Oil, stocks up on predictably positive OPEC rumors

Saudis to “discuss” current oil situation in OPEC meeting. Statement gooses sagging crude prices as well as stock market averages. But when have these rumors ever been true?

Image of a "Suezmax" oil tanker, courtesy of Teekay Tankers' (TNK) website.

WASHINGTON, August 11, 2016 – CNBC took a short break from its constant anti-Trump barrage to report on Thursday’s surprising jump in oil prices. According to CNBC, this reversal in crude’s recent downward trend was attributed to nice words coming out of Saudi Arabia regarding an upcoming OPEC meeting scheduled for late September as well as to forecasts of tighter oil supplies this fall.

“Oil prices rose more than 4 percent on Thursday on comments from the Saudi oil minister about possible action to stabilize prices and as the International Energy Agency forecast crude markets would tighten in the second half of 2016.

“Saudi Energy Minister Khalid al-Falih said OPEC members and non-members would discuss the market situation, including any action that may be required to stabilize prices, during an informal meeting on Sept. 26-28 in Algeria.”

Positive comments coming from the Saudi oil ministry have delivered actual good news about as frequently as Mario Draghi has actually gone through with actual, concrete steps to salvage the Eurozone: close to zero. But what the heck, this market has been running on hot air and rumors for at least two years now and the situation is unlikely to change until after the November elections here in the U.S., which, according to all the experts, Her Hillaryness is likely to win by 105 percent to -5 percent according to the latest rigged polls.

Whether it’s financials, politics or anything else, you simply can’t believe a thing you read any more, can you?

Although stocks in general are positive today, they’re likely to get back to red ink territory Friday or Monday even though both the Dow and the S&P 500 hit new all-time highs today. Earnings season has been neutral, with earnings surprises about even with earnings disappointments, all of which are relative anyway. As a result, we continue to be fairly inactive today, although we’re messing with investments a bit around the edges.

Trading diary

One of our current REIT holdings, New Residential (symbol: NRZ) popped a secondary issue on us last night. We should have seen it coming as the stock price was wobbly yesterday after a good run. REITs are notorious for issuing new stock to private investors without warning, thus diluting retail holdings. Retail stockowners always take a hit and it sometimes takes months, or at least weeks, before the individual REIT’s price recovers.

That said, issuing new stock is an inexpensive way to raise cash for more real estate acquisitions, so that’s the way it goes with these high-yielding stocks. Furthermore, most (not all) REITs try to work the books (legally) in such a way as to maintain or ever increase dividends after these secondary offering surprises. So, if you’re primarily income-oriented, you just hang on to the stock you’ve got, or actually use the unexpected price smackdown to buy more shares.

Buy more shares is exactly what we did this afternoon, as we’ve been looking for at least a small price break to pick up more shares of this high-yielder whose dividend is currently 12.42 percent or thereabouts. After all, we’re not getting anything close to this number from our banks deposits.

We also added a tiny increment of shares to our holdings in the Schwab real estate REIT (SCHH) plus a token amount of shares in the Schwab foreign investment ETF (SCHF). Since the Dow is so strong today, we’re holding off for now on increasing our holdings in the Schwab large company ETF (SCHX), though we’d like to incrementally raise our holdings here as well.

Bottom line: whatever we’re doing on the buy side, we’re doing by small increments. We never know when this lighter-than-air market will turn on us, so we are still cautious about over-committing. We may regret this if this mini-bull keeps barging ahead. But we’ve made the mistake of over-committing in the past and have paid a heavy price for it, so we remain cautious and opportunistic in our buys.

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Terry Ponick
Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17