The top in stock market indexes concluded July 11 with the final high in the NASD 100. Qualitative events since then are confirming worse conditions ahead.
The Longshoreman are not satisfied with a 50% raise over six years, bumped from an original 40% due to White House pressure, instead they demand 77%. The auto industry is in trouble. Inventories are piling up, interest rates have risen, Aston Martin and Tesla warn of lesser expectations. An extended strike will slow delivery of European models not made in the USA.
Levi Strauss cut its earning forecast and is considering selling the Dockers brand. Its stock price dropped 9.8%.
Asian stocks are lower after Iran rained missiles on Israel. And that brings us to the topic of oil prices.
The Organization of Petroleum Exporting Countries (OPEC) was created in 1960 with five members. The idea was to influence production and maximize profit. Today there are 12 members. I believe OPEC has only been effective in raising prices with the two embargoes in 1973 and 1979. The problem is that there is no enforcement mechanism to ensure the members will abide by a decision to cut production to raise the prices. Most members like Venezuela have nothing to sell other than oil. In the 1980s after oil reached $36, the Saudis became the ‘swing producer.’ When other members did not throttle back production as price was clearly falling, Saudi Arabia did. By 1986 the Saudis were tired of the misbehavior, refused to cut back and price fell from $20 to $12.
Now the Saudi Oil Minister warns that prices could fall to $50 if members do not follow the suggested production cuts. Everyone who thinks a Kuwait Prince is going to cut lifestyle, raise your hand. Last week we observed the price trend is down.
But wait. Now, as mentioned, we have a wider war with Israel, Iran and its proxies. Earlier in September prices dropped to $65.60. Now tensions have raised that price to $73.85, up 9% in the last five days. ExxonMobil has jumped from $111 to $122 in six days while the overall market is falling. Transocean (RIG) is up 5.6% just today (Thursday) but still trading well below book value.
The next resistance is $78, then $80, and $84. Israel is ignoring Team Biden’s advice on restraint as they are fighting for their very existence. For now, the safer bet is on higher or at least firmer oil prices.
Stock indexes are exhibiting their typical October seasonal weakness. I suspect there is much more involved than just a seasonal weakness. A perfect storm of events is underway. FEMA says there is no money for the Southeast digging out from Helene. The money has been spent on illegal immigrants. What must our enemies think of the U.S. now?
