A Comment -- General Comments From an Expert (A Commentary)
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Educational Segment. 2018 and Predictions for 2019. He predicted last year that we would get a sell-the-news correction of 5-10%. There is no single asset class this year that is up. Everything year-to-date is now down. His call was right. He forecast Bitcoin was a bubble and when he said that on this show, it was the peak for the year. It has corrected 90% so far from its peak. He thinks there is another 90% still to go. He thinks Bitcoin is going to almost zero. There is more weakness to come in terms of the US$. In terms of US equity markets. The average recession correction is 29%. He thinks the next recession will be worse than average in terms of US Equities. The recession will not hit mainstream until late 2019 and 2020. There will be a trading rally or two.
Larry Berman CFA, CMT, CTAUnknown
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Market. No utilities or infrastructure. He thinks we have seen a nasty tax loss selling season and that it is almost over. The market is at a pivotal level. There is a draining of liquidity on the Fed balance sheet as they let investments roll off. He watches the VIX. At market lows it goes to the 40-50 range. It went to 50.3 recently. 1987 we went up to 80-90% on the VIX. There are bargains out there but the key thing is that everything is on sale, both good and bad companies. You have to find the good companies. He sees a 5 year bull market.
Josef SchachterUnknown
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Oil supply and demand. Supply keeps growing year after year. He thinks supply and demand will be be kept tight. He thinks we may see $80 oil in 2020.
Josef SchachterUnknown
COMMENT
The sell-off today (again): He doubts we'll see Santa Claus rally. It's been a brutal two months. Macro events are adding up: France, Brexit disaster for UK and EU, Italy; interest rates rising; the US-China trade war; and Trump's destabilizing tweets. The yield curve is flat, but keep an eye on the 2- and 10-year yields in the U.S. If they invert, then a recession could hit 6-18 months later. Many European buyers, especially Germans (where there are negative yields), are buying US t-bonds lower than their own bonds and get a 225-300-basis point yield. That depresses the yield. These leads to the yield inversion.
COMMENT
If I purchase a put option with a stock at $20 and you buy the option at $1 with a $20 strike price, if the stock decreases to $15 and the option rose to $5 and you let the option expire, what happens? You own the option, so you decide whether to exercise it or not. If the option expires in the money, it will be exercised on your behalf by the broker. When you're buying a put option, you're making a bet that the stock will decline in price. It's like a short without the unlimited risk that the stock can shoot up to infinity; the most you lose is the cost of the put. But if you let it expire, then you'll be short the next morning--and you don't want that. Don't let the put expire--sell it.
COMMENT
If you sold a call and the stock decreased, and the price of the option has fallen to 10% of its original value, should I buy a call (believing the stock will rise and the call you bought gains in value)? First, buy the call back (if the option has declined more than 50% of its value). If you're very bullish and nothing fundamental has changed in the company and you see great potential in the stock, then buy a call. If not, buy another call option.
COMMENT
Are we entering or in a bear market and when would you jump into the market? Great question. Most metrics indicate that now, but he is not sure that earnings will contract next year. We're not through this malaise; it will last at least another quarter. Look at the VIX, which was 25 today (high, much higher than its 17 average). When the VIX rises above 30, he'll jump in.
COMMENT
Market Outlook The market has had a tough go over the past five years. He thinks, there has been a back room agreement between the Saudis and Trump to keep oil prices lows. A surge in OPEC supply and Trump issuing Iranian waivers have been examples of this. He thinks demand growth is understated, growing at 1.4 million barrels per day, combined with supply cuts in OPEC, other countries and now Alberta will help balance the market. There are a hand-full of companies benefiting from wide differentials, and thinks one oil trader earned a $9 million bonus for helping keep differentials wide. These companies are integrated companies that hold refining assets and strong trading desks.
Eric NuttallUnknown
COMMENT
Your mutual fund? His Energy fund that he manages is ticker NPP006. It is one of the few remaining mutual funds for energy with 65%/35% split US versus Canada. It is actively managed looking at heavy differentials. It has $130 million in assets.
Eric NuttallOwned
COMMENT
E&P vs Integrated. There is a structural problem with a lack of funds coming into the sector. Small cap producers are off investor's radars, so the trading threshold is now over $1 billion to attract any investment. He would be very worried as a CEO of a small cap E&P -- will they be able to access capital going forward?
COMMENT
How long will the volatility last? There's a lot of cash out there, but still a lot of uncertainty. Tariffs, concerns over growth, flattening yield curve, and the Fed decision next Wednesday. He thinks US rates have to rise next week, but with a dovish commentary. DAX is down, as well as China, Japan, and North America. Have backtracked from 3 raises in 2019, down to 1 or 2.
COMMENT
Huawei CFO under pressure, so why is it still instrumental? This is about 5G. Telecoms and equipment suppliers. The next generation of mobile internet connectivity will be faster and more accessible, so it needs more equipment. The players are finite. Huawei is heavily funded by Chinese government, and it owns 28% of the 100B market share. That's why it's a big deal.
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