointed out is really all that meaningful.
Related question: How does the fact that oil output in the US is not controlled 'from above' but instead is the sum of many private businesses' outputs? I feel like the Saudi plan is more suited to an 'opponent' more similar to itself.�
Dec 24, 2014
adiggs I imagine that part of the explanation is that rigs are drilling new wells, rather than pumping oil out of already existing wells. I'm an outsider to the business, but I expect there is a significant expense associated with the first barrel of oil from a well, and a pretty minor ongoing expense for most wells for each incremental barrel of oil. Therefore a major drop in the price of oil will first show up in a fast reduction in new wells being drilled, but not necessarily slow down any existing wells.
If you listen to Al Gore and others on this topic, we might also be seeing a behavior where the various countries and companies with oil in the ground are now thinking that we're not going to pump and burn it all. Financially, that means that some % of proven reserved doesn't get converted to cash at some point down the road. If that really is going to happen, then someone with oil in the ground is incented to pump and sell all they can now even while not drilling new wells. I'm still noodling on how much of that idea I buy into, but I am confident that even a little bit of that kind of thinking can lead to long term depressed prices as everybody in the world keeps pumping oil as long as there are people to buy it.�
Dec 24, 2014
Robert.Boston One downside of the nonconventional gas and oil deposits we're tapping in the U.S. is that each well has a short productive life. Production declines by 60-70 percent in the first year. So this decline in new wells also means that production will decline markedly next year and forward.�
Dec 24, 2014
ggr So we are entering a delayed feedback loop... and maybe undamped oscillation.�
Dec 25, 2014
Gerasimental The proportion of global oil produced by these methods isn't enough to really cause oscillatory behaviour. If they had any sense they'd keep their production fairly constant and sell futures in times like these. Constantly ramping up and down production and opening/decomissioning rigs can't be very cost efficient.�
Dec 26, 2014
jhm Cheap Oil Needn't Cloud Renewable Power's 2015 -- Heard on the Street - WSJ�
Dec 28, 2014
Perfectlogic I was looking at the market price of oil and gasoline and it is pretty interesting how actually 60% of the gas price comes from the refining process, so even if oil was free, gas would still be significantly more expensive than electric. According to Energy & Oil Prices: Natural Gas, Gasoline and Crude Oil - Bloomberg the market price for gas is around $4.8/gal, so the US government looks to be subsidizing the price very heavily, good thing the government doesn't owe $18T or something crazy like that. For comparison the price is around $6/gal in Europe. Do you think US politicians will start discussing a reduction or removal of the gas subsidy in a year or two if the gas price stays low and electric starts to become a serious alternative? Would make sense to me, unless the Koch brothers have too much say in what happens.�
Dec 28, 2014
Robert.Boston I'm seeing gasoline at $1.52/gal wholesale. What price are you quoting?�
Dec 28, 2014
Perfectlogic Looks like I read the numbers wrong, I just assumed the RBOB gasoline was in USD/bbl like the crude as the price looked to be $152, I assume USd means cents then? Well I am glad I got that cleared up, the gas tax in EU must be super high then, as it should be imo.
This makes me think about how the gas tax must be a percentage of oil/gas cost since the, in absolute terms, small drop in wholesale gas prices have lowered the consumer price as much as the full wholesale price here in Denmark at least. That seems like a stupid way of structuring the gas tax, it should be fixed tax as the environmental harm doesn't change, would make for a more stable gas price too.�
Dec 29, 2014
Robert.Boston I was puzzled by the pricing units in the link you sent, but refined products are always measured in gallons (in the US). This chart made clear the units issue and confirmed the $1.52 price. And, yes, EU countries impose very high taxes on gasoline. E.g., Germany imposes �1.27/l on petrol, or about $5.87/gallon. By contrast, federal and state taxes in the U.S. average under $0.50/gallon.�
Dec 29, 2014
Vger The shale rigs alone do not cause the oscillation, but I believe that the overall macroeconomics will drive increasing volatility set against a backdrop of long-term price increases. Just think about the demand-supply mechanics happening now. Outside the "green" market, there will probably be a surge in demand driven by lower pump prices. Sooner or later, supply will tighten even faster than in previous cycles, and the price will again skyrocket, like in 2008. Humans' limited collective long-term planning dooms us to cyclical macroeconomics; but when the commodity is depleting, the cycling curve will bend up. Just one person's opinion...�
Dec 29, 2014
jhm Not sure what to file this under, but it is nice to see Pope Francis lead on climate change. The Catholic Bishops have already called for the end of fashion fuels. Any chance Tesla could give a Model X to the Pope? That would be quite symbolic.
Pope Francis Expected To Instruct One Billion Catholics To Act On Climate Change | ThinkProgress�
Dec 29, 2014
Gerasimental The retail price for petrol is currently around �1.20/l here in Germany, so I can guarantee that the figure of �1.27/l in tax is way off the mark. The tax is a fixed rate of �0.6545/l for unleaded and �0.4704/l for diesel. This is still around around 5 times the amount in the US.
This explains, as Perfectlogic mentioned the far greater price stability in Germany compared to the US. In the past decade or so, the highest petrol price has been no more than 50% higher than the lowest. From what I follow of US news, petrol price fluctuations are much more extreme in the US, to the point where they really influence politics.�
Dec 30, 2014
Familial Rhino For those following the trials and tribulations of the Euro zone (and I think every investor should), here is an interesting article from the WaPo about the upcoming Greek snap election, and what that may mean for the future of the Euro:
The odds of Greece leaving the euro have never been higher.�
Dec 30, 2014
Gerasimental Vger,
I totally agree with you and I share your opinion that the current situation in the oil market will set off some serious volatility over the next few years. I was merely saying that I don't think the short-term nature of shale oil extraction will be a primary reason for that volatility. It will be fascinating to watch what will possibly be the death throes of this mighty industry.�
Dec 31, 2014
Auzie Markets that I have been avoiding
Read more if you wish, but really a waste of time...�
Dec 31, 2014
AudubonB That's pretty impressive, Auzie, that you avoided your domestic market. In my not inconsiderable experience, very, very few investors, with the exception of an irrelevant number of ultra-wealthy living in ultra-undesirable states (say, for example, Venezuela), stay out of their home country.�
Dec 31, 2014
Auzie The best place to invest, for now
There are significant hurdles to be overcome to get out of the home market, the biggest one for me is the time difference. My trading and my sleep are incompatible :biggrin: as I like to watch orders getting filled. A bit of a loss of sleep was well worth it.
Let's have a look:
The US has been the best place for investors
�
Jan 1, 2015
Vger I agree with you too! I was just extending the point to look at the bigger picture.
Happy New Year!�
Jan 3, 2015
Robert.Boston Moderator's Note
Some posts were moved to AESOP engines in the Electric Vehicle forum.�
Jan 5, 2015
FluxCap More woes from the Eurozone today coinciding with continued dive in price of crude.
I'm seeing a rumor that the Greek Syriza party is advocating Greek debt default. That's obviously not good.
Watching Eurozone closely.�
Jan 5, 2015
Auzie My bet is that Greece will leave Eurozone. It baffles me how the potential exit may play out. One thing for sure, it will be messy.�
Jan 6, 2015
hockeythug Why are airlines down on yet another drop on oil?�
Jan 6, 2015
jhm Same reason Tesla is down: with gas prices so low everyone would rather drive a gas guzzler than fly.�
Jan 6, 2015
Robert.Boston Also, many airlines have hedged their fuel prices, leaving them stuck with above-market fuel costs. Airlines that didn't hedge (as much) will be able to drive prices down, leaving the hedged airlines in a world of hurt.�
Jan 6, 2015
Cattledog AAL is apparently not hedged, don't know why it's down. Apparently the recent drop (as of the weekend) equals $1.2B for them in 2015.�
Jan 6, 2015
hockeythug Intresting that some don't. Never knew that.�
Jan 8, 2015
sundaymorning European Central Bank president stated that it was ready for "full blown" quantitative easing. Europe markets are up 2-3% across the board on this statement. Hope we have a good US jobs report tomorrow to follow up on this momentum.�
Jan 9, 2015
Auzie Fixing the Eurozone and reducing inequality
Interesting article in Harward Business Review, Fixing the Eurozone and reducing inequality.
Main points:
Whilst I agree with some points of the article, that current policies contribute to income inequality by favouring asset holders over wage earners especially the ones at the lower levels, I disagree with the proposed remedy. Wages are sticky, wage growth is lagging, my expectation is for wages to eventually catch up.
I find the proposed remedial policy (handing out cash to households) lacking creativity and imagination. Policy like that can only exist in an article, it is unlikely in a real world.
�
Jan 10, 2015
Robert.Boston GDP per capita in the EU is about $34,300. So this notional transfer would be about $1,000-$1,700 per person. I'm skeptical that that would have a huge impact. The author also blithely assumes that all EU citizens have bank accounts. While that's nearly true in many EU countries, in Italy on 71% of adults are "banked". Also, putting money directly into the bank probably leads to a higher marginal propensity to save than if the money were mailed as currency (sure, lots of problems with that approach, too).�
Jan 10, 2015
Johan I would think mail theft would be rampant as these envelopes started going out
Now seriously they way to do a stimulus like that is of course to do a green tax shift i.e. Stimulate spending in "green" areas by tax brakes and the following price reductions in areas such as energy conservation, renewable power generation for homes, EVs etc. that way the increased consumption is steered in a desired direction and as we all know accelerated development of these green markets will benefit the economy hugely in the future in the EU as it will create a lot of work and exports. (As opposed to unfocused stimuli such as rebates of cash or cuts in income tax which only stimulate spending and investments in an unspecific way and only partly increases spending/consumption overall).�
Jan 11, 2015
mrdoubleb Wow. Seriously?! The article in the HBR suggest the ECB crediting the bank accounts of all EU taxpayers to stimulate growth? Are these people for real?! They do realize this is the 21st Century, right?
So what, the ECB transfers 2k EUR to my bank account and expectes i will hit downtown Budapest and spend all 2k on goods manufactured in Europe, thus boosting demand and production, creating jobs, etc?
Let alone the fact I would drop the whole 2k on TSLA at these prices right now... here are some of the choices these taxpayers have:
- Invest (funds, stocks, bank deposit, etc)
- Spend on goods not manufactured in the EU. Many would buy a new TV, appliance, computer, clothes, furniture, etc. Not all of these is manufactured in Europe, in fact most things are "made in China".
- Go on vacation outside of the EU. Yes, you are not obliged to stay within the EU...
The problem with giving cash is that you can't control how it's spent.
Here is a better idea:invest in the future
- modernize infrastructure (e.g. high speed EU railways, modernize healthcare, etc. with the condition of 80%+ EU built parts & workforce)
- go green (as suggested above): major financial boost and advedrtising to go solar, wind, replace cars older than e.g. 7 years with EURO 5+ or zero emission vehicles; mandate 100% zero emission public transportation vehicles by [insert ambitious deadline], target an EU wide 80%+ recycling initiative, etc.
- allow a higher deficit as long as it's realted to investments and not day to day costs
- give generous incentives for hiring/keeping workforce in areas with high unemployment
etc.
Anything but cash that people will spend on a vacation to Thailand, a new Samsung TV, the Iphone 7, etc...�
Jan 11, 2015
Auzie I am in favour of your suggestions over handing out cash any time.
Also the title of the article is a bit too ambitious, fixing the euro zone and reducing inequality seems like an unachievable goal:biggrin:�
Jan 12, 2015
AudubonB You are spot on in your criticism, as the real-world example of Alaska will demonstrate. The distribution each Alaskan receives as a function of the rolling 5-year return of the investment portfolio funded by our oil production comes as a single check once a year. US$1884 in 2014, for example. Especially inasmuch as we produce very few manufactured or even semi-manufactured goods in this state, an alarmingly large fraction of the $1.2billion (2014; over its lifetime $22bn) paid out immediately leaves our economy. The multiplier effect of the disbursal is, thus, very close to zero. Even the retail merchants who handle the initial transaction are mostly owned by outsiders: Best Buy (TVs), and so on.
Now, we Alaskans understandably have become very, very attached to our PFD checks, as they are known, and it is political suicide to consider altering the system much. My consistent recommendation has been to split the distribution into 52 weekly checks (almost all distributions are electronically sent). For 2014, for example, that would have been $36.23 each week. It is supremely more likely such amounts would be more equably distributed into the local economy than the "Santa Claus/Free Money" behavior that occurs in fact.
I hope that whatever develops in Europe, it is not the Alaskan model. Good luck!�
Jan 12, 2015
sundaymorning China's trade rose to a whopping 9.9% in December!! Way up from 4.7% in November and much higher than 6.8% expected. Low oil prices are beginning to show benefits that traders can no longer ignore, expect more of these types of beat coming within the next couple weeks.�
Jan 13, 2015
Auzie Macroeconomic predictability
Oil prices are significant input into macroeconomic developments and trends.
Oil prices are plummeting. This sudden unexpected trend demonstrates the difficulties of predicting macroeconomic developments.
If no one saw this coming, then it is highly likely that much more complex macroeconomic changes will be unleashed on investors in unexpected and unpredictable ways.
The moral of the story is to diversify portfolios.
Some background to plummeting oil prices are outlined here.
�
Jan 14, 2015
sundaymorning Retail sales unexpectedly dropped in December but some good news did come out of the economic front, the Feds reported that "faster growth remains the expectation as payrolls and credit demand increases."
-cnbc�
Jan 14, 2015
FluxCap Well, as I predicted though, large-scale US labor market layoffs due to cheap oil undercutting US producers has begun. How much of a drag on the US economy vs. whatever gains come from cheap oil at the pump are to be determined.
"Now according to Tom Runiewicz, a US industry economist at IHS Global Insight, if oil stays around $56 a barrel till the middle of the next year, companies providing services to oil and gas industry could lose 40,000 jobs by the end of 2015, while oil and gas equipment manufacturers could slash up to 6,000 jobs."
If you ask most people, I bet they would rather have a job than save a buck a gallon on gas.
I'll be looking very closely at tomorrow morning's weekly jobless claims numbers, and the PPI.�
Jan 14, 2015
Auzie Agree, for most people having a job trumps most other concerns.
I would expect some reasonable lag between oil price drop and subsequent rise in jobless claims numbers, but it will certainly be interesting to see the trend.�
Jan 14, 2015
sundaymorning I agree that there will be some layoffs, hopefully those individuals will have a solid retirement plan in place or are young enough to change/switch careers as the average American changes careers anywhere between 3-6 times in a lifetime. Even if the 40,000 jobs were to be lost, it will only represent a microcosm of the global job market that may benefit from this oil drop. In America alone, a penny deducted from the gas station brings in $1billion extra in consumer spending, a drop of $1.60 is equivalent to $160 billion in consumer spending annually.. capitalism will garner competition, bankruptcies and new IPOs that will add jobs to the economy every year.
I believe what is worrisome to the overall market in terms of oil is instability. If oil stabilizes at a certain range it'll be easier to conduct business as there is predictability. There will always be global events that will trigger some worries in the market, data often times come in mixed, Europe doesn't do well, but the ECB will talk up QE, Oil is down, others will benefit like China is benefiting, November was up but December was down. I just don't think oil being down is bad, because oil up is also very bad.�
Jan 15, 2015
Auzie Super Mario in Action
Devil may be in the details on European Central Bank bonds buying
Mr.Mario Draghi, Super Mario, the president of the European Central Bank, famously said back in 2012, that he would do 'whatever it takes' to preserve Euro and thus created a key turning point in the eurozone crisis. His current politics of devaluing the Euro will result in a loss of savings of Eurozone citizens.
Mr. Draghi proposed bond buying back in 2012, but was prevented by a lawsuit by German citizens seeking to block Mr.Draghi's program. Highest European Appeals Court opinion issued last week paved the way for this stimulus measure.
�
Jan 15, 2015
Gerasimental Do you think this could be made up for by hiring in other sectors that have seen their costs fall due to lower oil costs? 46000 jobs is a monthly average of 4000 jobs lost. I don't know the US labor market well but NFP numbers have been consistently strong suggesting many firms are hiring and that seems likely to me to continue in 2015. Anyway, near full employment, losing a few 10k jobs isn't a huge tragedy (of course on a personal level it still is, just speaking economics).�
Jan 15, 2015
FluxCap Jobless claims 316K, haven't been higher since June.�
Jan 16, 2015
sundaymorning Some more mixed data to digest, CPI down was offset by positive news on cost of living decreased by 6 years.�
Jan 16, 2015
jhm Meanwhile, jobs in the US solar industry are up 22%, and the industry will add another 36,000 jobs this year. SolarCity filled 4000 new jobs last year, and is building a large panel maufacturing plant in New York state.
I also hear Tesla is creating a few new jobs.
So while it's tough that oil jobs are being lost, new energy jobs--technical, manufacturing, installation, sales, service and logistics--are being created at a tremendous rate. Most of these jobs are securely domestic and cannot be offshored. And these jobs are not so dependent on the highly volatile oil market. When solar panel goes up, its going to generate power for two or three decades, regardless what goes on with the price of oil. That labor today is going to pay off energy dividends for a long time.
US Solar Jobs Climb 22 Percent as Clean Power Aids Economic Recovery
�
Jan 16, 2015
sundaymorning Consumer Sentiment index at 11 year high this month, citing more savings and higher job prospects.�
Jan 17, 2015
FluxCap That's fantastic for all kinds of reasons. Thanks, jhm.�
Jan 17, 2015
Krugerrand Rather than look at this as simply a set of jobs ending, we need to look at it more accurately as a reshuffling and even evolving process. What we teach in our schools now, is not what we taught 10 years ago, or 20 years, or 30, etc... because the jobs we need to fill are ever changing. Fortunately humans are highly adaptable. Those who are being forced out of oil/gas jobs can take what they know into other jobs and/or learn new skill sets. Yes, it can be tough to do, being laid off is never fun and personal trials can exasperate the situation. But we need to move forward.�
Jan 17, 2015
Robert.Boston While that's true, we can't overlook the real costs of change. A 55-yo coal miner living in WV loses his job, while a job for a solar installer in Arizona is created. It may be a wash for the economy, but the coal miner isn't going to move and retrain.
I'm not arguing against change, but I do think something is owed workers displaced by the coming revolution in energy.�
Jan 18, 2015
Auzie Swiss National Bank lets the franc float against Euro, sudden policy turnaround
On Jan 2015, SNB announced turnaround of their monetary policy and abandoned 1.2 peg to Euro. SNB explanation:
The Economist explains the sudden move:
SNB also dropped its interest rates from -0.25% to -0.75% to further discourage investing in the Swiss franc.�
Jan 18, 2015
Krugerrand You make it sound like 55 is the end of useful life. I'd move, retrain, and learn new skills. But okay I understand a lot of world looks at it the way you do. So, what do you suggest they be paid?�
Jan 18, 2015
Auzie 55+ may be more than willing to move, retrain, learn new skills, however it is not their call to make. Employers are highly unlikely to tap into this work pool if there is an alternative, younger and cheaper pool.�
Jan 18, 2015
Krugerrand It depends. Video game programming might not be in that mature person's future, but there are a number of industries where those of mature age with life experience are highly prized. Our population is aging and it's becoming quite apparent that we'll have to work later in life as a function of living longer and increases in cost of living.�
Jan 19, 2015
Robert.Boston My choice of 55 was precisely because such a person likely has many productive years ahead of them, but age discrimination will be a serious challenge. Also, will someone of this age be willing to uproot from a community and move across the country in search of a new job? Will they have skills essential to shift from mining to something else and, if not, how will they acquire those skills?
My point is that change in the economy creates dislocations. Growth is one form of change; it creates more opportunities than dislocations, but we shouldn't lose sight of the fact that a job lost and a job created isn't the same as a job preserved.�
Jan 20, 2015
Auzie Growth forecast, Europe, 2015
Interactive overview of European forecast
It seems that the average GDP growth forecast is less than 2%. There are concerns about triple dip recession. Inflation fell to 0.4% in October. ECB seem to be doing poor job, acting too late and perhaps not doing enough.
Youth unemployment exceeds 20% in 17 out of 28 countries.
Very difficult task ahead for Eu leaders, I am just not sure who the leaders are.
�
Jan 20, 2015
ev-enthusiast New information out today on german ZEW index: ZEW economic sentiment rose in January surprisingly (google translate)
Same is valid for Europe, the economic outlook for Europe rose 13.4 points in January to 45.2.
Some of this positive sentiment of ZEW index is attributed to cheap oil and anticipation of some strong statement on QE this Thursday by Mario Draghi.
Economy outlook index "Zentrum f�r Europ�ische Wirtschaftsforschung (ZEW)" as well as "ifo-Gesch�ftsklimaindex" are amoung the most important indices in Germany to provide an outlook on future economy.�
Jan 20, 2015
Gerasimental http://www.reuters.com/article/2015/01/20/us-china-economy-idUSKBN0KT04920150120
Mixed bag of news today, I daren't make any predictions how the market will react to the sum of it.�
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