Coping: With an Oily Bottom & Forward Dimly

We have really enjoyed it – this long running decline of oil prices.  It has been something of a marvel.

For one thing, it has made travel relatively affordable this year.  And, while there is still the prospect of another wave down, it shouldn’t happen until we get one more screaming blow-off top in the market.

The future, at least to economics fans, is often foretold in Elliot Waves.  R.N. Elliott laid this all out in a deceptively simple book years ago titled The Wave Principle.

The basic idea is that big trends tend to come in five moves.  There a primary move (in oil’s case down), then a bounce, then a bigger down than the first one, a fourth wave bounce, and finally we settle in at the low.

My best guess is that we are seeing the end of wave 3 down and we might see a fourth wave rally of a couple of years before the fifth wave bottom shows itself.  And that, of course, will come with the Second Depression’s economic low-spot (armpit) somewhere along about 2019-2020.

Before you read a technical note from Oilman2, realize that we sometimes talk in short-hand.  I know that the oil data he refers to is the Texas Railroad Commission (RRC) which is the state agency that manages the oil property rights and  production facilities and dirty little details of oil including plug & abandon policies and what –not.

People who consider themselves shade tree “oil experts” who haven’t spent vast time on the Texas Railroad Commission site looking at the data are pretty much kidding themselves.

So much for my part…now the note from Oilman2 after I remind you the EIA is the Energy Information Administration…

Latest EIA data shows decline of 86kb/day in all US shale plays. The EIA data lags the RRC data significantly, as it is interpolated, whereas the RRC data is compiled and revised. RRC data has been showing even more decline in Texas fields. than the traditional lower estimates they are known for.

This was out late last week:

http://www.bloomberg.com/news/articles/2015-05-10/saudi-chevron-said-to-shut-down-wafra-oil-fields-output-monday

The Neutral Zone is a cooperative effort between Saudi and Kuwait – the buffer zone for leasing they share between them offshore. The Chevron project is a tertiary recovery steamflood operation, and the ceasing of expat work permits for Wafra a year back indicates something more than ‘maintenance’. Khafji, according to my sources, had casing leakage issues on several wells in addition to sanding up in many more – both would require extensive workover ops to return to normal. My guess is a tiff between Chevron and KOC, but that is a guess.

If the rig declines flatline (several operators in OK are starting back to drilling, but not at breakneck pace) for another few weeks, shale oil production continues to decline and we do not see gaining production in Saudi, the bottom may be in.

And this is interesting:   http://www.nytimes.com/2015/05/11/world/middleeast/king-salman-upends-status-quo-in-region-and-the-royal-family.html?_r=0

The new kings 29-year-old son is now head of the Defense Ministry and ARAMCO – not something to inspire confidence…

Oilman2

OK, interesting outlook…but what does it mean?

Well, that depends on how bleak your view of the future gets.

Mine is pretty bleak, but not before the economy gets one last pop and we get past the president election *(such as it is) in 2016. 

Much of our future will be spelled out by that…and there are two competing scenarios before us.

One is that whoever wins in 2016 will be the modern analog to Herbert Hoover.  He got tagged as being the loser.  Roosevelt and the New Dealers made P.R. mincemeat of him.

The economic dynamics are in place to support a meltdown of the economy during the first *(and only) term of whoever “wins” in 2016.

However, there’s another possibility in play.  This one was suggested in an extensive email from a reader who sees negotiations with Iran and very much in harmony with Neville Chamberlain’s trying to appease Hitler prior to WW II.

Mr. Ure,

I know tht neither of us believes in coincidences. Imagine my surprise when I read your reference to Neville Chamberlain and appeasement. Below is the recent e-mail I composed and sent to some folks at Fox as well as Prime Minister Benjamin Netanyahu. Please feel free to use the e-mail as you see fit.

—

Before WWII England had a weak-willed, cowardly Nazi appeaser, Prime Minister Neville Chamberlain. Chamberlain attempted to “appease” Hitler by “giving” him Czechoslovakia. We all know the result of the attempted Nazi appeasement. Sixty million people died.

Barack Obama has not only appeased, and continues to appease, the fanatical Iranian leadership, which preaches death and destruction to the United States and ally Israel, he also appeases Russia’s Vladimir Putin as he attempts to conquer The Balkan States, murderous radical muslims by refusing to admit that they are followers of Islam, and tens of millions of illegal aliens streaming in to our southern states, forever altering the fabric of our society. He appeases black thugs, looters, arsonists and those who assault police with his anti-police rhetoric and comments favorable to black lawbreakers.

The damage done by Neville Chamberlain’s attempt to appease Hitler has been well documented. The damage done to the United States, Israel and Western democracy by Obama will unfortunately soon be witnessed and experienced by the entire world.

We know who our Neville Chamberlain is; his name is Barack Obama. Who will be our Winston Churchill?

Sincerely,

Stephen M in Tucson AZ

I don’t agree with everything Stephen lays out since there is another side to why people rioted in places like Ferguson and Baltimore (abuse of police/state power), but this viewpoint definitely would put us in a kind of analog to a “Looking for Winston” framework about now.

And, if that is the case, then  we would expect this figure to win in the 2016 election and that means (in the great clockworks of history) that the current president should preside over the economic meltdown.

Frankly, I don’t see it.

Oil prices tend to rise and fall to some level based on how other commodities are doing.  Gold has just moved over $1,229 this morning and when I looked, silver was up to $17.71.  More important, however, is the price of “renting money” which we track by looking at the price performance of the 10-year Treasury.  A look at the longest timescale, over here, supports the idea that a bottom in money rates could be forming as well.

So much so that I called one of the son-in-laws and hounded him mercilessly about refinancing his family’s home:  There is a non-zero chance that rates could be putting in a long rounding bottom now and that if he doesn’t lock in the coming month, or two, he might never get a chance to get such a good deal again.

If rates come down to even lower levels with one more major decline, he’d be able to refi.  But the majority of the move seems to have arrived and the firmness in gold, oil, silver, and firming of interest rates whispers something else.

I don’t mean to turn this into a Peoplenomics™ type discussion, but it’s important when planning out the immediate future that we keep our eyes open and gauge the winds of politics and finance.  We may each be captains of our own ships, and all, but there are these big winds to be dealt with.

Using history as a guide, I find myself wondering “Who would be the best possible bag-holder?” for future history books?

We had two Roosevelt’s, separated by a few years in the period encompassing World Wave One and the arrival of the New Dealers; Teddy and Franklin.

History has a weird opposite-polarity function sometimes.  Bill Clinton left office in early 2001.  If elected, Hillary would would be sworn-in in 2017, so 16 years there.

Teddy Roosevelt Left office in 1909.  Franklin Roosevelt was sworn in 1933.  So that’s 24 years.

It’s not a match, but the world operates in a much more manic way now, than it did back when.  Newspaper stories took weeks to disseminate and now we are down  to seconds.  Whether the “velocity of information” change plays into how history’s clockworks run is the subject of a much broader study.

But we can take some comfort knowing who the players are, at least sort of.

And while we watch what could be the oily bottom beginning to form, the only really BIG QUESTION (and it’s an ugly one) is what kind of Elliott Wave is history preparing for breakfast?

If we’re doing as three wave decline, then there’s still time for Barack Obama to rip defeat from the jaws of victory.

But, if it is a five wave decline, then we should expect an erudite, above the people sort – the perfect bag-holder to emerge.  Not that Hoover was a dummy…far from it:

Hoover, a globally experienced engineer, believed strongly in the Efficiency Movement, which held that the government and the economy were riddled with inefficiency and waste, and could be improved by experts who could identify the problems and solve them.

But that’s OK, I expect you-know-who will win the presidential election in 2016 because the GOP is too stupid to run Carly and stop the gender-war that Hillary will ride to the White House.

So we’re left expecting (emphasis on left, as in far left) president Rodham to be crowned, and with her, our fate really oughta be sealed in a Hooveresque sort of way.

The while will be completed with the Wrong Dealers (as opposed to New Dealers) show up early and arrogantly and promptly fail to solve the problems they have been busily creating.  And those might include:

• Leaky Border Syndrome
• Crooked Finance Syndrome
• Deficit Spending Cancer
• Too Much Government Disease
• Stifled Freedoms Disease
• Government Subsidized Replacement of Humans by Excess Tax Deductibility for Robotics and Mass Production  (we will cover this in more detail for our Peoplenomics readers)
• and let’s not leave out Rotting Moneynoma…

It’ll be fun to watch, and we shouldn’t need the flash goggles until 2022.

So off – on this cheerful outlook- off to work for another week while I try to put some lipstick on this pig of history that’s wiggling before us.  Hand me some lip gloss, would’ja?

Wee, wee, wee…all the way home till Miller Time.

Come back tomorrow and bring reinforcements.

Write when you break-even

George  george@ure.net