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My Opinion on Markets September 8, 2015

Posted by shaferfinancial in Finance.
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Since everyone seems to be asking me, I will give a brief opinion on the state of the oil and stock markets. Note, my crystal ball has been broken for a long time, hence my actual positions are long term and not driven by short term variation [no matter how dramatic].

The stock market has fallen back a little in August and in my opinion will see little real progress for a while. I would expect some up and down going forward but at some time a good 25% drop or so would be positive. This type of variation is relatively good for folks in EIULs as any downward movement is capped at 0% and the upward movements are captured. A 25% drop would clear out a lot of downward pressure and give the market some room to progress. We are still overdue for a significant drop.

The oil markets are still very bearish. However, we are seeing green shoots. Oil usage is up around the world including China [where much of the worry of economic malaise rests]. China is filling its strategic reservoir with this cheap oil, buying 10% more oil than last year. In the US it is up 9% year on year. India’s economy is chugging along, increasing at 7%, which should mean increasing oil usage at around the same point.

As to production, many believe that Saudi Arabia is producing all out at this point. If it isn’t it is close. The much talked about tight oil production in the US/Canada has stopped its crazy up slope in production in December. A peak in December, followed by a leveling off until another peak in April followed by decreases since then has reversed the production slope of NA oil production. Lost in the noise is that until December production had been increasing at a huge rate for 2 years. Since then, that dramatic increase first stopped and is now decreasing at an increasing rate.

All the major tight oil producing companies lost money in the first half of 2015 even after reducing CAPEX. In fact, with the exception of Continental, CAPEX was reduced so much as to not able to sustain reserves at current production level.

What all this points out is the likelihood of the supply/demand mismatch disappearing soon. When? Your guess is as good as mine, but would bet that next year will surprise a lot of bearish analyst.

I think that much of the teeth knashing over China is just that “worry” that will not bear out in the long run. Does China continue double digit increases in GNP? No way. But 7% is probably likely. Add in India [the second most populous country] at 7% and you see continuing world wide growth. US is still expanding at more subdued rates and Europe seems to be stagnated currently.

Bottom line is that I am still in the “patience” mode for my stock portfolio, and am pleased with my EIUL performance.

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