Take A Break: March 26, 2016

General Markets: The U.S. stock market took a rest this week after a scorching five week rally off of their 11 February low. Oil and commodity related stocks led the way in the recent rally and that is likely to continue after a short rest in this area for a couple of weeks. The primary reason for the energy sector’s recent market dominance was the sharp decline of the U.S. dollar since 1 February. The dollar and oil typically trade inversely to one another. This rise in the energy and commodity sectors was despite supply still outweighing by far any real demand which continues to be demonstrated by the existing bloated inventories of oil. Serious contraction of supply in the commodity/oil sectors is on the way as companies operating in those sectors have drastically cut their production, exploration, and mining due the prolonged low price environment they have been operating in. Once contracting supply becomes visible, that will be an added kicker to the declining dollar as fuel for a further rise in those sectors.

Of the major U.S. stock indices, oil service and gold/silver sectors led the pullback in the markets this week with -4.93% and -4.85% declines for the week, respectively. The dollar advanced for the week after showing serious weakness since 1 February. The dollar looks likely to continue to fall after first some digestion of its recent down moves. That means the U.S. stock market is likely to then continue its recent rally as well since the falling dollar has been the impetus of this rally. The dollar’s fall also means real signs of inflation are starting to appear in the U.S. economy. The Fed’s 2% annual inflation target could be easily surpassed if the dollar continues to fall.

Precious Metals: Gold and silver exhibited significant weakness this week and that was the case for the first time since the beginning of the year for gold. I expect this weakness to continue even when the U.S. dollar resumes it decline due to the simple fact that TPTB cannot afford gold to outshine, pun intended, its beloved paper, fiat currencies. Gold is a relatively small market which allows the government and their big bank agents to suppress and manipulate it rather easily through the use of paper contracts on the COMEX and in London. If gold continued to rise sharply, as it has been this year, it would be a red flag to those that follow the markets that something is seriously wrong with the U.S. dollar dominated currency system.

So those who rule us will make every effort to suppress the price of gold to a large degree while presenting themselves with short term profit opportunities by having it trade back and forth in a range. I think this time you will see the gold price pushed under $1000 over the next few months. The increasing volatility in the gold market will be a sign that this market wants to turn and change direction. It will be a classic battle between the bulls and bears over the next few months but the math (huge and growing debt within the system) and fundamentals favor the bulls in the end.

The bears know they are bound to lose in the end, so that is why you see the U.S. government and their vassal governments gearing up for the collapse of their economic system through their typical subversive means of scaring the public and setting up the state as their savior and protector. But do not be fooled, the state will use force against its own citizens, if the time comes, to ensure its own survival. The rulers do not want the collapse of their economic system to lead to a collapse of their governing (ruling) system as well. TPTB have it too good to give in and admit their system is a despicable, evil, rigged sham. They will do everything and use everything in their huge arsenal to prevent the status quo from changing or being deposed. That means they want to stay on top and keep everyone else under their thumb at all costs.

The thing is their system requires huge amounts of funny money to function and operate and the cause of the coming collapse will be directly due to the extreme loss of value of their paper currencies. So without funny money that has real value, which in reality could never exist except in circumstances of extreme subterfuge and the threat of force, TPTB are up a creek without a paddle when the paper money finally starts to reach its true intrinsic value, zero. People are going to be shocked by the rapidity of the arrival of this event and the resulting circumstances that it creates. The people have always been programmed to believe in the power of their state and the primary representative of that power is its currency. The huge government infrastructures that have been built up over the decades with the power of their paper currencies, generated by their beloved central banks in collusion with the major banks, will be largely impotent when these currencies quickly seek their real value, zero.

It will be such a drastic change from the way things have been for so long, that there will be huge amounts of chaos and even unrest in some areas.   The fact that so many now depend on government for their survival and now that support is gone, will hit a large number of people in a way that they have never been hit before. Another factor in the U.S. case, its economy is so financialized and dependent on the use of the dollar, the entire economic system will probably cease to function until an alternative system is put into place.

The ruling system has kept the people intentionally blind and ignorant to the current economic conditions, how the system works, and the probable events to be experienced. But the U.S. Deep State ruling system has taken great efforts to beef up their ability to use force when the time comes to sustain their positions of power and profit.  They have such a beautifully devised system that has delivered so much power and wealth to the self-selected few who know how to work the system at the expense of the general population, that there is no way that they willingly abdicate their positions at the top of this heinous pyramid scheme. But again, without gigantic amounts of funny money possessing real value, this evil, criminal house of cards self-destructs on its own to a very large degree.

Happy Easter!

Final Blow Off Top On the Way … But A Short Rest First: March 20, 2016

General Markets: The markets continued to advance this week and have been on a torrid pace for the last five weeks in a steep rise off of its February 11th bottom.  I said last week that we are due for a rest soon and I still think that is the case. We are now entering the blackout period for stock buybacks on Monday, as per a Zerohedge article this week. We all know by now that stock buybacks have been a big driver in keeping this funny-money bloated market aloft over the last several years, but particularly in the last several months. Another Zerohedge article this week stated that major hedge funds have been selling into this rally and into the company stock buybacks to offload their high priced shares to a price unconscious buyer. Another factor pointing towards a pause is the upcoming April 15th tax deadline, where many market participants pull money out of the market to pay their taxes. The U.S. stock market is often in a lull for a few weeks prior to that deadline. Not to mention that after a quick, sharp advance the stock market is due for a needed pause before continuing further. The U.S. stock market has been driven and closely correlated to the simultaneous fall and rise in the oil price since the beginning of 2016. The oil price is now near significant resistance, its 200 week exponential moving average, which is a technical factor that usually inhibits forward progress in a move up.

A lot of people are still doubting this recent stock market rise and that is a good sign for the continuation of this rally. The rapidness of this recent rise is probably a sign of what is to come, more strong U.S. stock market action going forward. The energy, emerging markets, and commodity related stocks have led and been the underlying strength of this rally. The former NDX 100 champions have lagged and I expect that to continue in the future. The latter are the high priced, overvalued stocks that the major hedge funds have been selling into the company buyback programs. The former sectors are the low priced, value plays that will continue to advance with their underlying core drivers such as energy, other natural resources, and commodities despite any negative news pertaining to them, in general. In particular, I still expect to see some bankruptcies in the energy sector, so unless you have done a deep dive into a particular company, sector ETFs are the safe way to play this highly probable upcoming rally.

The big driver of this rally has been the decline of the U.S. dollar, which historically moves inversely to the price of oil. Thus, the significant decline of the dollar over the last several weeks, starting on February 1st, has been the catalyst setting off the rise in oil, which started about 10 days later. If you look at their charts, you will not see a direct recent day to day correlation, but historically over the long term and more roughly over shorter time periods, that has been the case. Looking at the dollar chart further, you can see a lot of air underneath where it now sits due to its rapid rise over the 2014-2015 period. That is a big reason why I think you will see a rapid decline in the value of the dollar over the next several months. It does not have any near term support until around 89, once it breaks past the 93.5 level, to prevent its continued decline.   But first, like the stock market, I expect it to take a rest too, after its weak performance in March. And with a rapid decline in the dollar you will get a rapid rise in the oil price which is the current driver of the U.S. stock market. Therefore, the rapid rise of the oil price will provide the conditions for a strong stock market rally, despite any negative news or fundamentals that is being concurrently proffered.

Inflation is starting to rise as indicated by various government statistics such as PCE, CPI, etc. One of the main indicators going forward for inflation will be the U.S. stock market. Inflation is really an increase in money supply (cause) that usually creates a rise in consumer prices (effect). The money inflation, as far as consumer prices, has been hidden to a large degree over the last seven years. This is because the increase in money supply has been largely applied to the major banks to shore up their balance sheets, into the stock market to keep the illusion that the government has everything under control and the economy is strong, and into the bond markets to keep interest rates low so as not to blow up this financial house of cards (on both the government debt side and the big bank derivative side).  This is also seen in the low velocity of money over the same time period as this money is not circulating out in the real economy but is only being shared among the government’s crony partners in crime to save them and to buoy up the markets.

The stock market is set up now to have its final blow off top with the rapid price rise in oil and the equally rapid decline in the value of the U.S. dollar. The U.S. stock market will probably rise rapidly along with a rapid rise in U.S. inflation because of the declining value of the U.S. dollar. The culmination of this final market rally and dollar decline will be the end of the U.S. dollar as the world’s primary reserve currency and U.S. hegemony in the world. This will be the beginning of a trend toward a multi-polar world where the U.S. is no longer by far the dominant force.

Going forward, economic wherewithal will mean much more than who has the biggest military and is willing to use it at the drop of a hat in order to impress its will on others. The U.S. economy has been hollowed out and cannibalized over several decades by this parasitic, fascist partnership between big government, big banks, and big corporations at the expense of its citizens and other nations abroad. How this exactly plays out is anyone’s guess, but I think you can bet that without the U.S. dollar being a reasonably valued currency, much of the government power and infrastructure built up under this system is going to disappear.

This will cause much pain, even devastation in some cases, but this corrupt, criminal system needs to be cleansed and cleared away to allow for sustainable progress in the future with a much more level playing field for all.  Government and their cronies will not self-regulate themselves when they purposely designed the system to do what it does in explicitly rigging the game for their benefit at the expense of the general population. The general population has been so bought off, indoctrinated, and drugged/incapacitated to a large degree by the system that they have little will or knowledge to change the system, especially when it seems so powerful to try to confront. So nature will take its course as it has done throughout history and cleanse the system of its abuses and criminality to a large degree.   A multi-polar, more competitive world will be better than this soft-core totalitarian (up till now; they are arming all the government agencies, have “homeland security”, and militarized police departments for a reason), crony government and economic system but how much better will be up to the people. If you keep relying on big government and their cronies to supply the answers and solutions to the problems then you cannot expect good results going forward. The good thing (as far as trying to bring back the U.S. Constitution or something similar) is that government cannot be so powerful in the future without a lot of central bank supplied funny money. The U.S. funny money printing press will be seriously crippled in the near future by its own self-inflicted abuses and criminal acts.

Precious Metals: Gold and silver have been trading in a range over the last five weeks and look very close to turning downward despite all the hoopla and excitement still out there over the preceding rise. TPTB cannot allow gold and silver prices to continue to rise if they want to maintain the illusion that the economy is still recovering and everything is all right. A high gold price is anathema to the waning strength of these fiat currencies and will not be tolerated by the Anglo-American empire and its vassals. You can see elements of this by the recent report that the Canadian government has now sold almost all of the remaining remnants of its gold reserves. You can bet that if the U.S. government does not permit anyone to audit its gold reserves or Fort Knox, the gold is probably not there. It has been sold onto the market to keep the gold price down and help make the fiat currencies look strong. This rigged game is coming to an end though since these guys are running or have run out of gold reserves to throw onto the market to suppress (suppress all threats to the system – gold, the people, and any country or person that does not obey direct orders of the empire) the gold price. The U.S. government is finding it is more difficult to find other countries to invade where one of their first moves is to steal the gold. The U.S. government does not want to work and trade to acquire gold, it does everything through the use of force – covertly if possible. The more this system falls apart, the covert measures will become increasingly less effective, so they will revert to overt forceful measures.   Particularly so because the quickly devaluing U.S. dollar will be much less effective in buying people’s loyalty.  I expect gold to go below $1000 and then I will have to re-evaluate to see what is the most likely direction from there.

Recommedations: The following have been previously recommended and are still vaild. Most have had nice advances in the recent runup and will probably rest with the market over the next few weeks. Then again, they might not so if you buy in now, I think you will be fine, just be aware that there could be some near term volatility after such a prodigious runup in a short timeframe.

Emerging Markets: Selected emerging markets have done well in this runup, particularly Brazil, Russia, and China, all of which have been recommended here. RSX (Russia ETF), RUSL (Russia 3X leverage ETF), EWZ (Brazil ETF), BRZU (Brazil 3x leverage ETF), FXI (China ETF) are instruments to participate in these countries. Individual emerging market stocks that have been Marketscope Recommendations include Alibaba (BABA, Chinese Internet Commerce), Vimpelcom LTD (VIP, Russian Telecom with good dividend), Mobile Telesystems (MBT, Russian telecom with good dividend), Yandex (YNDX, Russian search engine ala Google), Luk Oil (Lukoy, Russian Oil Company), Gazprom (OGZPY, Russian Natural Gas Company). Expect further gains in the emerging market space, as the energy, agricultural, and other commodity sectors continue to move higher in prices. These sectors have put investors/traders on notice with the magnitude of their moves. Continued advances in the emerging market and natural resource/commodity sectors further support the thesis of a declining U.S. dollar.

Energy:

XLE (Energy ETF), OIH (Oil Services ETF), USO (oil ETF), UNG (Natural Gas Futures based ETF), DBE (Energy ETF 2x leverage), ERX (3x leverage), GASL (Natural Gas companies, 3X leverage)

Consol Energy (CSX) is a natural gas and coal producer. On its recent earnings conference call, it expects to weather the current low price environment without selling any properties/assets and it is free cash flow positive. It still has significant hedges in place that are cushioning the effects of the low prices. Due to the recent numerous bankruptcies in the coal space, it customer base has actually increased in that area as customers look for a reliable supplier. It can be profitable in the natural gas area with a price in the low $2’s and is expecting to get that down to $1.86 in the near future due to further cost efficiencies. I would not be in a hurry to buy here as it has almost doubled in price over the last two weeks. I would not be surprised to see it consolidate recent gains here and possibly provide an opportunity to pick it up at a prices below $8 versus its current price of $9.1.

Kinder Morgan (KMI) is primarily a natural gas pipeline owner and operator along with a bulk shipping terminal business that has been adversely affected in recent times by the bankruptcy of two of its coal mining clients, Arch Coal and Alpha Resources. In its last earnings conference call its management stated it had the situation well under control, it is a well-diversified business, its pipeline business, which is its largest business segment, was doing reasonably well despite low natural gas prices because to a significant degree this business segment is insulated from the low natural gas price environment (they are just transporting the natural gas through their pipelines for others, they are not drilling for it and selling it themselves), and they looked forward to the future. Warren Buffett was recently reported as taking a position in this company.

EPE (EP Energy, oil/natural gas pipelines). The company wants to keep its dividend in place and will only suspend it if is necessary but right now things are manageable. Upside potential from here looks promising.

Chesapeake Energy (CHK, 2nd largest natural gas producer in U.S.) has been in the news much this year because of their heavy debt loads and the prolonged low price environment in natural gas. CHK has a 500 million dollar debt payment due in March according to recent Wall Street Journal articles and CHK has the cash to pay that. But next year they have quite a bit more debt coming due, and it is expected that they will have to sell some properties or interests in some properties to successfully manage their debt going forward. In their last conference call they expressed having the flexibility to meet the upcoming debt payments by selling some of their non-core properties and still be in good shape for a rebound in natural gas prices.

Fuel Cell Energy Inc (FCEL), as per Yahoo, together with its subsidiaries, designs, manufactures, sells, installs, operates, and services stationary fuel cell power plants for distributed power generation. The company is also involved in the development, design, production, construction, and servicing of fuel cell products under the Direct FuelCell name. Its power plants electrochemically produce electricity and heat using various fuels, including natural gas, biogas, methanol, diesel, coal gas, coal mine methane, and propane. The company serves utilities, independent power producers, and governments; and education and healthcare, gas transmission, industrial and data centers, commercial and hospitality, oil production and refining, wastewater treatment, food and beverage, agriculture, and landfill gas sectors.

Energy- Solar Sector:

SPWR (Sunpower, solar sector), FSLR (First Solar, solar sector), TAN (solar ETF),

Cybersecurity and Miscellaneous:

AKAM (Akamai Inc., Internet), VRSN (Verasign Inc., Internet), FEYE (Fireye Inc., Cyber Security, GLW (Corning, ), RHT (Redhat Inc.), MGM (MGM Resort International Inc., Casinos/Leisure), A (Agilent Inc., Life Sciences/Diagnostic Services), TROX (titanium oxide producer, potential 3D printing implications),.

Agriculture:

POT (fertilizer company), MOS (fertilizer company), TWI (smallcap tractor tire manufacturer)

Smallcap Tech/Life Sciences:

Five smallcaps are RMBS (Rambus Inc., Semiconductor/Cryptosecurity), LMNX (Luminex Inc., Life Sciences/Diagnostic), FLEX (Flextronics, Electronics Contract Manufacturing/Solar), and NANO (Nanometrics Inc., As per Yahoo: high-performance process control metrology and inspection systems used primarily in the fabrication of integrated circuits, high-brightness LEDs, discrete components, and data storage devices).

The Real Story: March 13, 2016

General Markets:  The major U.S. stock indices finished up for the week although there was a slight divergence between the technology oriented indices (NDX 100 (+0.76%) and the Nasdaq Composite (+0.67%)), which was more of a case of holding on to their prior 3.5 week gains and the more established company, non-tech indices (Dow Jones Industrials (+1.24), S&P 500 (+1.11), and New York Stock Exchange (+1.36)) continuing to push higher.  The latter set of indices contain the pharmaceutical, oil-related, and precious metals mining companies.  The latter set of indices also contain, in general, the more established, well-seasoned companies showing a market tendency, often seen near market tops, to take on less risk.  The NDX 100 and Nasdaq Composite indices are dominated more by many large and small cap (in the case of the Nasdaq Composite) technology and biotech companies in combination with a younger, less tried set of companies as far as previous exposure to times of extreme market stress.    This is a historical tendency by market participants to gravitate to longer established companies that have weathered previous market storms and have a history of providing either more consistent earnings during difficult economic times or offer something of tangible value that is priced at much more reasonable valuations than the sky high valuations of former market leaders contained in the NDX 100 and the Nasdaq Composite.   This developing divergence between these indices and stocks is another sign of the general U.S. stock bull market approaching its terminal or beginning its terminal up phase.  Energy related stocks are often late stage movers in an aging bull market as well.   The U.S. market indices are entering or are in areas of major resistance right here so I think it is likely to see some digestion or pullback in this area for a week or two, especially after a relatively strong, multi-week rise.

Many market forecasters are in the still fighting the last war syndrome expecting the U.S. stock market to continue to sharply decline as it did over the first 5.5 weeks of 2016.   The thing these market prognosticators are missing or ignoring is since the beginning of the year, the U.S. stock market has become closely correlated to the price of oil.  The oil price appears to have now bottomed and broken out to the upside decidedly over the last two weeks and held on to its gains so far.

Many energy related stocks as well as selected emerging markets have performed terrifically over the last few weeks. Many of the prior Marketscope recommendations in this space have performed very well over the last few weeks.   I expect this energy related uptrend to continue for the time being and to continue to provide some nice profit opportunities going forward.   I have been following several long established, individual companies in the oil service sector on primarily a price basis over the last few months but due to time constraints, other issues, and travel have not done an in depth dive into their fundamental situations.  So I have been reluctant to proffer those companies as recommendations but the sector in general looks very strong and still has significant room to run.  I would recommend focusing more on the energy service type of stocks rather than the exploration and production companies as it is easier for the service companies to manage their inventories, operations, and it is a less capital intensive business model in an era of peak low price (and easily accessible) oil.

Do not be fooled by the current low prices and slow global economic growth, oil production and discovery going forward is becoming an ever more expensive proposition.  The easily accessible oil deposits in relatively stable countries have already been discovered and extracted to a very large degree.  Going forward, finding and extracting oil from deep sea deposits, shale, remnants of former large land deposits, or in unstable countries is going to be much more expensive than in the past.  Add to this the increased cost of capital in that interest rates for these ventures are rising just compounds the cost issue in the future production of oil.  The philosophy of buying the oil service companies goes back to the age old story of the gold rush days where it was much less risky and often more profitable to sell the picks, shovels, clothes, supplies, and other tools to the miners than to go directly into gold mining.

The Real Story:  The real story in the markets today is not the resumption of the decline of the U.S. stock market, the decline of the banks, nor the continued rise of the gold market.  The real story is the growing and evident weakness of the U.S. dollar and what that means going forward.  The likelihood of the U.S. dollar continuing to decline from here is highly probable based on current market evidence.  Looking at the 20 year history of the U.S. dollar, it has never traded this long (since 3/9/2015) in a range and in such a tight range.  Long tight ranges in the market typically resolve themselves into an explosive move to one side or the other of the range.

Historically (at least for the last 3-4 generations), the U.S. dollar has been seen as the safe haven currency.  Over the timeframe of this U.S. dollar trading range, we have seen Russian involvement in Syria (really a good thing as they seem to be the only ones serious about eliminating the terrorist threat there), Chinese Yuan de-peg from the dollar,  continued slowdown and stagnation of the EU economic and monetary situation, continuing Chinese economic slowdown, potential breakup of the EU, continuing global economic slowdown, serious global deflationary environment due to the prolonged low prices of  commodities/natural resources, potential destabilization of Saudi Arabia due to economic and geopolitical degradation including an ongoing war, Ukraine/Russia/U.S. & its vassals confrontation, potential U.S. and China South Sea confrontation, and ongoing social unrest in Europe due to the fallout of the Middle East and North African wars that have been largely generated and sustained by the U.S. (we are seeing a pattern here when it comes to the military confrontation issues aren’t we- U.S. military/CIA overt/covert involvement).  If the U.S. dollar cannot go up under these conditions and it is perceived to have the one of the few growing major economies in the world, then after all this time, the most likely direction is down and is becoming more evident as the recent weakness over the last 3.5 months is displaying.

That is not to say we can’t have another burst to the upside but I think, at best, that would most likely just be a false breakout before a reversal to the downside again.  When you consider the huge U.S. sovereign debt and unfunded obligations (Social Security and Medicare), slowing domestic economy (S&P earnings down for 3 straight quarters; major and mid-level retailers closing large number of stores in a largely consumer-based economy), the huge derivative time bomb residing in major U.S. banks, and the establishment of an alternative global currency network that bypasses the dollar that is vigorously supported by major, disenfranchised, foreign U.S. creditors, then things are not looking good for the dollar.

The times they are a-changin’ as the old Bob Dylan song goes and ground zero for the quickly changing world will be the U.S. dollar, due to its quickly fading primacy as the world’s reserve currency.  The consequences of this change will be devastating to the U.S. population at large but you will never hear a word uttered in warning by the government and their partners in crime, the major U.S. banks, about what is coming.  After this financial debacle arrives they will claim ignorance and that it was impossible to predict- more BS! from the lying, cheating, and criminal predators.   To be fair and balanced, major corporations are in on this rigged game as well buying their way into government favor as well as partnering in the brutal oppression of the general population to profit for themselves and maintaining power for the government deep state.  The U.S. government represents its interests and the interests of these before-mentioned partners-in-crime, not the interests of the U.S. people.  The citizens are to be used and abused as necessary to keep their fascist, totalitarian empire building regime going for the benefit of the self-selected few.  Freedom, liberty, justice, and any other individual right contained in the U.S. Constitution for its people are completely ignored in reality by the government and its co-conspirators.   Yes, conspiracy theories concerning government, banking (particularly the major banks), and major industries are the reality not just a perjorative term invented by Deep State perpetrators to throw the public off their dirty, crime-infested trail.

In summary, if the dollar continues to fall as it looks likely to, then dollar-denominated commodities and natural resources will continue to rise.  This is the start of inflationary tendencies rising up which should start affecting overall prices of goods (as in increased prices for things), especially those of imported items as we progress further down this road.  Also, as long as the U.S. stock market stays correlated to the price of oil, then it should continue up as well.

Central Banks:  The central banks of the world are running out of ammo to manipulate their respective currency, stock, and interest rate markets.  Sweden has used negative interest rates during 2015 in an effort to suppress the value of its currency, but the end result is its currency has risen.  Japan recently went to negative interest rates in an effort to lower its currency value, result was the opposite – currency rose in value.  EU just lowered its interest rate last week and the currency rose in value, not the intended effect.  The Federal Reserve raised its interest rate in December, 2015 and the U.S. dollar has exhibited continued weakness since then, not the expected result.  All of these countries/regions have reached a peak debt situation, where they have huge sovereign debts compounded with a highly unstable banking network that is hugely leveraged and slowing/faltering economies, which relegates their respective central bank financial engineering machinations to fueling the developing blaze rather than extinguishing the fire at a critical juncture.

These countries are using a highly fascist economic model that leads to painfully thin, unhealthy, and failing economies over time and reaches its terminal phase when its sovereign debt reaches unmanageable proportions based on its low real economic production in concert with a proven, failed governance structure.  This fascist structure protects old, established companies along with an extreme, pervasive government power framework and provides an economic environment that suppresses and oppresses the birth and regeneration of new, potentially thriving businesses that a continually productive economy requires.   The latter only occurs in an environment where individual rights are protected and fostered as a positive characteristic to possess.  The fascist system is dependent on protecting the power and wealth of the self-selected few in order to maintain the status quo.  What happens eventually is, things gradually deteriorate until they destroy themselves in a rapid terminal phase due to a continually strong interference by the invasively (mostly all big government action is invasive) designed system on human’s tendency to produce and survive in the best possible way according to their continuing progression of  learned skills.  Economies can only be self-perpetuating if they follow sound principles that are based on relatively open markets and individual rights, which this banker-big government designed system does not incorporate nor allow to a large degree.  An economy will more likely thrive over extended periods without huge extremes in economic activity if big federal government and creating money out of thin air banking were abolished.

Energy Markets:  The oil market looks like it has decidedly broken out to the upside.  Many market forecasters are still calling for more downside action due to the ongoing glut in inventories or because the junk bond market has not bottomed yet or because the downtrend was just interrupted by a short term trend.   When a market breaks out despite bad news not supporting the rise in price, that is typically a good sign for that market to continue to rise.  Trying to predict the direction of a market strictly on fundamental issues or based on continuance of a recent large trend is an error prone method.  The final trend phase before a market bottom is reached is usually a steep sharp decline and is very misleading by its nature.

Again, as above, I think the real story here is the continued weakness of the U.S. dollar, which is historically and closely inversely correlated to the price of oil.  I think the current upside move in the oil price is more reflective of the dollar’s weakness (and the causes behind a weak dollar) than to the current inventory levels of oil.  Oil production should sharply contract this year based on reports of seriously decreased capital expenditures for 2016 by major and mid-major producers, current record low rig counts, and recent bankruptcies of marginal oil companies with more to come.  Also, most frackers need a price in the $60’s for a period of three consecutive months and then it takes them several months to acquire funding and get back online, according to an article in the WSJ.  A continuing wildcard is the ongoing degradation of Saudi Arabia’s economic and political position and the unsettled situation in much of the Middle East.

Precious Metals:  Precious metals are in a critical area here and I continue to believe the mostly likely direction from here is down.  As I have stated before, TPTB are not ready to give up the ship yet and they cannot let the gold price rise much more from here if they are retain their narrative that everything is under control.  As always, TPTB have the power of paper to throw onto a market (in the COMEX and/or London as well as its banker agents) to push it where it wants a market to go, especially a relatively small market like the precious metals market.

While I expect the natural resource and commodity markets to continue to go up, gold and silver have a history of being used as money and as thus take on very different behavioral characteristics.  Their prices depend much more on the strength of the presiding governments and their cronies, whose system is based on the strength of artificially created paper currencies, rather than real supply and demand.  Gold and silver will be the last markets to go up as we enter into the terminal phase of the reign of the U.S. dollar.

When gold and silver bottom and then rise, that will be the bell that U.S. dominance, financially and otherwise, is history, and that its chief weapon, the Federal Reserve central bank, is totally impotent to alter the future course of its currency or other markets.  It will also be a sign that the economy has been largely destroyed and will require serious reconstruction to support its populace.

Currencies:  Major foreign currencies have shown relative strength against the dollar, even the shaky Euro and the Japanese Yen, currency of the highest indebted major country in the world in relation to its GDP have shown strength against the dollar.  I think this trend will continue for the reasons given above.  All of these currencies are in a race to the bottom.   Major foreign currencies led the way in this race and now it looks like the U.S. dollar’s turn to play catch up.  If the dollar continues its decline from here (96.27), there is a lot of air beneath it once it gets past the 95 area.  It very likely will take a quick fall to the 88 area then, which is the last major support area for the dollar.  If and when it works its way from 88 to the 71 area, then look out below.  Markets tend to fall much faster than they rise, so the speed at which this lower level is reach could very much surprise people.  We have a ways to go before worrying about the consequences of that, but these are the data-points to watch for.

Junk Bonds:  Junk bonds have experienced a strong rally over the last 4.5 weeks as it has tracked the rise in the oil market.  I think we are near a point where you will see these two markets start to diverge and go into opposite directions.  There are still many shaky fracking companies with large amounts of debt and no way to pay.   This spring, in April, their banks/investors will meet with these companies and probably reprice their loans to higher interest rates that they will not be able to afford at current or near term oil prices.  Also, I suspect that a lot of these shaky companies have been hanging on through the use of hedges which they will not be able to afford going forward.

Sidebar:  Big, Federal Governments lose their ability to manage well their areas of concern as government and the areas they are responsible for become larger.  As governments become larger they become much more concerned about government interests rather than the interests of the people they are supposed to be serving.  Smaller governments are more nimble and more concerned with performing their more limited duties well rather than trying to figure out ways to increase their size and power.  Big federalized (supported by large federal subsidies) governments cannot react to the problems and issues that arise in it component regions with the same dexterity, timeliness, or concern that a smaller (less federal subsidized) localized government can.  Bigger governments have more bureaucratic layers to go through to accomplish its larger, more encompassing, many times self-prescribed missions.  Localized governments because of their more limited access to resources, usually work out a much less invasive plan of action that in the long term maintains the rights of the individuals within that region as well as providing a timely, effective, and cost conscious response to issues.

Oil Is Starting to Come Alive Again: March 7, 2016

General Markets:  The major U.S. stock market indices continued up for the third week in a row according to the Wall Street Journal (WSJ).  The oil service sector (13.36%) was strongest thanks to the U.S. crude oil price increasing 10% this week followed by the PHLX Gold/Silver (7.84%) and the KBW Bank (6.19%)  indices.  The U.S. stock indices have been closely correlated with the price of U.S. crude oil since the beginning of the year and it looks like crude oil has bottomed and is starting to move up.  So if the current correlation remains intact then it looks likely that the U.S. stock market will continue to move up with oil related stocks leading the way.  Oil stocks leading the way back up may also contribute to helping the U.S. banks stay on a positive course as well since their loan exposure to the fracking energy companies has been a major concern over the last 2-3 months due to the continued low oil price environment.   The WSJ also reported that with most earnings now reported for companies in the S&P 500, its earnings declined 3.4% for the third consecutive quarter of declines, year over year.  This is another sign of the continually failing economy of the U.S. and also demonstrates that the global economy is continuing to decline as well as many companies in the S&P 500 derive a substantial portion of their profits abroad.

Energy Complex:   While the crude oil price looks like it has bottomed, natural gas continued on down by $0.11 for the week from its prior weekly close.  Natural gas went down on heavier volume but not down sharply which could be a sign of some buying coming into it.  Natural gas is now trading at a greater than 20 year price low and will probably bottom soon and follow oil up as they often move in tandem with each other.  Mike Medlock posted an article last week stating that natural gas drill rigs have fallen below 100 for the first time in three decades and the number was above 900 just five years ago http://mishtalk.com/2016/03/04/natural-gas-futures-lowest-since-1998-rig-counts-lowest-since-1987/ .   So supply has severely contracted and a leading natural gas stock, Chesapeake Energy (CHK) was on fire last week, rising over 88% on heavy volume.  CHK has been a past recommendation and was recently on the watchlist.  They announced earnings the week before last and it looks like investors liked what they heard since this is the third week in a row of increases for the stock.  It may look extended here but I do not expect this stock to fall back much from here, especially if the natural gas price bottoms and turn up.  ETFs XLE and USO are ways to play the rise in oil prices while avoiding individual company risk.  ETF DBE (2X) and ERX (3X) are leveraged oil ETFs for the more aggressive traders who are willing to accept added volatility.  UNG and GASL (3X leveraged) are natural gas-related ETFs.  UNG is based on the price of natural gas futures and GASL, is a leveraged play on natural gas stocks.  The individual natural gas stock themselves are a leveraged play on any rise in the natural gas price as exhibited by the extreme action of CHK over the last three weeks.  When the natural gas price turns up, natural gas stocks will do very well, percentage wise, from these very depressed levels.  The solar sector is still sitting within a range that goes back for more than five years.  When solar does finally break out of this range, a sharp move higher can be expected.  FSLR (First Solar) made a 52 week high this week and closed down slightly from the week before.   FSLR had a big move the week before off a well-received earnings report.  I expect some more backing and filling, and even another decline before the solar sector finally breaks out.

U.S Dollar:  With oil starting to rise, it was not unexpected to see the U.S. dollar fall on higher volume as these two entities are tightly and inversely correlated to each other.  This is not the U.S. dollar we once knew and anyone parking their cash here long term is probably going to regret it.  The reason I say that is the only things underpinning the dollar is an outrageously high sovereign debt with a seriously faltering domestic economy that is primarily consumer based and a huge military that is highly dependent on the dollar being strong and used as the world’s primary reserve currency, the latter is becoming more and more seriously challenged by the establishment of an alternative currency network complete with development banking institutions and the former will quickly disappear if the oil price keeps rising.   This does not take into account what the Federal Reserve and Treasury Department may be doing behind the scenes to keep interest rates this low.  Since the Federal Reserve creates money out of thin air and never undergoes an audit, who can really say what is going on as far as our nation’s money supply is concerned.

Precious Metals:   Gold made another move higher last week as I had earlier said last week was possible before gold and silver turn down.  I think we are now at that turning point area and we will see precious metals turn down this week.   I believe gold will go below 1000 on this run down and it will take a couple of months to get there.  Major support comes into play around $965 and the decline will take a breather or turn around at that point.   We will have to re-evaluate as we get close to that point to readjust future probabilities from there.

Emerging Markets:  Selected emerging markets had a big week, particularly Brazil, Russia, and China, all of which have been recommended here.  I had these on the Watchlist a couple of weeks ago, because I thought you stood a good chance getting them at a cheaper price but they have decidedly broken out of their range.   EWZ (24.89%), BRZU (89.58%), RSX (11.73%), RUSL (37.33%), and FXI (8.45%) all had strong to explosive up moves last week.  Individual emerging market stocks that have been Marketscope Recommendations include Alibaba (BABA), Vimpelcom LTD (VIP), Mobile Telesystems (MBT), Yandex (YNDX), Luk Oil (Lukoy), Gazprom (OGZPY), and Petrobas (PBR).  Expect further gains in the emerging market space, as the energy, agricultural, and other commodity sectors continue to move higher in prices.  After last week’s big move, I would expect some digestion in here this week, but these sectors have put investors/traders on notice with the magnitude of these moves.  Continued advances in the emerging market and natural resource/commodity sectors further support the thesis of a declining U.S. dollar.

Recommendations:  In addition to the recommendations posted in this article, check back in recent articles that have recommendation and watchlist stocks and ETFs.  These stocks and ETFs are starting to move.