A Stunning Move by the World’s Largest Oil Company

By Justin Spittler

Oil still can’t find a bottom. As Dispatch readers know, the oil market is in crisis. Since June 2014, oil has plunged 69%. It dropped 31% in 2015 alone. So far, 2016 has been even worse. The price of oil has fallen every day this year. On Friday, it closed at $32.88 a barrel, its lowest price since February 2004. Oil is already down 11% this year.

In October, Doug Casey predicted lower oil prices at the Casey Research Summit in Tucson, Arizona. I don't know how long [oil prices] will stay low. But they're going lower for the time being. Production is stable to up, but consumption is headed down with a slowing economy.…I'm still short oil at the moment.

The world has too much oil…..
As you likely know, new technologies like “fracking” have unlocked billions of barrels of oil that were impossible to extract before. U.S. oil production has nearly doubled since 2008. In June, U.S. oil production hit its highest level since the 1970s. Global oil output hit an all time high in 2014.

Falling oil prices have slammed the world’s largest oil companies…..
The world’s five largest publicly traded oil companies – Exxon Mobil (XOM), Chevron (CVX), Royal Dutch Shell (RDS-A), BP (BP), and Total S.A. (TOT) – lost $205 billion in value last year, according to The Wall Street Journal. Shell, the worst performer of the five, dropped 24% in 2015. Total, the best performer, dropped 3%.

Oil services companies, which sell “picks and shovels” to the oil industry, have also tanked. The Market Vectors Oil Services ETF (OIH), which holds 26 oil service companies, has plunged 59% over the past 18 months. Schlumberger (SLB) and Halliburton (HAL), the two largest oil services companies, are down 39% and 44% in the same period.

Eventually, this cycle will end with absurdly low prices for oil stocks. We’ll get an amazing opportunity to buy oil stocks at fire sale prices. But, for now, we recommend staying away until the world works through some of its oversupply of oil.

Saudi Arabia is in crisis…..
Saudi Arabia depends more on oil revenues than any other country. Oil makes up 83% of its exports. And about 80% of the country’s government revenue come from oil sales. Last year, the Saudi government spent $98 billion more than it took in…its first budget deficit since 2009.

The International Monetary Fund (IMF) expects the Saudi government to post a budget deficit as high as -19% of GDP in 2016. For comparison, the U.S. government has not posted a deficit higher than -9.8% since World War II. The IMF says Saudi Arabia could burn through its $650 billion cash reserve by 2020 if oil prices stay low. Since oil crashed in the summer of 2014, the country has already withdrawn at least $70 billion from its cash reserve.

To raise cash, the Saudi government may sell its crown jewel…..
Saudi Aramco is Saudi Arabia’s government owned oil company. As the world’s largest oil company, it owns the biggest oil fields in the world, and produces 13% of the world’s oil. The Saudi government has controlled the country’s oil industry since the 1970s. Last week, Financial Times reported that Saudi Arabia is considering an initial public offering (IPO) for Aramco. An IPO is when a company sells shares to the public.

According to Financial Times, an IPO would likely value the company “in the trillions of dollars.” To put that in perspective, Apple (AAPL), the world’s largest publicly traded company, is worth just $538 billion. Some estimates put the value of Saudi Aramco at more than 10 times that of Exxon Mobil – the world’s largest publicly traded oil company.

Switching gears, the U.S. automobile industry is setting record highs..…
U.S. automakers sold an all time record 17.5 million vehicles in 2015. The industry sold 5.7% more vehicles last year than it did 2014. Auto sales have now grown six years in a row. Despite record sales, U.S. automaker stocks are struggling. Ford (F) was down 9.1% in 2015, and has only gained 17% since the beginning of 2012.

General Motors (GM) was down 2.6% in 2015, and has gained 46% since the beginning of 2012. Both stocks have performed worse than the S&P 500, which has gained 53% since the beginning of 2012. Companies that sell parts and services in the auto industry have done much better. Tire maker Goodyear (GT) has climbed 99% over the past four years. Repair and parts shop AutoZone (AZO) is up 119%.

Cheap credit has fueled the boom in the auto industry…..
Forbes reported last month: During the third quarter of 2015, Experian determined the average amount financed for a new vehicle was $28,936, which is up $1,137 from the same period in 2014. What’s more, 44 % of buyers are now taking out loans for between 61 and 72 months, with 27.5% extending their new-vehicle indebtedness to between 73 and 84 months, with the latter representing an increase of 17.1 percent over the past year.

As Casey readers know, the Federal Reserve has made it incredibly cheap to borrow money. In 2008, the Fed cut its key interest rate to effectively zero to fight the financial crisis. It has held its key rate at extremely low levels ever since. Today, its key rate is just 0.25%...far below the historical average of 5%. The average interest rate on a car loan is just 4.3% today. In 2007, the average car loan rate was 7.7%.

E.B. Tucker, editor of The Casey Report, isn’t surprised by the auto industry’s record year..…
Here’s E.B.: Of course the auto industry had a record year…how could it not? I've seen auto rates as low as 0% for 84 months. When money is free, people buy now and think later. The U.S. auto loan market has grown 18 quarters in a row. Last year, it topped $1 trillion for the first time ever. There is now 47% more auto debt outstanding than credit card debt in the U.S.

E.B. says this will end badly. The auto leasing market is also booming because of easy money. Leasing made up 27% of car sales during the first quarter of 2015. Those leases will expire 40 months from now. And someone has to buy those vehicles. This year, over 3 million leased cars will hit the market. Even more will hit the market next year and the year after. All these used cars will create a huge glut. If the free money dries up at the same time, things will get ugly fast. That’s how booms built on easy money come to an end.

Chart of the Day

Oil has plunged to its lowest level in 12 years. Today’s chart shows the price of oil going back to 2004. As you can see, oil has sunk to its lowest level since February 2004. It’s now down 77% from the all time high it set in 2008. As we’ve explained, the world simply has too much oil. Oil is now cheaper than it was during the worst of the global financial crisis in 2008-9.

The article A Stunning Move by the World’s Largest Oil Company was originally published at caseyresearch.com.

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How Saudi Arabia and OPEC are Manipulating Oil Prices

About eighteen months ago the international price of WTI Crude Oil, at the close of June 2014, was $105.93 per barrel. Flash forward to today; the price of WTI Crude Oil was just holding above $38.00 per barrel, a drastic fall of more than 65% since June 2014. I will point out several reasons behind this sharp, sudden, and what now seems to be prolonged slump.

The Big Push

Despite a combination of factors triggering the fall in prices, the biggest push came from the U.S. Shale producers. From 2010 to 2014, oil production in the U.S. increased from 5,482,000 bpd to 8,663,000 (a 58% increase), making the U.S. the third largest oil-producing country in the world. The next big push came from Iraq whose production increased from 2,358,000 bpd in 2010 to 3,111,000 bpd in 2014 (a 32% increase), mostly resulting from the revival of its post war oil industry.

The country-wide financial crunch, and the need for the government to increasingly export more to pay foreign companies for their production contracts and continue the fight against militants in the country took production levels to the full of its current capacity. In addition; global demand remained flat, growing at just 1.1% and even declining for some regions during 2014. Demand for oil in the U.S. grew just 0.6% against production growth of 16% during 2014.

Europe registered extremely slow growth in demand, and Asia was plagued by a slowdown in China which registered the lowest growth in its demand for oil in the last five years. Consequently, a global surplus was created courtesy of excess supply and lack of demand, with the U.S. and Iraq contributing to it the most.

The Response

In response to the falling prices, OPEC members met in the November of 2014, in Vienna, to discuss the strategy forward. Advocated by Saudi Arabia, the most influential member of the cartel, along with support from other GCC countries in the OPEC, the cartel reluctantly agreed to maintain its current production levels. This sent WTI Crude Oil and Brent Oil prices below $70, much to the annoyance of Russia (non-OPEC), Nigeria and Venezuela, who desperately needed oil close to $90 to meet their then economic goals.

For Saudi Arabia, the strategy was to leverage their low cost of production advantage in the market and send prices falling beyond such levels so that high cost competitors (U.S. Shale producers are the highest cost producers in the market) are driven out and the market defines a higher equilibrium price from the resulting correction. The GCC region, with a combined $2.5 trillion in exchange reserves, braced itself for lower prices, even to the levels of $20per barrel.

The Knockout Punch

By the end of September 2014, according to data from Baker Hughes, U.S. Shale rigs registered their highest number in as many years at 1,931. However, they also registered their very first decline to 1,917 at the end of November 2014, following OPEC’s first meeting after price falls and its decision to maintain production levels. By June 2015, in time for the next OPEC meeting, U.S. Shale rigs had already declined to just 875 by the end of May; a 54% decline.

The Saudi Arabia strategy was spot on; a classic real-life example of predatory price tactics being used by a market leader, showing its dominant power in the form of deep foreign-exchange pockets and the low costs of production. Furthermore, on the week ending on the date of the most recent OPEC meeting held on December 4th, 2015, the U.S. rig count was down even more to only 737; a 62% decline. Despite increased pressure from the likes of Venezuela, the GCC lobby was able to ensure that production levels were maintained for the foreseeable future.

Now What?

Moving forward; the U.S. production will decline by 600,000 bpd, according to a forecast by the International Energy Agency. Furthermore, news from Iraq is that its production will also decline in 2016 as the battle with militants gets more expensive and foreign companies like British Petroleum have already cut operational budgets for next year, hinting production slowdowns. A few companies in the Kurdish region have even shut down all production, owing to outstanding dues on their contracts with the government.

Hence, for the coming year, global oil supply is very much likely to be curtailed. However, Iran’s recent disclosure of ambitions to double its output once sanctions are lifted next year, and call for $30 billion in investment in its oil and gas industry, is very much likely to spoil any case for a significant price rebound.

The same also led Saudi Arabia and its GCC partners to turn down any requests from other less-economically strong members of OPEC to cut production, in their December 2015, meeting. Under the current scenarios members like Venezuela, Algeria and Nigeria, given their dependence on oil revenues to run their economies, cannot afford to cut their own production but, as members of the cartel, can plea to cut its production share to make room for price improvements, which they can benefit from i.e. forego its market share.

It’s Not Over Until I’ve Won

With news coming from Iran, and the successful delivery of a knockout punch to a six-year shale boom in the U.S., Saudi Arabia feared it would lose share to Iran if it cut its own production. Oil prices will be influenced increasingly by the political scuffles between Saudi Arabia and its allies and Iran. The deadlock and increased uncertainty over Saudi Arabia and Iran’s ties have sent prices plunging further. The Global Hedge Fund industry is increasing its short position for the short-term, which stood at 154 million barrels on November 17th, 2015, when prices hit $40 per barrel; all of this indicating a prolonged bear market for oil.

One important factor that needs to be discussed is the $1+ trillions of junk bonds holding up the shale and other marginal producers. As you know, that has been teetering and looked like a crash not long ago. The pressure is still there. As the shale becomes more impaired, the probability of a high yield market crash looks very high. If that market crashes, what happens to oil?  Wouldn’t there be feedback effects between the oil and the crashing junk market, with a final sudden shutdown of marginal production? Could this be the catalyst for a quick reversal of oil price?

The strategic interests, primarily of the U.S. and Saudi Arabia; the Saudis have strategically decided to go all in to maintain their market share by maximizing oil production, even though the effect on prices is to drive them down even further. In the near term, they have substantial reserves to cover any budget shortfalls due to low prices. More importantly, in the intermediate term, they want to force marginal producers out of business and damage Iran’s hopes of reaping a windfall due to the lifting of sanctions. This is something they have in common with the strategic interests of the U.S. which also include damaging the capabilities of Russia and ISIS. It’s certainly complicated sorting out the projected knock-on effects, but no doubt they are there and very important.    

I’ll Show You How Great I Am

Moreover, despite a more than 50% decline in its oil revenues, the International Monetary Fund has maintained Saudi Arabia’s economy to grow at 3.5% for 2015, buoyed by increasing government spending and oil production. According to data by Deutsche Bank and IMF; in order to balance its fiscal books, Saudi Arabia needs an oil price of$105. But the petroleum sector only accounts for 45% of its GDP, and as of June 2015, according to the Saudi Arabian Monetary Agency, the country had combined foreign reserves of $650 billion. The only challenge for Saudi Arabia is to introduce slight taxes to balance its fiscal books. As for the balance of payments deficit; the country has asserted its will to depend on its reserves for the foreseeable future.

Conclusion

The above are some of the advantages which only Saudi Arabia and a couple of other GCC members in the OPEC enjoy, which will help them sustain their strategy even beyond 2016 if required. But I believe it won’t take that long. International pressure from other OPEC members, and even the global oil corporations’ lobby will push leaders on both sides to negotiate a deal to streamline prices.

With the U.S. players more or less out by the end of 2016, the OPEC will be in more control of price fluctuations and, therefore, in light of any deal between Iran and Saudi Arabia (both OPEC members) and even Russia (non-OPEC), will alter global supply for prices to rebound, thus controlling prices again.

What we see now in oil price manipulation is just the mid-way point. Lots of opportunity in oil and oil related companies will slowly start to present themselves over the next year which I will share my trades and long term investment pays with subscribers of my newsletter at The Gold & Oil Guy.com

END OF YEAR SPECIAL GET 12 MONTH OF TRADE ALERTS FOR THE PRICE OF ONLY 6 MONTHS!

www.The Gold & Oil Guy.com

Chris Vermeulen

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A Half Dozen 2016 Stock Market Poisons

By Tony Sagami

Most of the “adults” on Wall Street are on vacation this week, and trading volume shrivels up to a trickle. That low volume is exactly the environment that the momentum crowd uses to paint the tape green. I call it the financial version of Reindeer Games.

However, once the “adults” return, the stock market will need to pay attention to the actual economic fundamentals and deal with facts—like, 2015 being the first year since 2009 when S&P 500 profits declined for the year.

I expect that 2016 is going to be a very difficult year for the stock market. Why do I say that? For any number of reasons, such as:

Poison #1: The Strong US Dollar

The greenback has been red hot. The US dollar index is up 9% in 2015 after gaining 13% in 2014.
A strong dollar can have a dramatic (negative) impact on the earnings of companies that do a significant amount of business outside of the US—for example, Johnson & Johnson, Ford, Yum Brands, Tiffany’s, Procter & Gamble, and hundreds more.

Poison #2: Depressed Energy Prices

I don’t have to tell you that oil prices have fallen like a rock. That’s a blessing when you stop at a gas station, but the impact on the finances of petro dependent economies, including certain US states, has been devastating. Plunging energy prices are going to clobber everything from emerging markets to energy stocks, to states like North Dakota and Texas.

Poison #3: Junk Bond Implosion

You may not have noticed because the decline has been orderly, but the junk bond market is on the verge of a total meltdown.

Third Avenue Management unexpectedly halted redemption of its high-yield (junk) Focused Credit Fund. Investors who want their money… tough luck. The investors who placed $789 million in this junk bond fund are now “beneficiaries of the liquidating trust” without any idea of how much they will get back and or even when that money will be returned. Third Avenue admitted that it may take “up to a year” for investors to get their money back. Ouch!

The problem is that the bids of the junkiest part of the junk bond market have collapsed. For example, the bonds of iHeartCommunications and Claire’s Stores have dropped 54% and 55%, respectively, since June!
What the junk bond market is experiencing is a liquidity crunch, the financial equivalent of everybody trying to stampede through a fire exit at the same time. In fact, the International Monetary Fund (IMF) warned that blocking redemptions could lead to an increase in redemption requests at similar funds.

Poison #4: Rising Interest Rates

As expected, the Federal Reserve hiked interest rates at its last meeting. The reaction (so far) hasn’t been too negative; however, we may have several more interest rate hikes coming our way.

Every single one of the 17 Federal Reserve members expects the fed funds rate to increase by at least 50 bps before the end of 2016, and 10 of the 17 expect rates to rise at least 100 bps higher in the next 12 months. I doubt our already struggling economy could handle those increases.

Poison #5: Government Interference

Sure, 2016 is an election year, which brings uncertainty and possibly turmoil. But the Obama administration could shove several changes down America’s throat via executive action—such as higher minimum wage, limits on drug pricing, gun control, trade sanctions including tariffs, immigration, climate change, and increased business regulation.

I don’t give the Republican led Congress a free pass either, as I have no faith that it will put the best interests of the US ahead of its desire to fight Obama.

Poison #6: China Contagion

We do indeed live in a small, interconnected world, and it’s quite possible that something outside of the US could send our stock market tumbling. Middle East challenges notwithstanding, the one external shock I worry the most about is one coming from China. The sudden devaluation of the yuan and the significant easing of monetary policy by the People’s Bank of China are signs that trouble is brewing.

However, I think the biggest danger is an explosion of non-performing loans in China. Debt levels in China, both public and private, have exploded, and I continue to hear anecdotal evidence that default and non-performing loans are on the rise.

Conclusion

To be truthful, I have no idea which of the above or maybe even something completely out of left field will poison the stock market in 2016, but I am convinced that trouble is coming. Call me a pessimist, a bear, or an idiot… but my personal portfolio and that of my Rational Bear subscribers are prepared to profit from falling stock prices.

Tony Sagami
30 year market expert Tony Sagami leads the Yield Shark and Rational Bear advisories at Mauldin Economics. To learn more about Yield Shark and how it helps you maximize dividend income, click here.

To learn more about Rational Bear and how you can use it to benefit from falling stocks and sectors, click here.

The article Connecting the Dots: A Half Dozen 2016 Stock Market Poisons was originally published at mauldineconomics.com.

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When Will They Bottom? Crude Oil, SP500, then ExxonMobil

A full blown bear market in energy resources and energy stocks has been underway since mid-2014. History shows that the price of crude oil typically bottoms before the broad stock market. And oil related stocks bottom at the same time or later than the broad market. The monthly chart below shows how oil bottoms several months before the stock market does. This provides us with some insight on when we should start to expect a bear market to end in the US stock market.

Many traders follow and trade shares of Exxon Mobil. And while the are big money maker I do feel their share price is going to underperform oil for some time. Based on my research XOM has acquired many new oil operations, which many require $70+ per barrel to be profitable. This has cost XOM a considerable amount of capital and is now left holding and operating business that are losing money with the current price of oil sub $40 per barrel.

Base on my analysis, economic data and forecast I feel as though oil will remain low for another 3-9 months below $60 per barrel. It will do this for several reasons but what matter to us is that it forced the majority of oil producers to cap and close off well and go out of business. While this is taking place stocks and the economy will rebalance through a strong economic recession and a bear market in equities that will last most if not longer than 2016. Take a look at the US stock market average (SP500 index) in the chart below. While this chart is a very basic and simple looking forecast understand that the stock market internals and market breadth have completely collapsed just s we saw in 2000 and again in 2008 months before the index collapsed and started bear markets.

Oil, XOM, and Stock Trading Conclusion:

In short, I expect oil to find a bottom during the next 1-3 months. Oil services stocks on average are likely to trade sideways and build a basing pattern. These oil services stocks will not breakout and rally until the broad stock market has bottomed which I expect to happen late in 2016 or early 2017. Unfortunately, oil and oil stocks collapsed so fast without any retest or pause for us to get short and enjoy the ride down for profits. I feel trading oil and oil stocks will be choppy and tough in the near year. Last week subscribers and I played the energy (XLE) for a quick two-day pop of 2-4% return depending on entry and exit. These types of plays will continue, but the big trend trade in oil and energy are a long way away yet.

The easier money will be likely be shorting the stock market (buying inverse ETFs) to profit as stocks collapse which is what I provide subscribers to my ETF trade alert newsletter.

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Chris Vermeulen – www.The Gold & Oil Guy.com

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Closed Another Winning Trade And New Forecast

Our trading partner Chris Vermeulen just sent over an email detailing his last trade of this holiday shortened week. Make sure to sign up for Chris' holiday special.....

Yesterday December 23rd we closed out a nice winning trade in XLE energy sector. If you have not yet closed the trade can should do so today and will locking an even larger gain of 4-5% return in only three days. The stock market closes early today at 1 pm ET. Today volume will be light and its not worth sitting around watching or trying to trade in my opinion. The best trade for today is to spend quality time with your family and friends.

Attached are couple charts that show where the market is currently trading with my short term analysis and why XLE position was closed yesterday. The market is primed for a sharp correction which may start Monday and if possible, we will take action, but volume will likely remain light for the rest of the year and first couple days of January, so the top may drag out a few more days. Let’s wait for a technical breakdown first before buying inverse ETFs.

I would like to thank all my followers and subscribers for their support and kind words throughout the year. It has been an extremely difficult market to trade with the broad market trading in a Stage 3 Distribution pattern. Hedge funds, mutual funds and those who hold individual stocks in their portfolio are all down sharply for reasons I have explained and warned about all year.

Early in 2015 I published a short book talking about how the US stock market was showing significant signs of a topping along with many timing cycles and events that were also unfolding and pointed to a new bear market that will likely last through 2016 and into 2017. Thus far, everything has unfolded as expected and once this Stage 3 Distribution pattern breaks down a new bear market will have confirmed and all kinds of huge trades will start to unfold. It will be a VERY DIFFERENT year than 2014 and 2015.

Chris Vermeulen – www.The Gold & Oil Guy.com

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By Far the Biggest Threat to Your Wealth in 2016

By Justin Spittler

Today, we begin with a warning. We’re going to tell you about a dangerous event that is very likely to happen within the next year. You’ve probably never thought about this threat. Until now, Casey Research has never discussed it in public. This threat isn’t a stock market collapse…it’s not a failure of the Social Security system…it’s not even a national debt or currency crisis. It’s much more dangerous and much more likely to happen than any of those things.

We’re talking about a major financial terrorist attack. A total wipeout of your financial data, assets, and records and those of many millions of other people. If you’re like most people, you think, “There’s no way that could happen here. Surely the financial system is completely safe.” But think about it….

If you have $100,000 in the bank, what do you really have?

These days, it’s not a claim to hard assets like gold or silver. And it’s certainly not real cash in a bank. Many local banks don’t even keep that much cash on hand! Just try asking your bank for $25,000 in cash. The teller will say, “We can’t give you that much money.” If you keep your life savings in a bank or brokerage account, what you have are electronic entries that hackers can easily and quickly delete. All the money you’ve earned...the hard work, the sweat, the sacrifice...the nest egg you’ve built to provide for your family, GONE. In an instant.

Cyberterrorists have already broken into the world’s most secure digital systems....

For example…..

➢ In May, hackers stole information on 300,000 private tax returns from the Internal Revenue Service (IRS). They used the information to claim tens of millions of dollars in fraudulent tax refunds.

➢ In April, hackers gained access to President Obama’s email. They gathered details on Obama’s personal schedule as well as private conversations with foreign officials.

➢ And earlier this year, we learned that a group of hackers infiltrated some of America’s largest and most sophisticated financial firms. The victims include JPMorgan Chase, E*Trade, and Scottrade. The hackers stole the personal data of more than 100 million customers. They even manipulated stock prices.

A large scale cyber attack could cripple the financial system….

E.B. Tucker, editor of The Casey Report, explains: In today’s high tech world, the lifeblood of our economy is a complex system of digital payments, digital book entries, and digital money. Billions of dollars are electronically transferred every day. We bank online, shop on our computers, and pay for lunch with credit and debit cards. Even the stock exchanges are now 100% electronic. The money in your savings, brokerage, and credit card accounts are just bits and bytes. A skilled hacker could steal it or make it vanish completely.

Enemy foreign governments are likely to attack the U.S.’s financial system.…

Here’s E.B....The U.S. has enemies all over the world: Russia, China, Iran, Syria, Iraq, and Saudi Arabia come to mind. There are millions of people out there who want to see the West burn. And it’s only a matter of time before they strike us at one of our most vulnerable points: Our digital financial system. As cybersecurity expert, Mary Galligan, recently told Bloomberg News, state sponsored cyberterrorism is “the FBI’s worst nightmare.”

The fallout from a cyberattack could be catastrophic….

E.B. explains…Just imagine, what if all of the accounts at a major bank like Wells Fargo were suddenly erased? What if businesses couldn’t process digital payments? What if your brokerage told you its records had been destroyed and all evidence of your stock portfolio had disappeared? What if a cyberattack shut down our electrical grid? I’ll tell you what would happen: An explosion of chaos. Society would break down. When people are wiped out financially, they’re often wiped out mentally and morally, too…they’ll do anything to survive, including resort to violence.

The government and central banks cannot protect you from cyberterrorists….

They don’t want people talking about this massive threat. They want to keep it quiet. You see, the U.S. dollar isn’t backed by gold like it was in the past. Our monetary system is built on confidence, and confidence alone. If lots of people questioned the safety of the system and pulled their money out, it could trigger a nationwide run on the banks, a stock market collapse, and a currency crisis. It could literally lead to rioting in the streets.

If you keep most of your money in digital form….

You must take steps to protect yourself and your family before an attack happens. The first step is to store a sizable amount of cash in a safe place you can easily access. We recommend at least three months’ worth of living expenses. Six months’ worth is even better.

You can store the cash in a safe, in a public storage container, or bury it in a waterproof container in your backyard. This might sound extreme, but think about it…if the financial system is compromised and your debit and credit cards become useless, you’ll need enough cash on hand to pay for groceries, gasoline, and other daily necessities.

Otherwise, you’re in a vulnerable position. Having no cash on hand means you could struggle to feed your family in an emergency. Because we believe most Americans are overlooking this huge threat, we put together a new special report titled “How to Protect Yourself from a Financial Terrorist Attack.” We talked with top cybersecurity experts and put hundreds of hours of research into this report. It explains seven specific steps you can take now to protect your money from financial terrorism. Click here to learn more.

Switching gears, the Dow Jones U.S. Trucking Index is headed for its worst year ever….

Yesterday, it closed down 17% on the year. It’s dropped 7.1% in December alone. The Dow Trucking Index tracks the performance of major U.S. trucking stocks. It’s only had three down years since 2001. Over that period, it’s averaged annual returns of 12%. The chart below shows trucking stocks have been in a clear downtrend all year.

E.B. Tucker says investors should watch this trend even if they don’t own trucking stocks. Trucks carry inventory to stores. They carry parts to the assembly plant. Then they carry assembled products to buyers. When sales are rising, it tends to show up in trucking companies before retailers. Trucking companies also feel the pinch first when sales are falling. This is why trucking stocks often give clues about where the market’s going long before other industries.

E.B. also says the collapse in trucking stocks is an early warning sign for the rest of the market. Transport stocks have given investors early warning signs for the past 100 years. Right now, the Dow Trucking Index is telling us business is not great. The trucks aren’t full. This is a dire sign. It’s saying we’re in for some negative surprises in 2016.

The U.S. stock market looks fragile….

From March 2009 through December 2014, the S&P 500 gained 204%. But the bull market has stalled this year. The S&P 500 is down 1% since January. If this trend continues, 2015 will the S&P’s first down year since 2008. On its own, this isn’t a huge concern. However, Dispatch readers know there are many other signs U.S. stocks have already topped out

For one, the current bull market in stocks is now 81 months old. It’s run 31 months longer than the average bull market since World War II. Of course, bull markets don’t die of old age. But they all die eventually. On top of that, U.S. stocks are expensive. The S&P 500 is now 57% more expensive than its historical average. Again, bull markets don’t end just because stocks are expensive. But expensive stocks can fall much harder during a big selloff.

We recommend investing with caution right now. You should own a significant amount of cash and physical gold...and you should sell any overpriced stocks that are vulnerable to an economic downturn.

Chart of the Day

Oil tanker rates are at their highest level in seven years. Today’s chart shows the daily shipping rates for very large crude carriers (VLCC), the second largest type of oil tanker. Each VLCC can carry 2 million barrels of oil. From 2011 through 2014, VLCC shipping rates averaged $20,000/day. This year, rates have soared 79%. Earlier this month, VLCC daily rates reached $112,775, their highest level since 2008.

Meanwhile, the price of oil has plunged 32% this year. Earlier this month, oil fell to its lowest level since 2009. Oil tanker rates can go up when oil prices go down…because ship operators charge based on how much oil they move. Their rates are not directly tied to the price of oil.

Dispatch readers know the world has a huge surplus of oil right now. All this oil needs to go somewhere, and oil tankers get paid to move it. As you can see in the chart, it’s a great time to be an oil tanker company.

The article By Far the Biggest Threat to Your Wealth in 2016 was originally published at caseyresearch.com.

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Is the “Easy Money Era” Over?

By Justin Spittler

It finally happened. Yesterday, the Federal Reserve raised its key interest rate for the first time in nearly a decade. Dispatch readers know the Fed dropped interest rates to effectively zero during the 2008 financial crisis. It has held rates at effectively zero ever since…an unprecedented policy that has warped the financial markets. Rock bottom interest rates make it extremely cheap to borrow money. Over the last seven years, Americans have borrowed trillions of dollars to buy cars, stocks, houses, and commercial property. This has pushed many prices to all time highs. U.S. stock prices, for example, have tripled since 2009.

The Fed raised its key rate by 0.25%.....

U.S. stocks rallied on the news, surprising many investors. The S&P 500 and NASDAQ both gained 1.5% yesterday. The Fed plans to continue raising rates next year. It’s targeting a rate of 1.38% by the end of 2016. So, is this the beginning of the end of the “easy money era?” For historical perspective, here’s a chart showing the Fed’s key rate going back to 1995. As you can see, yesterday’s rate hike was tiny. The key rate is still far below its long term average of 5.0%.

Josh Brown, writer of the financial website The Reformed Broker, put the Fed’s rate hike in perspective.

The overnight borrowing rate…has now risen from “around zero” to “basically zero.”

In other words, interest rates are still extremely low, and borrowing is still extremely cheap. We’re not ready to call the end of easy money yet.

Cheap money has goosed the commercial property market..…

Commercial property prices have surged 93% since bottoming in 2009. Prices are now 16% higher than their 2007 peak, according to research firm Real Capital Analytics. Borrowed money has been fueling this hot market. According to the Fed, the value of commercial property loans held by banks is now $1.76 trillion, an all time high. The apartment market is especially frothy today. Apartment prices have more than doubled since November 2009. U.S. apartment prices are now 34% above their 2007 peak.

Sam Zell is cashing out of commercial property..…

Zell is a real estate mogul and self-made billionaire. He made a fortune buying property for pennies on the dollar during recessions in the 1970s and 1990s. It pays to watch what Zell is buying and selling. He was one of few real estate gurus to spot the last property bubble and get out before it popped. In February 2007, Zell sold $23 billion worth of office properties. Nine months later, U.S. commercial property prices peaked and went on to plunge 42%.

Recently, Zell has started selling again. In October, Zell’s company sold 23,000 apartment units, about one quarter of its portfolio. The deal was valued at $5.4 billion, making it one of the largest property deals since the financial crisis. The company plans to sell 4,700 more units in 2016. Yesterday, Zell told Bloomberg Business that “it is very hard not to be a seller” with the “pricing currently available in the commercial real estate market.”

Recent stats from the commercial property market have been ugly. In the third quarter, commercial property transactions fell 6.5% from a year ago. Transaction volume also fell 24% between the second quarter and third quarter.

Auction.com, the largest online real estate marketplace, said economic growth is hurting the market.

Both commercial real estate transaction volume and pricing have showed signs of softening over the past few months. It’s likely that what we’re seeing is the result of reduced capital spending due to some weakness in the U.S. economy, coupled with a highly volatile economic climate in China and ongoing financial issues in Europe.

Zell is bearish on the U.S. economy..…

On Bloomberg yesterday, he predicted that the U.S. will have a recession by the end of 2016.

I think that there’s a high probability that we’re looking at a recession in the next twelve months.

A recession is when a country’s economy shrinks two quarters in a row. The U.S. economy hasn’t had a recession in six years. Instead, it’s been limping through its weakest recovery since World War II.
Zell continued to say that the U.S. economy faces many challenges.

World trade is slowing. Currencies continue to be manipulated. You’re looking at the beginnings of layoffs in multinational companies. We’re still looking all over the world for demand…

So, when you look at those factors it’s hard to see where strength is going to come from. I think weakness is going to be pervasive.

Like Zell, we see tough economic times ahead. To prepare, we suggest you hold a significant amount of cash and physical gold. We put together a short video presentation with other strategies for how to protect your money in an economic downturn. Click here to watch.

Chart of the Day

The U.S. economy is in an “industrial recession”. In recent editions of the Dispatch, we’ve told you that major American manufacturers are struggling to make money. For example, sales for global machinery maker Caterpillar (CAT) have declined 35 months in a row. In October, CAT’s global sales dropped by 16%...its worst sales decline since February 2010.

Today’s chart shows the yearly growth in U.S. industrial production. The bars on the chart below indicate recessions. Last month, U.S. industrial production declined -1.17% from the prior year. It marked the 19th time since 1920 that industrial output dropped from a positive reading to a reading of -1.1% or worse.
15 of the last 18 times this happened – or 83% of the time – the U.S. economy went into recession.

The article Is the “Easy Money Era” Over? was originally published at caseyresearch.com.

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