Not Ready For Prime Time -- February 23, 2015; Apple Surges (Relatively Speaking) On A Down Day For The Market

A reader wrote me suggesting that he sees low oil prices for "several years" (as do other pundits).

This was my reply:

I agree with you, trying to predict oil prices is a fool's errand, as the WSJ or one of the print media outlets said recently.

Two data points that folks don't talk about much:

1. I don't know when we will see the low in the price of oil, but whatever it is and whenever it occurs, that's the "re-set" as Hillary would call it. Whether the low is $50 or $40 or $20, at some point oil will hit its low. I'm pretty convinced that the low of $20 or $40 or won't last for years; possibly $50, but I doubt it; even $60 for several years seems a stretch. But whatever the low is, that will be the new "low," the new re-set going forward. If the the low hits $20, and oil goes back to $40 in 2017, that's a doubling in price. I'm not looking for those numbers, but just suggesting how the "re-set" becomes quite interesting -- for investors.

2. Saudi Arabia needs $100-oil to balance their budget; they say they have huge cash reserves and they say they can go quite some time at much lower oil prices. Most OPEC countries need significantly more than $100 oil to balance their budgets (and, yes, I know their published data is subject to question and subject to hyperbole) but I doubt any of the OPEC countries are in as good a shape as Saudi Arabia. At some point something has to give. If we have $40 - $60 oil for "several years,"most of the Mideast, Russia, Venezuela, north Africa, and west Africa are in deep, deep trouble.

All the money being funneled to support such states as Palestine by Saudi Arabia will go by the wayside and Palestine will be an even bigger issue. 

So, for me: two things --

1. There is or will be a new re-set when valuing oil investments;
2. Several years of $40 - $60 oil will wreak havoc on countries I've mentioned above (right now the US market can barely handle Greece leaving the EU). 

I wrote that note a few days ago.  I posted this note today because of this comment: Several years of $40 - $60 oil will wreak havoc on countries I've mentioned above.

 So, why is that important. There are hints that "the countries listed above" are already feeling the impact. CNBC/Financial Times is reporting:

Members of Opec have discussed holding an emergency meeting if crude continues to slide, according to Nigeria's oil minister, in a sign of their growing alarm over the impact of a lower oil price on their economies.

The comments by Diezani Alison-Madueke come three months after the cartel's decision to hold production at 30m barrels a day, even as the oil price has plunged since mid-June. That move, driven by Saudi Arabia and its Gulf allies, marked a sharp deviation from Opec's traditional strategy of adjusting production to keep prices high.

The group's main objective is now to defend market share, despite dramatically reduced revenues. The price plunge has forced energy companies all over the world to rewrite their investment plans, and caused a major slowdown in the US shale oil industry.

But it has also thrown the fiscal balances of big oil producers such as Nigeria, Venezuela and Russia into disarray. 

Expanding on the original note.

Quick: name the terrorist groups "working" in west Africa. Al-Qaeda and Boko Haram. Quick: where is Boko Haram active? The Daily Signal is reporting:

Across the continent in West Africa, Boko Haram “maintained a high operational tempo in 2013 and carried out kidnappings, killings, bombings and attacks on civilian and military targets in northern Nigeria, resulting in numerous deaths, injuries and destruction of property in 2013.”

Two things the government won't have if it doesn't have oil money: a) money to fight the rebels; b) money to keep their citizens happy.

Russia has similar problems, particularly among the Muslims in former republics of the USSR and along Russia's borders.

But it's not just the oil-producing countries that are at risk of increasing social disarray. Some Muslim countries -- or quasi-countries -- depend on money from Saudi Arabia (and perhaps other oil-producing OPEC countries): think Arafatland. (See also this post of August 20, 2015.)

And that's the first problem: oil at $20 - $40 works in favor of the terrorists. When "they" talk about "disarray," that's code for a) civil unrest; and, b) terrorist events.

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Apple Hits A New High On A Down Day 

Yahoo!Finance noted that AAPL hit a new high. That's something of an understatement. Considering a "down day" on the market, and the downward trend apparently led by technology and oil, it's interesting that AAPL is surging, relatively speaking. I expected a move one way or the other, up or down, maybe to the tune of 50 cents, but here we are, with AAPL up over $3.00 and nearing $800 billion in market cap. And that's on NO news.

Unless this was the news. Macrumors is reporting:

Apple announced on Monday that it will invest €1.7 billion to build and operate two new data centers in Europe. The state-of-the-art facilities will be located in County Galway, Ireland and the Central Jutland Region of Denmark, powering Apple's online services such as the App Store, iTunes Store, iMessage, Maps and Siri for European customers.

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Snow Day Agenda

Our granddaughters had a "snow day" -- actually an "ice day" due to freezing rain last night and then a quarter-inch/half-inch of ice on roads today. They spent the day with us. This was the rough agenda for our older granddaughter: