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Why 95% of Traders Fail

Natural Energy Cycles, Human Arrogance and Economic Consequences

Politics / Energy Resources Dec 23, 2012 - 10:26 AM GMT

By: Brian_Bloom

Politics

Below is a quote from an article on “tight oil” production that appeared at http://www.econbrowser.com/archives/2012/12/future_producti.html . It captures the overall thrust of the article itself and also of the comments that flowed from readers.

“The 2005 to 2011 rate of decline in the GNE [Gross Net Exports of oil]/CNI [China and India consumption of oil] ratio, if extrapolated, suggests that China and India would be consuming 100% of Global Net Exports of oil in the year 2030, which is 18 years from now. Of course, I don’t think that will actually happen, and there is already some suggestion of a slowing demand from the Chindia region or at least a decline in the rate of increase in consumption, but the trend through 2011 is pretty clear, and the rate of decline in the GNE/CNI ratio accelerated from 2008 to 2011, versus 2005 to 2008.”


The key question arising from the above seems to be whether or not shale gas output can grow at a sufficiently fast pace to substitute for the anticipated decline in tight oil production. At face value, based on the arguments in the comments, it seems not. If these arguments turn out to be generally correct then I will need to modify my attitude on the US economy from mildly bearish to very bearish. Without an energy tailwind, the US economy will struggle. Nevertheless, at the end of the day, the technicals will dictate the timing.

In the grand scheme of things, from a technical perspective – see chart below (courtesy DecisionPoint.com) – the probabilities of a further stock market rise from this point seem very low. Based on this chart, a key support level is 1250


Chart #1 – 86 year chart of the Standard & Poor Industrial Index

Importantly, the chart of the 30 year bond yield below – which goes back to the 1940s – shows that the cycle has probably bottomed. Yields can’t fall any further and so can’t be used to “stimulate” the economy. Note the uptick in the Price Momentum Oscillator. A rise to 4% from here is quite within the bounds of possibility in the coming months


Chart #2 – 70 year chart of the US Long Bond Yield

Let’s assume a bearish posture for the sake of argument:

If “The Market” is going to over-ride the Fed’s ridiculous aspirations to keep flooding the financial markets with cash whilst keeping interest rates low, the Fed’s invincibility will come into question and the investment “mood” will very likely change from mildly bullish to mildly bearish.

If, in that context, the tailwind from natural gas turns out to be an eddy, then the intensity of bearishness will spread and equities can fall significantly – the S&P might fall to 1,000 in short time.

Another supposed driver of the US economy is emerging technology.

Technically, if the Nasdaq falls from here then that will be a sign that investors will be less sanguine that emerging businesses be able to drive the US economy, as was being anticipated by many.


Chart #3 – 20 year chart of the Nasdaq 100 Index 

A fall below 2500 – based on the P&F chart below (Courtesy StockCharts.com) – implies a possible fall to 2250 and then, perhaps, to 1780


Chart #4 – 3% X 3 box reversal chart of the Nasdaq 100 Index

This headline picture on Drudge this morning did not serve to improve my levels of optimism.

I suspect that Obama’s reasoning was that he wanted to show the American public that he’s not particularly worried about the fiscal cliff and that “somehow” it will turn out okay. From the perspective of thinking people – and that includes most investors – it sends a very disturbing message: “I’m betting that Boehner will cave”.  Frankly, it seems to me that the fiscal cliff negotiations boil down to politics rather than economics and, from a political perspective, Boehner can’t cave. It’s not about the fiscal cliff so much as it’s about the chances of Republican politicians being re-elected to their positions in Congress and the Senate. If Boehner caves he will be in breach of his election mandate and that could destroy his personal credibility.

Here’s is a relevant quote from another Drudge article of this morning: http://thehill.com/homenews/senate/274417-pressure-grows-on-senate-to-act-on-fiscal-cliff

Boehner called for Senate action after he cancelled a vote on Plan B Thursday evening.

“The House did not take up the tax measure today because it did not have sufficient support from our members to pass,” Boehner said. “Now it is up to the president to work with Sen. Reid on legislation to avert the fiscal cliff.

“A senior Democratic aide said Friday McConnell [in the Senate] has not made any recent attempt to reach out to Reid to negotiate a solution. The aide noted McConnell is up for re-election in 2014 and would be hesitant to craft any deal that would effectively raise tax rates on the wealthy. This could open him to a Tea Party-backed challenge in the Kentucky Republican primary.”

On balance, I’m feeling a lot less comfortable than I did a few days ago. From my perspective, the photo above provides further evidence that Obama may be a genuine psychopath. If that turns out to be true, then all hell could break loose because he will not be conciliation oriented at a point in time when he needs to be. He will lean towards being dictatorial against a background where his opponents have no room to move – and he will rationalise this as “clever negotiating”. This particular photo-op may turn out to have been a monumental error of judgement on his part. Unfortunately, the Republicans in Congress and the Senate have to be seen to be delivering genuine spending cuts or they will face the prospect of losing office. They will therefore be forced to dig their heels in.  Obama may not be as clever as he thinks he is. Even if he can retrieve the situation by “magnanimously” backpedalling, he will have delivered a severe jolt to fragile confidence levels: Days before an anticipated crisis he abandoned his post to go on vacation? What kind of a leader is this?

If, on top of this, the natural gas tailwind turns out to be less than expected, the possibility of a sideways movement of the economy will dwindle because the US will also be rudderless in its leadership. The country will be locked in to the current government for the duration and Obama will have lost the trust of the nation. Whatever he says about energy will fall on deaf ears.

Yes, the world may be turning away from religion but the above brings to mind a very relevant quote from the Bible: “Pride goes before destruction, and a haughty spirit before a fall.” (Proverbs, 16:18).

The above serves to illustrate the looming risk that the current batch of arrogant world’s leaders will lead us all into the jaws of hell. It’s time to kick them out and appoint more humane and empathetic leaders. Both my novels have been predicated on a foundational assumption that an attitude of humility will be a critically important condition-precedent to any future solutions to humanity’s current problems.  The question is: How long will it take voters to wise up to the fact that personal “charisma” does not necessarily render a candidate eligible to a position in high office? Typically, charisma and arrogance go hand in hand. The firmness of a man’s (or woman’s) handshake, the confidence in his step and the breadth of his smile do not necessarily imply that he is trustworthy.

The above photo was not a good way to end the year 2012. Perhaps readers might consider “gifting” their friends with electronic Amazon Kindle copies of my novels over the holiday period. A change in attitude has to start somewhere.

Brian Bloom

Author, Beyond Neanderthal and The Last Finesse

www.beyondneanderthal.com

Beyond Neanderthal and The Last Finesse are now available to purchase in e-book format, at under US$10 a copy, via almost 60 web based book retailers across the globe. In addition to Kindle, the entertaining, easy-to-read fact based adventure novels may also be downloaded on Kindle for PC, iPhone, iPod Touch, Blackberry, Nook, iPad and Adobe Digital Editions. Together, these two books offer a holistic right brain/left brain view of the current human condition, and of possibilities for a more positive future for humanity.

Copyright © 2012 Brian Bloom - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Brian Bloom Archive

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