Archive for Opinions

COVID-19 exposes why the Postal Service needs to get back into the banking business

By Melanie G. Long, The College of Wooster

Financial services play a major role in the economic lives of most Americans, from the moment their paychecks are directly deposited into a bank account to the loan taken out to buy their first home or car.

Yet over 12 million people – about 6% of U.S. adults – cannot access these services because they do not have a bank account. Economists call these individuals financially excluded or the “unbanked.” Being unbanked is costly, both financially and in terms of missed economic opportunities, and afflicts communities of color most.

The coronavirus recession exposes these costs even further. For example, the unbanked have had to wait much longer than those with accounts to get “economic impact” checks – and some are still waiting. Prompt access to emergency lending is vital to helping poorer Americans endure the crisis.

As an economist who studies financial exclusion, I believe there’s a solution to the problem, and one that the U.S. has tried before: postal banking.

The costs of financial exclusion

Financial exclusion is not a new problem.

Its roots in the U.S. can be traced back to the New Deal’s Federal Housing Administration, which limited mortgage lending to middle-income, predominantly white suburbs. The problem grew worse in the 1980s and ‘90s, when deregulation allowed banks to operate across state lines, leading to a decline in the number of community banks. National banks were less willing to lend in low-income neighborhoods.

Today, Black and Hispanic Americans are three times more likely to be unbanked than whites. This is partly because the number of bank branches in communities of color and low-income communities has fallen. Overall, the number of bank branches has shrunk by 6% since 2012.

While some people avoid banks because of the fees, being left out of the banking system has other costs. With less access to other lines of credit, the unbanked are more likely to use expensive alternatives such as title loans – in which a borrower uses a vehicle title as collateral – for emergency expenses. Annual interest rates on such loans can be as high as 300%.

And being unbanked means it’s harder to develop a credit history. Without one, it is more difficult to get a mortgage loan – and thus much harder to buy a home.

Black Americans in particular are more likely to lack credit scores and are 40% less likely to be homeowners. Since homeownership is one of the main sources of wealth for middle-class Americans, this contributes to the large racial wealth gap.

COVID-19: Worse for the unbanked

The COVID-19 pandemic, by causing a dramatic collapse in economic activity and skyrocketing unemployment rates, has compounded these problems.

Even in good times, more than 10% of Americans report they are unable to pay for an unexpected US$400 expense – and would struggle even more without access to credit.

Those without a banking account have even fewer options to get emergency cash, such as title or payday loans. Another option, which my research shows is especially true among women of color, is asking friends or family for money. Yet with unemployment rates reaching a staggering 19.5% for Hispanic women and 17.5% for black women, community resources will be stretched thin.

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Financial exclusion also hampered the rollout of part of the coronavirus bailout that promised stimulus payments of up to $3,400 per family. Americans with checking accounts received the payment within a few weeks via direct deposit, while those without one had to wait far longer. As of early June, 13 to 18 million Americans who were expecting a check still had not received one.

This delay is more than an inconvenience for households living paycheck to paycheck. Many Americans urgently need prescriptions they can’t afford and are at risk of being evicted from their homes.

How postal banking works

Conventional banks claim they cannot serve the unbanked because small-dollar loans and accounts with low balances aren’t profitable.

Postal banking, however, could serve the unbanked and do so efficiently. While there are various ways to do this, a basic postal banking system would allow every United States Postal Service branch to act as a limited-service bank, offering services like checking and saving accounts, pre-paid debit cards and small loans.

As a public corporation that doesn’t need to worry about rewarding investors, the USPS could offer financial services to more Americans at a lower cost than banks. USPS branches are already located in virtually every neighborhood in the U.S., and over half are in banking deserts. This existing network would reduce overhead. And the USPS is in a better position to handle a loan default because it could garnish tax refunds, reducing the cost of collecting on unpaid loans.

What’s more, this would also offer a financial lifeline to the postal service, which has been losing money for over a decade. The USPS predicts that offering postal banking services could provide between $8 billion and $10 billion in additional revenue a year, which would offset at least some of its current shortfall.

A Postal Savings Certificate of Deposit from 1941.
Smithsonian National Postal Museum, CC BY

History and current practice show that postal banking is feasible. It is already used in 139 countries around the world, such as France, New Zealand and Italy.

And in the U.S., Congress created a government-guaranteed savings scheme in 1910 to encourage people to put their money in the financial system – as opposed to their mattresses and cookie jars. According to “How the Other Half Banks,” by banking law expert Mehrsa Baradaran, the United States Postal Savings System was quite popular. As its peak, it held $3.4 billion in deposits.

But after World War II, conventional banks began to offer much higher interest rates on their deposits – with the same government guarantee. And banks began to open up branches in more underserved neighborhoods. The postal savings system stopped taking new deposits in 1966.

Depositors stand in a queue at a postal savings window.
Smithsonian National Postal Museum, CC BY

Reducing financial service inequality

Now, a growing chorus of voices suggests the time has come to bring it back.

The details differ from proposal to proposal. Some proponents – including USPS itself – see postal banking as a complement to private sector banks, which would continue to offer a wider range of services. Others support a public bank that would compete directly with private banks through a financial services marketplace.

Banks, including small community banks, have generally opposed postal banking. Yet the experience of other countries suggests that a postal bank can coexist with a thriving financial services industry – while ensuring fewer Americans are left behind.The Conversation

About the Author:

Melanie G. Long, Assistant Professor of Economics, The College of Wooster

This article is republished from The Conversation under a Creative Commons license. Read the original article.

 

Retail Traders & Investors Squeezed to Buy High-Risk Assets Again

By TheTechnicalTraders 

– Yes, we certainly live in interesting times.  This, the last segment of our multi-part article on the current Q2 and Q3 2020 US and global economic expectations, as well as current data points, referencing very real ongoing concerns, we urge you to continue using common sense to help protect your assets and families from what we believe will be a very volatile end to 2020.  If you missed the first two segments of this research article, please take a moment to review them before continuing.

On May 24th, 2020, we published this research article related to our super-cycle research. It is critical that you understand what is really happening in the world as we move through these major 21 to 85+ year super-cycles and apply that knowledge to the data we have presented in the first two segments of this research post.  Within that article, we quoted Ray Dalio from a recent article published related to his cycle research.

“In brief, after the creation of a new set of rules establishes the new world order, there is typically a peaceful and prosperous period. As people get used to this they increasingly bet on the prosperity continuing, and they increasingly borrow money to do that, which eventually leads to a bubble.
As prosperity increases the wealth gap grows. Eventually, the debt bubble bursts, which leads to the printing of money and credit and increased internal conflict, which leads to some sort of wealth redistribution revolution that can be peaceful or violent. Typically at that time late in the cycle, the leading empire that won the last economic and geopolitical war is less powerful relative to rival powers that prospered during the prosperous period, and with the bad economic conditions and the disagreements between powers, there is typically some kind of war. Out of this debt, economic, domestic, and world-order breakdowns that take the forms of revolutions and wars come new winners and losers. Then the winners get together to create the new domestic and world orders.”

That rather chilling statement suggests one thing that we all need to be aware of at this time: what the current and future economic cycles will likely present and how the world will navigate through this process of a cycle transition.

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In our opinion, the massive cycle event that is taking place may not disrupt world order as Mr. Dalio suggests.  There is a very strong likelihood that credit/debt processes may become the “collateral damage” of this cycle transition, but not much else changes.  The world order and powerful nations across the globe are keenly aware that starting WWIII because of a credit/debt crisis is not in anyone’s interest.  The world has enough capability to address these concerns without blowing the planet to pieces in the process.

Our super-cycle research suggests we have entered a period that is very similar to 1919~1920 – a “roaring good time” most likely has already extended beyond reasonable levels.  Our research suggests a massive peak in cycle events near 2023~24 after an already substantial support cycle from 2007~08 to 2023~24.  This span of time, roughly 17 years, is very likely to be a blend of the Unraveling & Crisis phases of the super-cycle. We believe the broader Crisis phase will continue to transition throughout a span of time lasting well into 2031~2034.  This suggests we may have another 11 to 15+ years of a massive unwinding cycle throughout the globe.

SUPER-CYCLE RESEARCHER DATA FROM OUR RESEARCH TEAM

Our research team believes the COVID-19 virus event sent these super-cycles into Warp-Speed recently.  The US stock market was poised to rally early in 2020 and may have experienced a multi-year rally had it not been for the COVID-19 disruption that took place in Mid-February.  The destruction of the economy related to the COVID-19 shutdown is still playing out.  Recent news suggests 41% of businesses that closed on Yelp have shut down permanently.  Now, consider that this means for consumers and local governments related to earning and revenue capabilities?  Workers have been fired and have completely lost earnings capabilities.  Business owners now face credit/debt issues and possible bankruptcies.  Local governments have lost revenue from taxes, payroll, sales, and fees and permits.  This destructive cycle continues until the economy has shed the “excess” within all segments of core economic function.

MORE DATA & MORE PREDICTIONS

Within the first two segments of this article, we’ve highlighted numerous data points and charts to more clearly illustrate the current global market environment.  We have to consider the reality of what is happening on the ground throughout the world and, in particular, what is happening in the US and most major economies right now.  If 30 to 40%, or more, of local businesses, are closing permanently, this suggests that 30 to 50% of tax revenues for local governments will also vanish.  It also suggests that these displaced workers and business owners will need to find new sources of income/revenue over the next 12+ months.

As much as we would like to think a “V-shaped” recovery is highly likely, it’s not going to happen is 30 to 50% of the US economy is suffering at levels being reported currently.  Yes, you could have investors pile into the US stock market because they believe the US economy is the most likely to develop a strong recovery in the future, but that will likely happen after the excess has been processed out of the economy through a business/credit contraction phase.  The current stock market valuation levels seem to ignore the fact that consumer and business activity has likely collapsed by a minimum of 25 to 45% (or more) over the past 90+ days – and may not recover to levels anywhere near the early 2020 economic activity levels.

Still, if you listen to the news and watch the data related to the real estate market, you would think there has been no disruption in the US economy.  Supposedly, homes are still selling quickly and the market is very robust.  The Case-Shiller 20 city home price index is well above 220, the highest levels ever reached for this index.  This suggests home prices have risen to levels that are likely 15% to 30% higher than the peak levels in 2006-2007 – yet we’ve just experienced a massive economic disruption across the globe where 25% to 45% (or more) of our economic earning and income capability has vanished.  Read between the lines if you must – something doesn’t seem to be reporting valid data at the moment.

The Consumer Price Index has recently started falling.  The only times in history where the CPI level has initiated substantial downward trends are throughout major recessionary or contraction economic phases.  It is very likely that the decrease in the CPI level is reflecting a supply glut pricing effect as a result of the COVID-19 shutdown process.  When consumer activity drops dramatically while supply channels continue as normal, a supply glut happens.  When this happens, price levels must adjust and address the over-supply of goods and raw materials stacking up in warehouses, containers, and ships.

If the consumers earning and spending capabilities are disrupted long enough, the manufacturing and supply side of the equation can’t react fast enough to the immediate decline in demand.  Therefore, the supply glut continues for a period of time as manufacturers attempt to scale-down the production levels to address for proper demand levels.  Obviously, lower demand equates to lower sales volumes and lower-income levels for manufacturers and sales outlets.  This translates into layoffs at the factories, sales outlets, and all levels in between.  The cycle continues like this until an equilibrium is reached between supply and demand.

This translates into lower-earning expectations for much of the US and foreign markets compared to previous expectations.  While the S&P 500 stock price levels have recovered to nearly the early 2020 price levels, it seems rather obvious to us that Q2 earnings data will likely shock the markets with dramatically lower results and forward expectations – in some cases these numbers may be disastrous.

When Nike released their Q4 (May 2020) earnings and showed a nearly $800 loss because of the early COVID-19 shutdown, this should have presented a very real understanding of how all levels of retail, manufacturing, and consumer services would also likely show a dramatic economic contraction taking place.  Currently, we are watching for news of new US businesses entering the bankruptcy process.  This recent article suggests business bankruptcies are skyrocketing higher – yet are still below the 2008~09 levels.  Please keep in mind that we are only 90+ days into this COVID-19 virus event – so this data is still very early reporting.

Still, the numbers are very telling…

“US filings totaled 3,427 on June 24, according to data from Epiq seen by the Times. The reading also closes in on the financial-crisis reading of 3,491 companies entering bankruptcy in the first half of 2008. “

If you are reading the same data I read from that statement, the difference between the 2008 levels and current levels is only 64 additional bankruptcies in the US – less than a 2% difference in total bankruptcies.

The reality of the current market conditions is that we are only 90+ days into this processing of all this new data and attempting to understand what is likely to become a new operating norm for global economies.  In 2008-09, the unwinding process took place over a full 12 to 16-month process.  The recovery process too much longer – more than 5+ years.  Currently, the unwinding process of the COVID-19 collapse took less than 30 days and the recovery process took a little over 90 days.

If our research team is correct, the speed at which the current recovery took place is nothing more than a reactionary recovery to a problem that was sudden and full of uncertainty.  The Q2 data will likely solidify the uncertainty and unknowns into very real economic values (losses) and may shock the US stock market into a downward price reversion phase.

We believe one of the best hedging tools any skilled technical trader can use right now is Gold and Silver (Precious Metals).  We continue to urge our friends and followers to maintain a portion of our portfolio in precious metals as a hedge against risk and unknowns throughout most of 2020 and beyond.  If the Q2 data does what we believe it will do, shock the markets, then a moderately violent and volatile downside price move is pending.  Simply put, you can’t destroy 25 to 45% of an active economy and displace millions of workers while sustaining high price valuations – unless you have a bubble-like euphoric investor mentality.  That, ladies and gentlemen, is exactly what we believe is happening right now.

The super-cycle event that took place between 1920 and 1929 was nothing more than a euphoric bubble-like event where investors and traders had “no fear”.  Everyone was leveraging everything they could to try to jump into the markets because they believed nothing could stop the rally.  Keeping this in mind, you may want to read this recent research post about parabolic bubbles we published on June 23, 2020.

When bubbles burst, most commonly done when investors suddenly come to their senses in terms of real valuation expectations, the downside price moves can be extremely distressing.  We urge you to properly understand that may happen with Q2 earnings data and new announcements.  We also urge you to understand the COVID-19 virus event may have moved the super-cycles into some type of “warp-speed”.  If our research is correct, we could be speeding towards a massive unwinding/crisis cycle phase very similar to 1929~1945.

Please read all the previous segments of this article and please properly position your portfolio to protect your assets.  There will be lots of other trades in the future for all of us.  These bigger price moves are not suddenly going to end because of Q2 or Q3 data.  Be patient and stay protected.  Q2 data is almost here and we are about to see some realization of the COVID-19 economic destruction process.

Get our Active ETF Swing Trade Signals or if you have any type of retirement account and are looking for signals when to own equities, bonds, or cash, be sure to become a member of my Passive Long-Term ETF Investing Signals which we are about to issue a new signal for subscribers.

Chris Vermeulen
Chief Market Strategies
Founder of Technical Traders Ltd.

NOTICE: Our free research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research.  It is provided for educational purposes only.  Our research team produces these research articles to share information with our followers/readers in an effort to try to keep you well informed.

 

Seeking Certainty in Uncertain Times? Draw a Trendline — Learn How

By Elliott Wave International

– Elliott Wave International’s online trading course teaches traders how to identify, draw, and use trendlines to seize high-confidence set-ups in any market, on any time frame — Now FREE through July 14!


Today, the lines between what life looked like before the global pandemic of 2020 — and what it’ll look like after — seem forever blurred. Will we have the same job? Will our formerly college-bound children ever leave the house? Will we even live in the same state, or the same country?

Being a trader in times like these, even if only as a fallback option, is not a bad idea.

If that thought has crossed your mind, how would you like to learn a simple technique to identify new trading opportunities?

That technique is drawing trendlines. Elliott Wave International’s trading instructor Jeffrey Kennedy says:

“Trendlines are the simplest and most effective analytical tool traders can apply, be it to a stock, currency, or commodity.”

“They’re more effective than people realize.”

“And so simple, a kid with a ruler can use them.”

Hey, just think! You can add trendline drawing to your child’s at-home school curriculum…

But seriously, folks! There is a reason why Elliott Wave International is bringing back Jeffrey Kennedy’s popular online course “How to Use Trendlines to Spot Reversals and Ride Trends” now.

Today, millions of people around the world are turning to trading at home for the first time. The search for guidance is at an all-time high. If you’re one of them, or even if you’re an experienced trader, this course is for you … and you can take it today 100% free. (More on that below.)

But first — trendlines are simple straight lines connecting two price extremes on a chart. When you draw more than one, you create a so-called trend channel and see both the future trend and trend reversals.

Simple? Yes. And the results can be impressive.

Here’s a real-life example from Elliott Wave International’s Trader’s Classroom, which Jeffrey Kennedy edits: Tesla Motors, Inc. (TSLA).

Tesla’s shareholders are used to the fact that the company’s CEO Elon Musk can be a loose cannon, prone to unpredictable behavior like performing a striptease at a new model launch in China.

But in his November 21, 2019 Trader’s Classroombefore TSLA zoomed above $1000 — Jeffrey showed how simple trendline analysis made the coming rally quite predictable:

“We’ve gotten above the upper boundary line of the developing base channel.”

“I think we’re going to see a run on say 475-500″ by the end of 2019.”

“This is a ‘very confident buy-side opportunity.'”

From there, TSLA rocketed 60% in December and January to new all-time highs:

Today, as you know, TSLA is an investor darling, with prices hovering well above $1000.

But what got the rally started — before most people would look twice at the stock — was a simple bullish trendline break.

“How to Use Trendlines to Spot Reversals and Ride Trends” gives you 90+ minutes of trading lessons that teach you how to effectively use this tool.

You’ll learn how to:

  • Quickly identify a trend — up, down or sideways
  • See if investor psychology is supporting the trend
  • Define critical support and resistance levels for tight risk management
  • See when a correction is over and the trend is resuming

Most importantly, you’ll learn to recognize when a new opportunity is REAL or “fake.”

AND HERE’S THE BEST PART … THIS COURSE IS FREE!

Through July 14, you can take Jeffrey Kennedy’s online trading course, “How to Use Trendlines to Spot Reversals and Ride Trends,” 100% free as a member of Elliott Wave International’s Club EWI.

Club EWI really is free — there is no fee or credit card required to join its 350,000+ online members.

All you need is 30 seconds to get a free Club EWI password — and you can take the trendlines course instantly.

By the way, at Elliott Wave International’s online Store, this course sells for $79. So, don’t miss this free opportunity to learn a useful skill. Take this online course now, FREE.

Stock Market: “Relevant Waves Vs. Irrelevant News”

By Elliott Wave International

Let’s (again) delve into the connection between the stock market and news

The stock market is a fractal — i.e., a self-repeating form at all degrees of trend. Meaning, without the time or price labels, you can’t tell if you’re looking at a 2-minute chart or at a monthly one.

What’s more, stock market trends unfold in repetitive and recognizable price patterns.

What’s more, these patterns — Elliott wave pattens — emerge regardless of the news.

Yes, there may be very brief reactions to news, but then the main trend continues. That’s because the larger stock market trends aren’t driven by the news, they are driven by market participants’ bias, bullish or bearish. What we call, market psychology.

That’s why you often see headlines with the word “despite” in them — like, “Stocks rally despite U.S. unemployment at the highest level since the Great Depression,” or “Stocks fall despite stronger-than-expected consumer confidence report.” That word, “despite,” tells you everything you need to know.

Review Part I and Figures 1 through 5 in Chapter 12 of Robert Prechter’s 2017 book, The Socionomic Theory of Finance, and you’ll see evidence that the market is not priced according to external conditions.

And, here’s what the book says about those brief reactions:

Evidence for even temporary emotional reactions in markets is surprisingly suspect. All market observers have seen futures prices gyrate more intensely for a few seconds or minutes before and/or after an announcement perceived as major news. However, ensuing market movement may be totally opposite to the tenor of such news, even when it is a total surprise.

This quote came to mind when, on June 29, this sobering news appeared on a major financial website (CNBC):

Nearly half the U.S. population is without a job, showing how far the labor recovery has to go

The employment-population ratio — the number of employed people as a percentage of the U.S. adult population — plunged to 52.8% in May, meaning 47.2% of Americans are jobless.

Interestingly, on that very day, the DJIA closed up 580 points.

Plus, as you know, the stock market has bounced back substantially since the March lows, despite a historic slew of negative news.

Indeed, the June Elliott Wave Theorist, a monthly publication which has offered subscribers analysis of financial markets and cultural trends since 1979, showed this chart and said:

The first reports of economic contraction came out in March and continued through May. … Stock prices not only rose for seven weeks but also jumped higher on nearly every report of a rise in unemployment claims. A particularly big up day occurred when statistics suggested an increase in employment, but analysts quickly recognized that the numbers were untrustworthy due to restrictions in data collection deriving from the pandemic. No matter; stocks went up the next day, too.

In fact, you can also see that the stock market rose more than it fell when Covid-19 dominated the headlines! It also rose on the day of the first protests — and continued to climb for two weeks, despite the vandalism, looting and clashes between protestors and police not seen in decades.

The real driver of the stock market’s trend is investor psychology, which Elliott waves reflect.

As the book, Elliott Wave Principle: Key to Market Behavior, notes:

The Wave Principle is governed by man’s social nature, and since he has such a nature, its expression generates forms. As the forms are repetitive, they have predictive value.

Sometimes the market appears to reflect outside conditions and events, but at other times it is entirely detached from what most people assume are causal conditions. The reason is that the market has a law of its own.

Learn about this “law” of the market.

You can do so by reading the online version of Elliott Wave Principle: Key to Market Behavior, which is available to you free when you join Club EWI. Membership is also free.

Club EWI is the world’s largest Elliott wave educational community and members get free access to a wealth of resources on investing and trading.

Click on this link to get started: Elliott Wave Principle: Key to Market Behavior — read it for free.

This article was syndicated by Elliott Wave International and was originally published under the headline Stock Market: “Relevant Waves Vs. Irrelevant News”. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

 

Credit/Investments Turned Into End-User Risk Again

By TheTechnicalTraders 

– Continuing our research from Part I, into what to expect in Q2 and Q3 of 2020, we’ll start by discussing our Adaptive Dynamic Learning predictive modeling system and our belief that the US stock market is rallied beyond proper expectation levels.  The Adaptive Dynamic Learning (ADL) modeling systems attempts to identify price and technical indicator DNA markers and attempts to map our these unique price setups.  Then, it attempts to learn from the past DNA markers and apply that learned price behavior to future price DNA markers.  In this manner, it learns from the past and applies that knowledge to the future.

ES ADL PREDICTIVE MODELING

On June 15, 2020, we published this article referencing the ADL predictive modeling system and how the US stock markets were, at that time, 12% to 15% overvalued based on this analysis.  Continuing this research, our researchers still believe the ES (S&P500) is very likely to fall to levels near $2500 before finding support just below that level.  These predicted ADL price levels strongly suggest that the true valuation levels for the ES are near $2500 – not near the overvalued levels closer to $3000.

NQ ADL PREDICTIVE MODELING

Additionally, an update NQ ADL Weekly chart suggests the NQ has rallied to levels that appear to be extremely overvalued.  The current ADL prediction levels suggest the NQ ADL valuation levels should be near $6600 – not near $10,325 as they are now.  This suggests a massive -36% price disparity between the current overvalued rally level of the NQ and the expected ADL price level based on our advanced predictive modeling system.

Now that we’ve attempted to explain one of the core elements of our research estimates, let’s get further into the data that is likely to present a very real opportunity for skilled technical traders.

ECONOMIC CYCLES

As you are likely well aware of by now, a series of catastrophic economic events continue to unfold throughout the globe.  Most importantly, the ability to earn revenues for consumers and corporations while dealing with hard fixed costs.  In previous articles, we’ve suggested our belief that a unique event in localized economies is not much of a concern because global central banks can support the market well enough to allow economic activity to resume near fairly normal levels.  We’ve suggested that the bigger problem is when an extended economic contraction takes place that is a global or more wide-spread economic event.  This type of economic crisis is much more dangerous because of two factors:

_ A.  The continued lack of revenue generation increases the pressure on the individual or corporation to cut costs, employees, or other assets.  Without the ability to earn, these individuals or corporations begin to eat up cash reserves very quickly and will quickly begin to identify their longer-term sustainability objectives. Unless the economy starts to recover quickly, this crisis for the individual or corporation could be a moderately slow and dangerous “bleed-out” event leading to bankruptcy.

_B.  The efforts of localized governments and global banking institutions initially attempt to mitigate the risks of such an event.  This is usually done by providing greater capital resources to certain industries, the general banking system, and in other ways/sources.  Currently, within the US, a number of forbearance programs have been initiated to take away certain pressures for homeowners and others.  Still, the economy must continue to operate within normal boundaries and bills must be paid.  With an extended economic collapse, such as we may be experiencing with the COVID-19 virus event, the problems for consumers and corporations grow bigger and more dangerous the longer the economic contraction event continues.

When you really start to understand the cycle of these events and then begin to understand the domino-effect process that may already be playing out in some form, skilled technical investors should already be preparing for extended price volatility and unknowns over the next 6+ months or longer.  Allow us to explain, in simple terms, how this cycle plays out…

_ Local consumers/workers are laid-off or fired from jobs.  This puts immediate earnings pressure on local families and individuals and it pushes them into a protective mode where they suddenly must decide between essential items (food, medicine, personal care, transportation, and other essentials) vs. non-essential items (movies, dining out, travel, discretionary purchases, and others).  Currently, there are more than 35 million unemployed people in the US (roughly 10% of the total population.

_ The COVID-19 shutdown within the US has disrupted the earning capabilities of many businesses over the past 3+ months.  As consumers slow down their purchases and businesses close because of government shutdown orders, the problems amplify for many business owners and employees.  If you have ever owned your own business, you understand the risks involved and the ongoing hard costs associated with owning a business.  Just because the governor orders a “shutdown” doesn’t mean that your hard monthly costs are going away too.  This ongoing problem sets up another crisis event in the making – the Business Owner risk factor.  How long before these individual business owners simply can’t sustain their operations any longer and are forced into bankruptcy?

_ Local governments derive their operating budgets from taxes and revenues generated within their communities.  With the COVID-19 shutdown crippling these revenues, we estimate that Q3 and Q4 2020 will become a point of “bleed-out” for many local governments.  They may be able to manage their budgets for a few months within the economic contraction period, but we believe the longer this economic contraction event continues, more and more pressure will be put on local and regional (city/state) governments where revenues have likely collapsed 25% to 45%+ recently.

_ The bigger cycle start to take place.  (A) With consumers laid-off and/or fired from their jobs, their income levels drop dramatically and their spending decreases dramatically.  (B) With business owners struggling to survive with hard costs and payroll in a depressed economic environment, these businesses will either find a way to survive or fail – laying off more people and creating further disruption in earnings/revenues for workers and local governments.  (C) With local governments slow to react to the economic contraction (and mostly hiring under contract), the decreases in revenue over time may present a very real issue for government agencies and become a real problem 4 to 6+ months into the economic contraction.

_ When businesses and governments suddenly realize the scale and scope of the economic contraction, they will attempt to balance their books by adapting (developing new sources of revenue: products, services, taxes, fees) and/or begin to contract themselves.  Either of these two options is fraught with risk and could potentially increase the risks of a more extended economic contraction event. Raising taxes or fees on consumers/businesses within a massive economic contraction event will likely push more individuals/businesses into bankruptcy – further decreasing the government revenues.  Developing new products/services and marketing them to consumers requires capital and resources.  If the product is not a success, the business takes a huge risk making these aggressive transitional moves – which may lead to increased economic concerns.  As long as the consumer is struggling and not earning sufficiently, the foundation of the economic structure is at risk of collapsing even further.

This cycle is sometimes called the “death cycle” in economic terms.  It is a cycle where economic contraction leads to further economic contraction.  The process of breaking this cycle is simple, the entire economic engine must “unwind” sufficiently to remove/reduce the overextended valuation and “fluff” within the system.  Once this has happened, then a new economic foundation will begin to establish where growth and opportunity will resume within local and regional economies.

IMPORTANT ECONOMIC DATA

Now, let’s look at some of the data that supports our research.

The World Uncertainty Index has recently skyrocketed above 50, the highest level over the past 60+ years. Since the low point, in 1985, the World Uncertainty Index has continued to rise with higher peaks and higher troughs over the past 30+ years.  Currently, this index suggests there is a massive amount of uncertainty throughout the globe related to economic function, central banks, geopolitical issues, and humanitarian issues.

Bay very close attention to the peaks in this index and the dates of these peaks (2004, 2013, 2020).  The 2004 and 2013 peaks occurred roughly 3 to 4 years after a major stock market bottom setup.  The current index high would suggest a market bottom may have set up in 2016 and a peak in this Uncertainty index may still be 12 to 24 months away.  This suggests we may still experience a moderately high degree of uncertainty and a number of unknown global and economic crisis events over the next 12 to 24 months.

The US Federal Reserve has recently begun another massive quantitative easing phase and actively begun to purchase various forms of debt, bonds, and equity within the financial markets.  Paying attention to the rallies in the Fed buying activity and the World Uncertainty Index, you’ll see the peaks in the Uncertainty index align with the midpoints of the Fed activities.  Generally, the uncertainty levels rise as the US Fed intervenes and executes QE policies to support the global markets.

This Global Commodity Price Index chart highlights the recent collapse in raw commodity prices and illustrates the incredibly depressed level of commodities related to global economic activities. Over the past 20 years, the only time when commodity prices were lower was in early 2000~2005 – just after the 9/11 economic contraction. The current Commodity Price Index level suggests we have entered a new deflationary price cycle with the peak setup near August/September 2018 – just before the big downside price contraction started in October 2018. Our researchers have continued to highlight that point on multiple charts as the true peak in the US and global markets

At this point in time, developing a safe and protected strategy to ride out these uncertain times is essential.  We’ve been advising our clients to stay safely away from the global stock market trends and we issued a Black Swan warning on February 21, 2020, telling all of our clients to “get into cash immediately”.  Since then, we’ve advised our clients to move their capital into selected sectors to take advantage of hedging opportunities and targeted trading opportunities over the past 3+ months.

We continue to believe the best way to profit from these market trends is to develop a super conservative investment model where Cash is King and proper hedging is essential.  There are plenty of great trades to select from – assuming we want to take on the additional risks associated with these trades.

We believe the next 3+ months will result in a massive volatility spike, likely seeing the VIX move above 50~60 again, as Q2and Q3 earnings and expectations continue to shock the investment community.  We do not believe this potential “V-Shaped” recovery is sustainable and continues to advise our clients to be prepared downside price reversion.

Get our Active ETF Swing Trade Signals or if you have any type of retirement account and are looking for signals when to own equities, bonds, or cash, be sure to become a member of my Passive Long-Term ETF Investing Signals which we are about to issue a new signal for subscribers.

Chris Vermeulen
Chief Market Strategies
Founder of Technical Traders Ltd.

NOTICE: Our free research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research.  It is provided for educational purposes only.  Our research team produces these research articles to share information with our followers/readers in an effort to try to keep you well informed.

 

The Big Short #2 – World Pushes Credit/Investments Into Risk Again, Part I

By TheTechnicalTraders 

– One thing is very certain right now – we live in very interesting times.  As the world rushes head-first into the 21st Century, it appears one of the most pressing issues before all of us is to navigate the risks and opportunities that continue to stack up ahead of us.  Within the first 20 years of this century, the global markets have experienced many shifts and big price rotations.  Emerging markets, Oil, Technology, Bio-Tech, Miners, Metals, Currencies, Cryptos – we can look at all of these on a longer-term basis and see a boom cycle and a moderate bust cycle event.

The current trends suggest global investors are pouring capital into the US technology stocks which is what is driving the NASDAQ to new all-time highs.  We published this article in late June suggesting a parabolic top pattern may be setting up in the global markets – which may be very similar to the DOT COM peak in 1999~2000 explained here.

Our researchers believe the global shift away from risk and into hot sectors are driving capital investments into a frenzy right now.  It reminds us of the frenzy in the US in the late 1990s when housing, technology stocks, and credit expansion rolled into a frothing expansion phase – then burst suddenly in 1999.  There were plenty of signs in 1997 and 1998 that the frenzy buying was a huge risk – but traders and consumers simply ignored the risks and kept buying.

Similarly, this same type of bubble mentality happened in 2017 with Bitcoin.  In less than 24 months, Bitcoin rallied from $370 in early 2016 to $19,666 near the end of 2017 – a massive 8000%+ rally.  The similarities of the Bitcoin rally and the rally of the US stock market in the late 1990s is the mentality of the investors throughout these bubbles – the “no fear” mentality that it will keep going higher and higher.  The same type of mentality appears to be happening in the US stock markets right now and the data suggests something vastly different is really taking place.

Unlike what happened throughout recent history, the globe has recently experienced a massive disruption event – the COVID-19 virus.  This disruption has displaced economic output and consumer earnings on a massive scale – and we are just starting to learn how disruptive these economic factors may be.  One item we believe is severely under-estimated is “consumer earning capabilities”.  The number of jobless in America has risen to well over 35 million (over 10% of the population). If the COVID-19 virus continues to disrupt consumer’s ability to earn income and engage in the economy over the next 6+ months or longer, there is a very real possibility that the V-shaped recovery everyone believes is happening will simply not happen at all.

One of the most ominous signs of a broader consumer and commercial contraction happening in the US markets is the skyrocketing delinquency rates for commercial real estate. Trepp recently published new data suggesting the commercial real estate market is experiencing a massive increase in delinquencies of 30+ days which may lead to a wave of high-value defaults.  Other research suggests US Banks may face $48+ Billion in commercial real estate loan losses.

The Q2:2020 earning estimates have decreased by such a large amount that all investors should prepare for a shocking series of data over the next 30+ days.  Nike surprised everyone with a nearly $800 million loss for their Q4 ending May 31, 2020.  We just read that PizzaHut parent, NPC, filed for bankruptcy recently.  This recent Bloomberg article suggests a massive wave of US corporate bankruptcies could continue throughout 2020 and well into 2021 and extended economic pressures erode the foundations and operations of hundreds or thousands of US businesses ().

What is happening in the US markets right now is that foreign and US investors are piling into this deep price rotation expecting the US Fed to do whatever is necessary to support the markets throughout the COVID-19 virus event.  We believe the risks for investors have never been higher as the global markets teeter on the edge of a partial recovery while the COVID-19 virus surges again throughout the US.

We’ve kept our clients actively protected from the risks within the markets and continue to advise them on how to identify profitable trades within the current market trends.

In the next part of this article, we’ll explore more data facets related to the Q2:2020 and the future expectations of the US and global markets. Our biggest concern is the destructive capabilities of the general consumer.  At some point, we have to understand the consumer drives 85% of the US GDP and future expectations.  If this event destroys the consumer, then it will destroy future expectations.

Keep in mind, we do not trade or invest on fundamentals or economic cycles because we know they can lead or lag stock prices by several months at times. Our focus as technical traders is to follow the price trend and trade accordingly. Stay tuned for part II.

Get our Active ETF Swing Trade Signals or if you have any type of retirement account and are looking for signals when to own equities, bonds, or cash, be sure to become a member of my Passive Long-Term ETF Investing Signals which we are about to issue a new signal for subscribers.

Chris Vermeulen
Chief Market Strategies
Founder of Technical Traders Ltd.

NOTICE: Our free research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research.  It is provided for educational purposes only.  Our research team produces these research articles to share information with our followers/readers in an effort to try to keep you well informed.

 

Rethinking the boundaries between economic life and coronavirus death

By Carolyn Prouse, Queen’s University, Ontario; Beverley Mullings, Queen’s University, Ontario; Dairon Luis Morejon Perez, Queen’s University, Ontario, and Shannon Clarke, Queen’s University, Ontario

As governments around the world begin to reopen their borders, it’s clear that efforts to revive the economy are redrawing the lines between who will prosper, who will suffer and who will die.

Emerging strategies for restoring economic growth are forcing vulnerable populations to choose between increased exposure to death or economic survival. This is an unacceptable choice that appears natural only because it prioritizes the economy over people already considered marginal or expendable.

The management of borders has always been central to capitalist economic growth, and has only intensified with neoliberal reforms of the last several decades. Neoliberal economic growth has increasingly become tied to opening up national borders to the flow of money and the selective entry of low-wage labour with limited access to rights.

Nation-state borders regulate this flow, and in so doing, reconstitute the borders between people: those whose lives must be safeguarded and those who are considered disposable.

COVID-19 has brought heightened visibility to these border-making practices, with the pandemic intensifying the decisions between economic and social life.

covid world

Image by Miroslava Chrienova from Pixabay

Exceptions made for seasonal workers

Early in the outbreak, for instance, Canada closed its borders to international travel, but made exceptions for an estimated 60,000 seasonal agricultural workers from Latin America and the Caribbean.

Anxious to avert the potential loss of as much as 95 per cent of this year’s vegetable and fruit production, temporary farm workers were deemed the essential backbone of the agri-food economy. For the health and safety of Canadians and seasonal farm workers, farmers required the farm workers to self-isolate for 14 days in order to prevent the spread of the virus.

But the deaths of two farm workers in Windsor, Ont., and serious outbreaks of COVID-19 infections among migrant workers on farms across the country, have revealed systemic forms of racism that reveal the priority given to profit maximization over the health and safety of Black and brown migrant farmers.

Under the Temporary Foreign Worker Program, migrant farmers are not entitled to standard labour rights such as a minimum wage, overtime pay or days off, and federal oversight over housing conditions has been notoriously inadequate.

With worker welfare left largely to the discretion of employers, it is not altogether surprising that reports of crowded and unsanitary housing, an inability to socially distance, delays in responding to COVID-19 symptoms and threats of reprisals for speaking out have become rife throughout the agri-food economy. Even as COVID-19 cases soar in Ontario, provincial guidelines make it possible for infected farm workers to continue working if they are asymptomatic.

It is a tragic irony that the quest for a better life among migrant workers should be one that demands levels of exposure to abuse, threats, infection and premature death that few citizens are likely to face.

Choosing between health and the economy

Now, as governments speak of opening borders more widely due to the economic costs of COVID-19, countries are beginning to make new, challenging decisions between public health and economic growth.

For example, across the Caribbean, the abrupt closure of international borders decimated the region’s tourism industry overnight. Estimating a contraction of the industry of up to 70 per cent, Standard & Poor has already predicted that some islands will experience significantly deteriorated credit ratings.

For example, with tourism accounting for half of Jamaica’s foreign exchange earnings and more than 350,000 jobs, it is not entirely surprising that the tourism minister has justified re-opening as “not just about tourism. It is a matter of economic life or death.” It’s also not surprising that resort chains like Sandals and airlines alike have been eager to resume business as usual.

But assurances that “vacations are back,” even as new cases emerge, ring hollow given that most Caribbean countries have long struggled with overburdened health-care systems. And even with new protocols for screening, isolating or restricting the mobility of infected visitors, it is likely that the region’s poorer citizens — many of whom are women in front-line hospitality services — will bear the brunt of the costs of new infections.

Unequal dependencies

The dependence of Caribbean and Latin American governments on tourism and remittance dollars, and Canada’s dependence on Black and brown people to carry out low-paid essential work, are unequal dependencies that are intimately tied. For the most vulnerable, these dependencies mark the stark overlap between economic life and COVID-19 death.

Yet COVID-19 has also presented us with a unique opportunity to rethink the border inequalities that have governed our lives and the primacy of the economy within it.

It forces us to ask: Who does “the economy” serve? What types of activities are valued or dismissed when we prioritize economic growth? Whose life is valued, and whose continues to be expendable?

Prioritizing the economy over the lives of the poorest and most vulnerable should never be an acceptable fix.

About the Authors:

This is a collaborative article written by members of the Global Economies and Everyday Lives Lab at Queen’s University, Canada. Nathalia Ocasio Santos, Grace Adeniyi Ogunyankin, Priscilla Apronti, Hilal Kara and Tesfa Peterson co-authored this piece.The Conversation

Carolyn Prouse, Assistant Professor of Human Geography, Queen’s University, Ontario; Beverley Mullings, Professor of Geography, Queen’s University, Ontario; Dairon Luis Morejon Perez, Phd Student in Geography and Urban Planning, Queen’s University, Ontario, and Shannon Clarke, PhD Student in Geography, Queen’s University, Ontario

This article is republished from The Conversation under a Creative Commons license. Read the original article.

 

Prepare for the global impact of US COVID-19 resurgence

By Dan Steinbock

– Recently, the US has suffered a series of COVID-19 surges. The escalation won’t stay in America. It is likely to cause collateral damage worldwide.  

In early June, U.S. states began to exit from the lockdown measures, even though the epidemic curve had not been adequately flattened. On July 4th, the White House sought for a “return to normal” with a celebration at Mount Rushmore, where President Trump, who has recently associated himself with far-right “white power” extremists, gave a bizarre speech warning about a “new far-left fascism.”

And once again, the Trump crowds were not required to wear face masks or practice social distancing, although the US has recently tallied its highest single-day totals of coronavirus infections. Currently confirmed virus cases in the US total 3 million, with almost 135,000 deaths, while new confirmed cases average over 50,000 daily.

Despite the Independence Day, traditional July 4th routines – beer, beach and BBQs – were severely adjusted. Florida, still another state that rushed a premature exit, set a national record with more than 10,000 new cases.

Not so long ago, younger people were hosting COVID-19 parties “like there was no tomorrow.” Many may now get what they wished for. When the White House began to mobilize against the pandemic two months ago, more than two of three patients were aged 50 or older. But today, almost 60% of cases are aged 18-49.

The COVID-19 surge across America is no surprise, however. It was only to be expected in light of the catastrophic mishandling of the pandemic by the White House, as I projected in The Tragedy of Missed Opportunities in April (click here). The following draws from that report; only data has been updated.

White House alerted on Jan 3, yet mobilized 2 months later

On January 3, when the virus gene sequencing was completed by China’s CDC and emergency monitoring initiated, Chinese officials notified WHO and relevant countries. That day, U.S. CDC director Dr. Robert R. Redfield called Alex M. Azar II, secretary of health, telling him that China had potentially discovered a new coronavirus. In turn, Azar informed the National Security Council (NSC), for a reason.

When Trump arrived in the White House three years before, his administration killed the global health unit that had been part of the NSC and that had been created to respond to potential global pandemics. Now a newly-created team began daily meetings in the basement of the West Wing. Yet, no mobilization occurred in the US. Instead, a long debate began within the Trump administration over “what to tell to the American public.”

Between the first recorded case in Wuhan (Dec 30, 2019), and the WHO’s announcement of the international emergency (Jan 30, 2020), the epicenter of the outbreak was in China. Yet, first cases were also recorded in 20 countries worldwide, including the US. But once again, the Trump White House chose not to mobilize.

On March 10, the WHO declared the virus a pandemic. By then, the epicenter had moved from Europe to the US. It was only on March 13 that the White House began to mobilize federal resources against the COVID-19 outbreak. By then, there were 1,264 confirmed cases in the U.S. and 277 deaths. The figures grossly under-estimated the spread of the virus since basic testing capacity and diagnoses were lagging into April.

Trump’s crisis mishandling had deferred the inevitable awakening but when it finally ensued, it would prove devastating, as I projected in April. Subdued by the trade wars and after growth of 2.3% in the 4th quarter, the U.S. GDP growth suffered a -5% contraction in the 1st quarter and is likely to cope with a historical -53% plunge in the 2nd quarter.

Playing the blame game  

As the Trump administration began national mobilization weeks belatedly, it struggled to reduce the economic damage by reopening the economy after mid-April. Trump gave governors a road map for recovering from the economic pain of the coronavirus pandemic. “You’re going to call your own shots,” Trump told the governors. “We’re going to be standing alongside of you.”

Here’s the Machiavellian translation: It’s my mistake, but your headache. It’s election year, you know.

Following the Trump administration’s loss of credibility, many states developed their own exit stances, including “Trump-proof” plans in the Tri-State area. Belated mobilization was devastating not just nursing homes, but prison systems and other dense closed facilities. As perceptive observers noted, this was the next information battle field in America: “Who gets counted in the coronavirus death toll .”

As I argued in The Tragedy of Missed Opportunities, the US mobilization against the pandemic failed, due to a series of factors, including

  • Complacency, belated mobilization, inadequate preparedness, poorly-enforced lockdowns, and failed crisis leadership by the Trump White House;
  • Ineffective monitoring of quarantines and self-quarantines;
  • faulty test kits and long delays in testing, plus deficient contact tracing;
  • huge shortages of personal protective equipment (PPE) that endangered the lives of frontline healthcare professionals;
  • trade war that caused additional, unwarranted PPE shortages;
  • failed responses to the outbreak, which have dramatically added to health risks;
  • misguided media coverage that has contributed to ‘infodemics’;
  • a “paranoid style of politics” to shift the blame on China and the WHO and its executives (and the disastrous decision to exit the US from the WHO)
  • premature exits from lockdowns;
  • and the list goes on.

These mistakes have been followed by Trump’s decision to exit the US from the WHO, which will compound public-health risks in the future, both in the US and worldwide.

But the long-term international implications may prove even worse.

US virus exports into Mexico – and beyond  

What happens in America will not stay in America. Due to months of fattening rather than flattening the curve and the associated resurgence of COVID-19 in the US, international exits from lockdowns and global economic recovery are virtually ensured to take a series of new hits when the US eventually returns back to business.

The recent travel ban by the EU against the United States is just a tip of the iceberg. Mexican border states have raised serious concerns about Americans’ pandemic inflows into the south.

Washington implemented strict inflow protocols against Mexicans in March. Yet, as the virus had its first peak in early spring and is now enjoying its second wave in the US, hundreds of thousands of Americans continue to cross the border into Mexico.

What happens in the US-Mexican border today is just a prelude to what will ensue internationally as US containment failures – followed by secondary virus waves – are likely to be exported around the world.

About the Author:

Dr. Dan Steinbock is an internationally recognized strategist of the multipolar world and the founder of Difference Group. He has served at the India, China and America Institute (USA), Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see https://www.differencegroup.net

 

Stocks, Oil: See How Elliott Waves Help You Avoid “Getting Married to the Trend”

By Elliott Wave International

– Most investors make the mistake of linearly extrapolating a financial trend into the future, especially at junctures when that trend is near a turn.

In everyday terms, it’s called “getting married to the trend.”

Here’s what Elliott Wave International President Robert Prechter said in his book, Prechter’s Perspective:

Most published forecasts are at best descriptions of what has already happened. I never give any forecast a second thought unless it addresses the question of the point at which a change in trend may occur. …

Read forecasts carefully. If they are unsophisticated, linear extrapolations of a recent trend, it’s probably the best policy to toss them aside and go search for something potentially useful.

Employing the Elliott wave model helps a market participant to avoid the error of assuming that today’s trend will carry into tomorrow. Why, even a 3rd-grader can learn a tell-tale sign of when a trend is about to change. More on that in a bit.

First, let’s look at a prime historical example of how trend extrapolation manifests.

A little background: the price of crude oil hit a low of $49.90 in January 2007 and then climbed dramatically in the following year and a half, reaching a high of $147.50 in July 2008.

Many energy market observers expected even higher prices.

Here are just a few of the headlines as crude oil was skyrocketing:

  • Oil price ‘may hit $200 a barrel’ (May 7, 2008, BBC)
  • An Oracle of Oil Predicts $200-a-Barrel Crude (May 21, 2008, The New York Times)
  • WHAT IF OIL HITS $200? (June 28, 2008, Los Angeles Times)

In the same time frame, one chief executive of an energy firm had predicted $250 a barrel.

Yet, around the time these headlines were published, the Elliott wave model was suggesting a different price path for oil.

The June 8, 2008 Elliott Wave Theorist, a monthly publication which has provided analysis and forecasts for financial markets and cultural trends since 1979, said:

The Top of Wave 5 in Crude Oil Is Fast Approaching

Now, what is the significance of the completion of a fifth wave?

That means that a trend, whether up or down, is on the cusp of a turn. In this case, the trend had been up. So, the “top of Wave 5” meant that the next significant price move would be down. Well, as mentioned a moment ago, just a month later, crude oil’s price hit that $147.50 top.

Here’s what followed:

Collapse in Crude Oil

As Robert Prechter noted in his 2017 book, The Socionomic Theory of Finance:

Only someone extrapolating an Elliott wave could see that “one of the greatest commodity tops of all time” lay dead ahead. Those using supply-demand arguments and linear extrapolation … were in the wrong place at the wrong time.

So, if you can count to five, you can anticipate trend turns, even when the majority are expecting the trend to continue.

Let’s go a bit further back in history and see how “counting to five” helped our analysts call a top in the price of General Electric’s stock.

In late October 2000, this chart was published in the Elliott Wave Financial Forecast, a monthly publication that covers major U.S. financial markets:

Elliott Wave Complete for GE

The completion of a quarter-century five-wave pattern portended a major reversal in GE’s stock.

At the time, the Elliott Wave Financial Forecast made a straightforward forecast:

GE is going to go way down … .

Here’s what happened thereafter:

The Outcome

But, getting back to that 3rd-grader who was mentioned earlier, you can see him discern a five-wave pattern in a market chart yourself and perhaps learn in the process.

Also, see how a college student picked right up on an even more detailed Elliott wave pattern — in no time! Then, hear from one of Elliott Wave International’s own wave experts who has more to say about the error of assuming a current trend will persist, well, merely because it’s already in place.

It’s all in a video titled “Anyone Can Learn the Wave Principle.” Watch it for free — compliments of Elliott Wave International.

Just follow this link to watch this fun little video now: “Anyone Can Learn the Wave Principle.”

This article was syndicated by Elliott Wave International and was originally published under the headline Stocks, Oil: See How Elliott Waves Help You Avoid “Getting Married to the Trend”. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Saudi Arabia Eyes Total Dominance In Oil And Gas

By OilPrice.com

– Saudi Arabia’s Energy Minister Prince Abdulaziz claimed last week that the Kingdom will be the world’s biggest hydrocarbon producer “even” in 2050.

“I can assure that Saudi Arabia will not only be the last producer, but Saudi Arabia will produce every molecule of hydrocarbon and it will put it to good use … It will be done in the most environmentally sound and safe way and the most sustainable way,” Abdulaziz said when asked about the oil market outlook in 2050 during a virtual conference convened by Saudi Arabia’s Future Investment Initiative Institute (FII-I).

Abdulaziz added that Saudi Arabia “will be the last and biggest producer of hydrocarbon even then,” referring to 2050.

But is Saudi Arabia’s the world’s leading hydrocarbon producer now? And what is its legitimate prospect for being the largest hydrocarbon producer in 2050?

‘Hydrocarbon’ Explained

To unpack what the prince is claiming, we first must understand the hydrocarbon classification. A hydrocarbon is an organic compound that contains only carbon and hydrogen. This encompasses petroleum, natural gas, and condensates.

Is Saudi Arabia the world’s largest hydrocarbon producer?

Saudi Arabia’s oil production in 2019, which includes crude oil, all other petroleum liquids, and biofuels–this would include natural gas plant liquids and condensate–was an average of 11.81 million bpd, according to the Energy Information Administration (EIA). At 12% of the world’s total, it’s no wonder why Saudi Arabia holds so much market sway, especially when in cahoots with the rest of the OPEC members.

Russia, too, is right up there, producing an average of 11.49 million bpd, or 11% of the world’s total. This is also no wonder, then, that when you put Russia and Saudi Arabia together to “stabilize” the world’s oil supply to balance it with demand, it creates a crude oil production powerhouse that is unmatched.

But individually speaking, Saudi Arabia is not king of the oil production hill, for its nemesis–the country that sought to undo every production quota OPEC could come up with, is the United States. On its own, the United States produced 19.51 million barrels of oil (and other petroleum liquids) per day, besting both Saudi Arabia and Russia, and controlling 19% of the world’s oil supplies.

The rest of the countries on their own are significantly further down the list, with not one of them producing more than half of third-place Russia. Still, Canada and China–#4 and #5 respectively–are still worth mentioning.

 

But Saudi Arabia expects to be the largest hydrocarbon producer “still” in 2050. If they are not so now, what are the chances they will be so thirty years from now?

Perhaps out of step with Saudi Arabia’s grand Vision 2030 plan, The Kingdom is still hoping to be top dog for petroleum production decades from now.

The EIA, in its Annual Energy Outlook 2020, has forecast that global production of crude oil and lease condensate, natural gas plant liquids, dry natural gas, and coal in the United States will reach 90.29 quadrillion Btus in its reference case. For crude oil and lease condensate, the EIA expects that the United States will be on par with where it is today, in its reference case. For natural gas plant liquids production, the EIA anticipates an increase by 2050.

Source: EIA Annual Energy Outlook 2020

The reason for the EIA assuming oil production will level off in 2022 and holding fairly steady through 2045 is the anticipated decline in well productivity, forcing tight oil producers to hunt for oil is less prolific areas.

For Saudi Arabia, its 30-year hydrocarbon plan or abilities are more of an unknown. It has the world’s second-largest crude oil reserves, and it does have plans to add natural gas production in the coming years as it looks to step away from its near-total reliance on crude oil.

For natural gas, Saudi Arabia announced earlier this year that it may actually bring forward its plans to export natural gas by 2030. It did not, however, provide details about this plan, or how it would be implemented.

But its detail less plans may run into some trouble. For starters, while Saudi Arabia has an excess of low-cost associated gas reserves that it could tap, the production of said gas would be limited to the amount of crude it can produce. And crude oil production is periodically–and profoundly so right now–capped by OPEC agreements that keep the Kingdom’s fossil fuel ambitions in check.

But the EIA sees the OPEC countries besting non-OPEC countries on the production front by 2050

By 2050, the EIA sees the production of crude oil, lease condensate, natural gas plant liquids (NGPLs) and other liquid fuels from 2018 to 2050 reaching 121.5 million barrels per day (b/d) in 2050, or about 21% more than 2018 levels.

For crude oil and lease condensate, the EIA sees OPEC members increasing production by 9.5 million bpd, and non-OPEC countries increasing their crude oil and lease condensate production by 8 million bpd. This translates into a 27% increase for OPEC countries and a 17% increase for non-OPEC countries, according to the EIA’s International Annual Energy Outlook.

Overall, the EIA expects the OPEC countries to produce 56% of total global production in 2050.

Most of that production increase that OPEC nations (27%) will see will come from the Middle East, which is expected to increase by 35% to 2050.

 

 

Meanwhile, production in Russia (14%) and Canada (123%) are expected to increase at a quicker rate than the United States (8%) and Brazil (50%).

Using historical production figures courtesy of BP and forecasts published by peakoilbarrel, the top four oil producers remain in their positions through 2050.

Toeing the Saudi Line

Prince Abdulaziz’s chest-puffing seems to be in line with Saudi Arabia’s previous assertions that oil will be alive and well in 2050 despite attempts to spur the world along an energy transition. Even as far back as 2007, Aramco said it could boost reserves to as many as 1 trillion barrels by 2027, adding that it would be 2050 or later before production peaks.

But some of Saudi Arabia’s forecasts of fossil fuel’s future were more sober-minded, even seeing a phasing out of fossil fuels by the middle of this century, Ali al-Naimi, Saudi Arabia’s oil minister at the time said in 2015.

“In Saudi Arabia, we recognize that eventually, one of these days, we are not going to need fossil fuels. I don’t know when, in 2040, 2050 or thereafter,” al-Naimi said, adding that Saudi Arabia was therefore planning on becoming a “global power in solar and wind energy.”

Link to original article: https://oilprice.com/Energy/Crude-Oil/Saudi-Arabia-Eyes-Total-Dominance-In-Oil-And-Gas.html

By Julianne Geiger for Oilprice.com