|Dow||+20.32 to 18,272.56|
|S&P 500||+1.63 to 2,122.73|
|Nasdaq||-2.51 to 5,048.29|
|10-YR Yield||-.098 to 2.141%|
|Gold||-$0.70 to $1,224.50|
|Crude Oil||-$0.05 to $59.83|
We’ve seen plenty of asset bubbles in the past couple of decades. Dot-coms. Housing. Chinese stocks. You name it. And we all know they end badly.
So for my money, I’d rather invest in an “Anti-bubble.” An asset or sector that’s as far as humanly possible from bubble territory — and all the risk that comes with it! You know what fits the bill? Energy!
That’s the conclusion of a fascinating Citigroup analysis I came across this morning. As Bloomberg notes, the bank’s analysts combed through a whole host of markets to see which looked the most bubbly.
They wanted to find assets exhibiting “new paradigm, can’t lose” thinking … that were basking in excess liquidity … that had massive investor demand/supply imbalances … and that were attracting investors who were buying mostly because they had to keep up with benchmarks in order to avoid getting fired, not because of strong underlying fundamentals.
Citigroup then characterized those markets using a standard deviation scale, with anything over two considered bubble territory. Assets in the negative-one to negative-two (or more) zone are what I’d call extreme “Anti-bubbles.”
The results? Take a look at these two charts:
The first shows that crude oil is the biggest ANTI-Bubble on the planet, way down in the “-2” category. Base metals, which are things like copper, aluminum, and iron ore, were the next cheapest, followed by emerging markets equities.
The second chart drills down into sectors of the equity market. So which sector looks the most beaten down, cheapest, and least bubbly? You guessed it — energy!
On the flip side, the absolute WORST place to invest if you’re trying to avoid getting killed from a bubble implosion is longer-term, European bonds. Citigroup says they’re even more bubbly than Japanese stocks were in 1989, right before they crashed, and not much less bubbly than telecom, media, and technology stocks were in 2000, right before they crashed. Long-term U.S. bonds weren’t rated much better!
Sure enough, bonds are now suffering a massive “Bloody Wednesday” style crash … whereas cheap, beaten-down energy and emerging market stocks have been rising like a phoenix. That’s precisely what I expected! It’s why I’ve been warning about interest rate risk and urging you to avoid long-term government bonds like the plague … and buy up cheap, beaten down stocks and sectors that Wall Street has been throwing out instead!
|“The absolute WORST place to invest if you’re trying to avoid getting killed from a bubble implosion is longer-term, European bonds.”|
That doesn’t mean we can’t see corrections and pullbacks at any time. Oil prices have been consolidating recent gains around $60, while natural gas futures are doing the same around the key $3 level. Emerging market stocks are taking a small breather, even as U.S. stocks attempt to break out convincingly to new highs.
But again, I ask you: Do you want to chase the massive bubble in bonds? The biggest bubble on the planet, which could destroy your wealth just like the dot-com and housing crashes did?
Or do you want to join me, and get your hands dirty in Anti-Bubble sectors like energy? The kinds of sectors Wall Street talking heads have abandoned — but that you could make a killing from because they offer the best profit opportunities in three decades?
Let me know what you think. Is Citigroup on target? Are sectors like energy and emerging markets great “Anti-Bubbles” to invest in? Or do you think more mileage can be squeezed out of government bonds? If you don’t like energy, what other stock market sectors look more attractive?
Here’s the link to the Money and Markets website — head on over and weigh in when you get a chance!
|Our Readers Speak|
CEO pay, Saudi strategy and Amtrak outrage were on your minds in the last 24 hours, based on the comments over at the website.
Addressing the Philadelphia train wreck, Reader John S. said: “Hopefully, the Amtrak engineer can’t get away with a loss-of-memory defense. A detailed investigation should include an interrogation of the engineer while under lie-detection monitoring.
“If he won’t agree to it, then I hope presentation of the facts and details of the accident to him will compel him to open up. Otherwise, is selective memory loss going to become another defense in criminal matters, like temporary insanity is?”
Reader Paul D. added: “Please do not throw stones before the facts are in. In recent years in southern California, a bad rail accident took place due to the engineer texting. Probably thousands of lives are lost yearly in a less spectacular manner on the highways and byways nationwide that do not get national attention.
“Amtrak could have had in place automatic systems that would have prevented the recent tragedy. But the technology has a cost to implement that the money-losing operation assessed not to be acceptable. A co-pilot equivalent would be a good start, if the boredom of the operation would still not overcome the power of nodding off at times.”
When it comes to executive compensation, Reader Donald L. offered the following thoughts: “I also worked for a U.S.-based company with international operations before I retired. Difference was, the CEO and higher-level executives got a good, though not extravagant, salary — but also stock and bonus payments directly tied to operations in such a way that manipulation through buybacks, funny bond issues etc did them no benefit.”
As for oil and Saudi Arabia’s strategy in the past year, Reader Ross L. said: “After reading the article about the Saudi strategy, a shale oil producer’s price of $65 per barrel to re-enter exploration answered a very important question. I’ve wondered since the price of oil’s decline about what price shale oil producers need to make a profit.
“With the Saudis pumping all out at 10.2 million BPD, they may have put some projects here in the U.S., Canada and elsewhere on hold for the time being. But I know they can’t keep it up indefinitely. They certainly aren’t making any friends in the oil patch here, and I’d venture to include any other oil-producing places worldwide. In the long run, the strategy will blow back on them.”
Finally, Reader D. said: “The Saudis aren’t going out of business soon. Their foreign currency reserves and sovereign wealth fund give them a cushion of 5+ years to ride this out. And their main target is not North American producers — it’s Iran and, to a lesser extent, Qatar, a sponsor of radical Sunni groups like ISIS.
“But in the long run, Saudi Arabia does need $80-$90 a barrel to make their way with current spending. Russia needs over $90 and Iran over $100 to survive — and neither has the reserves or cushions that Saudi Arabia has.”
Thanks for the comments! I’m sure investigators will leave no stone unturned in the Amtrak investigation given the high-profile nature of the disaster, and the engineer has to be a key area of focus.
As for the Saudi-Iran conflict, and the evolution of oil policy, I simply don’t think they can keep this overproduction game up for long. They’ve been at it for almost a year, if you factor in the pre-November period where they brainstormed their plan and laid the groundwork for it. Now, they’re out there claiming “victory.”
I disagree with that characterization. But why might the Saudis come out and say that? Maybe because they’re trying to prep the market for a policy reversal. After all, you don’t keep on fighting a war that you’ve already publicly claimed you won, right?
What’s more, the Saudis need the U.S.’s backing (militarily, politically, etc.) to keep up their Yemeni campaign and other anti-terror efforts. Trying to bankrupt a key U.S. industry is NOT the way to win it!
Anything else you’d like to add? Then you know the drill: Use the website to share your thoughts using this link!
|Other Developments of the Day|
Industrial production flatlined in April, missing projections for an increase of 0.2 percent. Throw in utility and mining output and you get a fifth consecutive monthly decline, dragged down in part by a plunge in oil and gas drilling.
The ISIS terrorist group is trying to fight back after recent setbacks. Officials say ISIS fighters are battling intensely for control of Ramadi, an Iraqi city 70 miles west of Baghdad.
The U.S. Marine Corps helicopter that went missing in Nepal during a relief mission has been located. Unfortunately, none of the six Marines or two Nepalese soldiers on board appears to have survived.
Legendary blues musician B.B. King died in Las Vegas yesterday. The 89-year-old guitarist and vocalist won 15 Grammy Awards over the years, and inspired a whole host of other artists through his iconic music. Rest in peace.
If there are any of these stories you’d like to sound off on, make sure you utilize the website as an outlet. I’d love to hear from you.
Until next time,