LONE BEAR LETTER #4
THE MARKET IS STUCK, IN A TRADING RANGE, BETWEEN THE DECEMBER HIGHS AND LOWS Let’s see if the markets Dow, NASDAQ and S&P can get above their December highs of 18,068, 4,814 and 2,092 OR December Lows Dow: 17,069, NASDAQ: 4,545 and S&P: 1,973 AFTER BREAKING BELOW JANUARY LOWS THE MARKETS ARE NOW CHALLENGING THE DECEMBER HIGHS!
Dow NASDAQ S&P
Current 17,824 4,744 2,055
December High 18,086 4,814 2,092
January High 17,400 4,700 2,013
January Lows 17,147 4,605 1,991
December Low 17,069 4,545 1,973
OIL PRICE DOWN 9% In the last couple of days, oil prices spiked above $54 a barrel, on news that US rig counts plunge by a record amount they are down about 24% from their peak in October. However, just because rig counts are falling, it doesn’t mean production is. US production actually increased to a record 9.3 million barrels per day. US oil production could still rise by 1 million barrels per day in 2015. It all goes back to simple supply and demand. Sluggish demand caused by lack luster growth in Europe, Japan and China, has the world awash in oil. Citigroup, believes prices of crude oil may yet tumble to $30 a barrel, because the world still has too much oil in supply and little demand increases. Texas billionaire Ross Perot Junior, son of the legendary Henry Ross Perot Senior, said “the recent US shale gas boom was unsustainable and now it’s time for a bust”. He predicts that crude oil prices will go below $40 a barrel, which would shut down 20 to 30% of US shale industry, as declining prices makes production too expensive. US shale producers are pumping nearly 4,000,000 barrels a day, which is more oil than Iraq produces.
BRAZIL’S PETROBAS IN TROUBLE Countries that are oil producers, like Brazil and Venezuela and Russia continue to be in trouble. Petrobas,(Brazil’s national oil company), has seen its stock fall some 53% since September 2014. The company’s CEO Maria Foster and five other executive directors resigned on Wednesday, amid news that the Brazilian media called the biggest corporate scandal in the country’s history. Federal prosecutors accused former executives of bribery and money laundering. The investigators said the managers ‘illegally diverted billions from the company’s account for their own activities. On the news Brazilian stocks fell 4%. Many Brazilians were optimistic that the hosting of the World Cup last summer would provide a windfall of tourist dollars. But the event became divisive as the government spent billions on brand-new stadiums, while poverty continued to plague Brazil’s shantytowns. Petrobras, is billions of dollars into debt. Its bonds and derivatives are held by US mutual funds and banks. The crisis in the high-yielding bond market will come from somewhere, maybe Russia, maybe Brazil?
INEQUALITY OF OPPORTUNITY WIDENS IN US The massive gap in college graduation rates between the rich and the poor is growing wider. Some 77% of students from wealthy families earned a bachelor’s degree by age 24 in 2013, compared to only 9% of those from poor families, according to a report from the Pell Institute and the alliance for higher education and democracy at the University of Pennsylvania. The divide has grown significantly from 1970 when 40% of rich students and 8% of poor ones graduated college. The study defined wealthy as families having incomes above $100,000 while poor families earn less than $30,000. Middle-class students also lagged behind their wealthy peers. Those in the middle class saw the graduation rates rise only 26% in 2013, up from 13% in 1970. The Obama 2015 budget, calls for helping low income students to obtain two years of free community college, for those who qualify. However, there appears to be little chance that this will pass Republican controlled Congress
WHAT DOES THE MARKET WANT TO DO? Let’s see if the markets Dow, NASDAQ and S&P can get above their December high of 18,068, 4,814 and 2,092? It is time for the market to tell us what to do. See the chart below: For instance, if the Dow breaks above 17,400 and then makes new highs above 18,086, it would appear that my Lone Bear scenario is either wrong or delayed. However, if the Dow breaks below 17,147 and then breaks below the December low of 17,069 my Bearish scenario would be on track for the Lone Bear Letter! It is the same with reading the NASDAQ and S&P.
NOT EVEN NATE SILVER KNOWS Nate Silver, the great prognosticator of elections has thrown in the towel in trying to predict either the economy or the stock market. As I said in the Lone Bear Letter, metrics and analytics can’t do it. It stills takes the human mind to sift through all the written material and to be able to judge human psychology in order to predict the economy or the stock market. Then why did I predict a Bear Market? Sometimes in the human brain things come together like a combination lock and there was a loud click. That’s what happened for the Lone Bull Letter in 1981 when interest rates were 21% and everybody was bearish and I predicted the market would go from 1000 to above 10,000. I have a talent, for being able to read very quickly and to sensitize what I read. It’s just a human feeling when those tumblers fall into place and the lock opens. If you read Isaac Asimov’s Robot Series or his Foundation Series you know how difficult it was for Harry Sheldon, Nate Silver and Carl Birkelbach to predict the future.
ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST
Mr Birkelbach does not offer investment advice, but merely his own personal opinion. This report has been prepared from original sources and data we believe reliable but make no representations as to the accuracy or completeness. Mr.Birkelbach , his affiliates and subsidiaries and/or their officers and employees may from time to time acquire, hold or sell a position in securities. Past performance is no guarantee of future success. Upon request, we will supply additional information. CarlBis@aol.com