Showing posts with label loss. Show all posts
Showing posts with label loss. Show all posts

Tuesday, August 16, 2016

The Financial Winter is Nearing

Weathering Out Winter
Nature functions in cycles. Each 24 hour period can be divided into smaller cycles of morning, afternoon, evening, and night. The whole year can be divided into seasonal cycles. Similarly, one’s life can also be divided into cycles. Cycles are abundant in nature – we just have to spot them, understand them, and be prepared for them, because they happen whether we like it or not. Likewise, economic experts have noticed that the world also follows different cycles. An important pioneer in this field was the Russian social economist, Nikolai Kondratiev, also called Nikolai Kondratieff, a relatively unknown genius.

Who Is Kondratiev?
Geniuses have been known to defend their principles and beliefs, even at the cost of losing their lives; they may die but their legacy lives on, as did Kondratiev. He was an economist who laid down his life defending his beliefs. He was the founding director of the Institute of Conjuncture, a famous research institution, which was located in Moscow. He devised a five year plan for the development of agriculture in Russia from 1923-1925.

His book, “The Major Economic Cycles,” was published 1925, in which his policies were in stark contrast to that of Stalin’s. As a result of this, Kondratiev was arrested in 1930 and given a prison sentence. This sentence was reviewed, and, consequently, he was executed in 1938. What a tragic loss of such a genius at only 42 years of age. He was executed because his research proved him right and Stalin wrong! Nonetheless, his legacy lives on and, in 1939 Joseph Schumpeter named the waves Kondratiev Waves, also known as K-Waves.

What Are Kondratiev Waves?
Investopedia defines the Kondratieff Wave as, “A long term cycle present in capitalist economies that represents long term, high growth and low growth economic periods.” The initial study by Kondratiev was based on the European agricultural commodity and copper prices. He noticed this period of evolution and self correction in the economic activity of the capitalist nations and felt it was important to document.
Chart 1 CNA

These waves are long cycles, lasting 50-60 years and consisting of various phases that are repetitive in nature. They are divided into four primary cycles:

Spring Inflationary growth phase: The first wave starts after a depressed economic state. With growth comes inflation. This phase sees stable prices, stable interest rates and a rising stock market, which is led by strong corporate profits and technological innovations. This phase generally lasts for 25 years.

Summer Stagflation (Recession): This phase witnesses wars such as the War of 1812, the Civil War, the World Wars and the Vietnam War. War leads to a shortage of resources, which leads to rising prices, rising interest rates and higher debt, and because of these factors, companies’ profits decline.

Autumn Deflationary Growth (Plateau period): After the end of war, people want economic stability. While the economy sees growth in selective sectors, this period also witnesses social and technological innovations. Prices fall and interest rates are low, which leads to higher debt and consumption. At the same time, companies’ profits rise, resulting in a strong stock market. All of these excesses end with a major speculative bubble.

Winter Depression: This is a period of correcting the excesses of the past and preparing the foundation for future growth. Prices fall, profits decline and stock markets correct to the downside. However, this period also refines the technologies of the past with innovation, making it cheaper and more available for the masses. Accuracy Of The Cycle Over The Last 200 Years

The K-Waves have stood the test of time. They have correctly identified various periods of important economic activity within the past 200 years. The chart below outlines its accuracy.

Very few cycles in history are as accurate as the Kondratiev waves.
Chart 2 CNA

Criticism Of The Kondratiev Waves
No principle in the world is left unchallenged. Similarly, there are a few critics of the K-Waves who consider it useful only for the pre-WWII era. They believe that the current monetary tools, which are at the disposal of the monetary agencies, can alter the performance of these waves. There is also a difference of opinion regarding the timing of the start of the waves.

The Wave is Being Pushed Ahead But the Mood Confirms a Kondratiev Winter
Chart 3 CNA
Chart 4 CNA
A closer study reveals that the cycles are being pushed forward temporarily. Any intervention in the natural cycle unleashes the wrath of nature, and the current phase of economic excess will also end in a similar correction. The K-Wave winter cycle that started in 2000 was aligned with the dot-com bubble.

The current stock market rise is fueled by the easy monetary policy of the global central banks. Barring a small period of time from 2005-2007 when the mood of the public was optimistic, the winter had been spent with people in a depressed social mood. The stock market rally from 2009-2015 will be perceived as the most hated rally and the one most laden with fear.

Every dip of a few hundred points in the stock market starts with a comparison to the Great Recession of 2007-2009. The mood exudes fear and disbelief that the efforts of the central banks have not been successful and are unable to thwart off the winter, as predicted by the K-Waves. The winter is here and is reflected in the depressed social mood.

How To Weather Out Brutal Winter
In the last phase of the winter cycle, from 2016-2020, which is likely to test us, the stock market top is in place. Global economic activity has peaked, terrorism further threatens our lives, geopolitical risks have risen, the current levels of debt across the developed world are unmanageable, and a legitimate threat of a currency war occurring will all end with the “The Great Reset.” Gold will be likely to perform better during this winter cycle. Get in love with the yellow metal; it’s the blanket which will help you withstand the winter.

Conclusion
Cycles are generally repetitive forces that give us an insight into the future so we can be prepared to face it and prosper. Without excessive intervention, nature is very forgiving while correcting the excesses. But if one meddles with nature, it can be merciless during the correction. The current economic condition will end with yet another reset in the financial markets. Prices will not rise forever, and a correction will take hold eventually. Until then, we follow and trade accordingly. I will suggest the necessary steps to avoid losses and prosper from market turmoil when it unfolds.

Follow my analysis at:  The Gold & Oil Guy.com

Chris Vermeulen



Stock & ETF Trading Signals

Thursday, February 4, 2016

Here’s Why Crude Oil Stocks Haven’t Bottomed Yet

By Justin Spittler

Oil companies are hemorrhaging money. The oil market is in its worst downturn in decades. The price of oil has plummeted 72% since June 2014. Oil is trading below $30 a barrel for the first time since 2003.
If you’ve been reading the Dispatch, you know the world has too much oil. In recent years, technologies like “fracking” have unlocked billions of barrels of oil that were once impossible to extract from shale regions.
Global oil production has climbed 20% since 2000. Last year, global output hit an all time high. Yesterday, The Wall Street Journal reported the global oil market is oversupplied by 1.5 million barrels a day.
Because oil is leaving the ground faster than it’s being consumed, oil storage tanks are overflowing. 

Companies are now storing oil on tankers floating at sea, according to Bloomberg Business.

Low oil prices have slammed oil stocks..…
Since June 2014, Exxon Mobil (XOM), the world’s largest oil company, has dropped 27%. Chevron (CVX), the second biggest oil company, has plunged 38%. European oil giants Royal Dutch Shell (RDS-A), BP (BP), and Total S.A. (TOT) have plummeted 46%, on average, over the last 18 months. Together, these giant companies are known as the oil “supermajors.”

BP had a $3.3 billion net loss last quarter..…
And it lost $6.5 billion for the year, its worst annual loss in at least 30 years. Exxon sales fell 28% last quarter. Its profits plunged 58% to $2.78 billion, the company’s lowest quarterly profit since 2002. Chevron also booked its worst quarterly profit since 2002. Shell expects to report a 42% decline in profits for their fourth quarter.

Oil and gas companies slashed spending by 22% last year..…
Analysts expect another 12% cut this year to $522 billion, according to Reuters. The industry hasn’t spent that little since 2009…when the U.S. economy was going through its worst downturn in almost a century. More spending cuts are coming this year. Chevron plans to cut spending by 24% this year. The company laid off 10% of its employees in October. Exxon plans to cut spending by 25% in 2016. And BP plans to eliminate 9% of its jobs over the next two years.

The supermajors have not cut dividends yet..…
Regular readers know these oil giants pay some of the steadiest income streams on the planet. Shell hasn’t cut its dividend since World War II. Exxon and Chevron have both increased their annual dividends for at least the past 25 years, which earns them a spot in the “Dividend Aristocrats” club. Investors view these dividends as sacred. Some have even passed along their original shares to children and grandchildren, like grandma’s ring or the family farm. These giant oil companies have been paying regular dividends for decades, even through the 2001 dot com crash and 2008 financial crisis. Cutting their dividends would be a last resort.

The world’s oil giants may have to do the “unthinkable” if oil prices stay low..…
Financial Times reported in December,
…(J)ust weeks ago, BP and France’s Total each pledged to balance their books at $60 a barrel oil, saying they aimed to cover their dividends from “organic” cash flow by 2017.
…(E)ven at $60, the three biggest European majors will need to take further cost-cutting action to cover investor payouts…Total’s $6.8bn dividend would exceed its projected organic free cash flow by $800m two years from now. For BP, the cash shortfall is put at $500m…
These oil companies cut costs to be profitable at $60 oil. But with oil now at $30, they need to make even more drastic cuts.
BP is running out of places to cut spending according to Bloomberg Business.
While Chief Executive Officer Bob Dudley has trimmed billions of dollars of spending, cut thousands of jobs and deferred projects in response to the plunge in crude prices, BP’s cash flow still doesn’t cover investments and dividends…
BP has already cut “a lot” from capital expenditure, Chief Financial Officer Brian Gilvary said Tuesday at a press briefing in London. When asked how much room it has to reduce spending further before cutting into the bone, Gilvary said “we are around that zone.”

Standard & Poor’s (S&P) downgraded Chevron and Shell this week..…
Ratings agencies downgrade a company’s credit rating when they think the company’s financial health is getting worse. Like a person having a bad credit score, a downgrade can make it harder and more expensive for a company to borrow money. S&P cut Shell’s credit rating to the lowest level since 1990. S&P also put the debt of BP, Total, and Exxon on watch for downgrades.

S&P doesn’t think oil companies have cut spending enough. Bloomberg Business reported:
S&P’s moves come after the ratings company lowered its 2016 oil-price assumption Jan. 12, reducing Brent crude by $15 a barrel to $40. The 52 percent average price decline in 2015 won’t be matched by most companies’ cost and spending reductions, S&P said.
As regular readers know, the oil market is cyclical. It goes through big booms and busts. Eventually we’ll get an amazing opportunity to buy world-class oil companies at absurdly cheap prices. But with dividend cuts looming, the bottom likely isn’t in yet. We recommend avoiding oil stocks for now.

Louis James, editor of International Speculator, sees an opportunity to profit from cheap oil..…
Louis is our resource guru. He specializes in finding small miners with huge upside. Louis is an expert in the cyclical nature of commodities. He knows how to make money during booms and busts. And now, Louis sees opportunity in airlines. Jet fuel, which is made from oil, is a major operating expense for airlines. So, airline stocks often move up when oil drops. Last year, jet fuel prices fell by more than one-third. Major airlines are now raking in cash. The U.S. airline industry made $22 billion in profits during the first nine months of 2015, according to the Department of Transportation. That’s more than any entire year in its history.

In December, Louis recommended his favorite airline stock in International Speculator.....
The company has doubled its profits during the third quarter of 2015. On Monday, Louis said the company doubled its profits again last quarter.
The company just announced more-than-solid financial results for last quarter, doubling its quarterly profit. The company says it’s on track to hit the high end of its operational goals for the fiscal year. All great, but even better is that the stock rebounded from its recent slide on the news. That’s “proof of concept” that this stock can buck the market by delivering to the bottom line when other businesses are hurting, which was one of the main reasons we bought this stock.
The stock surged 4% with the quarterly news…and Louis thinks the stock will continue higher. You can learn more about Louis’ favorite airline by signing up for a risk-free trial to International Speculator.

Chart of the Day

BP just had its worst year in at least three decades. Today’s chart shows BP’s profits since 1985. Since then, the oil giant has made money in 27 years and lost money in 3. Last year, BP lost a record amount of money. It lost more than it did in 2010 when one of the company's oil rigs exploded in the Gulf of Mexico. BP has cut billions of dollars in spending. It’s laid off thousands of workers. Yet, it’s still bleeding cash. The company may soon have to do the unthinkable and cut its dividend.




The article Here’s Why Oil Stocks Haven’t Bottomed Yet was originally published at caseyresearch.com.


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Stock & ETF Trading Signals

Saturday, May 30, 2015

Weekly Crude Oil, Gold, Silver and Coffee Markets Recap with Mike Seery

Our trading partner Mike Seery is back this week to give our readers a weekly recap of the futures market. He has been a senior analyst for close to 15 years and has extensive knowledge of all of the commodity and option markets.

Crude oil futures exploded this Friday afternoon in New York trading higher by $2.60 a barrel currently at 60.26 reversing recent losses as yesterday prices hit a 6 week low and traded down to $56.51 rallying $5 since as there are rumors of facilities being shut down due to the Texas and Oklahoma floods but time will tell to see if that’s actually true.

Crude oil futures are now trading above their 20 and 100 day moving average showing high volatility as I’ve been recommending a short position when prices hit a four week low around the $58 level and if you took that trade we are underwater currently so place your stop loss above the 10 day high which remains at 61.75 risking around $1.50 or $750 per mini contract plus slippage and commission from today’s price level.

This is a perfect example of why I use my 2% rule of risk on any given trade because anything can happen on any given day as I did not expect oil prices to trade nearly $3 higher today and this trade has been a loser as the risk was $1,800 or approximately 2% of a 100,000 account balance as you must admit you are wrong sometimes but we are still in this trade and not stopped out yet as Monday could be a different story.

Today’s action in my opinion was massive short covering as prices remained weak before today but we will see if there’s any follow through in Monday’s trade and if you did not take this trade the risk/reward is your favor at the current time so take advantage of price spikes while maintaining the proper stop loss.
Trend: Mixed
Chart Structure: Improving

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Gold futures in the August contract are trading below their 20 and 100 day moving average telling you that the short term trend is to the downside after settling last Friday at 1,205 an ounce currently trading at 1,190 down about $15 this week in a very nonvolatile manner as prices are still trading in a 9 week consolidation. The true breakout to the downside is around the 1,170 level as the U.S dollar remains strong continuing to put pressure on gold in the short term, however the chart structure is poor at the current time but that will improve in next week’s trade as a possible short could be in the cards.

As I talked about in many previous blogs I don’t see any reason to own gold at the current time as the stock market despite today’s selloff still remains very strong and the trend in the U.S dollar remains in a secular bullish trend so be patient and wait for a breakout to occur. I have a theory that states the longer the consolidation more powerful the breakout as the breakout is below 1,170 then I would suggest selling a futures contract placing your stop loss above the 10 day high which could happen in next week’s trade as investors are waiting for the U.S monthly unemployment report which comes out next Friday and certainly should send high volatility and price direction back into this market.
Trend: Lower
Chart Structure: Poor

Silver futures in the July contract are trading below their 20 and 100 day moving average telling you that the trend is mixed after settling last Friday at 17.05 while currently trading at 16.70 an ounce down about $.35 for the trading week hitting a two week low. Silver prices broke out two weeks ago and traded as high as 17.75 hitting a 3 month high, however I did not give any trade recommendation because the chart structure was so poor and the risk was way too high to enter so I’m still sitting on the sidelines at the current time.

The U.S dollar has regained its bullish momentum which is putting pressure on silver prices as the trend is mixed at the current time and I don’t like trading choppy markets as its extremely difficult to trade successfully in my opinion as lower prices look to be ahead in my opinion but I’m not recommending any type of position currently.

Volatility in silver at the current time is relatively mild as silver historically speaking is one of the most volatile commodities as something sure will develop in the coming weeks ahead so keep an eye on this market and wait for a better chart structure to develop lowering monetary risk as that’s the main key to successful trading in my opinion.
Trend: Lower
Chart Structure: Poor

Coffee futures in the July contract settled last Friday in New York at 127 while currently trading at 125 a pound down about 200 points for the trading week as I’m sitting on the sidelines in this market and certainly not recommending any type of bullish position as the trend is to the downside but the chart structure is poor as the 10 day high is too far away & does not meet my criteria to enter into a new trade.

Production estimates in Brazil are expected to be very large and that’s what pushing prices lower as the Brazilian Real remains extremely weak against the U.S dollar which is negative anything that’s grown in the country of Brazil as volatility has slowed down this Memorial shortened holiday trading week but look at other markets with better chart structure.

Coffee prices are trading below its 20 and 100 day moving average as I do think there’s a possibility that prices could trade down to the 105 level over the next 4 to 6 weeks as there’s very little bullish fundamental news to dictate prices to the upside in my opinion except possible short covering at this time.

Many of the soft commodities have been going lower including sugar, orange juice, and coffee in recent weeks as global supplies are just very large and that’s what continuing to pressure prices as I don’t see that situation changing anytime soon or at least until the next growing season.
Trend: Lower
Chart Structure: Poor

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Saturday, May 9, 2015

Mike Seerys Weekly Crude Oil, Gold, Coffee and Corn Markets Recap

Our trading partner Michael Seery is back this week to give our readers a weekly recap of the futures market. Mike has been Senior Analyst for close to 15 years and has extensive knowledge of all of the commodity and option markets.

Crude oil futures in the June contract are trading below their 20 and 100 day moving average as I have been sitting on the sidelines for the last several months in this market but if have a long futures position I would continue place your stop loss above the 10 day low which stands at 56.00 however in my opinion I think prices have topped out.

Strong demand and a very weak U.S dollar have pushed crude oil prices up from a contract low around $46 a barrel to around $63 in Wednesdays trade which has been a remarkable rally in my opinion but I think this market is overextended so I’m still going to remain sitting on the sidelines waiting for better chart structure to develop as this market will remain volatile for the rest of 2015 in my opinion giving you many trading opportunities.

Many of the commodity markets rallied in recent weeks as the U.S dollar is hitting a 3 month low which has been very supportive, however with record supplies overhanging that should keep a lid on prices at this point in time but I just don’t know where short term prices are headed so I’m looking at other markets that are beginning to trend.
Trend: Higher
Chart Structure: Solid

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Gold futures settled last Friday at 1,174 an ounce while currently trading at 1,185 in a relatively quiet trading week while still trading below its 20 and 100 day moving average continuing its lower to choppy trend as the true breakout does not occur on the upside until 1,225 is broken or on the downside at 1,170 as I remain neutral at the current time.

The chart structure is starting to improve as gold prices have gone sideways for the last six weeks consolidating the recent down move as the U.S dollar is hitting a three month low and has been supporting gold and silver in recent weeks so be patient and keep an eye on this market at the current time. The monthly unemployment came out strong stating that the unemployment rate is 5.4% sending the stock market sharply higher as I’m surprised that gold futures are not lower this afternoon as the interest rates in the United States have been on the rise sending volatility into the commodity markets as I still see no reason to own gold at the current time but currently this market is stuck in a consolidation and in my opinion it’s very difficult to make money when a trend is not in sight.
Trend: Mixed
Chart Structure: Improving

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Coffee futures in the July contract are higher by 300 points this Friday afternoon currently trading at 134.70 a pound after settling last Friday at 134.20 in a very nonvolatile trading week. I have been recommending a short position when prices broke 135 in last week’s trade and if you took that recommendation place your stop loss above the 10 day high which currently stands at 144 risking around 1000 points or $3,800 per contract plus slippage and commission.

The chart structure will improve dramatically next week helping lower monetary risk as prices are still trading below their 20 and 100 day moving average telling you that the trend is to the downside as big production could come out of Brazil which could send prices in my opinion as low as 100 a pound as the Brazilian Real has strengthened against the U.S dollar in recent weeks, but still remains in a long-term bear market which is negative for anything grown in Brazil.

The next level of support is Wednesdays low around 130 as many of the soft commodities were higher this Friday afternoon so continue to play this to the downside in my opinion as I think the risk/reward is in your favor.
Trend: Lower
Chart Structure: Excellent

This Chart Must Be Broken Before a Bear Market Can Be Confirmed

Corn futures in the December contract are trading below their 20 and 100 day moving average after settling last Friday in Chicago at 3.80 a bushel while currently trading at 3.79 down slightly for the trading week as 55% of the crop has already been planted with expectations for this Monday’s crop report as high as 85% as the weather in the Midwestern part of the United States is excellent and especially in the state of Illinois. I have been recommending a short position when corn prices broke 3.95 a bushel and if you took that trade place your stop loss above the 10 day high which currently stands at 3.87 risking around $.8 or $400 from today’s price level plus slippage and commission as the chart structure remains outstanding.

Expectations of this year’s crop are around 13.6 billion bushels which is 500 million bushels less than last year, however carry over levels are very large coupled with a strengthening dollar compared to last year as I still remain bearish especially as the weather remains ideal, however it’s an extremely long growing season as we usually do get some type of weather scare to the upside due to hot and dry weather forecasts, however the trend is your friend and the weather forecasts are bearish.

Traders await next week’s USDA crop report which definitely can send volatility back into this market but weather is the main focus at this time as we head into the hot and dry summer season which can send volatility into this market as we suffered a drought in 2012 sending prices to a record high of around $8.50 so make sure you place the proper amount of contracts while also placing the proper stop loss.
Trend: Lower
Chart Structure: Excellent

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Monday, February 2, 2015

Marin Katusa: 199 Days of Hell

By Marin Katusa, Chief Energy Investment Strategist

Just after I signed the publishing agreement for my first book, The Colder War, I realized how much research I was going to end up doing, specifically in areas that I never thought would be so integral to my subject area: energy and mining. Along the way, I came across some fascinating events that were completely out of my area of expertise but gave me a better sense for the unintended consequences in an historical perspective of the events that led to where we are today.

One epic event that really stood out for me, which I will discuss today, is the bloodiest battle of all time, to my knowledge. Over 2 million soldiers and civilians died in this one battle that lasted 199 days from start to finish. (If you know of one particular battle—not a war—that had more deaths, I would love to hear about it)

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What was the catalyst for the bloodiest and most horrible battle of all time? Oil. Before I get into why it was, I want to present the events that led up to this epic battle.

In 1939, Hitler and Stalin signed the German-Soviet Nonaggression Pact. Hitler focused on Western Europe and on defeating France by the mid 1940s, he became rattled by Soviet expansion in the East, which by this time included the occupation of the Baltic states (now Estonia, Latvia, and Lithuania) by the Soviets.

The Day That Changed the World


A critical, often forgotten event (especially by the French) occurred on June 22, 1940. That was the day the French surrendered to the Nazis and signed the armistice. Four days later, the Soviet Union made a decision that ended up becoming one of the critical turning points of WW II.

Initially, the Soviets planned on annexing parts of Romania via full-scale invasion. Sound familiar? I’ll touch on Crimea later in my missive, but for now, stick with me—this gets very interesting.

However, the military masters of the Soviet Union recognized that with the fall of France, out went the French guarantee of security at Romania’s borders.

So rather than actually invading Romania, the Soviets sent an ultimatum to Romania: withdraw from our territories of interest—which were Northern Bukovina and Northern and Southern Bessarabia—and avoid military conflict with the Soviet Union. If not, the Red Army will invade.

Germany via the 1939 German-Soviet Nonaggression Pact recognized the Soviet Union’s interest in Bessarabia; thus Hitler became paranoid about the Soviet Union’s expansion from the east to Central Europe. But more specifically, Hitler feared the proximity of the Russians to the Romanian oil fields, which the Nazis depended on.

By early August 1940, these territories that Romania withdrew from made up the Moldavian Soviet Socialist Republic, and they were quickly folded into the Soviet Union.

By late 1940, Hitler made the decision that I believe was a critical turning point of WW II. Initially, Hitler planned on invading the Soviet Union in May 1941, but Yugoslavia and Greece got in his way, and his plans were delayed by five weeks until the Nazis defeated those armies in the Balkans.

The Russian winter came early in 1941, but Hitler believed that the Nazi Germany army was much superior to the Red Army (and they were more superior at the time) and that the Soviets would be defeated before November 1941.

The Nazis sent 3 million soldiers. Stalin met the Nazi offensive with over 5 million Soviet soldiers. I don’t know of a larger invasion in the history of mankind.

To put this battle in perspective, it’s the equivalent of battle lines spanning from Florida to New York (over 1,100 miles). Also, over 90% of all Nazi casualties in WW II were due to their invasion of the Soviet Union.
By late July 1941, the Nazis fought their way within 200 miles of Moscow; by this time, they had progressed over 400 miles into the Soviet Union in less than a month.

Initially, the Germans made incredible progress. However, heavy rains in early July hampered their speed as the terrain became a mud bath, and by this point, Stalin ordered a scorched earth policy, where the Soviet troops destroyed all infrastructure, burned all crops, and dismantled and evacuated all factories and equipment via rail to the east upon the Nazi advance.

As winter set in, the progress of the Nazis came to a standstill. On December 7, 1941, Japan bombed Pearl Harbor and subsequently, the United States joined the Allies and entered WW II.

Hitler was well aware that the biggest priority of the Americans upon entering WW II was to defeat the Nazis. He knew he had to bring a quick defeat to the Soviet Union and drastic measures had to be taken.
Hitler believed that rather than attacking Moscow (the heavily fortified capital of the Soviet Union), Germany should go after the Soviet oil fields in the Caucasus. For Hitler, the victory would result in a triple positive for Germany:
  1. Cut off the flow of oil to the Soviet resistance;
  1. Divert the oil produced from the oil fields in Caucasus for the Nazi cause and for future battles against the Americans; and
  1. Cut off Soviet access to the breadbasket areas of Ukraine.
To execute Hitler’s plan, the Nazis would have to control a key industrial city, which happened to be named after Soviet leader Joseph Stalin: Stalingrad (today known as Volgograd). The Nazis invaded, and Stalin threw everything the Red Army had at this battle, even refusing to allow the civilian population to be evacuated. He believed the soldiers would fight to their death if civilians were in the city.

He was right. Stalin’s ruthless orders worked. The Red Army, including civilians who worked in factories made up of men and women of all ages, put up a ferocious resistance doing whatever possible. The Germans had superior weapons, training, and land and air support. To put things in perspective, the average Soviet soldier, upon arriving to Stalingrad, had less than one day’s life expectancy.

The battle eventually evolved into concrete guerilla warfare within the city ruins. The Nazis captured 90% of the city by September 1942 and by this time, they took over 3 million Soviet prisoners of war, most of which never returned alive.

The Soviets’ luck changed on November 19, 1942, when they decided to launch Operation Uranus, which many at the time within the Red Army believed would be their last chance to defeat the Nazis. With 90% of Stalingrad under Nazi command, the Soviet plan was to swing multiple army troops around the Nazis and surround them. It worked.

Up to this point, Hitler publicly made announcements that the Germans would never leave Stalingrad. For most of the German soldiers, this proved to be true. Rather than having the German troops attempt a breakout (and going against Hitler’s promise of Germany never leaving Stalingrad), they were ordered to fight, even though they were running low on ammunition and starvation had set in within the German camp.

On January 31, 1943, German Field Marshal Friedrich Paulus surrendered to the Soviets. After the Nazi defeat in Stalingrad by the Soviets, it was only a matter of time before Germany lost the war. Hitler never got access to the oil fields, and over 2 million soldiers died.

Déjà Vu and the Butterfly Effect


Let’s reflect back to the events that followed. Hitler became paranoid about the Soviet expansion after the signed 1939 German-Soviet Nonaggression Pact.

Remind you of anything?

We see NATO today supplying military troops and land and air force in the Baltics for similar fears about Russian expansion. NATO sees Crimea today as a reminder of the Baltics’ situation in 1940. Ukraine is not in a civil war—let’s make that very clear. A civil war is defined as two or more groups fighting for control of the government. What’s going on in eastern Ukraine is not a civil war, but rather a war of secession; the two breakaway provinces don’t want to go to Kiev. Furthermore, NATO will not stand for a secession.

Putin is facing sanctions from the West and military force by NATO… not to mention that oil has dropped in half from over $100/bbl to under $50 a barrel in the last 12 months. Hitler’s decision, based on actions that essentially involved a small territory (now known as Moldova) sandwiched between Romania and Ukraine, resulted in the bloodiest battle of all time.

But behind the scenes there is always tension and momentum building and waiting for a catalyst to release the pressure that has built up. We have seen this many times in the past where an insignificant event on the global stage puts in motion events with shocking results. But there is always more behind the story than a “simple” catalyst or unconnected events.

The Arab Spring eventually brought to the global front a built-up dissatisfaction of many youths and lower-income people of human rights violations, dictatorships, absolute monarchy, extreme poverty, and many other factors. The catalyst for the protests in Tunisia was the self-immolation of Mohamed Bouazizi in 2010.
I recall a specific event I experienced in Kuwait in December 2010, where a Pakistani taxi driver shared with me his story of anger and contempt with the government of Kuwait. I asked him to be my driver for the week, mainly because he spoke English and had been in Kuwait for 10 years and knew his way around, but I also enjoyed his company.

But I got much more than I expected. He took me around Kuwait, where I saw the good, the bad, and the ugly. Every city in the world has those areas you will never see advertised in the travel guidebooks.

Kuwait—a “dry country,” meaning you cannot buy alcohol—wasn’t that difficult to find alcohol in if you really wanted it. Yet at what seemed to me to be every hour on the hour, I heard prayers blasting through the air. My taxi driver wasn’t an extremist; he was Muslim—and no different than any Catholic, Jew, or atheist—working his cab 12-15 hours a day, wanting a better life for his family. He was a good guy, caught up in the momentum that was building, which led to the Arab Spring.

The spread of the Arab Spring was muted by high oil prices. That is fact, though not a popular one. How did Saudi Arabia prevent protests in its kingdom? The House of Saud promised tens of billions of dollars in social programs.

How will the oil producing nations, such as members of OPEC, Russia, Canada, and Mexico, fare at $45 oil in 2015? How will the African petro-states function? How will the investors, who are exposed to billions of dollars of debt in the US energy sector (below is the payment schedule of all public companies’ debt payments due over the next 11 years), going to fare if oil stays below $50 in 2015?


History doesn’t repeat, but human nature has a repeatable pattern. The growth for energy will only increase in the future, even with energy efficiency improvements.

The fact is, the world will consume more oil in five years than it does today… even though I get many emails a day from uninformed individuals telling me why fossil fuels are awful (and yes, to the 100+ people who have emailed stating that Tesla cars will kill the need for oil—keep on dreaming. And by the way, your Tesla is on average powered over 50% by coal and natural gas—so you all are absolute hypocrites).

The world still needs uranium to power its nuclear base-load power, such as the US, which is currently the world’s largest consumer of uranium, using about 25% of the world’s uranium. China won’t be far behind, and it’s catching up quickly.

You Need to Be Brave When Everyone Is Fearful


Investing isn’t easy. If you want to do well in cyclical sectors, such as energy or mining, you must be able to buy when the sector is unloved and beaten down. Unfortunately, from a psychology standpoint, it’s easier to buy when it feels good.

Here is a list of rules of speculation I like to follow:
  1. Never put more than 10% of your speculative portfolio into any one stock. True success in speculation is only achieved with risk mitigation and letting your winners ride. While putting all your eggs in one basket theoretically can pay off in a big way, it rarely does so in reality. If your speculative portfolio is worth $50,000, don’t put more than $5,000 into any one junior.
  1. If, for whatever reason, an investment causes you stress to the point that you cannot sleep or are overly distracted from your daily life, sell enough stock to alleviate the situation. Life is too short. Have fun. If your stress level becomes intolerable, you’re either overinvested or speculating just isn’t for you. That’s okay; you’ve found out more about yourself. Speculation is a journey where the reward is money and the experience, but it’s not for everyone. If your wife, husband, family, or partner is hating you because you lost the family’s vacation money, look back to Rule 1.
  1. Know what you own and why you own it. The Casey Energy Report posts all relevant news about the companies in our portfolio every Monday and Thursday after market close.
  1. Use trailing stops and stop losses. For liquid stocks, they’re important, in my opinion. We work to create for you a balanced portfolio of high-risk speculations along with mid risk and lower risk yield plays, and we lock in gains along the way.

    The current market is exciting but carries a significant level of volatility. We want to be able to capture the upside and hold on to it, which is best accomplished by locking in gains with trailing stops (we did this very well earlier in 2014). Then we can sit patiently on the sidelines and await a general correction that allows us to get back into our favorite stocks, which we are currently doing.

    There’s a big difference between a trailing stop and stop loss. A stop loss limits losses. It’s the price you set to sell your stock in case the trade goes south on you. A standard stop loss is a sell order that’s automatically triggered if the security falls 20% (or whatever you put in for your stop-loss percentage) below your purchase price. For example, if you bought a stock for $10 and you put in a 20% stop loss, it would be $8, at which point you would lose $2. Unfortunately, stop losses (and trailing stops) don’t work for illiquid juniors, so be careful. That’s why Rule 3 above is so important.

    A trailing stop locks in your gains. Let’s say you paid $10 for a stock, and it goes to $14. If you’d be happy to sell at $13 and pocket $3 per share in profit, then that’s where you set your trailing stop, in case the price retreats to that level. Of course, if the stock continues to push higher, you can always move your stop along with it, to capture even more profit.

    Many of our trailing stops were hit in early to mid-2014, a good indicator that we’ve been right to be careful amid this market’s volatility.
  1. Give your speculation some time to play out, as with trends like the European Energy Renaissance. Such speculations demand that the investor wait for the market to catch on to the potential. This one specific rule—be patient—is probably the most difficult of all to stick to. A speculator is his or her own worst enemy.
  1. Risk mitigation. Reduce your risk while preserving profit by using the Casey Free Ride formula when the opportunity arises. It’s prudent speculation.
Getting Your Casey Free Ride
Number of shares to sell =
Purchase price of stock
x Number of shares bought
Stock price when you want to sell
  1. Know that you’ll make mistakes, and that will result in losing money on that trade. Not every trade will be a winner. But if one or two of the junior high-risk speculations work out, they will make the whole journey more than worthwhile. I’m speaking from personal experience.
This is just a short list of many of the rules to speculation.

With oil at $45 per barrel, could there be massive changes that many aren’t expecting?

Definitely.

If you’ve been a subscriber of mine, you know how cautious I’ve been since early to mid-2014 on the price of oil.

What’s Next in the Energy Sector?


In the past four months, I’ve personally invested more cash than I have in the last four years. Could I be wrong? You bet I could, but this is not my first downturn.

I also believe in not owning too many positions, as I don’t have many positions either personally nor in the Casey Energy Report. I follow a very disciplined approach, and my style isn’t for everyone. I’ll be the first to acknowledge that fact.

If you’re looking for a newsletter that recommends a stock every month on the month and has 50 stocks in its portfolio, I’m not your guy.

But if you’re looking for in-depth research, experience, and exposure to my vast network in the resource sector, then you may want to pay attention to what I’m doing.

There’s blood in the streets in the energy sector—and I love that!

Now if you believe that to be successful in the resource sector one must be a contrarian to be rich, as I do, now is the time to become engaged.

Come see what I am doing with my own money. You’ll get access to every Casey Energy Report newsletter I’ve written in the last decade, and my current recommendations with specific price and timing guidance. It’s all available right here.

I can’t make the trade for you, but I can help you help yourself. I’m making big bets—are you ready to step up and join me?

The article 199 Days of Hell was originally published at caseyresearch.com.


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Saturday, September 6, 2014

When Do You Enter A Trade? And what are your rules to initiate a trade on the long or short side of the commodity market?

Today we asked this question of our trading partner at INO.com, Mike Seery. When Do You Enter A Trade? And what are your rules to initiate a trade on the long or short side of the commodity market? And here's what he told us.....

I have been asked this question many times throughout my career and my opinion is simply to buy on a 20-25 day high breakout in price on a closing basis only or sell on a 20-25 day low breakout to the downside also on a closing basis. Many times the price will break the 25 day high and sell off later in the day only to have your trade be negative very quickly. I would rather buy the commodity at a higher price on the close because that gives me more confidence that the market has truly broken out. However there are more ways to skin a cat and this is not the only answer because some other trading systems might rely on different breakout rules that have also been reliable. Remember always keeping a 1%-2% risk loss on any given trade therefore minimizing risks because the entry system I use always goes with the trend because I have learned over the course of time the trend is truly your friend in the long run. I also look for tight chart structure meaning a tight trading range over a period of time with relatively low volatility. I try to stay away from a crazy market that hit a 25 day high in 2 trading sessions versus the 25 high that actually took 25 days to create.

So When do You Exit a Trade?

The biggest question that I have been asked is when do I exit a winning trade and when do I exit a losing trade? In my opinion the rule of thumb that I use is placing my stop loss at the 10 day high if I’m short or a 10 day low if I’m long. The other rule of thumb is to place your stop loss at the 2% maximum loss allowed in your account for any given trade.

Check out Mike's most recent call on commodities at INO/MarketClub


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Monday, April 22, 2013

Halliburton Announces 1st Quarter Earnings

Halliburton (NYSE:HAL) announced today that income from continuing operations for the first quarter of 2013 was $624 million, or $0.67 per diluted share, excluding a $637 million charge, after tax, or $0.68 per diluted share, to increase a reserve related to the Macondo litigation. Income from continuing operations for the first quarter of 2012 was $826 million, or $0.89 per diluted share, excluding a $191 million charge, after tax, or $0.20 per diluted share, for a reserve related to the Macondo litigation.

Reported loss from continuing operations for the first quarter of 2013 was $13 million, or $0.01 per diluted share. Reported income from continuing operations for the first quarter of 2012 was $635 million, or $0.69 per diluted share.

Halliburton's total revenue in the first quarter of 2013 was $7.0 billion, compared to $6.9 billion in the first quarter of 2012. Operating income, adjusted for the Macondo charge, was $902 million in the first quarter of 2013, compared to $1.3 billion in the first quarter of 2012. Reported operating loss was $98 million for the first quarter of 2013, compared to reported operating income of $1.0 billion in the first quarter of 2012.....Read the entire earnings report.


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