From Carousel To Roller Coaster Have Your Tickets Ready

What are the tealeaves saying fundamentally? The huge number of signals, cross signals, coded messages, encrypted ideas and so forth make it very difficult to come to a clear understanding.

It seems that so much is hinging on energy prices that we are in a veritable death grip of rising crude output and droopy demand. West Texas Intermediate is down more than 3.50% today. Brent North Sea oil, the world benchmark, seems to have recovered its premium advantage and is trading up 1.00%.

We wouldn’t be so quick to count the Brent chickens before they hatch, however. Brent is actually more vulnerable because of its status and because it is even more important as Europe’s benchmark product.

Europe will soon be flooded with more oil from the Mideast because of Iran’s renewed status as an exporting nation. Iran was given the go-ahead by international bodies to resume sales of oil.

Ironically, the United States is now the largest producer of crude oil despite Saudi Arabia’s efforts to push as much as 30% of American production off the market.

The precariousness of oil has weighed heavily on U.S. equity markets. We think far too heavily. There is an enormous upside to cheap gasoline. (One of the facets of that upside happens not to be anything good for the environment.)

Yesterday in Houghton Lake, Michigan, for a brief period of time, GasBuddy confirmed stations selling a gallon at just 47 cents a gallon – prices unheard of in this century. Yes, it was a “gas war,” but nevertheless, it is mind-bendingly low.

If gasoline prices keep falling as predicted into the 1.50 range, consumer savings per household will reach upwards of $1750 per year. We are talking tens of billions of “spare” dollars that will go into other kinds of purchases.

Wall Street hasn’t embraced that idea yet. We feel as if it will have to relatively soon.

In the meantime, the three major U.S. stock indexes are either marginally down or marginally up, depending on which quarter hour you look at the boards. Investors seem uncertain. (We last looked at 4PM New York time.)

Unlike Asia and Europe, the U.S. markets took little solace in the meeting of GDP projections by China in the last quarter of 2015. Possibly, that is because there were so many weak sectors in the world’s second-largest economy. Plus everyone now feels as if the books are cooked and the slowdown is much deeper than Chinese officials are letting on.

Surprisingly, gold did not take advantage of tumbling U.S. equities, although little sister silver did, rising 1.00% on the day.

Safe-haven U.S. T-bonds, (10-years), saw yields rise infinitesimally and face price fall commensurately. So, risk was off in the equities, but it was also off in almost every other market.

Then there are IMF projections of growth in the world economy that have been scaled back.  The U.S. economy is projected to grow by 2.6% this year and next year, down from October projections of 2.8%. Growth last year was 2.5%, the IMF estimated, so improvement is completely marginal.

We’ve said it before and feel obliged to say it again: without infrastructure investment, the U.S. will be stuck in an “Old World” growth pace. The next election has to bring a revolution in infrastructure expansion.

Finally, next week will give us the next Fed meeting. Ugh. Nothing more needs to be said. Just “Ugh.” whatever they do will not have a calming effect on markets.

We’re on a carousel… maybe ready to ride the roller coaster. Have your tickets ready.

Wishing you as always, good trading,