November Macro View

Oil Is Back, Baby

The IMF predicts that global GDP will rise 3.5% y/y this year and 3.6% next year.  This continued run can partly be attributed to the oil industry showing signs of picking back up.  Analyst predictions show the top performing sectors of the market will be energy related going into 2018 and beyond.  Demand is increasing at a higher rate than supply, which is staying fairly stagnant at the moment.  United States frackers are wild cards, meaning we don’t exactly know much production we will get out of domestic operations making investors more wary about rising prices.  However,  oil and gas exploration and production is predicted to be the top performing sector in 2018 increasing 330% next year. Sorry grandma I don’t want any more sweaters this Christmas.  A few shares of XOP will do the trick (Oil and gas P&E SPDR ETF – up almost 4 points already this week closing over $35).  Sorry to dampen the mood, but I would not consider this a good long term play.  Many countries have already started implementing aggressive targets for electric car sales.  Many countries not named the United States are attempting to ban the sale of gas powered cars altogether as early as 2025 (Damn Norwegians).  India will follow in 2030 and France in 2040, making the idea of electric (autonomous?) vehicles very tangible.  This is not good news for the gas industry as we shift away from traditional clunkers, since half of worldwide oil consumption comes from drivers.  However, short term this sector could give this bull market the boost it needs in 2018 to continue the historic rally.

The Stars Are Aligning

Global growth is finally happening in tandem.  Countries around the world seem to be in relatively good financial health with strengthening fundamentals, booming stock markets, and increased output that is creating a positive wealth effect on our society.  Growth started to quicken in late 2016 and we have not looked back.  South Korean exports are up 35% y/y and 17% m/m in September basically going vertical.  In line with that, German new orders are up 3.6% m/m which is good news for technology , since Germany is a manufacturing hub for robotics.  These global economy factors can be attributed to a couple of things:

  1. Global monetary policy remains very “easy”
  2. Chinese bank lending at record highs
  3. 50% cut in oil prices
  4. Mass immigration in Europe boosting EU economy
  5. Global bull market in stocks

Basically we have easy, cheap access to money in our low interest rate world that goes along with the wealth that has been created through cheap energy and bull markets.  The immigration is answering the call in Europe keeping the economy strong, and the entire world is being propped up by Chinese lending.  As we speak they are issuing billions in dollar denominated bonds that have gotten over $10 Billion in orders adding to the stockpile.   Could this be a bubble forming?  Could the equity markets be inflated from all of the QE money that was pumped into the system?  How many licks does it take to get to the center of a tootsie pop?  The world may never know.

Market Update


Major Indicies:

  • DJIA – 23,435
  • S & P 500 – 2,573
  • NASDAQ COMP – 6,716
  • Russel 2000 – 1,500
  • Nikkei – 22,500
  • DJ Total Market – 26,700

Domestic Interest Rates (Yields in %):

  • US 2Y – 1.6
  • US 10Y – 2..35
  • US 30Y – 2.9
  • 15Y Fixed Mortgage – 3.19
  • 30Y Fixed Mortgage – 3.90
  • 3Y Car Loan – 3.06

Currency pairs:

  • EUR/Dollar = 1.18
  • GBP/Dollar = 1.31
  • AUD/Dollar = 0.69
  • Dollar/CAD = 1.25
  • Dollar/JPY = 112.2
  • Dollar/MXN = 18.7

Foreign Debt (Yields in %)

  • Australian 10Y – 2.82
  • France 10Y – 0.64
  • Germany 10Y – 0.47
  • Japan 10Y – 0.06
  • UK 10Y – 1.38
  • Spain 10Y – 1.46

Commodities/Futures ($)

  • Crude Oil – 54.3
  • Natural Gas – 2.91
  • Gold – 1279.4
  • Lean Hogs – 66.5


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