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Oil Bounces, OPEC Meeting, and Mania in Tech

Posted June 11, 2018 at 8:00PM

The other night, I spent some time talking with Jerry Bailey, a native Texan who was the head of Exxon’s Arabian Gulf region for many years. We had dinner at the newly renovated Sagamore Pendry hotel in Baltimore.

The renovators had done a great job of working with the old historic building, which you might remember as the police headquarters from the TV show Homicide. The prime rib was good, and the scotch was even better.

Mr. Bailey is a regular guest on Fox Business and other financial shows. I asked him what he thought about the oil price. He said something like buy the dip.

Oil sold off last week on news that the Saudis were talking to Russia about pumping out more oil.

Word on the street is that Trump wanted to stick it to the Iranians by dropping the oil price.

That could be, but it has now played out. You can see the price of WTI bounced on its trend line, just as it should. The increase in OPEC production — 100,000 barrels a day — has to make up for the shortfall of Venezuela and Iran oil.

The Wall Street Journal has reported that Putin has floated the idea of an extra 800,000 bpd, but that's crazy talk.

Mr. Bailey also pointed out that the next OPEC meeting is on June 22, and it is in the Saudis' best interest to keep the price of oil high.

U.S. Production

According to data released by Baker Hughes on Friday, U.S. oil rig counts inched up by one to 862 for the week ended June 8. The Permian oil rig count rose by three to 479 for the week ended June 8. The Permian is the U.S.’s most active oil field.

Last week’s Permian oil rig count has risen 13 of the last 18 weeks and is at its highest level since mid-2015. U.S. crude production is at a record high of 10.8 million bpd as of June 1, the latest figures from the U.S. Energy Information Administration showed.

Party Like it's 1998

Let's move away from oil and talk about equities. I'm reading more and more pundits comparing today's markets to 1998.

I remember 1998 very well. It was the year of the Asian Contagion, where emerging markets blew up around the world from Argentina to South Korea and Russia. The problem was the dollar got stronger when emerging markets had to pay dollar-denominated debt using depreciating local currency.  

Today we are having some similar problems in the usual countries like Argentina, Brazil, and Turkey.

1998 also set the stage for one of the most epic Wall Street rallies of all time. Due in part to the Asian Contagion, Federal Reserve Chair Alan Greenspan keep cutting rates.

This caused massive speculation in internet stocks. The dot-com boom was on, and people were making money like mad.  

I knew a janitor at AOL who was driving a new Mercedes because they gave a $5,000 bonus to anyone who would bring in a new hire. He got all his friends jobs. Chat room umpires and secretaries got rich from their stock options.

It seemed like every day stocks like AMZN, CSCO, DELL, and YHOO would go up 10%. They went parabolic.

DJIA Breaks Out

Today’s stocks aren't going straight up. In fact, the Dow just spent the last four months consolidating before breaking out at 25,000.

It rallied despite fears of interest rates, trade wars, earnings growth, and a dose of geopolitical oil concerns and nuclear bombs thrown in for good measure.

Instead of dot-com stocks, we have the cloud, cryptocurrencies, and FANGS.

In 2013, I told you about three cloud stocks that were strong buys. They were Palo Alto (NYSE: PANW), Cisco Systems (NASDAQ: CSCO), and Micron Technologies (NASDAQ: MU). Two of the three are up more than 500%, and CSCO is up 150%.

You can read it here.

So, in many respects, today’s market is not dissimilar to 1998 in that we are likely heading into a mania period after a long bull market. The problem is that 1998 was followed by one of the biggest crashes in history in late 1999.

Amazon (AMZN), one of the lone survivors, fell 96% to under $5 by 2002. A host of other stocks didn’t survive.

All the best,

Christian DeHaemer Signature

Christian DeHaemer

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Since 1995, Christian DeHaemer has specialized in frontier market opportunities. He has traveled extensively and invested in places as varied as Cuba, Mongolia, and Kenya. Chris believes the best way to make money is to get there first with the most. Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor's page.


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