WASHINGTON, Feb. 23, 2016 – Today we recall the still well-known refrain of an old, largely forgotten song: “What a difference a day makes…” That seems about right if you’re referring to Tuesday’s stock market trading action.
Monday, the price of West Texas Intermediate crude (WTI) was up an impressive and quite unexpected 6 percent at one point. In reaction, stocks rallied mightily, even though TV’s usual pundits said the market was now decoupled from the price of oil.
But as of 1 p.m. EST today, WTI has given over 4 percent of that back. It’s off $1.63 bbl., currently sitting at $31.77 and looking like it would like to head back to $28 and below. While we enjoyed Monday’s rally, our short column yesterday indicated some skepticism, and we were right to think that way. The rally is being massively reversed Tuesday even as we sit here typing away on this column.
Despite numerous proclamations by various and sundry TV talking heads that the worst was past, the economy was fine and oil had obviously bottomed, becoming “de-linked” from driving the overall stock market as well, all those bright and sunny tales were extinguished today. Like the east and mid-Atlantic coasts, it’s a dreary rainy day in stock exchanges as well.
Oil prices and the trading mood didn’t get much help today from our friends in Saudi Arabia. Both had been trading significantly on the upside Monday on the absolute conviction that the Saudis and our other friend, the Russian Bear, were about to trim production ahead of any major Iranian contributions to the oil glut – given that that rogue country’s black gold is about to enter markets in a meaningful way now that our current emeritus president, Obama, gave these Islamofascists everything they wanted if we’d only end our boycott.
Of course, as we noted here, the Saudis and Russians neither said nor implied any such thing. They said they’d freeze their production at current levels, not cut it. That means they will not do not one damned thing to trim their oil output at all.
Having lived in the Washington, D.C., area for the better part of nearly 50 years now, we’ve learned to read between the lines of diplomatic bafflegab. We knew that “freeze” sounded swell, but it meant nothing at all, which is pretty much the meaning behind anything that any political figure has to say.
In case TV’s grossly overcompensated financial dumbos and interviewees didn’t get it already, the Saudis put things right this morning, as CNBC reported:
Saudi oil minister Ali Ibrahim Naimi said Tuesday producers will hopefully meet in March to negotiate an output freeze, but production cuts will not happen.
Last week, Saudi Arabia, Russia, Qatar and Venezuela proposed a freeze that would cap production at January levels. Russian Energy Minister Alexander Novak said Saturday the deal, which is contingent on other producers participating, should be finalized by March 1, Reuters reported.
“Freeze is the beginning of a process, and that means if we can get all the major producers to agree not to add additional balance, then this high inventory we have now will probably decline in due time. It’s going to take time,” Naimi said.
“It is not like cutting production. That is not going to happen because not many countries are going to deliver even if they say they will cut production — they will not deliver. So there is no sense in wasting our time seeking production cuts,” he added.
(Bold text courtesy of the Maven.)
There you go. The myth of price cuts to stabilize and then increase oil prices is just that: a myth. Or, better yet, as the Russian energy minister duly noted, what Russia and presumably OPEC are up to is the beginning of a process. There’s that magical word “process.” As in “Middle East peace process.”
As we recall, that peace “process” started somewhere back in the Carter administration. How long ago was that? Have we gotten anywhere near “peace” as a result of this “process”? See any connection here with the current oil situation? People need to read before they turn bullish. The Saudis and the Russians continue to give precisely no support at all for higher oil prices. At least Alexander Novak came out and said it today.
So, as a result of this “process,” stocks are tanking today, taking back everything they gave happy traders on Monday. This ridiculous market thrashing is taking us nowhere, although the HFTs who are behind the endless market churn are buying and selling with the wave and screwing serious investors every time they make a move.
Regarding those talking heads who are always telling you to buy, buy, buy even in this awful, turn-on-a-dime market, Dave Fry of ETF Digest offered this acid-tipped observation in his daily column Monday evening:
China sacked its Securities Chief and directed the media to only speak positively about the country’s stock markets. U.S. and European media already do this since they’re corrupted by industry advertising money…just sayin’.”
Today’s trading tips
As for us, it’s total sidelines today, save for little nibbles in gold and silver ETFs as we accumulate more and more. We favor the lesser-known pair, SGOL (for gold) and SIVR (for silver). They’re a little volatile since they’re thinly traded. But they are actually backed by and can be redeemed in the gold and silver that’s kept in Swiss vaults. And these days, the Swiss are about the only people left whose promises we still trust.
We have also had a nice run of luck slowly accumulating shares of Blackstone (symbol: BX), the investment, management and vulture capital firm that habitually makes lots of money. They tanked last year after a particularly bad portfolio damaged them. But in typical fashion, they hosed out the Augean stables, leaving them with plenty of money by year’s end 2015 to start buying distressed assets en masse in 2016.
Given the increasing Matterhorn of distressed assets that are currently piling up out there, we think Blackstone will be having lots of profitable fun buying this stuff, sacking overpaid managements and then reselling the companies involved back to the public at obscene profits. Plus, they pay a swell dividend, roughly 13 percent right now, although the dividend can be quite variable quarter by quarter.
BX is currently sitting at just under $26 per share today, off $0.70 from yesterday’s close. We bought it a couple of points lower, and may pick up some more if it wobbles over the next day or three.
We’ve also started accumulating a major Blackstone competitor, the Carlyle Group (CG), a company similar to Blackstone that’s HQ’d smack dab in the middle of downtown Washington—you know, on Pennsylvania Avenue NW, a few blocks from Congress, the White House and the K Street lobby barons. Nice neighborhood if you’re into serious profitability.
Unfortunately for CG, they, like Blackstone, didn’t have a banner year in 2015. (Who did?) But, like BX, they seem to have just about squared away their mistakes, are closing a couple of underperforming funds, pay (at least for now) another monster dividend, and are also likely to recover nicely in 2016, even if the year stinks. That’s because, as is also true of BX, they’ll be buying a lot of merchandise on fire sale in 2016 and that’s the best way of all to make lots of money.
We’d endorsed the thought of buying this pair as part of our “year-end bounceback” stock ideas in late 2015. They didn’t start out 2016 very well. But now they seem to be righting themselves. A similar third company we’d highlighted, KKR (KKR) we’d mentioned, seems also to be digging out. But it looks like they’ll have more work to do before their stock becomes really attractive.
All three of these are volatile stocks, but they can be rewarding if you can keep your breakfast down in the morning when you see what they’ve done the previous trading day.
As always, we don’t make recommendations here. This column is our trading diary and/or opportunity for daily rants for and against the market as well as today’s political scene, which makes it hard to make money in the market.
Play along with us, or not. It’s your choice. But we strongly suggest doing your own research before you jump on anything mentioned in this column. All markets remain just as horrible, or worse, than they were in 2015, so whatever you end up doing, don’t overdo it. There are never any guarantees in the market to begin with—this year more than ever.