Macro Charts: May 2016

Monday, May 30, 2016

Did They Do it Again?

I waited a few months to post this.

The Economist Magazine famously called the bottom (by accident) for oil back in 1999 when they predicted the price would fall to $5/barrel.

Daily Oil Bulletin

The January 23, 2016 cover of The Economist warns of cheap oil and its effects on different nations.

I have circled Jan 23 on the oil chart below. Did they do it again?

www.stockcharts.com

Marie-Antoinette, the wife of France's King Louis XVI, heartlessly responded upon learning that the French population had no bread to eat, “Qu'ils mangent de la brioche”—“Let them eat cake.” For that she lost her head.

Upon reading the following quote I wondered if this man is the Saudi version

“We don’t care about oil prices,” Prince Mohammed said in an interview in Riyadh. “$30 or $70, they are all the same to us. We have our own programs that don’t need high oil prices.”

As Saudi foreign exchange reserves collapse and the population is forced to give up some of the benefits the royals bestow upon the population to keep them placid, I hope he keeps his head.

http://uk.businessinsider.com/saudi-foreign-exchange-reserves-slide-to-lowest-levels-since-2012-2016-3

Saturday, May 28, 2016

Treasury Budget and Recessions

I once again forgot where I saved this chart.

The idea is a little counterintuitive, however, it becomes clearer when we realize how much government spending effects the economy. As the budget deficit declines, the US enters recessions. With Hillary, Donald and Bernie all putting forward economic plans that will increase government spending and debt, we could be in for a great ride in the economy (after next years recession). Now you just figure out which corporations they will funnel the money too.

The yellow circles are US recessions.

Oil and Equities Have Been Correlated

The CME Group has an excellent piece on this years correlation on US Equities and Oil prices. If this correlation continues and my forecast for oil prices happens markets should rally into the end of the year.

CME Group

Why Oil Prices Should Rise

US Global Funds put together the first three charts. Most of the increase in global oil production since 2004 has come from high cost producers (USA and Canada) or high risk areas (Iraq).

http://www.usfunds.com/investor-library/frank-talk/

The second chart shows the Global Manufacturing PMI is rising.

http://www.usfunds.com/investor-library/frank-talk/

And oil prices rise when global growth picks up.

http://www.usfunds.com/investor-library/frank-talk/

Supply disruptions have been increasing in 2016 for various reasons.

Goldman Sachs

Chief economist at Wells Fargo Asset Management, James Paulsen has noted that commodity prices start to rise after US unemployment drops below 6%.

Wells Capital Management

This notion is supported by the following chart published by S&P-Dow Jones which states commodities had the best March in a decade.

The US dollar appears to be following previous rate hike cycles eliminating a headwind.

Market Anthropology

And it appears we are following a previous cycle.

http://www.piscataquaresearch.com/

Oh, and Forbes has caught on to my theory that the Aramco IPO is the pump and dump of the century (drive prices down for a reason to float shares and then cut to make insiders paper millions).

http://www.forbes.com/sites/panosmourdoukoutas/2016/05/29/saudi-arabias-second-big-gamble-will-take-the-oil-market-for-a-rough-ride/

Careful When Reviewing Charts

I will not reference or pick on the service that made this chart, but do you see what they left out to make their point?

Eisenhower is left out of the 1940-1963 time frame and Jimmy Carter and the two terms of Bill Clinton were left out of the 1965-2008 period. That is 36% of the Spring and Summer time frame. Why? When I emailed to ask no one responded and I got a message saying email address cannot be reached.

Oil Elliot Wave Count

EWT is not my strong suit and the count is not mine but from Breakpoint Trades. The count suggests a new bull could have started or is close (if the ABC goes to DE vs just ABC).

www.stockcharts.com

A second EWT count seems to support this current interpretation (yet I cannot remember where I saved it from).

Home Prices and Demographics

Will real housing prices follow the demographic trend?

http://www.canadiansta.org/wp-content/uploads/2014/02/AmlanRoy-Canadian-Security-Traders-Conference_final.pdf

Oil Inventories

The below chart from the May 19, 2016 Daily Report from Confluence Investment Management shows that when normalized, oil inventories are building at a lower rate than they normally do at this point of the year. This suggests the 86 year cycle suggested by Martin Armstrong may be playing out, as coincidentally inventories are at an 86 year high

http://www.confluenceinvestment.com/

The second chart from the same CIM issue plotting oil prices vs. the Euro and oil inventories vs, prices suggest a low $50's fair price, matching my target back on April 24, 2016.

http://www.confluenceinvestment.com/

If inventory draws follow the 2015 patterns oil prices should average high $50-60 in price, according to the CIM crossplot.

http://www.gbm.scotiabank.com/English/bns_econ/bnscomod.pdf