Friday, 16 June 2017

Does History Repeat?

Baltic Dry Index. 865 -05     Brent Crude 46.97

“There may be a recession in stock prices, but not anything in the nature of a crash.”

Irving Fisher, leading U.S. economist, New York Times, Sept. 5, 1929

Have US stocks peaked? Is NASDAQ about to repeat 1999-2000? Does history repeat? Has the Fed lost the plot? I don’t know either, but buying stocks here, in the midst of so much political uncertainty, tightening credit, plus a global economy that appears to be cooling, albeit with signs of inflation, is the investment equivalent of playing Russian roulette. When you get the urge to play Russian roulette, the remedy is to go away and lie down until the urge passes. That seems to be sound advice here.

Below, are stocks priced for a stampede for the exits? When the quants and passive ETFs turn seller, “to whom, sir” comes to mind.

"We will not have any more crashes in our time."

John Maynard Keynes, leading British economist, in 1927

U.S. Stocks Slip on Tech Drop, Dollar Up After Fed: Markets Wrap

by Jeremy Herron and Brian Chappatta
U.S. stocks fell for the fourth time in five days as selling in technology shares resumed. The dollar advanced with Treasury yields, while gold weakened as traders digested the more hawkish tone struck by the Federal Reserve.

Equity benchmarks slipped from near record levels, technology shares pacing declines. Commodity producers also retreated, as crude fell to a seven-month low and gold slid more than 1.5 percent. European stocks dropped to levels last seen in April. The greenback strengthened and 10-year Treasury yields climbed as the Fed suggested the strength of the labor market will ultimately prevail over weakness in inflation. Emerging-market equities tumbled more than 1 percent.
Investors resumed selling the major technology shares that have contributed most to equity records this year, as the threat of higher interest rates prompted a shift from growth into value shares. Softening commodity prices did little bolster arguments that inflation will pick up the pace, even as the U.S. labor market remains on strong footing -- raising the specter that central bank officials made a policy error.

Stocks continue to mirror the dot-com era in ominous ways

Published: June 15, 2017 1:33 p.m. ET

How markets today resemble those of 1999, when the seeds of an epic downturn were already sown

Investors who have been in the markets for at least 20 years can be forgiven if they’ve been feeling an unsettling sense of déjà vu lately.

The recent selloff in technology shares on Wall Street—which began abruptly last week, although the sector is still the best-performing industry of 2017 at current levels—has drawn comparisons to the abrupt end of the original dot-com run-up, and not simply because it’s the same sector driving market direction, and because the same sector is facing the same charges of being overvalued.

Read: As internet stocks hit records, familiar questions about bubbles arise

“This is my 33rd year in capital markets, and what I’m seeing is very reminiscent of 1999,” said Mark Travis, chief executive officer of Intrepid Capital Funds. “Back then, it was the ‘Four Horsemen of the Nasdaq’ leading the market; today it’s the FANG stocks—there’s a similar level of concentration.”

FANG refers to four internet names—Facebook FB, -0.30% , Amazon AMZN, -1.26% , Netflix NFLX, -0.29% and Google (the parent company of which is Alphabet GOOGL, -0.80% )—that have fueled the market’s advance this year. Apple Inc AAPL, -0.60% is at times included in this group, as well. All are among the biggest companies in the U.S. by market capitalization, and all have seen gains of more than 20% this year. The four have an average price-to-earnings ratio of 125.59, although that is mostly due to Netflix (which has a P/E of 287.91) and Amazon (at 153.03). The price-to-earnings ratio of the S&P 500 SPX, -0.22% is around 18.4, according to FactSet.

“You can’t justify paying these prices for these businesses. Investors are just chasing momentum,” Travis said, citing the recent initial public offering of Snap Inc. SNAP, -4.92% as an “egregious” example of overvaluation. “They’d have to double revenue just to break even,” he said of the social-media company.

Other market metrics are eerily mirroring what happened in 1999, shortly before dot-com bubble burst and sparked a broad-based selloff, one so severe for tech that the sector only fully recovered earlier this year. The resemblance in conditions means that “from a big-picture perspective, the comparison to 1999 holds up remarkably well,” said Brad McMillan, chief investment officer at Commonwealth Financial Network. “1999 and 2017 do indeed bear more than a passing resemblance.”

 Up next, a story from the oil market that yet again suggests there’s trouble ahead in the global economy. There’s too much oil for a cooling global economy.

The Lonely Drifting Oil Tanker That Signals OPEC's Struggle

by Laura Hurst and Javier Blas
13 June 2017, 12:57 GMT+1 13 June 2017, 18:36 GMT+1
If a single ship can capture the current state of the global oil market, it’s the supertanker Saiq, floating idly about 850 kilometers (530 miles) south of the Canary Islands.

Until a few days ago, the 330-meter-long tanker, chartered by Royal Dutch Shell Plc, was steaming at 13 knots toward the Chinese port of Tianjin after loading a 2-million-barrel cargo of North Sea oil at the Hound Point terminal near Edinburgh. Then, it suddenly stopped in the middle of the Atlantic Ocean, according to ship-tracking data compiled by Bloomberg.

Its problem: China isn’t buying much crude right now, leaving the tanker searching for a customer. While the vessel was floating near Africa last week, Shell offered to sell the cargo in a ship-to-ship transfer all the way back in Scotland. There weren’t any takers.

Across the world, the plight of the Saiq, now idling off the coast of Mauritania, reflects a broader trend in the physical oil market. After six months of oil-production cuts from the Organization of Petroleum Exporting Countries and 11 non-OPEC nations led by Russia, crude supply is surprisingly still plentiful, according to traders.

"It’s a buyer’s market," said Olivier Jakob, managing director of Swiss-based consultant Petromatrix GmbH, echoing a widely held view in the physical market.

On paper, global supply and demand balances from the likes of the International Energy Agency say the market should be reducing stockpiles. Oil prices, however, suggest that any inventory reduction remains minimal. The headline price for Brent crude, the global benchmark, is below $50 a barrel, indicating buyers are on the sidelines.

Time spreads, the price difference between contracts for different months, have widened considerably in June, with key measures at levels last seen in November, when OPEC announced its output cuts. Signs have emerged that traders are resorting to turning tankers into floating storage due to a lack of buyers.

----The weakness in the Atlantic basin is visible in the widening price difference between Brent crude for delivery in December 2017 and December 2018 -- a popular trade often seen as a signal of whether the market is drawing down stocks. The more negative the spread, the larger the oversupply. The spread fell to a six-month intraday low of minus $1.49 a barrel on June 9, down from plus $1 a barrel two weeks ago. It is now at about minus $1 a barrel.

Oil Set for Longest Run of Weekly Losses Since 2015 Amid Glut

by Ben Sharples
Oil headed for the longest run of weekly losses since August 2015 as U.S. crude stockpiles remain stubbornly high and as Libyan production climbs toward the most in four years.

Futures were little changed in New York, down 3.1 percent for a fourth weekly decline. U.S. inventories fell less than forecast last week, keeping supplies more than 100 million barrels above the five-year average, according to data from the Energy Information Administration on Wednesday. Libya, exempt from the OPEC-led deal to cut supply, will boost output to 1 million barrels a day by the end of July, according to National Oil Co.

Oil slumped to the lowest close in seven months this week as concerns grew that rising U.S. supplies will offset the production curbs by the Organization of Petroleum Exporting Countries and allies including Russia. New non-OPEC output next year will be more than enough to meet demand growth, the International Energy Agency said Wednesday in its first forecast for 2018.

“The risk is to the downside for oil,” said Jonathan Barratt, chief investment officer at Ayers Alliance Securities in Sydney. “If prices drift toward $40 a barrel, there is likely to be some sort of reaction from OPEC.”

----Brent for August settlement fell 1 cent to $46.93 a barrel on the London-based ICE Futures Europe exchange. Prices are down 2.6 percent this week. The global benchmark crude traded at a premium of $2.26 to August WTI.

Libyan output will reach 900,000 barrels a day within days, National Oil Co. said on its website, citing Chairman Mustafa Sanalla. OPEC production jumped last month as Libya and Nigeria revived supply halted by attacks and political crises, a report from the group showed on Tuesday.

We close for the week with a Russian joke, though gun toting Bernie Sanders Democrats probably won’t get it.

Putin Jokes He'd Offer Comey Asylum Like He Did With Snowden

by Henry Meyer, Stepan Kravchenko, and Ilya Arkhipov
15 June 2017, 13:42 GMT+1
President Vladimir Putin joked that he’s willing to offer former FBI Director James Comey asylum, comparing him to Edward Snowden, the ex-National Security Agency contractor who took refuge in Russia after being accused in the U.S. of leaking classified information.

Comey’s decision to release records of his conversation with U.S. President Donald Trump to the media is “very strange,” Putin said during his annual call-in show on Thursday, in a response to a question from a factory executive from the southern city of Volgograd on the ex-head of the Federal Bureau of Investigation’s testimony to the Senate Intelligence Committee.

It’s very bizarre “when head of an intelligence service makes a record of his conversation with the commander-in-chief and then leaks this conversation to the media via a friend,” Putin said. “How then is the director of the FBI different from Mr. Snowden? Then he’s not a head of an intelligence service, he’s a human-rights activist.”

The Russian president added facetiously that his country is ready to offer Comey asylum if he’s prosecuted in the U.S. “He should know this.”

Putin started his answer noting that he hadn’t followed the testimony closely. But he displayed rather detailed knowledge of what Comey had said, noting that he had not provided evidence of alleged Russian meddling in the U.S. election. He also said Comey said there was no sign Russian interference had affected the vote count. “Thank God for that at least,” Putin said.

Asked about prospects for improving U.S-Russia relations, Putin said he hoped that would happen at some point but warned the current political climate in the U.S. isn’t conducive to it. “We see what is going on in the U.S. It’s clearly a sign of an escalating domestic political struggle,” he said. “There’s nothing we can do about it.”

"There will be no repetition of the break of yesterday... I have no fear of another comparable decline."

Arthur W. Loasby (President of the Equitable Trust Company), quoted in The New York Times, Friday, October 25, 1929

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.

No crooks today. Today, more on OPEC’s crude oil pricing plan going awry, as US frackers are changing oil’s future forever. OPEC needs oil prices in the low 20s for a year to succeed, but OPEC can’t take the pain of oil prices in the 20s for a year.

Below, US shale oil companies flirt with too much “success.”

Shale Drillers Digging Themselves a Hole as Oil Breaches $45

by Alex Nussbaum
13 June 2017, 23:28 GMT+1 14 June 2017, 16:48 GMT+1
U.S. shale is coming perilously close to puncturing its own rally.

Just months after predicting double-digit production increases, largely based on crude prices sitting between $55 and $60 a barrel, drillers are suddenly contemplating the possibility of retrenchment as a stubborn global supply glut pushes prices below $45.

It’s a reversal that could accomplish what OPEC and other global producers have failed to do this year: slow down America’s booming shale industry. Analysts and company officials say a drop to $40 a barrel could halt rig growth for smaller drillers in less active U.S. shale basins, and undercut efforts by fracking service providers such as Halliburton Co., FTS International and Patterson-UTI Energy Inc. to raise their fees.

“The growth outlooks proposed by many oily E&Ps appear tenuous at best and not resilient to prolonged weak oil prices," Mizuho Securities USA analysts Timothy Rezvan and James Lizzul wrote in a June 11 note. They cited rising service costs and the industry’s lack of hedging protection for next year.

West Intermediate Texas crude, the U.S. benchmark, tumbled as far as $44.54 a barrel in New York trading Wednesday, its lowest level in five weeks after the U.S. government reported gasoline and other petroleum product stockpiles swelled last month. WTI has fallen 19 percent this year from its peak of $55.24 on Jan. 3.

Stocks Fall

Oil company stocks followed suit, with the Bloomberg Intelligence Independent E&Ps index, which tracks 56 mostly shale-focused drillers, dropping 4.6 percent at 11 a.m. in New York. The index was already down 21 percent for the year through Tuesday.

Drillers at an RBC Capital Markets energy conference in New York last week insisted they were sticking with their spending plans even with the price decrease, noting they’d emerged from last year’s oil-market slump with leaner costs and lower debt levels. But they acknowledged the shakier ground their budgets stand on.

Noble Energy Inc. has the flexibility to “toggle activity" if prices decline further, Chief Financial Officer Ken Fisher said at the meeting, while EOG Resources Inc. Executive Vice-President Billy Helms said the company will “moderate" production if needed, according to summaries published by RBC analyst Scott Hanold.

Messages seeking comment from EOG weren’t immediately returned. Reba Reid, a spokeswoman for Noble, confirmed the content of the RBC note.

Wednesday’s data on rising U.S. inventories followed a similar report from the American Petroleum Institute a day earlier showing a bump in crude oil stockpiles. The Paris-based International Energy Agency, meanwhile, forecast that new production from the U.S. and other non-OPEC sources will exceed demand growth next year.

---- Oil has been mired below $50 a barrel by concerns that growing U.S. supplies are overwhelming production cuts by the Organization of Petroleum Exporting Countries and its allies. The U.S. oil rig count is at its highest level since April 2015. Last week, the U.S. Energy Department forecast national crude production would hit a record 10 million barrels a day next year.

While the U.S. data released Wednesday showed a drop in crude stockpiles, totals for gasoline and other petroleum products gained at a time of year when they’re expected to decline said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, in a telephone interview.

"It’s really counter to what we should be seeing this time of year," he said.
"... a serious depression seems improbable; [we expect] recovery of business next spring, with further improvement in the fall."
Harvard Economic Society, November 10, 1929
Technology Update.
With events happening fast in the development of solar power and graphene, I’ve added this section. Updates as they get reported. Is converting sunlight to usable cheap AC or DC energy mankind’s future from the 21st century onwards? DC? A quantum computer next?

Today, how not to retro-fit a dangerous old tower block. How to turn a dangerous old tower block into a death trap.

Grenfell Tower fire: Cladding used on block 'was banned in US'

Reports suggest it would have cost £5,000 extra for contractors to apply a fire-resistant version of panelling to tower block

Cladding believed to have been used on Grenfell Tower is banned in the US, it has emerged, amid revelations that it would have cost just £5,000 extra for the contractors to apply a fire-resistant version of panelling to the building.

Speculation is growing about the construction of the tower after a blaze ripped through it "like a matchstick" in the early hours of Wednesday morning, killing at least 17 people died and injuring scores more. 

It has now emerged that the aluminium panels thought to have been added to the outside of the block as part of a £10 million refurbishment completed in May 2016 are banned in the US on buildings taller than 40 feet for fire safety reasons.

The panels believed to have been fitted to the outside of Grenfell Tower are produced by US company Reynobond, which makes three types of panel: one with a flammable plastic core and two with fire-resistant cores. 

It is thought that contractors chose the cheaper, more combustible version for Grenfell, which has a polyethylene core and is known as PE.

A salesman for the US company Reynobond, which produces the panels, told The Times the type of panel believed to have been used on Grenfell Tower was banned on tall buildings in the US “because of the fire and smoke spread”.

PIR implicated in Grenfell Tower fire

15 Jun 2017 by Simon Robinson
London – PIR insulation was specified in the architects’ plans for exterior cladding, of the Grenfell Tower, London which burnt on 13 June 2017, killing at least 17, documents from the local authority show.

The fire, which started in the early hours of the morning of 13 June, is still being investigated, but TV news showed the fire spreading up the outside of the building and into the interior very rapidly.

Kensington and Chelsea, the London borough in which the tower is located, had it refurbished in a project that completed in 2015.

The Grenfell Tower regeneration project sustainability and energy statement, produced by Max Fordham architects, a key aim of the refurbishment was to insulate the tower which was built in the 1974. According to specifications on page six of the document, the walls were to be insulated with 150 mm (6 inches)  Celotex FR 5000 above and around the windows. A panel of 100 mm Celotex FR 5000 was specified for the spaces between the windows on the exterior of the building.

According to the statement, the insulation was to be placed directly on to the existing concrete structure and protected from the elements by zinc panels separated from the panels by a 50 mm (2 inch) air gap.

According to Max Fordham Architects, the tower insulation was designed to exceed the then UK building regulations by 50% because, ‘insulation improvements may only happen once or twice in a building’s lifetime due to the complexity and disruption caused. For this reason, we are going over and above the current building regulations to ensure that the building continues to perform well into the future.’

UK Prime Minister, Theresa May, has ordered a public enquiry into the tragedy.

Laminators Aluminum Composite Panel Passes NFPA 285 Standard

Laminators Inc. announces its Omega-Lite aluminum composite panel installed in their Clip & Caulk installation system was recently tested and passed the requirements of the National Fire Protection Association (NFPA) 285 Standard. Laminators’ 1-Piece, Tight-Fit; Dry Seal; and Rout & Return installation systems have also passed the NFPA 285 test, making this its fourth installation system that meets this approval.

This easy, field-proven method is the choice of architects and installers who are looking for a very flat look without visible fasteners. With little to no fabrication needed, as well as the ability to cut panels on-site with standard carpentry tools, the Clip & Caulk method greatly reduces the total installed cost.

Architectural Testing Inc., located in York, Pa., conducted a fire performance evaluation on Omega-Lite installed with Laminators’ Clip and Caulk installation system using type “X” gypsum and steel construction, and concluded the wall assembly utilizing Omega-Lite met the acceptance criteria stated in the NFPA 285 standard.

The NFPA 285 test provides a method of determining the flammability characteristics of exterior, non-load-bearing wall assemblies/panels. The test is intended to evaluate the inclusion of combustible components within the wall assembly and simulate the tested wall assembly’s fire performance. Omega-Lite successfully passed the test without altering the product or standard installation method.

“It’s a very cost-effective, yet attractive finish,” says Shawn Crouthamel, national sales manager at Laminators. “With the ability to color-match panels, caulk and flashing, Clip & Caulk looks great in combination with masonry, glass, 1-piece or 2-piece extruded molding systems or by itself in a stand-alone application.”

Another weekend, yet another vote in France. Macron mania is expected to continue. Round two of the French parliamentary elections. Here in GB, time for the media to have a media frenzy apportioning blame over the terrible tower block fire.  There appears more than enough blame to go around.

In the markets, time to reflect on credit tightening led by America and China, plus the first inkling that despite falling oil prices, inflation might be about to return replacing deflation. While it’s too early to know for sure, after an eight-year debt binge, much of it used to buy back stocks to goose stock prices, any return of real inflation is likely to swamp many ships. Have a great weekend everyone. 

The monthly Coppock Indicators finished May

DJIA: 21,009 +157 Up. NASDAQ:  6,199 +219 Up. SP500: 2,412 +161 Up.

No comments:

Post a Comment