Who is more powerful? The Bank of Japan or the oil market? We’re going to find out soon.
Market Roundup
On Friday, the BOJ launched yet another round of stimulus designed to weaken the yen and ignite a rally in risk assets. It lowered a benchmark interest rate to negative-0.1%, following the European Central Bank into that particular corner of the financial Twilight Zone.
Gov. Haruhiko Kuroda described the move as necessary at a time of weak global growth and increased risk aversion. And he certainly succeeded in pushing stocks higher for one day. But none of his past efforts has worked for very long, if at all. Indeed, the BOJ, itself, just pushed off the date at which it expects to achieve its 2% inflation target for the fourth time.
Then today, the oil market fought back. Or rather, fresh reports debunked all the “coordinated OPEC/non-OPEC production cut” talk from last week.
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| Saudi Arabia and other OPEC nations aren’t about to throw a lifeline to U.S. shale producers. |
The Wall Street Journal said powerful Arab oil-producing nations are dead set against an emergency meeting or a quick output cut. Kuwait, Saudi Arabia, Qatar and the United Arab Emirates don’t want to throw a lifeline to the sinking U.S. shale companies they’re competing against.
As for Iran, it’s pushing full steam ahead with plans to ramp production back up now that international sanctions are no longer an issue. The country wants to produce and export around 1.5 million additional barrels per day, a huge leap from the 1.1 million BPD it’s exporting now.
| “Iran is pushing full steam ahead with plans to ramp production back up.” |
Bottom line: With oil falling again and central bank news largely behind us, we’ll have to see how markets settle out in February and beyond. But I continue to believe that we’re in a new era – one where bankers will find that each intervention packs less punch than the one before it. So I think it’s much more likely that last Friday’s rally will prove fleeting, rather than the start of a major move higher.
So what’s your take? Can the BOJ fight back the forces of deflation and give stocks a lasting boost? Or is the ongoing oil-market turmoil the more influential force? Are there other fundamental market drivers you’re keeping an eye on that I didn’t mention here? Let me hear about it here at the website.
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I hope you enjoyed Boris’ special update on China this past Friday. His insights are invaluable in these turbulent times.
(Editor’s note: In case you missed Larry Edelson grill CNBC contributors Boris Schlossberg and Kathy Lien on the small economy — and the currency — most likely to generate potential gains of up to 1,587% in 2016 … you can still watch it online. But it will only be online a short time! Click here to watch it now!)
Meanwhile, several of you took some time to weigh in on the latest manufacturing numbers and what they suggest about the true state of the economy.
Reader Chuck B. said: “When purses are light, we may be tempted by the latest model, but we can probably make do with what we have. Consumables, however, are needed to survive and function in society, and we put our scarce bucks into these first.
“So the decline in durable goods tells us that things are getting a bit tight for people and companies alike. Things aren’t perhaps critical yet, but individuals and purchasing managers are worrying a little. It means slower growth in the economy at least, and perhaps hints at something more down the line.”
Reader Warren R. added some personal observations, saying: “I’m a business owner of 30+years in small-town Grants Pass, Ore. I can tell you that since the financial panic of 2008-2009, economic conditions have not changed in any meaningful way. Our sales are still down, strip malls with empty store fronts remain so, and in conversations with fellow businessmen here, commercial activity, in general, is in recession.
“One minor bright spot is the return of home building, albeit at vastly reduced levels. So I find it impossible to invest in the stock market and feel at ease, leaving my money in good companies for the long haul and watching my account grow. I must now be very selective and have a much shorter-term focus.”
But Reader John pointed to a few reasons for optimism, or at least less worry. His take: “The fall of durable goods orders in December is probably a symptom of slowness in preceding months – not a sudden collapse in the economy. And since only around 25% of the U.S. economy is based on products in the first place, I would not use a slowdown in tangible product orders as a measure of the entire U.S. economy.
“Even if things are slow in manufacturing (and I bet they are), there is a lot of other business taking place in the service sectors, which are three times the size of U.S. manufacturing.”
Thanks for taking the time to weigh in, especially in light of today’s somewhat disappointing data on January manufacturing activity from the ISM. We’ll have to see if the manufacturing slowdown is a harbinger of problems elsewhere, or if the problems will stay bottled up there. Color me worried – and feel free to add any additional comments in the discussion section below.
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The 2016 election process gets formally underway tonight in Iowa, with caucus votes slated to be held around the state. Democrat Hillary Clinton and Republican Donald Trump are leading in the polling, but not by much. So the results will be closely watched when they come in later tonight.
Troubled Internet search firm Yahoo (YHOO) is going to swing the corporate ax, cutting as much as 15% of its workforce and shutting multiple business units, according to the Wall Street Journal. CEO Marissa Meyer is under the microscope, with investors frustrated that her growth- and restructuring-plans haven’t yet paid dividends.
The commonwealth of Puerto Rico has gone public with its proposed debt-restructuring offer. The island wants to slash its onerous debt burden by 46%, to $26.5 billion from $49.2 billion, forcing bondholders to take sizable losses in the process. It’s unclear how much pain they’ll be willing to take, or whether the U.S. Congress will get involved with some kind of bailout as Puerto Rican officials would like to see.
The ISM Manufacturing Index came in at 48.2 in January, almost unchanged from 48 in December and slightly below estimates. That’s the fourth month in a row below 50 for the index, the dividing line between expansionary and contractionary territory. Sub-indices measuring new orders and production rose, but one that tracks employment dropped to its lowest level since 2009.
What do you think of Puerto Rico’s debt offer – too generous to creditors or not? Any thoughts on Yahoo’s latest attempt to right the ship? And how about the manufacturing data? Does it suggest recession risk is rising? Let me hear about it in the discussion section below.
Until next time,
Mike LarsonÂ
Recommended Articles by Mike Larson:
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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Every indicator suggests a slowdown of the world economy for the first half.
I expect a modest recovery in the second half, followed by a seasonal boost.
Employment and stock prices will continue volatile. Investors are understandably
nervous. Nasdaq will probably be the bright spot. Several industry leaders will become
unanticipated buggy whips. I expect GM, IBM,NCR, Microsoft and Dell to wither.
Nvidia will be a very bright spot in tech as the maker of fast graphic chips.
Where to put money? Diversity is more important than ever, including energy, which
has to rebound ultimately sas the weak go under.
My financial advisor is great! I’ve been married to her for 57 years.
Typo in last line above is “as” not sas.
I think the hole is getting that little bit deeper,me thinks.Cannot decide if damn market is going up or down at the moment,but happy with NUGT
Thanks for the tip on NUGT. That’s my kind of vehicle.
We have two leftover Spanish colonies from the war in 1898, Guam and Puerto Rico. Guam opted to look to modernity and expansion, even on a rather small island after they were devastated by WW II. Puerto Rico looked inward. Doesn’t even like to use English. Took the money that came its way during WW II and afterward and spent it. The working populace left. There are more Puerto Ricans in mainland US than on the island. Now look at the relative prosperity of each island. Enough said.
Is OPEC going to bankrupt itself before oil production is cut? And what are they going to do when the well runs dry? And what will this country do when we have all the oil? Why don’t the USofA try an export tax on grain going to Oilland to help bail out USofA oil producers? No we’ll just keep taking it in the shorts like we always do because we don’t want nobody mad at us in a world that already hates us.
A good program which would save our domestic petroleum producers would be to proceed to fill the strategic petroleum reserve with domestically produced oil purchased at $50/BBL. This would provide producers with sustainable price for their oil, build out a strong reserve and provide a sustainable profit opportunity, as oil from the reserve could be sold in the marketplace in the future when the price of crude rises. This would save domestic producers from financial ruin, recreate jobs in the industry which would employ needed talent, and allow OPEC to self destruct without killing our economy.
So you want the taxpayers to buy oil at $50 bbl when it’s selling for $25???? Wow, I bet you’re sporting a “Feel the Bern” sticker too no? Same logic that used taxpayer funds to bail out the crooks on Wall St. last time and it didn’t work as margins and derivatives are now higher than before the last collapse. When will people get that the best medicine is to let the weak sectors purge themselves of the bad actors and move on from there on solid ground?
I have been an Independent oil producer for forty years. I Dont want a bailout. All I want us for the free market to be left alone to work. Central planners screwing with the economy always make things worse. Oil should never have been $147 a barrel and it shouldn’t be $25 now. How can we be expected to conduct rational business plans when we have no idea what regulation or manipulation they will throw at us or withdraw from us next. QE flooded the market with cheap money causing severe market distortions. As an instructive example watch carefully what these same clowns do to the healthcare industry. Jim
The big-oil companies have been getting around 4-billion dollar federal subsidies, which can be switched to subsidized the small frac-horizontal drilling oil companies, by providing low interest loans to replace current high 6ish percent junk bond loans, or high dividend prefer stocks. 50 dollar support level is high, as this level includes many inefficient frac drillers, who are drilling on less than the best frac oil producing lands with old inefficient equipment and techniques, and with fat in expenses and salaries. The inefficient high cost producers, and less than the best techniques should be weed out as the industry matures. The inefficient producers should not be subsidized with taxpayer’s money in the long term. In theory, frac producers should in the future be able to produce at 30 dollars and less per barrel by developing new and better technologies, and tecniques to extract higher percentage from shale at lower costs. For example, if the re-frac technology can be perfected, oil can be produced at 3 or more times lower cost, as the holes are already drilled, frac water can be reused by re-fracking dozens to hundreds of holes at the same time one after the other using the same water to reduce water-trucking costs. In the beginning, they were able to extract 3 percent of the oil embedded in the shale layers. Now, they are able to extract 6 percent of the oil contained in the shale, and thus, lower cost by 100 percent. New drilling rigs have “wheels” so that they can be shifted in a few hours to drill a new hole on the same drilling pad. Parallel lines of hole can increase cracks produced. More sand in the fracking fluid can create longer and wider cracks to increase production volume. Only as a last resort should taxpayer money be used to subsidize high cost frac oil which is produced inefficiently at poor none oil rich areas. Taxpayer money can be used to provide grants for research and development of new and better drilling and fracking technologies. Government grants to develop and to research ground breaking new technologies and techniques have traditionally provide the greatest breakthroughs.
I just had an epiphany: Is Saudi Arabia trying to desperately sell as much of it’s oil reserves as possible before the demand dries up completely? In other words, is the demand for oil going to take a sudden and severe plunge? Will everyone’s reserves end up being abandend as worthless some time in the future? This could be just one of the outcomes of autonomous cars (and trucks)!! I think they will all be electric and the ultimate source of this power will not be petroleum based!
tommr that’s an interesting concept but I tend to think that in terms of oil taking the way of the dinosaur no going to happen because there are so many different products that are made from oil that the import will stand, you may only hear about gasoline, due to the obama and several past administrations pushing it as if it’s the only game out there for oil, and as to all electric vehicles that would have a very long ways to go to bet a reality here in the USA not to mention around the world.
But I did enjoy thinking on your epiphany, it was a great exercise in provocative thought!
Saudi is investing over $7 Billion in a solar cell production facility in that country. Within 20 years, solar will supply all of the power requirements of the world. Oil will still be a nice steady income stream for low cost producers at $20-40/bbl. as a raw material.
Solar makes more sense everyday for the generation of electricity. The Saudis have more sun than oil. Oil never has participated much in this market. Hydrocarbons figure in the manufacture of a huge variety of products. It will also be an important transportation fuel for decades. Fed meddling unbalanced the market but it will right itself even if it takes a while. Jim
Long, long way to go before electric replaces oil for transportation…if ever. Bigger and immediate threat to petroleum fuel is the “gasification” of natural gas which is coming online as we speak. Old, old technology that was done in WWII in Germany by farmers using coal. If the Saudis are aware of this ( and probably are) they should be quaking in their sandals.
An elephant is not feather weight easy to fly out of a blow. Neither will be trucks, ships or planes. Alternative energies were OK when oil prices were flying. Under 30 bucks per barrels these alternatives have a long way to go. OK, there are always people that will buy jewel to distinguish. Good for them.
Japan has had a deflation problem for many years. I don’t believe that cheaper oil has been a big part of Japan’s economic problems.
Japan likes cheap oil as they are an importer of it.
Negative interest rates. Hmmm. It’s been years since retirees anywhere have made any interest on safe investments. It pushes retirees into high risk investments in a quest for any kind of income. Not good.
The whole government double standard is just amazing. The government is trying to sell workers on the idea of saving money for their retirement. Well I am there now and being shafted with low to negative interest rates and no return on my dead money unless I want to gamble in the stock market. Then the government does a 360 and tells us we must keep consumer spending up to keep the country rolling along and workers working. They feed us the low interest rates carrot. Then they do the old 360 again and point out to us that consumer debt is reaching dangerous levels and we should be worried. The consumer is whip sawed in all of this. Put Cruz in the white house and he will really make a mess of things like he has in the state of Wisconsin. Read what his university roommate says about him. It sure scares the H out of me to think this man might obtain power.
Where is Calvin Coolidge when we need him? Wouldn’t a President obsessed with trout fishing be a welcome change? Jim
O.M.G. you whiny liberals with your B/S cruz isn’t a senator in Wisconsin and ask yourself this could anybody do any worse than what Barack Obama and Hillery Clinton have done to destroy the great United States
If the gov’t wanted you to save, they would raise the IRA limit to $20K++, instead of this $6500 stuff. Pure nonsense the way it is………JB
The Fed has no choice but to push rates up. Oil prices will never set new highs again .
You are in a different world to me. The Fed will need to LOWER rates and soon. The US$ needs to come down a LOT before things get really bad. Commodities including oil will get a huge lift from a lower $.
Japan is an importer of oil. Im wondering just who is lining up to buy the Iranian oil after the sanction?
If you follow Larry’s advice, Oil has already bottomed and is going to at least $40.00 in March. But also everyone at Weiss is calling a Massive Down turn in the Markets.
So is it possible for the Markets to Crash while WTI Oil goes up. And why is WTI cheaper then Brent, When WTI is a better grade and less available.
Someone at Weiss will be right I really hope it is Larry this time.
To Gerald H.: Give Larry credit, it looks like precious metals and grains bottomed very close to the times he said they would last fall. As for oil, be careful: Larry’s original analysis last fall said it would bottom in February. I believe there is one more huge move down for oil, perhaps to $23-$25 in mid-February, and stocks will fall along with it, perhaps to 1,680 or 1,550 on the S&P. That will be the bottom for oil, but stocks will have farther to fall. (Note: oil could still recover to $30 by the end of February and possibly go to $40 in March. At some point stocks will delink from oil and keep going down while oil goes up. But not until stocks crash down to at least that 1,680 level.)
Going into debt rarely makes you rich. Kicking the can down the road makes problems larger. Corrupt governments and central banks will never do the difficult thing. Demographics is a very powerful force-takes 25 years to change course. Until natural demand springs up in Japan, Europe the US and China(one child has killed their mojo for now) from population pressure, we will continue down a deflationary road. Hang on and good luck everyone.
I have been staring at this “leave a comment” section for the last 10 minutes without the faintest clue as to how I can possibly make an intelligent comment after reading most other comments as posted today. I have this sinking feeling that no one knows, has any idea or is informed enough to really understand the possible realm of uncertainties unfolding every single day. No matter what is written and no matter who writes whatever – someone in the very end will say they were correct. This boils-down to the story of the proverbial monkey allowed to randomly type from now to infinity, whereby all written documents of the past will have been duplicated, so who knows more: The monkey or the others? So, after all comments have been judged, who will claim the title of the “proverbial monkey”?
The above comment, as twisted as it may seem, was issued by someone that sincerely likes to “comment” on their personal blog knowing that those comments mean nothing to the entire world population, but what a relief from the uncertainty and insanity of everyday life. Hopefully, each commenter will continue to submit their two-cents at each and every opportunity and remember that today: I read yours!
“Everybody’s got something to hide ‘cept for me and my monkey!”
SAUDI SELF-PRESERVATION
The price war is an open attempt by Saudi Arabia to maintain their global market share no matter what. The Saudi’s are also trying to (defensively) put Iran in a corner and choke them down. Its either that or open war in the Middle East, which may be a foregone conclusion in regards to Iran anyway. It going to be a long, drawn-out affair before its over. So, stay tuned.
Seems We have another Chuck B. Mike labels me such when he quotes one of my comments. I generally agree with this one, here, but may not always. If Mike quotes him, I hope he uses the period, to differentiate us. LOL!
I was the one quoted above. Mike could leave the period off my bits.
Best I can tell there are three Jims. I like it. It gives me plausible deniability. Jim
there’s more than one $1,000 gold at times also. every blog has its trolls.
i can remember not too long ago everyone was calling for the chinese miracle, soaring inflation and $5,000 gold … and look where we are now.
Everyone? Not me. I have been predicting a Depression for many years. Now that the last holdout (the stock market) has decided to join the hurricane party…things should really start to happen.
Don’t be so impatient young fellow. Chinese miracle was unpaid for ghost cities still sitting there and still not paid for, soaring inflation we have that now but the government is controlling that with smoke and mirrors and rubber numbers. $5,000 gold now that is intriguing I am just off to the gold store this morning.
Yahoo stinks! USA Today type articles, no comics, no story slide selector, etc. To that reader from GrantsPass: The home of Ken Roberts, Jim Prince and Matt Morsa!
The BOJ will NOT have any success. The central bankers have spiked the punch too many times already. They cannot change what is now driving these markets: social mood. And if you want to know the state of social mood…..look at the number of voters supporting Trump and Sanders….(it’s BAD).
If you watched the Japanese market/currency and the American market on Friday investors are still drinking the BOJ Kool-Aid albeit temporarily. Markets rose the yen went down and all was well in La La land for the moment.
I think we are underestimating China. Technically they are an emerging market which makes their entrance on the world stage somewhat awkward. They are influential but unsophisticated. The traders in Shanghai are rank amateurs, yet we compare them to the pros in New York. China will continue to grow, which would imply we are not in for a crash but a long overdue correction. No depression this year! As for oil, China is buying it hand over fist while it’s cheap. Jim
Yes, but we have had over a century to develop storage capacity, while China is still a bit new to that game. They must be close to capacity, else why all the tankers anchored various places waiting to sail in and unload.
Could their hard landing be 6%???
Howard I think we are there now and maybe even lower. Again don’t believe ANY government numbers and especially those of the Chinese COMMUNIST Party. How will they ever make China a consumer driven society as they are world renown savers even the lower class. Their bank is under the mattress. The only way they can become a consumer led economy is through DEBT the one thing the west does export. They see what you have on social media and they want it regardless. I see it here in Thailand every day. The whole consumer economy here has been driven by debt. Reckless/ridiculous debt. Some of the stories I could tell but there is no room here or time.
Social mood
One of the drivers of social mood is trust and believability in either side of politics. Just one example is Building 7 and its free fall collapse. The NIST report was just ridiculous and left the families of 3,000 fellow Americans, heartbroken. Take a moment and watch the Ed Asner video on the collapse of Building seven. Neither side of politics can be trusted until this is resolved.
Inside job NOOOOOO doubt about it if you have 1/20th of a brain or are not in clinical denial or part of it.
Your fighting an uphill battle trying to prove this to 330 million flag waving Americans. Choose your next leader wisely.
Hi Gordon
My great fear is that until enough of us ask questions and demand answers, then we will go on and get more of the same. Have you looked at the site for Architects and Engineers for 911 truth. If none of us care, then the next POTUS will be a politician.
In Howard’s defense, some very credible people have raised some very interesting questions about 9/11. I’m not a conspiracy buff, but I don’t think we have been fully informed about what happened that day. Too many coincidences. But we know the Government always tells us the truth, right?
A lie told often enough becomes truth. Didn’t Joseph Goebbels say something like that? (Nazi propaganda minister, for the historically disadvantaged).
A good program which would save our domestic petroleum producers would be to proceed to fill the strategic petroleum reserve with domestically produced oil purchased at $50/BBL. This would provide producers with sustainable price for their oil, build out a strong reserve and provide a sustainable profit opportunity, as oil from the reserve could be sold in the marketplace in the future when the price of crude rises. This would save domestic producers from financial ruin, recreate jobs in the industry which would employ needed talent, and allow OPEC to self destruct without killing our economy.
As for brent vs WTI, brent is sold at a discount to some refiners, thus balancing things. For some strange reason, heavier oil seems popular to some refiners, who are set up for it. Could be that when they crack it, they get refinery gains. Does anyone know for sure about the refinery gains?
The towers and furnaces used for heavy crude process less volume of the light. You don’t need expensive coking units to process light but you still have to maintain them. Heavy crude is cheaper. Some heavy grades in North Dakota are under $10 a barrel. They make more money processing heavy. Jim
Richard, are you suggesting taxpayers should be on the hook to bail out the oil companies? We already did that with banks, and look at the result. Are your pockets any heavier?
I think that Reader Warren R. is at the grass roots level and telling you how it is in fact. Forget about all those government numbers issued by lying politicians.
Regarding the oil market, it would be great if you guys could look at the CAPEX reduction since 2014 (around 360$ billion in capex reduction) which will at some point hit the oil market in a very big way, with some estimates saying a drop of close to 10 mmbpd
It would take years to then ramp up the production.
Also, how long can Canada oil operate at these low prices? And what sort of production drop can we expect to see?
Also the same question applies to: Shale oil, deep water oil, North Sea oil, Nigeria/Venezuela oil, Russian oil.
And finally, what is the impact of the oil majors lack of investment going to have in the oil market…and more important, when will we see this impact?
It would be great to see you guys write an article about this!
Ron
Ron has some good points here. Even some of the biggest oil companies have been tempting bankruptcy by such things as borrowing money to avoid cutting dividends. That can’t go on for very long. A good analysis of oil companies, and their likelihood of coming out of this war on the plus side would be much appreciated.
Credit Default Swaps.
Mass Oil Producer Defaults Coming? The Bond Market Is Preparing For A Doomsday Scenario…
The above is from OilPro Daily.
Mule
“Dead things don’t grow”
Very Disturbing matters discussed. It’s really frightening to read such comments which
Are very depressing. We should be more optimistic and suggest solutions! At least we
Should know where we stand!
Hi:
This is the second or third round in the on-going currency war, as countries fight to gain a better share of the export market that is shrinking.
After the September 11th attacks, the “Loose Change†documentary stated that all of the hijackers were actually alive in other countries – rather presumptuous since it is possible for two different people to have identical names. But they did raise a good point; how did the passports of the terrorists survive the explosion? In the aftermath of the attacks, passports and identification were found as evidence. Many skeptics question how identification made out of paper survived the same explosion that destroyed buildings.
You are right on Mike. These central bank efforts are foolishly wrong headed. They don’t do anything more than cause weaker economies and pushing investment where it shouldn’t be.