The First Signs of a Long-Term Bottom in Oil
Introducing Commodity Supercycles... New seven-month lows for crude... The first signs of a long-term bottom in oil... Why it's still too soon to load up on energy stocks... P.J. O'Rourke: Six Lessons From a Man on Horseback
Introducing Commodity Supercycles...
Thanks to everyone who joined us for our first-ever oil-focused webinar last night.
If you were there, you know Porter and Stansberry Research senior resource analyst Flavious Smith officially introduced our brand-new resource advisory: Commodity Supercycles. You also heard Porter and Flavious share their forecasts for the oil markets over the next several years.
In short, while they expect lower prices in the near term – even as low as $20 per barrel is possible for a short time – they're certain we're approaching one of the greatest long-term buying opportunities in the oil sector in 50 years or more. They explained why oil could ultimately reach $500 per barrel before it all ends... and the very best companies in the sector could absolutely soar.
If you weren't able to join us, it's not too late to get the details for yourself – including everything you need to know to profit from the next oil boom – with a charter subscription to Commodity Supercycles.
Unlike many of our high-end services, Commodity Supercycles is designed to be accessible – and affordable – for virtually any investor. Better yet, as a charter subscriber, you can lock in the biggest discount we'll likely ever offer on this service.
The regular price of Commodity Supercycles will be $199 per year going forward. That's just $0.54 a day. But if you sign up today, we'll knock more than 35% off the normal cost... and throw in a second year for FREE. That's two full years for less than $0.25 a day.
We know of no other service anywhere that offers the potential for truly life-changing gains of up to 1,000% or more at such a low price. Click here to see for yourself.
Speaking of lower oil prices, Porter and Flavious' near-term forecast continues to play out...
Yesterday, West Texas Intermediate ("WTI") crude oil – the U.S. benchmark for prices – plunged below $45 per barrel for the first time since November. The decline followed several bearish reports...
First, oil-cartel OPEC finally admitted that it had grossly underestimated how long it would take to work off the global oil "glut." As the Wall Street Journal reported on Tuesday night...
OPEC this week acknowledged that its efforts weren't working as quickly as it thought. In its own monthly market report, the cartel on Tuesday blamed U.S. shale for slowing its rebalancing efforts.
The cartel set a tough goal last December, when its officials said they wanted to cut oil-storage levels to the five-year average.
OPEC said OECD storage levels actually have been falling but by only 88 million barrels in the first four months of 2017. At that pace, it would take until March 2018 for stockpiles to fall another 250 million barrels to the five-year average.
On Wednesday, the International Energy Agency ("IEA") confirmed this trend in its own monthly report. More from the Journal...
The global oil glut is here to stay through 2017 as OPEC's efforts to restrain petroleum production have hit a wall in the U.S., the [IEA] said...
In its closely watched monthly oil market report, the IEA said the world's vast levels of stored oil – a proxy for the global oversupply – grew by 18.6 million barrels in April in industrialized nations. Those inventories were 292 million barrels higher than the five-year average, said the IEA, which advises governments on energy trends.
Finally, the U.S. Energy Information Administration ("EIA") reported yesterday that domestic crude oil stockpiles fell less than expected last week. Meanwhile, gasoline stockpiles unexpectedly rose by 2.1 million barrels last week.
In other words, as we discussed last month, it appears refiners are simply shifting some of the oil glut into a gasoline glut. But gasoline demand remains weak... According to the EIA, gasoline demand is down 1.2% from the same time last year, despite lower prices at the pump. Even worse, we're now well into the summer driving season, when demand is typically at its highest point of the year.
If gasoline demand remains weak, it's just a matter of time before refiners pull back... meaning the drawdown in oil inventories could slow even further.
To be fair, the news wasn't entirely bearish...
As our colleague Scott Garliss noted in the Stansberry Newswire on Wednesday morning, a few "bright spots" are beginning to emerge...
First, let's discuss the IEA report. In it, they also said that oil demand globally will top the 100 million barrel per day mark for the first time in 2018. Not too shabby...
Next, the International Monetary Fund boosted it growth forecast for China this morning. China is an important engine for the rest of the world. This is a good sign for oil consumption. If you pay attention to some of the headlines we have been highlighting in our morning note, China is out searching for oil supply globally. They are currently looking for properties in the U.S. and Africa where they can purchase additional resources. They are in the process of transitioning to a consumer driven economy, so their demand for resources such as gasoline is likely to keep growing. A pick-up in growth is only going to help this.
Lastly, European Central Bank official Jens Weidmann is out this morning calling for the Central Bank to rethink its monetary policy and back away from monetary stimulus. He is part of a growing chorus that want to see their growth projections and language change... They are seeing and believing in a real growth trend that is developing. And growth in Europe will also translate into increased demand for oil.
In other words, while we don't expect a dramatic shift tomorrow, we're already seeing early signs that demand could move much higher over the next few years.
In the meantime, we continue to expect lower prices in the near term.
Many heavily-indebted firms are producing as much oil as possible in a desperate attempt to stay afloat. But they're losing money on every barrel they produce... And the more they produce, the lower prices will go.
As we mentioned earlier, Porter and Flavious believe this trend will eventually push prices back below $30 per barrel before these companies finally go under. Only then will we have the foundation for a real, lasting recovery.
But oil companies aren't the only ones we expect to capitulate...
We expect to see oil investors finally "throw in the towel" as well.
But that hasn't happened yet. In fact, as our colleagues Steve Sjuggerud and Brett Eversole explained in the latest issue of True Wealth Systems Review of Market Extremes, oil investors remain as bullish as ever. From the issue...
Energy stocks are having a terrible 2017. The S&P 500 is up 10% for the year... But the energy sector is down 10%. And it's still down 27% from its 2014 high.
Investors are buying despite these terrible returns. Shares outstanding for the Energy Select Sector SPDR Fund (XLE) – the largest energy fund – have soared in recent years. Take a look...
When investors pile into an exchange-traded fund like XLE, the fund can create new shares. So a rising share count tells us investors are putting money to work in an idea.
As they explained, this fund's shares outstanding are up 20% over the last year, and a huge 173% since oil prices began to fall in 2014. Said another way, oil investors have been trying to "call the bottom" since the crisis began.
Just as we expect to see a wave of bankruptcies before a real recovery can begin, we need to see oil investors give up and turn bearish before we'll get wildly bullish on oil stocks again.
New 52-week highs (as of 6/14/17): AbbVie (ABBV), American Financial (AFG), Aflac (AFL), Allianz (AZSEY), Boeing (BA), CME Group (CME), iShares Select Dividend Fund (DVY), Fidelity Select Medical Equipment and Systems Fund (FSMEX), iShares U.S. Home Construction Fund (ITB), Johnson & Johnson (JNJ), 3M (MMM), Annaly Capital Management (NLY), Paysafe (PAYS.L), Travelers (TRV), and short position in Canadian Natural Resources (CNQ).
A busy day in the mailbag... Several subscribers respond to Porter's take on electric vehicles... some early feedback on last night's "Oil $500" webinar... and more kudos for our brand-new radio show. What's on your mind? Let us know at feedback@stansberryresearch.com. And be sure to read on past the mailbag for another can't-miss essay from famed satirist P.J. O'Rourke.
"Porter, your response at the end of Wednesday, June 14th's Digest could be one of the best pieces of writing you have ever published." – Paid-up subscriber Joseph Simon
"Hi Porter, in response to Jon S. and his note to you in the Digest (6/13), I will have you know that I am an obsequious (I had to look that up) follower, hack, and band wagoner, piker and sycophant. I am so glad I found you and your company a few years ago. I wish I had done so years earlier. Keep up the good work!" – Paid-up subscriber David L.
"Hi Porter; I agree with you on the role of government. Sadly, that is not the case and never has been. Not in America or Europe or anywhere else for that matter. There has been an incredible 'filtering' of technology that has occurred at the patent office level and in the field. (Just ask [Nikola] Tesla. The first 'fuel cell' was patented in 37'... 1837. Yeah, there has been a little resistance for US common folk to have electromagnetic and torsion field technology.) Now, when this will be broken, your guess is probably better than mine. I trust your research on batteries and motors vs engines. That said, I hope you're wrong for the planets sake. Thanks for all the advice and research on making money." – Paid-up subscriber Martin K.
"Porter, you asked about how Solyndra is doing. As I recall Obama got a nice donation from our tax dollars laundered through Solyndra and the CEO got a nice bonus and the taxpayers took the loss. Anytime a politician can launder tax dollars they will." – Paid-up subscriber Stephen G.
"Since I have criticized Porter on this issue in the past it is only fair to present the opposite impression when it occurs... I enjoyed listening to [Wednesday] evening's webinar presentation. Unlike some other recent events this went really well. Porter set up the argument, led his witness along, fed him fat pitches, let him make his points, coaxed him forward a little when he didn't get all he was looking for and generally treated Flavious as a friendly expert witness. Everybody's credibility went up. Nicely done, I enjoyed that." – Paid-up subscriber William C.
"Dear Mr. [Flavious] Smith, I enjoyed your presentation last night. I particularly appreciated your 40 years in the industry and your deep knowledge... " – Paid-up subscriber Stan D.
"Porter, I can't actually say enough good things about [your Stansberry Investor Hour interview with Julian Assange]. You two were incredible. The discussion after was the best part. Thanks to both of you for providing this insight." – Paid-up subscriber Jeff S.
Regards,
Justin Brill
Baltimore, Maryland
June 15, 2017
Six Lessons From a Man on Horseback
The key element of success for a person, business, or nation is to harness power and talent.
That's not a very original thought, but I was having it in a very appropriate place – atop a horse, where "to harness" is not just a metaphor.
Horses were domesticated perhaps as early as 3,500 B.C. The horse was the first large, self-activated thing that we humans brought under our control in order to increase our strength and force.
To this day, we measure the output of most devices that produce strength and force in "horsepower." Therefore, horses should offer us some lessons about harnessing power and talent... Including our own.
After all, though horses may outweigh us by half a ton, we were the ones who domesticated them, not the other way around. (Cowboys and Indians would have been a ridiculous conflict if horses had been mounted on Comanche and cattlemen.)
The reason I was atop a horse is that I spent last weekend staying with an old friend who has a horse farm in Virginia.
The visit was mostly for the benefit of my 17-year-old daughter Lulu, who is an avid and accomplished horsewoman. But she just goes around in circles in riding rings doing something called "dressage," which I believe is a French word meaning "dressed funny."
This is no way to appreciate the power and talent of horses.
My Virginia friend plays polo. My rural New England daughter had never seen polo played. We have plenty of horses and riders where we live. What we don't have is enough flat land for a polo ground, which is 300 yards long and 160 yards wide.
A polo ground is the size of nine football fields – large enough for all the NFL teams in the American Football Conference to play each other at the same time with room left over for a high school state championship.
(You should get a polo ground, if you want to harness an oversized lawn that otherwise just lays there.)
I once thought polo was nothing more than a punch line for jokes about rich people. Then, 30 years ago, I saw my first polo match. It's an amazing sport, a combination of rodeo trick riding, mounted golf, horse soccer, rugby on four legs, and the Super Bowl played with 1,000-pound running backs.
And polo is the perfect place to see the harnessing of power and talent – watching everything a rider and a horse can do together and how fast and how masterfully they can do it.
I wasn't playing. I was just trotting around the periphery of the match, trying not to fall off. I love horses, but I'm a lousy horseback rider. I'm so bad that I've fallen off a horse when it was standing still.
This can happen if you fail to tighten the saddle girth. A smart horse – and they're all smart when they feel like it – will puff itself up while you're putting on the saddle and then, when you're mounted, suck in its gut like me at the beach. As a result, the saddle spins around the way a whirligig lawn ornament does.
Thus, the First Business and Management Lesson from Horseback Riding: Remember, when you're harnessing power and talent, whatever you're harnessing is probably more powerful and talented than you are.
Actually, that's the Second Lesson. The first lesson is to think about how many failed riding startups there must have been.
People 5,500 years ago didn't know that a horse was the right thing to leap on the back of. I'll bet they were trying to leap on the back of all sorts of animals. They were hopping on rhinos, jumping on hippos, trying to mount cave bears and saber-toothed tigers. A lot of what was invested in these entrepreneurial initiatives must have resulted in a... so to speak... dead loss.
The Third Lesson is that people can be really determined to harness power and talent (hopping on rhinos) and, at the same time, be really stupid about it. Europeans had saddles for thousands of years, but it wasn't until the Middle Ages that it occurred to anyone to hang stirrups from those saddles.
Yes, you can ride without stirrups – if you have thighs like a pair of giant, fleshy Vise-Grips. But Newton's third law of motion – "For every action, there is an equal and opposite reaction" – suggests that when ancient Roman cavalry lances struck the shields of ancient Gauls, the Romans went backassward off their horses.
The Fourth Lesson is to give whatever you're harnessing a purpose in life. A machine without a purpose hardly qualifies as a machine. And a horse or a human without a purpose is a sad case. There's an old cowboy saying, "More people are killed by pet horses..." Meaning your horse is more likely to do something stupid or vicious if it has no purpose. (The same, I suppose, could be said about spouses.)
Sure, horses and people are motivated by greed. Polo ponies want the feed bag, and people want the string of polo ponies. But what really motivates man and beast is a goal. A horse's goal is to run like hell and dust it up with the other horses in the herd. That's polo. Polo makes horses very happy – like cavalry battles used to. (Polo riders fall off almost as often as ancient Romans with lances.)
The Fifth Lesson is that you must have the right equipment to harness power and talent. In horseback riding, oddly, "harness" is not what you call the thing you use for harnessing. You want a bridle. The most important part of a bridle is the bit. What the bit does is curb the horse's tongue.
If the above three sentences seem to apply to a certain person currently attempting to harness the power and talent of a presidential administration, that's not my fault.
This brings me to the Sixth and Last Lesson. As my daughter and my Virginia friend have been trying to tell me for years, the only secret of riding well is balance.
You must have a gut feeling for where you are on the horse. (For me, it's more like a "butt feeling," and a sore one at that.)
Overachievers, business leaders, and in particular, holders of high political office are not famous for always keeping their balance.
The phrase "man on horseback" – meaning a proud, vain politician who thinks he's the savior of his nation – was coined to describe the 19th-century French politician Gen. Georges Ernst Boulanger. He was a provocative, mouthy, reactionary nationalist with a strong appeal to working folks.
During the 1880s, Boulanger was so popular in France that French lefties were practically wetting themselves for fear that he would declare himself dictator.
Boulanger made almost all of his public appearances mounted on a horse. I suppose there were situations where this looked silly, such as inside the French Chamber of Deputies. But appearing in public on horseback does produce a more imposing effect than appearing in public on Twitter.
I'm not being partisan here. Our previous chief executive thought he was the savior of his nation, too. He was a provocative, mealy mouthed, pinko internationalist with a strong appeal to folks who have no intention of working.
That guy should have realized appearing on horseback produces a more imposing effect than appearing on Comedians in Cars Getting Coffee.
Of course, whether we want our presidents to be more imposing – that is, to impose upon us even more than they do already – is another question.
Maybe presidents should take their riding lessons from me.
Regards,
P.J. O'Rourke