THE GREAT OIL DEPRESSION OF 2014- 2020 HAS STARTED AN INCREDIBLE DEFLATIONARY COMMODITY TREND. THE COLLAPSE OF OIL PRICES SO QUICKLY HAS CREATED A REVERSE FLOW OF MONEY FROM OPEC TO THE REST OF THE WORLD. IT'S THE OIL STUPID!
WHEN OIL WAS PRICED UNDER $2.00 A BARREL 70% OF OIL NEEDS OF THE AMERICAN ECONOMY WAS CONTROLLED BY FIVE COUNTRIES IN 1960:
1. IRAN 2. IRAQ 3. SAUDI ARABIA 4. KUWAIT AND 5. VENEZUELA,
HOW DID IT ALL START? IN 1973 THE 35TH OPEC CONFERENCE IN VIENNA DECIDED TO CHARGE $5.00 A BARREL AND 1974 THE PRICE WENT TO $7.00 A BARREL. BY 1981 THE PRICE OF OIL JUMPED TO $40.00 A BARREL. THE PRICE WENT DOWN TO $10.00 A BARREL IN 1986. AFTER THE GULF WAR PRICES SOARED TO $30.00 A BARREL AND THEN IN 1998 ENDED AT $10.00 A BARREL. THE PRICE OF OIL CLOSED OUT THE 20TH CENTURY AT $25.00 A BARREL.
WHAT DOES THIS MEAN? THIS MEANS THAT FAILING OIL PRICES PRECEDED ECONOMIC GOOD TIMES AND STRONG STOCK MARKETS. WHAT IS THE RELATIONSHIP BETWEEN OIL AND STOCK MARKET?
WHEN OIL ROSE BY 100 PERCENT OR MORE OVER 12 MONTH PERIOD DURING THE NEXT 18 MONTHS EXPERIENCED A 13% TO 27% DECLINE IN STOCK MARKET!
WHENEVER OIL PRICES DROPPED OVER A 12 MONTH PERIOD DURING 18 MONTH PERIOD THEN THERE WAS A 30% MAXIMUM GAIN. THIS IS 30: 1 RATIO OF FABULOUS GAINS IN THE STOCK MARKET! THE STOCK MARKET WILL BEGIN ITS GAINS ONCE THE OIL BOTTOM HAS BEEN ESTABLISHED. THIS MAY BE A 6 MONTH PERIOD AND BOTTOM WILL BE WHEN OPEC MEETS IN JUNE OF 2015.
WHO ARE THE MAJOR OIL PLAYERS TO SHORT THE MARKET? THE MAJOR OIL PLAYERS ARE EXXON, CHEVRON, ROYAL DUTCH ETC. THEY DO WELL WHEN OIL PRICES RISE AND THEY DON'T DO BADLY WHEN OIL PRICES FALL.
THE SECOND GROUP IS THE OIL SERVICE COMPANIES WHO ARE DRILLERS AND DIVERSIFIED SERVICE COMPANIES. THEY HAVE NO INVENTORIES TO MAKE THEM RICH WHEN THE PRICE GOES UP AND THEY WILL BE HIT HARD BY FALLING PRICES.
THE THIRD GROUP IS THE INDEPENDENTS LIKE THE ONES IN NORTH AMERICA.. HIGH RISK AND LOW REWARD WITH FALLING PRIES. THEY ARE WAITING FOR RISING PRICES BUT SHARPLY RISING OIL PRICES SEND THE ENTIRE ECONOMY INTO A DEFLATIONARY SPIRAL.
WHERE SHOULD YOU BE IN THE MARKET?
1. TREASURY BONDS
2. SELECTED INCOME PRODUCING SECURITIES
3. CONSUMER STAPLES AND GOOD
4. DOLLAR AGAINST THE YEN
5. SELECTED HEALTHCARE PROVIDERS AND MED. OFFICE BLDG
6. RENTAL APARTMENTS
7. TECHNOLOGY ENHANCERS
(SEE THE 2015 PORTFOLIO FOR EXAMPLES)
THE UPTAKE OF THIS SCENARIO IS THAT AN INFLATIONARY ECONOMY IS BORN ON
THE COLLAPSE AND WILL BEGIN A NEW INVESTMENT ROTATION FROM 2016-2020. THIS WILL BE CONFIRMED BY THE GAINS IN THE MARKET.
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2 comments:
This is the new normal for the American economy. This support Dr. Schilling thesis of the age of deleveraging and low growth in a deflationary or depressionary environmnet.
The anti-deflationary idea that this is temporary or just a supply glitch is wrong. We are still in a 8 year cycle of deflation. The price of oil like interest matches the low GDP FOR THE NEXT FIVE YEARS! Many real estate brokers told clients that interest rates are going up and that they need to make a deal now. The truth is interest rates in this deflationary environment are going lower.
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