Asset protection
In 2019, we wrote about how corporate share repurchases, or “stock buybacks,” had accounted for nearly all buying in the market. A year later, that significant support for asset prices has reversed.
While markets have certainly been on a tear this year, due to massive amounts of Federal Stimulus, it has been an advance solely on valuation expansion. While the decline in 2020 earnings was no surprise given the pandemic, earnings were already declining in 2019. The chart shows this in the return attribution of the S&P 500.
Overpaying For Earnings
Such is not a new phenomenon. Since 2009, sales per share, what happens at the top of the income statement, has cumulatively grown by just 43% through Q3-2020. It is hard to justify bidding up stocks by 400% based on meager revenue growth. So, Wall Street created metrics like “Operating Earnings” to provide justification. The problem with “Operating Earnings” is they are heavily “fudged” to create a more optimistic picture…CLICK for complete article
- They’ve missed the big take away from the US election…
- They’ve missed the point on the economic and financial impact of the pandemic related lockdowns…
- And they definitely don’t seem to know what’s coming next…
Wow – those are pretty bold statements. I’d better explain.
The big takeaway from the US election is that, as we predicted well over a year ago, whichever side lost was not going to accept the outcome. That’s been the case since Al Gore took the results of the 2000 presidential election to the Supreme Court. The 2016 presidential election wasn’t 10 minutes old before the Democratic Party stated that the results were tainted by Russian interference and this year the Republicans are disputing the results because of allegations of voter fraud and malfunctioning voting machines.
Please, I’m not talking about the validity of any of the claims. And I’m certainly not talking about your or my political preference. Forgive me but they’re irrelevant to the investment markets. I’m talking about the most important overriding financial and economic trend – and that’s the continued decline in confidence in government and its institutions. The 74 million plus people who voted for Donald Trump, or the 66 million who voted for Hillary Clinton in 2016 didn’t walk away with more confidence in the American political system.
As for uniting a divided US. It’s not going to happen. The divisions are only going to get worse and that has major implications for investments.
They’ve missed the point on the economic and financial impact of the pandemic related lockdowns…
Eighteen months ago we warned of a liquidity crisis in the credit markets that would begin in the fall of 2019. Sure enough, on September 16, 2019 the overnight lending markets froze. No one was lending. Borrowing rates went from 2% to 10% in a matter of hours. The Federal Reserve was forced to step in with hundreds of billions of dollars to get the market functioning again and it’s been forced to intervene every single day since. The Bank of Canada continues to buy $4 billion of Government of Canada bonds every week in order to keep rates down. Globally there’s now an estimated $277 trillion in debt.
My brief point – the economic and financial fall-out from the new pandemic related restrictions are accelerating the coming monetary and a sovereign debt crises. It’s already started in Argentina, Venezuela and Turkey. It’s historic and it’s going to have a profound impact on stocks, currencies, real estate and bonds.
The Coming Chaos
Let me cut right to the chase. I invite you to think about the last two years. The huge moves in currencies, stocks and precious metals. The unprecedented manipulation of interest rates by the central banks. The record increase of government debt. The rise of protests against the establishment – Black Lives Matter, the yellow vests in Paris, the pro democracy protests in Hong Kong and the massive protests against the pandemic restrictions in Berlin, London, Jerusalem and other major cities.
A pension crisis, which has already started in major US cities is going to intensify at the sub national level because unlike federal governments, they can’t create money. Pension problems are already evident in states like California and Illinois as well as many cities and states throughout Europe.
This is the backdrop for the next two years. The volatility and chaos are going to intensify. The triple threat of a sovereign debt, monetary and a pension crisis are all gaining momentum and are exacerbated by the pandemic restrictions.
Don’t get me wrong – there will be huge opportunities but also huge potential losses for those people who don’t see what’s coming. Which brings me to the 2021 World Outlook Financial Conference in February.
What You Can Do
Understanding what’s going on is absolutely essential. For example, massive amounts of money are being created in order to deal with the fall-out of the measures taken to stop the spread of sars-cov-2, ( the virus that causes Covid-19.) That’s made some people doubt the viability of paper currencies, which has been the catalyst for significant moves up in alternative like Bitcoin along with a resurgence in gold, silver and other commodities as big money is exchanging their paper currencies.
Recognizing the monetary and fiscal challenges is why we kicked off last year’s Outlook Conference with a series called The Coming Commodity Boom. That proved to be a very profitable choice with gold up 17%, silver up 36%, copper up 38% and nickel up 34%.
At the 2021 Conference I’ll ask Martin Armstrong, whose model forecast the commodity move, how much longer it has to run. And he’s already told me he’s going to discuss one area that is set up for a major move that most people overlook.
Mark Leibovit, who’s been Timers Digest’s Gold Market Times of the year on several occasions – will tell us specifically where his model say gold and silver are going. Plus I can’t wait to hear one of the English-speaking world’s preeminent gold analysts, Greg Weldon, on what he sees next for precious metals given that last year he absolutely nailed the up move.
Winner, Winner Chicken Dinner
I’ve always wanted to write that but it’s also accurate. I don’t expect even the best analysts to be right every time but I have to admit I’ve been blown away by the performance of last year’s recommendations. Consider that while the TSX flatlined in 2020, the World Outlook Small Cap Portfolio is up 30%. What’s impressive is that the WOFC Small Cap portfolio has achieved double digit returns every year since its introduction in 2008. The good news is that we’re already working with Keystone Financial’s Ryan Irvine and Aaron Dunn on the 2021 version.
Of course, past performance is not a guarantee of future results but featuring analysts with exceptional track records like BT Global’s Paul Beatty, Investment Strategist extraordinaire, Dr James Thorne, Josef Schachter and RAI Advisor’s Chief Strategist, Lance Roberts puts the odds in our favour.
2021 World Outlook Financial Conference – Feb 5th & 6th
This year’s conference is going to be online, which is obviously different from other years but offers some real advantages. Sure it’s nice to be able to sit at home in your pajamas or whatever – and there is something to be said for casual attire. But I’m talking about the fact that you won’t just be able to watch the conference on February 5 and 6th as it broadcasts – you’ll also be able to review every part of the conference for months in the on demand archive. Any time, on any device, from anywhere in the world with no limits. We also get to feature more analysts and workshops in 2021 given there’s no room size restrictions or travel considerations.
The bottom line is that we are entering a pivotal time in history. The word “unprecedented” is in the running for the most overused description during the pandemic. So forgive me for saying that what we are about to witness financially is indeed, unprecedented.
I also understand that not everyone is interested in their personal finances and I respect that, but I’ll warn you that whether you’re interested or not – what’s coming during the next two years will have a dramatic impact on your financial well being.
All my best,
Mike
PS – The 2021 World Outlook Financial Conference starts broadcasting Friday afternoon Feb 5th and all day Saturday, Feb. 6th. For access passes and other details CLICK HERE.
Each week Josef Schachter will give you his insights into global events, price forecasts and the fundamentals of the energy sector. Josef offers a twice monthly Black Gold newsletter covering the general energy market and 27 energy and energy service companies with regular updates. He holds quarterly subscriber webinars and provides Action BUY and SELL Alerts for paid subscribers. Learn more.
EIA Weekly Data: The EIA data on Wednesday December 16th was mixed. Commercial inventories fell 3.1Mb on the week to 500.1Mb but this was all due to US exports recovering by 793Kb/d or by 5.6Mb on the week. With no change in exports there would have been a gain in inventories again this week. Crude inventories are now 53.3Mb or 11.9% above last year’s level of 446.8Mb. Gasoline inventories rose by 1.0Mb while distillates rose by 0.2Mb. US domestic crude production fell 100Kb/d last week to 11.0Mb/d and is down 1.8Mb/d from last year’s 12.8Mb/d.
Consumption rose last week. Total usage rose by 801Kb/d to 19.3Mb/d with gasoline consumption rising by 375Kb/d. Post the Thanksgiving holiday period Jet Fuel Consumption fell by 160Kb/d to 1.15Mb/d. Total Demand now is 2.48Mb or 11.3% below last year’s level of 21.8Mb/d. Gasoline Demand is down 15.3% from the 9.4Mb/d consumed last year and Jet Fuel is 44.1% below demand of 2.06Mb/d last year.
Refinery Runs fell 0.8 points to 79.1% from 79.9% in the prior week and down from 90.6% last year. Total Stocks are now 93.0Mb or 7.3% above the 1.27Bb in storage last year. Cushing Oil Inventories rose a modest 0.2Mb to 58.4Mb and are higher compared to 40.2Mb last year at this time. If Cushing inventories exceed 60Mb then there will be concern about excess inventories in the domestic market. In early 2021, this could occur resulting in significant crude price pressure.
OPEC Monthly Report (December 14, 2020): OPEC’s production level increased by 707Kb/d in November to 25.1Mb/d. The largest increase came from Libya which raised its production by 656Kb/d to 1.11Mb/d. They are now at 1.3Mb/d and should be at 1.6Mb/d by early 2021. In addition Iran raised production by 39Kb/d to 1.99Mb/d and Venezuela by 25Kb/d to 407Kb/d. Both plan to add further production for China and India as they see the incoming Biden administration not being as tough on sanctions as Trump’s. With the announcement that OPEC will add 500Kb/d in early January 2021 there is likely to be a glut in Q1/21. If OPEC raises production by 500Kb/d in each of the first few months of 2021, a glut will become a noticeable reality. OPEC lowered demand in Q4/20 by 200Kb/d to 93.47Mb/d, they lowered demand in Q1/21 by 1.0Mb/d to 93.97Mb/d and lowered demand in Q2/21 by 63Kb/d to 95.68Mb/d. Only in Q4/21 do they see demand rising by 200Kb/d from their prior forecast. In Q4/21 they see demand at 97.29Mb/d. Only in 2022 do they see demand returning to over 100Mb/d as last seen in late 2019. OPEC now sees OECD total inventories 262Mb above late 2019 levels (4.74Bb versus 4.48Bb) with 69 days of in the America’s inventories versus a normal 60 days, Europe is glutted with 90 days of inventories versus a normal rate of 67 days, and Asia/Pacific at 58 days versus a normal 52 days. This last area is the positive for energy.
Baker Hughes Rig Data: Last week Friday, the Baker Hughes Rig Survey showed an increase in the US rig count. It rose by 15 (up three rigs in the prior week) to 338 rigs working, but remains down 58% from 799 rigs working a year ago. The US oil rig count rose by 12 (up five rigs last week) to 258 rigs but is down 61% from 667 rigs working last year. The Permian saw an increase of four rigs to 168 rigs working but remains 58% below last year’s level of 400 rigs working. Over US$45/b for WTI seems to be a price point where producers see economic returns from drilling. Yet, so far there has been no corresponding increase in US domestic production.
Canada saw a big increase in the rig count last week, up nine to 111 rigs working. The rig increase now has activity down only 27% from a year ago when 153 rigs were working. The rig count for oil is now at 52 rigs (up 12 last week) but down 46% from 96 rigs working last year. The natural gas rig count fell by three last week to 59 rigs working but remains up by 4% for the year versus the 57 rigs working last year.
Natural gas prices have recovered significantly as colder weather hits across North America (with the NorthEast particularly hit hard). AECO is now at $2.74/mcf up from $2.10/mcf last week. NYMEX has recovered to US$2.66/mcf from US$2.49/mcf last week. We expect much higher prices over the coming winter months.
Conclusion: We are now back to crude price levels seen in March 2020 just before the pandemic caused lockdowns of worldwide economies. WTI today is at US$47.45/b down 17 cents on the day.
Positive issues for higher crude prices:
- Vaccine deliveries are occurring now in Europe, Canada and the US and should start around the world later this month once approved by the local drug authorities. Anyone who wants one in Canada or the US should have it by Q3/21. The second vaccine from Moderna should see approval shortly and distribution before month end. This one does not have the same cold storage requirements and is likely to go to the northern Territories in Canada, First Nations and smaller communities. A similar approach should be taken around the world.
- While OPEC has lowered the near term demand forecast for crude oil they see demand rising in 2021 to 95.89Mb/d from 89.99Mb/d in 2020. The forecast for Q4/20 is for consumption of 93.47Mb/d and by Q4/21 is forecast at 97.29Mb/d.
- Asian demand remains the strongest in the world and is now above last year’s consumption levels for both China (up 0.6% to 13.3Mb/d) and India (up 2.7% to 4.58Mb/d).
- A war premium is now included in crude prices due to two attacks on oil facilities in the Middle East. Two small Iraqi oil wells were attacked by terrorists in Northern Iraq. In the second and more consequential attack Houthi rebels sent an explosive laden boat that assaulted a Singaporean flagged tanker. The ship may have lost some crude volumes but no one aboard was hurt. The Yemen civil war continues to flow over the border and this is the fourth incident in a month.
Negatives issues for lower crude prices:
- OPEC’s agreement earlier this month was a disaster as instead of delaying any production increases to Q3/21, they agreed to a production rise in January of 500Kb/d. They also plan to review production quotas monthly (next meeting January 4th) with plans to increase production by the same amount each month. Of the January increase the Saudis took 125,000 b/d and the Russians 125,000 b/d, leaving a miniscule amount for the remaining members. Cheating is guaranteed to continue as many of the smaller OPEC players are desperate for funds to run their economies.
- The demand for energy may wane in the coming months as the pandemic spread causes more shutdowns of economies. Lockdowns and early curfews are occurring across the US, Canada and most of Europe with tightened restrictions for the Christmas holiday season. The Netherlands today started a five week lockdown. Hong Kong and South Korea are also tightening social distancing rules and curbs as they see increased caseloads and deaths. There are now 16.8M cases (up from 15.3M cases last week) in the US with 305K deaths (288K last week). Yesterday showed another death rate over 3,000 (3,019 deaths and the CDC is warning that the death rate by early 2021 could be over 350K). Worldwide the caseload is 73.6M and deaths near 1.64M.
World-wide crude and product inventories are now 475Mb over the five year average. If OPEC agrees to add 500Kb/d in February then crude should breach US$40/b and fall to the US$32-36/b area during Q1/21. The next downside near-term support level is US$43.92/b. One will need to keep an eye on crude and product inventory levels to determine how low crude oil prices could fall during the coming months.
Energy and energy service stocks and now very overbought. We see significant downside risk but that the plunge may not occur now until we are into 2021. The most vulnerable companies are energy and energy service companies with high debt loads, high operating costs, declining production, current balance sheet debt maturities of some materiality within the next 12 months and those that produce heavier crude barrels. A breach of US$40/b will hit these stocks hard.
Continue to hold cash and remain patient for the next low risk BUY window which should occur during Q1/21. Traders may want to harvest some of the great gains since the BUY signal triggered in March. OPEC+ production is too high and is rising when it should have been held flat with no cheating.
Energy Stock Market: The S&P/TSX Energy Index now trades at 93.32, virtually unchanged from last week. The S&P/TSX Energy Index started the year at 146 so it is down 36% year-to-date. Last week the high for the Index was 98.49 and we may see a bounce back to this level or higher into year-end or early 2021 under our revised thesis (as the market facts change then we have and will continue to amend our views). Tax loss selling is not occurring this year as was expected. We now see the decline occurring in Q1/21. We discuss this in our upcoming December SER issue out later this week and go over numerous examples (for the Index and for individual stocks). The S&P/TSX Energy Index is likely to fall below the low of 61.21 (the low in late October) during Q1/21. A breach of 84.95 should start this downward trend. In our December SER we start to include monthly articles from a guest contributor (Professional Engineer and oil industry veteran, Ron Barmby) which will cover climate change issues that affect the energy sector. We hope you learn much from this new product offering.
Subscribe to the Schachter Energy Report and receive access to our two monthly reports, all archived Webinars, Action Alerts, TOP PICK recommendations when the next BUY signal occurs, as well as our Quality Scoring System review of the 27 companies that we cover. We go over the markets in much more detail and highlight individual companies in our reports. If you are interested in the energy industry this should be of interest to you.
To get access to our research go to https://bit.ly/34iKcRt to subscribe.
As we start moving into the last two weeks of the trading year, investors everywhere are hopeful that “Santa Claus” will visit “Broad & Wall.”
The actual Wall Street saying is that “If Santa Claus should fail to call, bears may come to Broad & Wall.” The Santa Claus Rally, also known as the December effect, is a term for more frequent than average stock market gains as the year winds down. However, as is always the case with data, average returns are sometimes different than reality.
Stock Trader’s Almanac explored why end-of-year trading has a directional tendency. The Santa Claus indicator is pretty simple. It looks at market performance over a seven day trading period – the last five trading days of the current trading year and the first two trading days of the New Year. The stats are compelling.
As I said, while it is a very high probability that stock prices will climb, there is a not-so-insignificant 24% chance they won’t. Such is why we want to analyze the technical backdrop to minimize the risk of “getting a lump of coal.”
However, let’s first analyze the “Santa Claus Rally.” CLICK for complete article
The COVID-19 pandemic has damaged the airline and automobile sectors around the globe. Fortunately, the rollout of vaccines in late 2020 has sparked hope in the general population. Today, I want to look at two top TSX stocks that have gained momentum in the final weeks of this momentous year. Air Canada and BlackBerry went through rough patches in 2020, but are finishing strong.
Which is the better stock to own in 2021 and beyond?
The case for Air Canada stock
Air Canada is the top domestic airliner and has emerged as one of the top growth stocks on the TSX during the 2010s. Its shares have plunged 46% in 2020 as of close on December 14. The stock is up 34% over the past month. Airliners have been pulverized by the pandemic, but the vaccine rollout has the industry hopeful for a return to normalcy in 2021.
Earlier this month, I’d discussed why Air Canada stock was poised to erupt in the months and years ahead. The airliner had rattled off record earnings in quarter after quarter coming into 2020. There will be a recovery period when this pandemic is history, but airliners should benefit from a global population that will be itching to travel.
In the near term, investors will still need to brace for some turbulence for airliners. Although the vaccine has arrived, it will take time before a satisfactory number of Canadians are inoculated. There are murmurs that the United States-Canada border could open in the spring. That is a good time for investors to expect things to loosen for Air Canada and its peers.
Why BlackBerry has surged in December
Canadian technology stocks like Shopify and Kinaxis put together a great performance in the face of the pandemic. However, BlackBerry was either struggling or static for most of the year. The Waterloo-based company’s exposure to the automobile sector caused its earnings to falter. In December, its fortunes turned, and the stock is attracting enthusiasm again…CLICK for complete article
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I know Mike is a very solid investor and respect his opinions very much. So if he says pay attention to this or that - I will.
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A sane voice in a scrambled investment world.
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Inside Edge Pro Contributors
Greg Weldon
Josef Schachter
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Ryan Irvine
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Mark Leibovit
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