Comment of the Day
Big Picture Long-Term video May 13th 2022
A link to this week's Big Picture Long-Term video commentary is posted in the Subscriber's Area.
Oil Climbs as Global Refining Crunch Drives Record Fuel Cost
This article from Bloomberg may be of interest to subscribers. Here is a section:
Oil climbed as a global squeeze on refined products continued to pull fuel prices higher with Russian diesel exports falling sharply.
West Texas Intermediate traded near $110 wrapping up another week of tumultuous trading where lowered liquidity exacerbated price moves. Diesel exports from Russia dropped in April from their prewar level as oil buyers seek to punish one of the world’s biggest suppliers. Investors have also been keeping a close eye on China as authorities in Beijing denied rumors that the city will go into lockdown even as new Covid-19 cases climbed.
Fuels are currently the bullish driver for crude, especially as Russian diesel exports drop, said Dennis Kissler, Senior Vice President of Trading, BOK Financial (NASDAQ:BOKF). “The path of least resistance still looks higher for all petroleum products as demand continues to outstrip supplies.”
My view - Diesel and jet fuel prices have been making headlines this year because they are at record levels. The war in Ukraine and Europe’s reliance on Russia for 70% of its diesel have been blamed for this development. However, there is an additional consideration I have not seen mentioned elsewhere.
Capitulation
Thanks to a subscriber for this portion of a note from JPMorgan:
the bottom this time won't be a capitulatory puke, but more likely consistent selling which fades as it burns out, to wit:
... signs of a market bottom are unlikely to resemble traditional "capitulation" that’s played out in the last few years. Why? Because traditional capitulation is typically marked by a quick de-grossing by hedge funds + systematic macro strategies, where positioning is already light. Instead, the next leg of de-risking is likely to be more gradual, coming from asset allocators/real money/retail and is therefore likely slower to play out, making a precise bottom more difficult to call.
from a more tactical (i.e. very near term) standpoint, the bank writes that there are multiple metrics that suggest we could be closer to a bounce than before, including:
The magnitude of the drawdown in net and gross exposures (-33% for net and - 30% for gross) in N. America among L/S funds is now similar to the early 2016 and March 2020 declines
Retail flows in single-stocks have been very negative over the past 3 days, which has generally coincided with short-term lows over the past 6 months.
The drawdown in “risky” factors (e.g. high vol, small cap, low profitability) is one of the most extreme of the past 20+ years and the S&P has rallied over the following 1-3 months post hitting similar extremes
Buying of Defensives and selling of Cyclicals is also one of the most extreme with Staples vs. Discretionary in particular looking stretched
My view - The significant declines seen in stocks and the return of P/E ratios to average readings have been sufficient to encourage some speculative value buying over the last couple of days. The other side of that argument is oil prices remain firm and the Fed intends to hike rates by an additional 100 basis points before the end of July. Rallies are hard to sustain when liquidity is contracting.
Email of the day on my leveraged gold positions
I was interested to see today that gold hit just below $1800 and your average buying price so far is at that level. You have had bids in the market for some time ...I wondered if they have been triggered with the $200 drop in the gold price in the last month. It feels like March 2020 when gold was swept up in the stock market declines in the rush to cash. Are we seeing a repeat now...in which case gold could make a swift recovery like it did then perhaps?
My view - Thank you for this question which I’m sure will be of interest to the Collective. I also apologise for not speaking more about gold in yesterday’s audio commentary. It occurred to me last night that I had not mentioned gold in the broadcast and that was a glaring omission.
Email of the day on AI/Deep learning promises
Eoin, your comment "I feel bombarded with podcasts, YouTube videos, analysts and reports telling me about the inevitability of AI and deep learning transforming the global economy" is important. This is typical of the initial excitement about any new technology. History shows it takes 'a generation' (20-25 years) for a new technology to go through its slow and expensive development phase, with many failures in the early years despite the hype, followed by disillusionment for several years, or a decade or so, before it actually begins to pay back. I presented the data at David's Markets Now many years ago. Gartner capture this in their Hype Curve/Cycle chart. The initial hype phase is where Venture Capitalists get involved and they aim to exit before the disillusion phase sets in. Investors in public markets have to await the third phase, when the technology matures and starts to be economic. We'll get there with AI / Deep Learning - but not quite yet!
My view - Thank you for this grounded email and I completely agree. The promise of AI will be delivered upon but that doesn’t often equate to a smooth ride for investors which is the big challenge at present. High valuations and high interest rates don’t play well together.
Please note - variable hours in late May and early June
I am flying to Ireland on May 25th ahead of The Chart Seminar in London on June 6th and 7th. I’m looking forward to taking some time off since it feels like a long time since I’ve had more than a couple of days break in a row. Between those dates updates will be sporadic but I aim to post regular audio/video updates.
The Chart Seminar June 6th & 7th in London sold out
Now in its 53rd year, the first venue for The Chart Seminar in the post pandemic era will be in London on June 6th and 7th at the Army & Navy Club.
This event is sold out. A waitlist has now begun.
To reserve your place please contact Sarah@fullertreacymoney.com.
Delegate Rates:
Full fee: £1799
Each additional delegate: £850
Fuller Treacy Money Subscriber rate: £850
Prices exclude VAT where applicable
Eoin's personal portfolio: bond long closed at a loss, investment positions sold and stock market short increased. May 5th
One of the questions subscribers as most often is how to find details of my open trades. To make it easier I will simply repost the latest summary daily until there is a change.