The Unfolding Global Energy Shift

Oh dear. Both the US and Australian stock markets saw their worst one-day session for 2017 this week. Bummer. I suppose it’s good for one thing.

It lets all the doomers come out of the woodwork to get everything off their chest. It can’t be healthy keeping that stuff bottled up.

Or we could blame it on Trump.

Here’s my preferred approach: We can just appreciate the fact that stock markets go up and down, and not be hasty in drawing long-term conclusions.

I remember when analysts at the Royal Bank of Scotland said to ‘sell everything’ early last year. They were expecting a deflationary spiral. Instead we got the so-called ‘reflation’ trade.

When the market sells down, it can be very helpful to you. You get to see which stocks hold up under pressure…and which don’t. You can look for buying opportunities in stocks you want to own.

Here’s another idea: You could argue that you should never look at another newspaper again.

An academic just presented a paper on 100 years of analysis on news reports in The New York Times and The Wall Street Journal versus the performance of the Dow Jones Industrial Average. He came to the conclusion that journalists are inherently biased to focus on negative news and down periods in the market.

The Financial Times summed up the inherent dilemma to all this: The way markets are reported affects the way they’re perceived, and, hence, it affects investor behaviour too.

Negative news plants fear into people, and, presumably, it keeps them on the sidelines. Apparently, almost all writers carry the same bias. The researcher can’t confirm exactly why this is — only that it happens.

If you saturate your mind with worries and fears, it’s hard to commit your money to stocks, isn’t it? And yet that’s what we do every day — pick up the paper or tune in to the news to gauge what’s happening.

Over the last eight years, Americans have seen the second greatest stock bull market on record. Many of them, however, have stayed out of the market as stocks have soared.

Make no mistake. There’s plenty underpinning the real US economy right now. It starts with the very basics: cheap energy. This is an ongoing boon for industries. You can see the current panic in Australia over high gas costs. The US doesn’t have this problem. They just keep finding the stuff.

Drillers in the US are pumping record levels of oil and gas. The US is on track to be a net exporter of natural gas in 2018 — for the first time ever.

Spanish energy company Repsol recently found the biggest onshore oil deposit, in the US territory of Alaska, in 30 years. They estimate that there is 1.2 billion barrels of recoverable oil there.

Major global player ExxonMobil said earlier this month that it’s shifting half its worldwide drilling budget to onshore US shale next year.

The US is now the world’s swing producer in oil — not Saudi Arabia. A swing producer is a supplier of any commodity that controls the global deposits and possesses large spare production capacity. This is a major shift in geopolitics, and is very bullish for the US. It could run for decades.

Perhaps this is why China and Saudi Arabia appear to be cosying up to each other. Bloomberg suggests the Chinese sovereign wealth fund, in tandem with China’s largest energy producer, is considering a stake in the upcoming Saudi Aramco float.

China is the largest importer of energy; presumably, it doesn’t want to be beholden to the US on this.

The US-Saudi alliance has been a cornerstone of geopolitics for over 40 years. It’s now shifting. Watch this space.

What would be even more fascinating is if the Saudi Aramco float is listed in Hong Kong. There’s major competition between cities like New York and London to win this deal. The fees run into the millions. China is looking to expand its international financial clout.

There’s a danger there. China’s financial system is largely independent from the rest of the world. That keeps it relatively safe from contagion, as we saw during the 2007–09 ‘Atlantic’ crisis.

But China can’t stay isolated and be a financial power at the same time. The drawbridge is coming down.

Regardless, I see many positive developments happening over the world — as long as you can look past the headlines.

But how do you stay up to date with what’s happening while ignoring the news? My suggestion is to get educated by starting here.

Regards,

Callum Newman,
Editor, Cycles, Trends and Forecasts


Originally graduating with a degree in Communications, Callum decided financial markets were far more fascinating than anything Marshall McLuhan (the ‘medium is the message’) ever came up with. Today Callum spends his day reading and researching why currencies, commodities and stocks move like they do. So far he’s discovered it’s often in a way you least expect.


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