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  • Stocks Plunge Most On Record Last Week, Oil Down 10%

    In the first week of 2016, US stocks plunged by more than in any other first week of January since records have been kept (before 1900). The Dow Jones Industrial Index fell over 1,000 points from 17,591 at the close on December 31 to 16,519 at the close last Friday – a loss of over 6% in one week.

    The S&P 500 Index shed over 100 points from 2043.7 at the close on December 31 to 1922.0 at the close last Friday – a loss of 6.0% in one week. The Nasdaq Composite lost 7.3% during the worst first week of January on record.

    Most global stock markets were hit with similar losses or even worse in some cases. Investors around the world were stunned and are wondering what happened in the worst New Year’s  week in history for share prices – and worry if more pain is to follow.

    The financial media maintained that the carnage was caused primarily due to new economic data out of China, which was worse than expected. I will get into that as we go along today, but the rout was due to more than just disappointing Chinese data.

    The collapse in crude oil prices since mid-2014 is also becoming a serious global concern for reasons I will outline below. The price of West Texas Intermediate Crude has collapsed over 70% since mid-2014 from near $105 per barrel to below $33 a barrel as of last Friday’s close. It fell 10% last week alone and is down so far this week.

    While sharply lower gasoline and energy prices are a boon to consumers, there are now serious concerns about sovereign debt defaults in numerous oil producing countries. In addition, there are growing fears of global deflation as a result of collapsing oil and other commodity prices. I will tell you why below.

    Yet before we get into the complicated issues raised above, let’s take a few moments to discuss last Friday’s stronger than expected unemployment report for December.

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  • Economic Optimism Abounds As Crude Oil Plunges

    Each year at this time, we see a plethora of fresh forecasts for the New Year, and this year is certainly no exception, especially with the recent implosion in oil prices. There is widespread agreement that sharply lower energy prices will provide a boost to the global economy this year, especially for oil-importing nations including the US.

    As a result, almost all of the New Year forecasts that I have seen in recent days have been upbeat and revised higher with regard to the US economy. With that in mind, I thought it would be a good idea today to revisit the recent developments in the oil and energy markets over the last six months. What we have witnessed since last summer has been nothing short of breath-taking, to say the least!

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  • Plunging Oil Prices Spark Fears of Global Recession

    Today, we touch on several bases. No doubt everyone reading this noticed that stocks tanked last week, and now seem to be moving in lockstep with oil prices. While consumers welcome cheaper gas and heating oil prices, there is a growing fear that the collapse in oil prices may be a harbinger of a global recession.

    Despite worries that the oil price plunge is pulling down stock prices, the latest Reuters/University of Michigan Consumer Sentiment Index soared to a near eight-year high this month. Expectations for a better job market helped power the Index from 88.8 in November to 93.8 this month, well above expectations.

    Finally, I am sad to report that our national debt topped $18 trillion on November 28 according to the Treasury Department. It was not widely reported by the mainstream media, of course. While our annual budget deficits have come down significantly from the first four years of the Obama administration, we are still on-track to hit a whopping $20+ trillion national debt by 2019.

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  • On The Economy, Oil Prices & Obama’s Temper Tantrum

    Today we'll touch on several bases, as I'm often known to do. We will start with the latest news on the economy, which is decidedly upbeat, with GDP coming in well above-trend for the last two quarters. The question is whether the latest two quarters of above-average growth are a sign of more good things to come, or are they just the catch-up results of the disappointing 1Q decline due to the severe winter weather?

    Even with the strong growth in the 2Q and 3Q, if we look back further, say to 2010, GDP growth over that period is still below trend at around 2.5% - which is unexceptional. So it remains to be seen if the economy is fully back on track.

    Some argue that the surge in the economy of late is largely the result of the huge decline in oil and gasoline prices. No doubt that has been a significant factor. Some analysts estimate that the drop in oil prices from above $100 a barrel to $67 is the equivalent of a $125 billion tax cut, which is a significant boost to the economy. And most forecasters believe that oil prices will remain low for some time to come, as I will discuss today.

    Finally, I can't help but comment on the deluge of unpopular actions taken by President Obama in just the last month. Unlike most recent presidents who suffered such a defeat in the mid-terms – including Reagan, Clinton and Bush(43) – and then compromised with the opposition, Obama is doubling-down on his unpopular policies. Even worse, he says he's not done yet and promised to veto any bill to build the Keystone XL pipeline.

    To me, this rash of controversial decisions amounts to a “temper tantrum” on the part of the president, in reaction to the drubbing that the Democrats suffered in the mid-term elections. I'll share my thoughts on why this is happening now as we go along today.

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  • U.S. Now World’s Largest Producer of Oil & Gas

    Recent reports have confirmed that the US is now the world’s largest producer of crude oil with output exceeding 11 million barrels per day in the 1Q of this year. This surpasses the daily oil production of Russia and Saudi Arabia. This is the first time in over 40 years that the US has once again become the largest producer of oil in the world – and this is despite the Obama administration’s continued ban on new drilling for oil in our coastal waterways. Oil extraction is soaring at shale formations in Texas and North Dakota as companies split rock formations believed to contain oil using high-pressure liquids, a process known as hydraulic fracturing, or “fracking.” This oil boom has dramatically lowered petroleum imports into America. The share of US fuel consumption met by imports is down from 60% in 2005 to 33% in 2013 and is expected to fall to 22% in 2015, which would be the lowest since 1970. I will discuss the latest good news in detail as we go along today.

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  • Will Spiking Oil Prices Tank the Economy?

    Our economic recovery was already fragile, to say the least, and now we have crude oil prices over $100 per barrel in less than two months. So what are the risks that the economy will head back into a double-dip recession? Today we look at the latest economic reports which hold mixed signals for the economy going forward, and what leading economists expect in light of $100+ oil prices.

    Following that, I will discuss the possible ramifications of the latest political turmoil in the Middle East. Thus far, the impact of political change has been marginal. But what happens if Saudi Arabia, the world's largest oil exporter, falls prey to a regime change? Could it really happen? Only time will tell, but if the Saudi government falls, expect all hell to break loose in terms of oil prices.

    And finally, I address once again the subject of whether "speculators" are the main cause of spiraling oil prices. Speculators are only an ancillary cause of rising oil prices, with marginal effects. The real cause of higher oil prices is the fact that political unrest in the Middle East and North Africa has escalated significantly over the last couple of months. No more, no less.

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  • Will the US Dollar Lose "Reserve Currency" Status?

    The US dollar has been in a multi-year decline since peaking in 2001. While there was a temporary 'rush to safety' rebound in the dollar due to the global credit crisis in 2008, the dollar has resumed its long-term downtrend as of early March of this year. Now, more and more forecasters are suggesting that the dollar may lose its global "reserve currency" status if it continues to decline. Some are even calling for the establishment of an all-new global currency to replace the dollar entirely.

    This week, we will explore how the US dollar came to become the world's reserve currency and how difficult it would be to replace the dollar as the reserve currency, or replace it entirely with a new global currency. We will look at the major price trends in the dollar over the years and try to put the current decline into perspective. I will make the case that the US dollar will remain the global reserve currency for at least several more years. It should make for an interesting letter, so let's get started.

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  • It's Official - 2008 Was A Very Bad Year

    As we draw a much welcomed close on the year 2008 tomorrow, it makes sense to review what will certainly be one of the most significant years in our nation's history. I am on vacation this week, but I have reprinted two very interesting articles that reflect on what we have witnessed this year and what it may mean for the future. I trust they will make you stop and think. I'll be back to my usual writing schedule next week. I wish a very Happy New Year to you and yours!...
  • Uncle Sam's $700+ Billion Toxic Securities Fund

    The credit crisis has led to gridlock in the financial markets, and the stock markets have dropped like a stone. On Saturday, the Treasury Dept. and the Federal Reserve requested a massive $700+ billion bailout package that would allow the government to buy up troubled mortgage-related assets from banks and financial firms that are in trouble. Congress is reluctant to go along, but I expect they will provided they also get some money to help struggling homeowners and more oversight than the government offered initially. This week, we take a look at the latest enormous bailout plan and the latest government guarantee of money market funds. I also tell you why I believe we are now headed for a recession, and why I believe this huge financial mess will likely make Barack Obama our next president....
  • Are "Speculators" Controlling Oil Prices?

    With the recent spike in oil prices above $140 a barrel, and gasoline at $4.00 or above, Americans are crying foul. Someone must be to blame. In recent weeks, blame has increasingly been focused on so-called "speculators" in the oil and energy futures markets. This week, I take an in-depth look at the role of speculators in the futures markets and how much, or how little, they may be affecting the prices of oil and gasoline. I also review a recent Merrill Lynch study on the role of speculators in the energy markets. This should be one of my more interesting E-Letters....
  • The Corn Ethanol Myth & My Retirement

    This week, we explore the ethanol myth, and why not, since corn prices have recently exploded to over $6 per bushel, an all-time record high. As a result, farmers are planting corn everywhere they can and selling much of it to ethanol producers. But upon closer examination, we find that corn ethanol is not a very efficient fuel to produce or consume, especially if we strip away the massive government subsidy of $1.90 per gallon....
  • Stratfor On The War In Iraq After Five Years

    March marked the fifth anniversary of the war in Iraq. The troop "surge" that President Bush ordered last year has led to much more success in Iraq, but we hear little about the good news from the media. This week, I have reprinted a recent analysis on the war in Iraq...
  • Stratfor: The US Economy & The Next "Big One"

    The conventional wisdom on Wall Street seems to be that we have now entered into a recession. While I'm not yet ready to get on that bandwagon, I do see it as a definite possibility in light of ongoing weak economic reports. If we do experience a recession, the next question is whether this is going to be the "big one," somewhat akin to the 1930s Depression....