Posts by The Trend Letter

Negative rates

Negative rates, the dangerous experiment

For over two years now we have been warning that low interest rates were going to have a serious effect on savers. We have also highlighted many times how low interest rates would crush Pension Funds, as these funds need annual returns of 6%-8% to meet their future obligations. We recently published a blog on how the richest countries in the world have a combined $78 trillion Pension Fund crisis. Read here

The logic behind low interest rates was that with rates low, businesses would borrow to expand their operations, while consumers would use low rates to borrow and buy homes, cars, and other big ticket items. All this borrowing and spending, theoretically, would create new jobs & grow the economy.

The problem with the theory is… it didn’t work. Businesses didn’t like all the talk of increasing taxes, so they didn’t expand their business. In fact, most businesses cut and slashed jobs to avoid losses. Consumers also didn’t like all the increases in taxes and fees that governments were implementing, so they cut their debt load rather than increase it. So at the end of the day, all that stimulus that global governments piled on, didn’t achieve the desired results.

And now, in 17 countries to date, there are negative rates. It used to be that people would work hard, save their money, and then when they retire, they could live off their savings. Today, seniors can no longer simply live off their savings, with record low interest rates, and now even negative rates being implemented, there is no yield to fund their retirement.

Today, if you have worked and saved all your life, and are now looking to retire, and live off your savings, where is your income going to come from? With negative rates, instead of earning a decent return on your money from the bank, you would actually have to pay a penalty to leave your money in the bank. As bizarre as this sounds, it is exactly what is happening in over 17 countries today, &  it is very likely coming to North America soon.

After all of our table thumping on how dangerous these low, and now negative rates are, we are now hearing from industry leaders, who are finally agreeing with us. Last week, Larry Fink, chief executive of BlackRock, said that not enough attention was being given to the effect of negative rates on saving habits in his annual letter to shareholders.

The International Monetary Fund (IMF) is also becoming concerned, warning that there were “”limits on how far and for how long negative policy rates can go“.

From CNBC…

“The Bank of Japan, the European Central Bank and four other central banks around the world have introduced overnight negative interest rates. The monetary policy experiment is designed to encourage banks to lend, but its introduction has been accompanied by doubts over its effectiveness, concern about its effects on bank profitability and by widespread volatility in financial markets.”

Fink notes that today, a 35-year-old had to save more than three times as much to make the same retirement income when long-term interest rates were at 5 %.

“This reality has profound implications for economic growth: consumers saving for retirement need to reduce spending… A monetary policy intended to spark growth, then, in fact, risks reducing consumer spending.”

Stay tuned!

Hilary& Bernie

Bernie made less in year than Hilary made in single speech

While Bernie Sanders reportedly earned just over $200,000 in 2014, Hilary Clinton, Sanders’s main Democratic rival, earned more than $200,000 per speech, in 42 paid speeches she made in that same year (Note: she made 5 other speeches in 2014, but only made between $100,000 – $150,000 per).  Most of those speeches were less than an hour long, so Hilary earned more in 1 hour than Sanders earned in 1 year.

From 2013, to the 1st quarter of 2015, Clinton raked in a cool $21,667,000 giving speeches.

Hilaryspeeches

See the story from the Washington Post.

 

pensioners

The $78 Trillion Problem

$78 trillion is a massive number, & according to Citigroup, that is the amount of unfunded pension liabilities incurred by the richest 20 countries of the Organization for Economic Cooperation & Development (OECD). These countries include the US, UK, Canada, Australia, France, Germany, Japan, & central Europe, among others.

The report also noted that most US & UK corporate pension plans were also severely underfunded.

The problem here is that governments have borrowed more money than can ever be paid back, & they have made promises of entitlements that are hopelessly underfunded. We are already seeing the impact of unfunded pension funds.
Detroit went bankrupt, primarily because it could not afford to pay its pensioners. If the city’s pensioners had not agreed to a series of cuts to the pension plan, according to the Kresge Foundation’s Rip Rapson, “Detroit could have been in bankruptcy court for maybe a decade“.

Now in the US, the Governmental Accounting Standards Board has required governments to adopt rigorous accounting methods that are similar to those long used by private-sector accountants, & in many cases, the GASB reforms have required governments to disclose pension obligations formerly not put in all audits.

As a result, when unfunded pension, medical, & other liabilities are formally included on its balance sheet, the Orange County Fire Authority’s debts exceeded its assets by $169 million for the fiscal year that ended in June. According to the Register’s OC Watchdog “that’s a plunge of more than 680% in its ‘net position, or more than $420 million, over a single year.”

These new accounting rules have also exposed that California’s 2014-15 balanced budget was actually $175.1 billion in the red, due to state retirement obligations that had to be included in its balance sheet for the first time.

The latest figures reveal that retirement plans have less than three-quarters of the assets they need to pay current and future retirees. “Before the recession, many of these plans were fully funded or nearly fully funded,” said Russ Walker, vice-president of Wilshire Consulting.

In 2007, the state pensions’ funding ratio, a measure of assets to liabilities, stood at 95%. An 80% funding level is generally considered the minimum healthy level for public pension plans.

To close these gaps, most funds are now relying on “exceptional asset returns.” But in this world of zero, & now even negative interest rates, expecting “exceptional returns” is hardly realistic. Remember, typically funds need annual returns of 7%-8%, which they are not getting in this current financial environment.

In Japan, its public pension reserve fund, the largest of its kind in the world, lost $64.22 billion, its biggest quarterly loss since the financial crisis for the quarter through September, dragged down by a global stock selloff.

The Europe & Central Asia region are no better off. The financial crisis has quickly turned into an economic crisis with major implications for all public programs, including pension systems. Future pension system deficits are expected to be threefold what is currently being experienced in the worst hit countries, & are expected to remain at that level for more than 20 years before slightly improving.

These pension fund problems are already a huge issue, but as usual we will see no politician bring them up. No politician is going to let voters know that there is no money to meet all the promises that have been made, let alone the new promises they will make in the current campaign.

These global debts & deficits are not political topics, but they are financial realities. The clock is ticking, & while the politicians don’t want to discuss these issues, the rubber is gong to hit the road soon.

It is simply math. We know how many people are retiring, & we know how much they have been promised, so we know the cost. We also know how much has been budgeted, & what returns these funds are getting in the markets. And now, according to Citigroup, we know that there is a massive shortfall of $78 trillion globally.

There are solutions, but time is running out.

1. You can encourage real economic growth, by encouraging companies to expand & grow. This does not mean raising corporate taxes, it means working with companies , & encouraging company growth. This would create more jobs, & that means more tax revenue.

2. Define government spending priorities & stick to balanced budgets. This means that the politicians would actually have to make hard decisions. They would need to trim or cancel ineffective programs, & focus on the critical ones that are best for the people & the country.

3. Given that we are all living longer, we need to raise the age of eligibility for benefits. Some countries have already begun to implement this policy.

4. Lower the payout to retirees. Again, this is what Detroit worked out with their retirees.

5. You can also raise taxes. This is the favorite option for every politician. The problem is that higher taxes takes money out of the pockets of the people. Remember, most citizens do not have a private or public pension plan, & will need to save for their own retirement. In Chicago they are looking at increasing property taxes by 30% just to meet their pension fund obligations, currently at $20 billion, & growing.

This is just another factor in the rising ‘loss of confidence in government” that will bring about a massive trend change. Ultimately, it will result in a global Sovereign Debt Crisis, & massive global flow of capital out of the riskiest areas.

Investors who are in a strong cash position will be able to not just protect their wealth during this coming crisis, but to grow it significantly. We are getting closer & closer to showtime!

US_debt

How to survive the coming crisis

We are getting many questions from readers on how do we as individuals survive this coming period of incredible change. It used to be that people would work hard, save their money, and then when they retire, they could live off their savings. Today, seniors can no longer simply live off their savings, with record low interest rates, and now even negative rates being implemented, there is no yield to fund their retirement.

Many semi, and unskilled workers face a very challenging future with the incredible technological gains being incorporated in virtually every industry. While these changes are already underway, they are just beginning.

But of all the changes coming, there is one underlying trend that is already starting to drive the financial markets and create social unrest. This will reshape everything… our investments, our currency,  and what rights and freedoms we retain. Long before Donald Trump’s name was on the political landscape, we had warned that the loss of confidence in government would be the impetus for a dramatic Trend Change, starting in late 2015, going into 2020

We are now seeing social unrest spread through Europe, as the immigration crisis seems to have been the final straw, as the people have had it with the politicians and bureaucrats who have lined their own pockets, while bankrupting the country with their corruption and fiscal mismanagement.

Whether you approve of Donald Trump of not, he understands, and is exploiting the anger that is building up in the masses. The people have started to pull back the curtain, and realize that all politicians are the same, they are all part of a system that no longer meets the needs of the people.

The mainstream politicians and media laughed when Trump first announced he was running. Now they are doing everything they can to keep him from winning the Republican nomination. But they just don’t get that the reason Trump is so popular is that he represents change, he is the polar opposite of a mainstream politician.

The people want change, real change, not the change every politician promises during elections. They want changes where a government manages the budget so that the future is not compromised for the benefit of a few.

We are in the midst of an economic decline. Throughout the West, other than the very rich, the  standard of living is declining as no matter what party is in power, government expands, handing out ”entitlements’ when there is no money to pay for them.

There are a number of key votes coming. First, we will have the UK referendum on whether or not they leave the European Union (Brexit). Then we have the US election at the end of this year, where Donald Trump could actually be the next US President. In 2017, both Germany and France hold their elections where both Hollande and Merkel will be under immense pressure.

As we predicted over two years ago, Europe is falling apart. European countries have deep, rich, and varying cultures, and the concept that 19 countries with vastly different cultures, could co-exist, sharing a single currency , but not the debt, was doomed from the beginning. It puts countries with under-performing economies at the mercy of those with robust economic performance.

As this crisis in government gains momentum, we are seeing the smart money leave the perceived area of risk, and move to perceived areas of safety. We live in Vancouver where real estate prices are rising dramatically, as buyers from Asia, Europe, and the Middle East are scooping up high end real estate here, as a safe place to park their money,

This is a key that every investor needs to understand; when there is trouble in one area, capital flows to perceived safety. European and Asian capital has poured into US Treasuries, not for the meager return, but for the perceived safety of US government bonds.

People keep calling for the demise of the US dollar due to the massive US debt, but they fail to realize that the $US is the world reserve currency, and the largest currency pool in the world. In times of trouble, smart money wants to own ‘stuff’, and for cash, they want to be in the most widely traded currency, and that’s the $US.

As this global economic crisis unfolds, we will see Europe under tremendous stress, Our models forecast that the Euro may not survive. Think about that. If you are a European, you really need to think about what would happen if the Euro collapses.

Five year German bonds are yielding -.25%. Why would anyone pay the German government to take their cash? – because they feel that if the Euro collapses, Germany will survive, while many other countries won’t.

Two years ago we forecasted that Europe will see the first Sovereign Debt Default, likely late 2016, or early 2017. Whether it starts in Greece, Hungary, Poland or wherever, it doesn’t matter, because there will be many more defaults.

When we predicted Europe’s demise, we did not know what would be the trigger. We knew that the sense of ‘entitlement’, the corruption, the fiscal mismanagement, and massive unemployment were all going to bring the matter to a head, but it may be that the mishandling of the migrant crisis will be the final nail in the coffin for Europe.

Big government is the problem, not the solution, and the masses are starting to figure it out. As investors, we need to understand that as these social and fiscal problems bubble up and finally implode, capital will flow out of the trouble areas, into areas of safety.

Europe will be the first area hit, but the massive debt crisis will not be confined to Europe, it will spread globally, moving to Japan, and ultimately hitting the largest economy in the world, the US.

If you want to survive this coming global Sovereign Debt Crisis, you need to follow the global flow of capital. A Sovereign Debt Default occurs when a country can no longer meet its debt obligations. It doesn’t mean the country defaults 100%, rather that it must “restructure” its debt, meaning a hair cut, and massive losses for bond holders.

Be clear here, the volatility is going to ramp up, and go off the charts. Social unrest and violence in Europe has been very under reported by the mass media. Each investor needs to get their head out of the sand, and pay attention to what is going on. We will continue to keep our general audience updated in these Musings articles, and will be keeping our subscribers to The Trend Letter & Trend Technical Trader services apprised of where we will be investing our money, to not just survive this coming crisis, but to prosper from it.

Typically, in times of uncertainty and trouble, capital flows out of private investments (stocks), and into public investments (gov’t bonds). But what happens when the problem lies in government? When government is the problem, the opposite occurs; capital flows out of public investments (bonds), and into private investments (stocks, commodities, precious metals etc.).

We have already seen high end real estate rise in many areas, as smart money has begun to park in perceived ‘safe’ areas. Recently, with the birth of negative rates, we saw capital move into gold. While we do not feel that this is the right time to load up on gold, we foresee gold, North American stocks, commodities, and collectibles becoming targets of global capital.

Politicians and bureaucrats have been singing from the same song books for decades, and now the jig is up – finally coming to a dramatic end. Unfortunately, most investors are going to be caught blindsided when this global debt crisis finally unfolds and we see the first Sovereign Debt Default. Once the first default happens, it will be just the first domino, there will be many more to fall.

The consequences of not being prepared for this massive Trend Change will be devastating. For those who understand what is coming, it will be an opportunity of a lifetime to dramatically increase your wealth.

Understand that this crisis is a debt crisis, and on a personal level, look to reduce your personal and family debt as much as possible. While negative rates are here now, be aware that when government bonds are no longer a ‘safe’ bet, interest rates will rise, as bond holders dump their bonds. When bond holders no longer want to hold bonds, the rates must go up to entice others to buy them. Rising bond rates mean rising interest rates.

Most of us weren’t around in 1932, and the mass media never mentions this, but back in 1932, every major European country defaulted on their Sovereign Debt. That’s right, three years after the Crash of 1929, 17 countries in Europe defaulted on their sovereign debt. And guess where those investors moved their capital to?

They certainly didn’t buy US government bonds because they were afraid that the US would also have debt problems. No, instead of buying bonds, they bought US stocks, sending the Dow Jones up 392% over the next five years.

Remember, capital has to go somewhere. When it starts to panic out of gov’t bonds, it will move to other sectors. Timing is the key.

Stay tuned!

iphonehack

John Oliver explains why Apple needs to maintain its encryption—to stay “one step ahead” of hackers

As figures in technology and politics weigh in on the US Federal Bureau of Investigation’s iPhone encryption battle with Apple, the comedian John Oliver has now joined the fray. In his show on Sunday (Mar. 13), Oliver backs the tech company’s resistance to government efforts to compel it to unlock an encrypted iPhone belonging to a suspect in a mass shooting in San Bernardino, California. And Oliver called out the FBI on its troublingly over-simplistic view of how technology works:

obama

Obama admits hunting taxes is a motivation for iPhone backdoor

While speaking today at SXSW, Obama said he could not comment directly on the Apple-San Bernardino shooter case, but gave these remarks on the larger issue surrounding the FBI’s ongoing fight with Apple about penetrating encryption.

While using the usual fear of terrorism as the reason that government needs to be able to hack into our lives, he also let it slip that hunting taxes was a motive.

“And the question we now have to ask is if technologically it is possible to make an impenetrable device or system where the encryption is so strong that there is no key there, there’s no door at all? And how do we apprehend the child pornographer? How do we solve or disrupt a terrorist plot? What mechanisms do we have available that even do simple things like tax enforcement? Because if you can’t crack that at all, and government can’t get in, then everybody’s walking around with a Swiss bank account in their pocket. So there has to be some some concession to the need to be able to get to that information somehow.”

Having a Swiss bank account is not illegal, but clearly Obama considers it illegal.

“Those who surrender freedom for security will not have, nor do they deserve, either one.”
…Benjamin Franklin

Negative rates

What would negative rates mean for you?

It used to be that you worked hard, saved your money, and then when you retired, you lived off the interest of your savings. Today, global central bankers are changing the landscape, where already in 15 countries, the term negative interest rates is a reality.

Japan is the latest country to do this, following Europe, as the largest economies to now have negative interest rates. And make no mistake, every other central banker, including the US Fed, & the Bank of Canada, is considering doing the same thing. So what does this mean for you?

Imagine that you have worked and saved all your life, and are now looking to retire, and live off your savings. If negative rates are imposed on us, instead of earning a decent return on your money from the bank, with negative rates, you would actually have to pay a penalty to leave your money in the bank. As bizarre as this sounds, it is exactly what is happening in over 15 countries today, and  it is very likely coming to North America soon.

Why are these central banks doing this?  Basically, the only solution that they have managed to come up with to reinvigorate an economy has been to lower interest rates, and pump over $12 trillion globally into assets.

The idea with low interest rates was that with rates low, businesses would borrow to expand their operations, while consumers would use low rates to borrow and buy homes, cars, and other big ticket items. All this borrowing and spending, theoretically, would create new jobs & grow the economy.

The only problem with the theory is it didn’t work; businesses didn’t like all the talk of increasing taxes, so they didn’t expand their business. In fact, most businesses cut and slashed jobs to avoid losses. Consumers also didn’t like all the increases in taxes and fees that governments were implementing, so they cut their debt load rather than increase it. So at the end of the day, all that stimulus that global governments piled on, didn’t achieve the desired results.

Even though negative rates didn’t work, these central bankers are now venturing below zero, and have introduced what a few years ago would have seemed unfathomable, negative rates.

Negative interest rates are a sign of desperation, a signal that traditional policy options have proved ineffective, and new limits need to be explored. They are a tax on deposits. They punish banks that hoard cash instead of extending loans to businesses or to weaker lenders. Rates below zero have never been used before in an economy as large as Europe or Japan..

The logic is that with rates below zero, businesses and consumers will finally borrow. Are we going to see a scenario where your take out a mortgage, and  instead of paying interest, you actually get paid?

As a consumer, are you going to leave your money in the bank and have to pay a penalty, or do you decide to make some purchases. For seniors, what do you do with your savings, leave it in the bank and lose money every year, or do you take it out and hide it in your back yard? In Japan, there has been a massive run on safes, as people are taking their cash out of the bank and keeping it at home.

To deter people form withdrawing their money and hoarding it, instead of spending it, central banks are now removing large denominated bills, such as the €500 in Europe, & the $100 in the US. They claim that they are doing this to fight terrorism, but it seems a little too much of a coincidence that they are doing it just as negative rates are being implemented.

By eliminating large bills, it will become very difficult to hoard cash easily. As we highlighted in last week’s issue of The Trend Letter, if banks add a small 0.25% fee on deposits, if you had $500,000 and left it in the back for a year, at the end of the year you would only have $498,750. It would have cost you $1250 for the privilege of keeping your money in the bank. So the temptation would be to move your money out of the bank, but by eliminating large bills, you would need a lot more space to stash you cash.

Globally, there is now over $8.3 trillion of Government bonds that are paying 0% or less. There is $5.5 trillion that is paying negative yield, meaning that about one quarter of all global bondholders will end up paying their government custodians for the pleasure of parking their cash in the “safety” of government bonds.

negativebondyields

These latest moves by central banks of negative rates, and eliminating cash all feed into the growing trend of a loss of confidence in government that will lead into a massive Sovereign Debt Crisis.

As all of these events play out, we will see more and more capital pull out of the perceived riskiest areas, and into the perceived safest areas. Ultimately, that means out of public investments (gov’t bonds), and into private investments (stocks, commodities, precious metals etc).

Stay tuned!.

cashless

The real reason central banks want to eliminate cash

First we had ECB president Mario Draghi announce he is seriously considering eliminating the €500 note, & today we have former US treasury secretary Larry Summers lobbying to eliminate the $100. Both of them use the ‘terrorist’ angle as justification, saying that the only users of high denominated currency are terrorists, & criminals. But this move to eliminate high valued notes is just the start, as central bankers want to eliminate all cash, & the reason why has nothing to do with terrorism, or criminals.

No, the real reason that central banks want to eliminate cash is so that they can add more taxes & fees to every transaction made. They also feel that they know best what you should do with your money. They want to force people to spend or invest their money in the risky activities that revive growth, rather than hoarding it in the safe places.

Under the guise of terrorism, they want to watch every transaction that you make, & they want to tax each of those transactions. These are the same geniuses who in the last 8 years have globally…

  • cut interest rates 67 times
  • forced rates to negative to such a degree that today 55% of ALL government bonds pay yield 1% or less
  • purchased over $12 trillion in assets in an attempt to boost the economy

None of these measures has done anything to boost the global economy. With negative rates imposed, the effect for banks or long-term savers, is that by putting your money in a ‘perceived’ safe place – such as the central bank or a government bond – you automatically lose some of that money.

Hardly surprising, these measures have led to the growing popularity of cash for people with any substantial savings. Bank of England research shows demand for cash has grown faster than GDP in many countries. So the central banks face a further challenge: how to impose negative interest rates on cash itself.

They are killing seniors who have saved all their life so that they could live on the interest on their savings. Instead of seniors earning interest on their savings, these bureaucrats are implementing negative rates to charge penalties on these seniors’  savings.

And now they want to eliminate cash altogether. While the convenience of electronic transactions are enormous, moving to a strictly electronic system has huge ramifications. One of the biggest threats today to Western countries is a massive cyber attack against its infrastructure. Imagine that ISIS or some other terrorist group took down the power grid in major cities. There would be no access to money for businesses or households.

The same holds true if there is a massive earthquake in a region. Power could be out for weeks in some areas, eliminating all access to electronic funds.

There are many other drawbacks. One is fundamental & concerns the freedom to take your cash out of the bank, & to spend it anonymously, as you see fit. Some like to play poker, or bet with friends on the outcome of a game. Technically, these activities would be considered illegal &/or at the very least, taxable by the bureaucrats.

While the governments keep telling us this is all for our security & protection, it is really about rights & freedoms, those which our parents & grandparents fought to preserve.

A cashless society would mean that the government would control how much money you can spend. When we get the next banking crisis, if the system is strictly cashless, then they could simply shut down the access, so that you cannot access, or spend your own money.

Before jumping on the cashless society bandwagon, think about the potential consequences. Also, when you hear the politicians & bureaucrats telling you it is all to protect you from terrorists, remember Ben Franklin’s quote…

”People willing to trade their freedom for temporary security deserve neither and will lose both.”

Stay tuned!

OilDrop

Why we are about to turn bullish on oil

Historically, when we see the bottom of an oil bear market, like we saw in 1999, 2002, 2007,& 2009, we would then see the price of oil rebound very quickly in a ‘V” style recovery, In those instances, the price of oil jumped between 60% & over 100%, & many of the oil stocks did even better.

oildeclines

The problem today is that there is still a glut of oil as inventories continue to build. The following chart shows the Weekly US oil production, although down slightly from the highs in January, they are still above the previous record levels in 1986.

oilproductionfeb

On top of the current production, we know that there is another 50 million barrels of capacity to still come on board. Add to that, we have Iran soon coming on board as the West’s sanctions are being lifted, & Iran is looking to increase their capacity by another 300K-500K barrels per day. So once Iran’s production gets into the market, we will be looking at a glut of about 1.5 million barrels per day. This glut will remain until we see the supply side reduced, & the demand side increased.

Last year global demand increased by 1.3 million barrels per day, & estimates for 2016 show a further increase of 1.2 million barrels, & another 1 million barrels for 2017.  On the following chart we see the oil consumption of non-OECD countries such as China, has been on a rapid uptrend.

So looking forward, the demand side of the equation is quite healthy, it is the supply side that is the real problem.

oilconsumpotion

Last year subscribers who followed our lead made substantial gains in the oil market by shorting oil via an easy to trade Exchange Traded Fund. We shorted oil because of the rapidly expanding production in the US. But like all bear markets, the crash in oil prices will rebound, it always does.

In previous years OPEC nations would normally agree to reduce their production when oil prices got too low. With an OPEC production cut, supply declines, & prices push higher. The result would then allow OPEC producers to earn higher profits.

Saudi Arabia knows that many US shale producers borrowed heavily when the price of oil was over $100. They did this to ramp up exploration & production to take advantage of those high oil prices.

As US shale producers borrowed hundreds of $Billions to reinvest in exploration & production, it increased supply to the point where supply now far outweighs demand. Prices then declined & now we are at the point where, with a 73% slash in prices, these producers are seriously short of cash flow to service their massive debt loads.

Haynes & Boone’s latest Oil Patch Bankruptcy Monitor shows there are now 36 oil producers who have filed for bankruptcy in 2015. Combined they have a total of over $13 billion in debt outstanding.

With more & more bankruptcies in the sector, we are seeing a huge drop in exploration as the following chart of US rig count shows.  Since June’14, the total rig count has dropped from 1600 to under 600.

 Rig count

Ultimately, this huge reduction in exploration will result in a decrease in supply. What most investors do not understand is that US shale oil sources have a 40%-50% depletion rate in the 1st year of production, & an 85% depletion rate in the first 3 years.This compares to a 6% depletion rate in OPEC’s traditional oil sources.

oildepletion

What we will soon see is that due to these producers drastically reducing their exploration, combined with the rapid rate of depletion in the US shale plays, the supply levels will soon start to retreat. If we combine that with anticipated 1.2 million barrel demand increase, all of a sudden, the over supply ratio comes back into balance, & we even see demand outpace supply.

It is all part of the cycle, where low oil prices are the cure for low oil prices. We are now at the point in the oil cycle with the massive reduction in exploration expenditures, & the growing number of bankruptcies, the supply side of the equation will soon decline, opening the door for the demand side to dominate, forcing higher prices.

oilcycleJan

Stay tuned!