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Blog : Market Crash, Terrorism, Bitcoin, Oil Prices, Fear Index


by on September 22nd, 2014

Keys to the New Paradigm

- Oil Prices will Bend

You can't jump over your own shadow.  The act of the leap changes the location of the shadow.
It is no different with oil prices right now (or ever).  Thefuel and oil prices lower they go, the more the supply/demand paradigm changes.  So, as they continue their slide, certain events factor in to (eventually) guide prices back higher.  For example:

- OPEC decreases supply (which they will at their meeting in Vienna on October 27th)
- Cheaper oil becomes more attractive compared to other fuel sources, increasing demand and use in favor of other fuels
- Marginal wells shut down or temporarily turn idle, limiting supply even further
- Lower costs spur the stocks of fuel-heavy businesses (Couriers, taxis, airlines, shipping, etc...) which eventually increases fuel demand

Oil prices will never go to zero in our lifetimes.  Meanwhile, we have passed peak oil (meaning that global demand and usage is outpacing supply and new finds).

Oil is a commodity, not a business.  While a corporation can get sued, or a crazed gunman can rampage the headquarters, or the CEO can embezzle money, oil does not have those types of company-specific risks to deal with.

Long story short, the further oil prices go from here, the more likely they will soon appreciate.  If your time horizon is months long, or even longer, you can trust that oil prices will eventually be higher than they are now (while you suffer no company-specific risk).

- Market will correct 10% - 15%

For a market to be healthy, it requires a correction of more than 10% from time to time.  Currently there is way too much optimism due to a rampantly upward-trending stock prices over the last few years, and that positive sentiment is actually a contrarian indicator (the more people who expect stocks to increase in value, the more likely they are to fall).

There are potential bubbles in housing, bonds, and certain commodities, and they will inflate until a correction shakes them out a bit.  In other words, a correction will set up the market to move higher for years to come, while a lack of correction is setting us up for a major multi-year crash.

- Fear Index will be Erratic

ISIS global unrestPrice drivers of the Fear Index (VIX) are typically based on negative global events.  The shear number of flash points will collude to make the VIX unpredictable and volatile.

Some of these, although by no means an exhaustive list, include the list below.  Keep in mind that these things don't have to "come to pass" to have an effect, but rather the threat of them needs to loom in the focus of traders (meaning CNN needs to keep you scared).

- Ukraine
- South China Sea
- Boka Haram
- Syrian civil war
- terrorism in Australia and China (which is coming)
- interest rate increases (also coming)
- housing slowdown
- global recession
- China economic and housing bubbles
- al-Qaeda
- Taliban (not a designated terrorist group, nor should it be)
- Al-Nusra
- al-Aqsa
- Al-Shabaab
- Many others...

- Inflation will accelerate

Many economies have printed more money.  This will mean a greater number of dollars will be required to buy the exact same item compared to what was previously needed.  This is inflation.  (Click the link to read the special report from Peter Leeds, called, "Inflation, Welcome to America!")

A $300,000 house which used to cost $40,000 did not necessarily increase in value.  That house simply requires more money to buy.  Never before have we as a country, or the various economies of the world, even come close to printing new money on the current scale.

- Bitcoin will Continue to Slide

My opinions about Bitcoin and other cyptocurrencies have been documented on our latest online video.  
Competition, Critical Mass, and the Attrition Rate will collude to pull prices lower.  Since that video was made, the new Apple Pay initiative has pulled the rug out from beneath most digital currencies.

- New Face of Consumerism 

People are smarter than they used to be, but they are also closer to being broke.  This is causing individuals to break away from the rampant consumerism which characterized the previous several decades.  

The result will be that people are happier than they used to be, and that they buy less.  The number of individuals buying online rather than in brick and mortar businesses will continue to climb.  Real-world retailors will feel the hurt big time.  Meanwhile, people won't obsess about getting the latest Aeropostal shirt, but even if they did, they would buy it online.


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