The Algerian adventure turned into the North African Shocker for the oil market. Almost no one, myself included, thought that the meeting between OPEC members and the Russians would be able to come up with anything other than pleasantries and another disappointment when it comes to supporting the price of petroleum. However, the jury is still out, and there is plenty of time for a letdown until the official biannual meeting of the cartel at the end of November.
Stocks & Equities
As a man handles his troubles during the day, so he goes to bed at night a General, Captain, or Private.” ~ Edgar Watson Howe
We would like to state that this article is not about politics but about the effect these two polarising individuals will have on the market. Before the debate, the outlook was somewhat favourable towards the Donald and immediately the markets reacted and started trending lower. Regardless of what you think of Trump, he is having the same effect as Brexit had on the markets but in smaller doses. If he should win the election, then the reaction will be several magnitudes larger. When the poll results came in stating that Hillary fared better in the 1st debates the markets responded positively and recouped their losses; this reinforces our argument of several years that says substantial pullbacks should be viewed as buying opportunities.
From a contrarian angle (and not a political point of view) a Trump win could be construed as a positive development; non-contrarians will demand to know why? Mass Psychology clearly states that the masses are always on the wrong side of the equation. A Trump win will create uncertainty, and the lemmings will flee for the exits; markets will pull back sharply and viola the same old cycle will come into play. The cycle of selling based on fear which equates to opportunity for those who refuse to allow their emotions to do the talking.
Trump is the fear factor and Hillary the stability factor; if Hillary wins the markets will rally and then pull back; as the buy, the rumour sell the news effect will kick in. A Trump will create a strong reaction which in our opinion will create a buying opportunity. Sell when the masses are euphoric (a Hillary win) and buy when the masses are pessimistic (a Trump) is the core tenet of Mass Psychology
Now let’s see what the charts are saying
Before the current pullback, we stated that the Dow was more likely to test the 18,000 ranges than trading to 20K as the media was turning too bullish, and that came to pass when the Dow traded momentarily below 18,000. After that, we expected the markets to rally towards the 19,000 plus ranges, but since Trump started to gain momentum again, uncertainty has gripped the crowds; in that sense, Trump has become the new VIX factor. The market should continue trending towards that direction, but trading significantly past 19,000 might be limited until the elections are over. Moreover, if his numbers improve, then expect strong bouts of volatility. If his numbers drop, markets will be less volatile and vice versa.
If Hillary wins, then the Dow will rally and then traders will bank their profits so we should have a decent pullback, but the reaction should be muted. If Trump wins, then there is a good chance that the Dow will crack through the first layer of support that comes into play in the 17,800-18,000 and drop all the way down to the 17,000 ranges, creating a splendid buying opportunity.
It has been a long time since this market has shed a decent amount of steam; hence, from a contrarian perspective, a trump win would provide the perfect backdrop for this market to let out an adequate dose of steam. One last thought, if the crowd panics, then the Dow could overshoot to the 16500-16,800 ranges, which would in our opinion creating a “screaming buy type” situation.
Conclusion
From a pure trading perspective, a Trump win would provide contrarian players with an incredibly attractive buying opportunity. Like Brexit, the crowd is bound to overreact as they stampede for the exits, creating opportunity instead of disaster. The experts were dead sure that Brexit was going to create chaos; turns out that the only mess it created was amongst the experts when they were forced to eat their rubbish. Before Brexit, we stuck to our theme that any correction should be viewed as a buying opportunity. Just as Brexit was all bark and no bite; the same phenomenon is likely to play out if Trump wins. All the Naysayers from every crack and crevice will emerge screaming the end of the world and when the world does not end they will be forced to crawl under the rock again. It would be good to keep this saying in mind if Trump wins “dance when the crowd panics and standstill when they jump up with joy”. Regarding who is the better candidate, we will let our readers make that call.
“Bad times have a scientific value. These are occasions a good learner would not miss.”~ Ralph Waldo Emerson
…related from Michael Campbell:
Donald Trump: The Champion of Main Street


Summary
A shocker out of Algeria.
The initial deal.
No one expected it and shorts got caught.
A date in Vienna at the end of November.
At $50 North American output will flow — The Fed Of Oil?

I have for you a very interesting and unusual piece for this week’s Outside the Box. It is not that I do not regularly send things by authors who see the world differently from me, but I rarely delve into the political and geopolitical world.
My friend Dr. Woody Brock is one of the most brilliant game theory specialists that I know. He studied with the most accomplished game theoreticians in academia, and he regularly applies game theory to economics and investing.
It is no understatement to say that ISIS and radical Islamic terrorism in general are a threat to the Western world, and it’s a threat against which we have so far not really developed any serious defense mechanisms. Rather, we are mostly just reacting to seemingly random events.
Woody sent this client memo out last April, and I have read and reread it. He analyzes the conflict between the West and ISIS in terms of game theory. And because of our very values, he says that we end up playing the “game” in a way that predisposes us to continual frustration.
I thought long and hard about whether to send this to you. I know I will lose a few readers over it, and I always hate that, but sometimes we have to think about the hard things. Woody is normally a mild-mannered guy with a patrician view of the world, but his conclusions here are neither mild-mannered nor anything less than what most people would consider radical. However, ISIS and radical Islam are at war with the entire modern world, not just Christianity. They are True Believers and are simply not interested in negotiating.
In game theory, there is a fundamental distinction between positive-sum bargaining games, and zero-sum games. In bargaining games, it is assumed that both sides can be better off by agreeing on a way to “divide the pie” instead of playing their optimal threat strategies and ending up with no pie – or worse. All such games are positive-sum in nature. In a zero-sum game, however, there is no pie to divide, and no bargaining compromise is possible.
If Woody is right, we in the West are playing the wrong game. That is something to think about as we go into elections not just in the US but all over Europe. What game theory will the leaders we elect operate under? Seems a reasonable question to me. And while I am personally extremely uncomfortable with some of Woody’s conclusions, especially when it comes to abrogating the rules of the Geneva Convention, it makes for a far more open discussion if everything is put on the table so that we can examine the issues from all sides.
Fall is in the air in the Northern Hemisphere, and I am sure spring is beginning to show itself in the Southern Hemisphere, making much of the world a more pleasant place weatherwise. I hope where you are is as pleasant as Texas has been. Long-range weather forecast services I subscribe to are projecting a cold winter for the United States. We have avoided seriously cold weather in Texas for the last few years, but it looks like that lucky streak may be over.
You have a great week.
Your hoping to see a day when we can put all the madness behind us analyst,
John Mauldin, Editor
Outside the Box
JohnMauldin@2000wave.com
The Islamic Hatred of Modernity
Dr. Woody Brock
Strategic Economic Decisions, Inc.
April 26, 2016
“Not free thought for those that agree with us, but freedom for the thought that we hate”
– US Chief Justice Oliver Wendell Holmes, Jr., 1929
Terrorism is here to stay, and it is now beginning to impact the economic performance of many nations – in particular the performance of the service sector. In this brief Memo, we set forth a few thoughts about what underlies this phenomenon, and what to do about it.
ISIS versus Modernity and the West
Relative Power of ISIS versus Europe: The usual determinants of relative power (e.g. wealth or the size of an army) are not very relevant to assessing the struggle between ISIS and the West. [By ISIS we refer not only to ISIS proper, but to any of its affiliated groups as well.] For the conflict is less a militaristic one than it is a war of nerves between Jihadists who carry out scattered sting operations, and Europeans and Americans lacking both the will and the coordination to properly respond. An additional source of Jihadist power stems from their status as True Believers, making them a very dangerous kind of opponent. Their moral certainty immunizes them against normal threats such as being killed. The number who do not fear death is sufficient to spell trouble for decades ahead.
What is it that makes these extremists so morally superior, and so hateful of the West? In part, their superiority stems from their absolute faith in the truth of the teachings of the Koran. But this is only the tip of an iceberg of hatred. For their religious convictions are amplified by their detestation of the cultural, economic, ethical, and political values of Westerners. At a deep level, their terrorism stems from their hatred of modernity itself. We in the West are seen as weak and morally dissolute. For not only do we possess no religious fervor, but we lack moral resolve of any kind due to the anesthetizing effects of our materialistic, welfare-based social system. Such ethical values as we have stem not from fear of any God, but rather from an attachment to mushy concepts of “fairness” ranging from the “right” to nine weeks of vacation, to t he right to never be drafted to fight a war. In the US, citizens’ erstwhile chant of “give me liberty or give me death” has morphed into “give me liberty or give me latte.” All in all, ISIS’ conviction of holding the moral high ground is a major source of their power over the West.
Reinforcing this power of fundamentalists is their strategy of implementing fragmented hit-or- miss strikes. They specialize in ongoing, unnerving terrorist attacks in public places. The West’s superiority in the number of security personnel and in intelligence-gathering does little to prevent these random attacks which can occur in hundreds of different emporia. In this regard, it is sobering that more than 5,000 EU-based fighters have already been to Syria for training in terrorist tactics, according to the US-based consultancy Soufan. This number will grow given the poor economic conditions in Europe where the unemployment rate of males under 30 exceeds 25% in many nations.
Finally, today’s ongoing Jihadist attacks are concurrent with the new European immigration crisis. Given the implications of soaring immigration for tighter border controls, the increasing threat of Brexit, and problems endemic to the Euro, it is likely that the EU as we have known it will cease to exist. There will then be no semblance of any “unified” EU stance against ISIS. Instead, we will observe fragmented and ineffectual responses as well as the suspension of many civil liberties now taken for granted.
This brief analysis suggests that the power of ISIS against Europe is much greater than might appear to be the case, despite Europe’s greatly superior power as traditionally measured.
A War against Modernity: The importance of the culture war underlying the Jihadists’ hatred of Westerners cannot be understated. In their eyes, we are modernist devil worshippers. Women should be kept at home, devoid of any rights. They should be virgins when they marry. Adultery is a sin punishable by death, as is homosexuality. The fact that many citizens of Muslim nations do not share these views does not seem to matter. Consider Iran: the majority of the people value democracy, and even look favorably on the US. But so what? The Mullahs and the Red Guard rule with an iron fist, as we have seen during the recent elections when the candidates favored by most voters were stricken from ballot list. Moreover, Iran’s autocratic leaders are out in front in an effort to fund terrorist groups, in one form or another.
Consider the words of the eminent Simon Schama in a recent March 26 Financial Times Op-Ed piece:
We are not talking fine points of Shia-Sunni theological controversy here. By every means possible Isis is at pains to let us know they will kill as many of us as it takes to sow such mayhem in the heartland of the kaffir world that it will be impossible to resist mobilising the “Crusader” army for the promised apocalyptic showdown out of which the Caliphate will emerge forever victorious.
Also consider the comments of Professor R. Vaidanathan of the IIMB in Bangalore:
Radical Islam is not fighting Christianity – which anyhow is dead in Europe – but it is fighting modernity. Islam is frightened of modernity destroying their religion and culture, however unacceptable this culture may be to European liberals…..
Europe thought – à la Merkel – that they can buy peace with radical Islam by “requesting” them to integrate. But integrate with what? Integrate with “immoral Europe” where women are exhibited as “open meat”[(in the words of the Australian Imam] who are “poisonous.” [https://rvaidya2000.com/2016/03/23/idea-of-europe-is-dead/]
Contrast ISIS’ moral resolve with the pusillanimous attitude of Westerners. Most assert their disapproval of fundamentalism, of course. But their live-and-let-live attitude sees it as a “right” for people to “express their views” and espouse any religion they wish – including the Religion of Hate. The problem with this view is that the Religion of Hate is unlike any other religion in espousing the murder of all non-believers. Excessive tolerance further undermines the will of the West to fight back against Jihadism in a resolute way.
How the West Can Best Deal with Fundamentalism – Insights from Game Theory
In game theory, there is a fundamental distinction between positive-sum bargaining games, and zero-sum games. In bargaining games, it is assumed that both sides can be better off by agreeing on a way to “divide the pie” instead of playing their optimal threat strategies and ending up with no pie – or worse. All such games are positive-sum in nature. In a zero-sum game, however, there is no pie to divide, and no bargaining compromise is possible.
Most of the analyses of how the West should confront fundamentalism fail to make this all-important distinction. Analysts implicitly assume that negotiation strategies exist, strategies that will somehow end up with an acceptable compromise. President Obama’s stance towards Iran, Russia and China offer examples of this approach. In all three cases, he turned the other cheek, and attempted to “reset” relations with these nations expecting they would reciprocate. All would end up better off. But his antagonists ended up taking full advantage of his weakness, reneged on many agreements, and made Obama look as incompetent at bargaining as he has proven to be.
Professor Schama is right in his comments above. He is stating that, in effect, we are playing a zero-sum game. ISIS wants nothing from us in exchange for something. They simply want to destroy us. Analogously, Iran has no intention of settling with Israel. Its stated goal is the elimination of Israel. In such cases, the optimal strategy (for the West) is to identify the enemy’s vulnerabilities, and having done so, to sow as much grief and pain as possible. The fact that the enemy are scattered and that some of their recruits are happy to blow themselves up does not relieve us of the responsibility to hit where it hurts: recruits that do not wish to die (the vast majority), all training camps (we know where some thirty of these are located), family members, etc. We must pursue such targets both on their home ground, as well as within the EU and the US. There is also th e question of how to extract intelligence from terrorist murderers who are captured. Just as an intelligent economist does not believe in free trade for a nation unless other nations follow suit, likewise enemies should be treated in accord with the Geneva Conventions only if they themselves adhere to them, adherence enforced by, say, an effective United Nations if one ever exists. Saying this is, of course, politically incorrect in the extreme. But reality beckons.
The currently fashionable suggestion that what is needed is “for Europe to better ‘integrate’ immigrants” is as vacuous as the citations above assert. Most immigrants want to and are able to integrate over time. They end up great assets of the nations they immigrate to. But as a matter of faith, the bad guys will never integrate into that world of sinners they hate. The West needs a coherent, broad-based, long campaign dedicated to destroying every aspect of terrorist operations. This need not imply a decade with large numbers of troops on the ground. But there will be phases requiring such a presence. Just consider what Russia achieved in its recent and relatively mild strategy against the opposition to the Assad regime. They hit hard, it worked, and they have now pulled back – for the moment. Their effectiveness yet again renders the indecisio n of President Obama a national embarrassment.
Within Europe, security must of course be tightened, but not at the expense of the crippling day to day economic life of people – precisely the outcome ISIS seeks. Leaders should encourage a much more stiff-upper-lip response by citizens than they have.
POSTSCRIPT
Political Correctness and the Lack of Sense of Humor in All True Believers
There is one common denominator of all True Believers, namely a lack of sense of humor. This is as true of terrorists as it is of today’s political correctness police in the US, spearheaded by those who traffic in wooly ideas about gender and class. What is happening on US campuses is outrageous, and recalls the moral absolutism espoused by Jihadists overseas. Freedom of speech is being seriously abridged, as are rights of free association. To repeal the right to free speech, all that is needed is some belief that certain comments are “inappropriate,” to use the word of the moment. “Trigger notices” warning that eight Shakespeare plays should not be taught constitute a reductio ad absurdum on the part of university heads. As for the rights of male students to a fair hearing in the case of alleged sexual harassment, hyper-risk-averse “administrative panels” now serve as prosecutor, judge, and jury. There is often no way for an accused male student to receive a proper defense. When the right to self-defense is abridged, it is time to vacate the new status quo.
What US Chief Justice Oliver Wendell Holmes wrote in 1929 about the all-important right of freedom of thought and speech (cited at the opening of this essay) remains as true today as it was eighty-seven years ago. Silencing people who say things you do not want to hear amounts to a surrender to oppression. If the PC police resent this reality, they should perhaps recall the words of President Truman: If you can’t stand the heat, get out of the kitchen.

“If you’re not failing every now and again, it’s a sign you’re not doing anything very innovative.”
– Woody Allen

They will also embark on a process of lifelong learning and renewal. Developing leadership skills requires tremendous effort and time dedication with a constant reinforcement of better habits.
Finally, leading an innovative requires any leader to show humility and turn to his talented people, not out of weakness, but out of strength. This will encourage all employees to embrace a culture where it is okay to admit that they don’t have every answer to every question and that the true innovations coming from closing that knowledge gap in a way that creates something bigger for the company and better for the customer.
By Eamonn Percy
….also from Eamonn: Creating a Culture of Innovation
