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Biggest Decline In Earnings…Ever

 

Over the last quarter, the “Death of Fundamentals” has become apparent as investors ignore earnings to chase market momentum. However, throughout history, such large divergences between fundamentals and price have resulted in low future returns.

This time is unlikely to be different.

“During the second quarter, analysts lowered earnings estimates for companies in the S&P 500 for the quarter. The Q2 bottom-up EPS estimate (which is an aggregation of the median Q2 EPS estimates for all the companies in the index,) declined by 37.0% (to $23.25 from $36.93) during this period. How significant is a 37.0% decrease in the bottom-up EPS estimate during a quarter? How does this decrease compare to recent quarters?

During the past five years (20 quarters), the average decline in the bottom-up EPS estimate has been 3.2%. Over the past ten years, (40 quarters), the average decline in the bottom-up EPS estimate has been 3.4%. During the past fifteen years, (60 quarters), the average decline in the bottom-up EPS estimate has been 4.6%. Thus, the decline in the bottom-up EPS estimate recorded during the second quarter was much larger than the 5-year average, the 10-year average, and the 15-year average. 

In fact, this marked the largest decline in the quarterly EPS estimate during a quarter since FactSet began tracking this data in Q1 2002. The previous record was -34.3%, which occurred in Q4 2008.

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The Most Read Post of The Month

Michael Schellenberger is one of the best known environmental activists in the English speaking world. Time Magazine named him one of the “Heroes of the Environment.” He is regular columnist at Forbes Magazine. On June 29th he wrote the following column apologizing for climate alarmism. Forbes removed the column and refused to say why but you can read it here. ~ Mike

Renowned Green Activist Apologizes For The Climate Scare

On behalf of environmentalists everywhere, I would like to formally apologize for the climate scare we created over the last 30 years. Climate change is happening.

It’s just not the end of the world. It’s not even our most serious environmental problem.

I may seem like a strange person to be saying all of this. I have been a climate activist for 20 years and an environmentalist for 30.

But as an energy expert asked by Congress to provide objective expert testimony, and invited by the Intergovernmental Panel on Climate Change (IPCC) to serve as an Expert Reviewer of its next Assessment Report, I feel an obligation to apologize for how badly we environmentalists have misled the public.

Here are some facts few people know:

  • Humans are not causing a “sixth mass extinction”
  • The Amazon is not “the lungs of the world”
  • Climate change is not making natural disasters worse
  • Fires have declined 25% around the world since 2003
  • The amount of land we use for meat — humankind’s biggest use of land — has declined by an area nearly as large as Alaska
  • The build-up of wood fuel and more houses near forests,not climate change, explain why there are more, and more dangerous, fires in Australia and California
  • Carbon emissions have been declining in rich nations for decades and peaked in Britain, Germany, and France in the mid-seventies
  • Adapting to life below sea level made the Netherlands rich not poor
  • We produce 25% more food than we need and food surpluses will continue to rise as the world gets hotter
  • Habitat loss and the direct killing of wild animals are bigger threats to species than climate change
  • Wood fuel is far worse for people and wildlife than fossil fuels
  • Preventing future pandemics requires more not less “industrial” agriculture

I know that the above facts will sound like “climate denialism” to many people. But that just shows the power of climate alarmism.

In reality, the above facts come from the best-available scientific studies, including those conducted by or accepted by the IPCC, the Food and Agriculture Organization of the United Nations (FAO), the International Union for the Conservation of Nature (IUCN) and other leading scientific bodies.

Some people will, when they read this imagine that I’m some right-wing anti-environmentalist. I’m not. At 17, I lived in Nicaragua to show solidarity with the Sandinista socialist revolution. At 23 I raised money for Guatemalan women’s cooperatives.

In my early 20s, I lived in the semi-Amazon doing research with small farmers fighting land invasions. At 26 I helped expose poor conditions at Nike factories in Asia.

I became an environmentalist at 16 when I threw a fundraiser for Rainforest Action Network. At 27 I helped save the last unprotected ancient redwoods in California.

In my 30s I advocated renewables and successfully helped persuade the Obama administration to invest $90 billion into them.

Over the last few years, I helped save enough nuclear plants from being replaced by fossil fuels to prevent a sharp increase in emissions.

Until last year, I mostly avoided speaking out against the climate scare. Partly that’s because I was embarrassed.

After all, I am as guilty of alarmism as any other environmentalist. For years, I referred to climate change as an “existential” threat to human civilization, and called it a “crisis.”

But mostly I was scared. I remained quiet about the climate disinformation campaign because I was afraid of losing friends and funding.

The few times I summoned the courage to defend climate science from those who misrepresent it I suffered harsh consequences. And so I mostly stood by and did next to nothing as my fellow environmentalists terrified the public.

I even stood by as people in the White House and many in the news media tried to destroy the reputation and career of an outstanding scientist, good man, and friend of mine, Roger Pielke, Jr., a lifelong progressive Democrat and environmentalist who testified in favor of carbon regulations.

Why did they do that? Because his research proves natural disasters aren’t getting worse.

But then, last year, things spiraled out of control.

Alexandria Ocasio-Cortez said, “The world is going to end in twelve years if we don’t address climate change.” Britain’s most high-profile environmental group claimed: “Climate Change Kills Children.”

The world’s most influential green journalist, Bill McKibben, called climate change the “greatest challenge humans have ever faced” and said it would “wipe out civilizations.”

Mainstream journalists reported, repeatedly, that the Amazon was “the lungs of the world,” and that deforestation was like a nuclear bomb going off.

As a result, half of the people surveyed around the world last year said they thought climate change would make humanity extinct. And in January, one out of five British children told pollsters they were having nightmares about climate change.

Whether or not you have children you must see how wrong this is. I admit I may be sensitive because I have a teenage daughter.

After we talked about the science she was reassured. But her friends are deeply misinformed and thus, understandably, frightened.

I thus decided I had to speak out. I knew that writing a few articles wouldn’t be enough. I needed a book to properly lay out all of the evidence.

And so my formal apology for our fear-mongering comes in the form of my new book, Apocalypse Never: Why Environmental Alarmism Hurts Us All.

It is based on two decades of research and three decades of environmental activism. At 400 pages, with 100 of them endnotes, Apocalypse Never covers climate change, deforestation, plastic waste, species extinction, industrialization, meat, nuclear energy, and renewables.

Some highlights from the book:

  • Factories and modern farming are the keys to human liberation and environmental progress
  • The most important thing for saving the environment is producing more food, particularly meat, on less land
  • The most important thing for reducing air pollution and carbon emissions is moving from wood to coal to petroleum to natural gas to uranium
  • 100% renewables would require increasing the land used for energy from today’s 0.5% to 50%
  • We should want cities, farms, and power plants to have higher, not lower, power densities
  • Vegetarianism reduces one’s emissions by less than 4%
  • Greenpeace didn’t save the whales, switching from whale oil to petroleum and palm oil did
  • “Free-range” beef would require 20 times more land and produce 300% more emissions
  • Greenpeace dogmatism worsened forest fragmentation of the Amazon
  • The colonialist approach to gorilla conservation in the Congo produced a backlash that may have resulted in the killing of 250 elephants

Why were we all so misled?

In the final three chapters of Apocalypse Never I expose the financial, political, and ideological motivations. Environmental groups have accepted hundreds of millions of dollars from fossil fuel interests.

Groups motivated by anti-humanist beliefs forced the World Bank to stop trying to end poverty and instead make poverty “sustainable.”

And status anxiety, depression, and hostility to modern civilization are behind much of the alarmism

Once you realize just how badly misinformed we have been, often by people with plainly unsavory or unhealthy motivations, it is hard not to feel duped.

Will Apocalypse Never make any difference? There are certainly reasons to doubt it.

The news media have been making apocalyptic pronouncements about climate change since the late 1980s, and do not seem disposed to stop.

The ideology behind environmental alarmism — Malthusianism — has been repeatedly debunked for 200 years and yet is more powerful than ever.

But there are also reasons to believe that environmental alarmism will, if not come to an end, have diminishing cultural power.

The coronavirus pandemic is an actual crisis that puts the climate “crisis” into perspective. Even if you think we have overreacted, Covid-19 has killed nearly 500,000 people and shattered economies around the globe.

Scientific institutions including WHO and IPCC have undermined their credibility through the repeated politicization of science. Their future existence and relevance depend on new leadership and serious reform.

Facts still matter, and social media is allowing for a wider range of new and independent voices to outcompete alarmist environmental journalists at legacy publications.

Nations are reorienting toward the national interest and away from Malthusianism and neoliberalism, which is good for nuclear and bad for renewables.

The evidence is overwhelming that our high-energy civilization is better for people and nature than the low-energy civilization that climate alarmists would return us to.

And the invitations I received from IPCC and Congress late last year after I published a series of criticisms of climate alarmism, are signs of a growing openness to new thinking about climate change and the environment.

Another sign is the response to my book from climate scientists, conservationists, and environmental scholars.

Apocalypse Never is an extremely important book,” writes Richard Rhodes, the Pulitzer-winning author of The Making of the Atomic Bomb. “This may be the most important book on the environment ever written,” says one of the fathers of modern climate science Tom Wigley.

“We environmentalists condemn those with antithetical views of being ignorant of science and susceptible to confirmation bias,” wrote the former head of The Nature Conservancy, Steve McCormick. “But too often we are guilty of the same.  Shellenberger offers ‘tough love:’ a challenge to entrenched orthodoxies and rigid, self-defeating mindsets. Apocalypse Never serves up occasionally stinging, but always well-crafted, evidence-based points of view that will help develop the ‘mental muscle’ we need to envision and design not only a hopeful, but an attainable, future.”

That is all that I had hoped for in writing it. If you’ve made it this far, I hope you’ll agree that it’s perhaps not as strange as it seems that a lifelong environmentalist, progressive, and climate activist felt the need to speak out against the alarmism.

I further hope that you’ll accept my apology.

Michael Shellenberger is author of several bestselling books., including Apocalypse Never.

 

Moon richer in metals than previously thought — NASA

Plans to start mining the Moon as early as 2025 became more attractive this week after a US National Aeronautics and Space Administration (NASA) team found evidence that the Earth’s natural satellite may, underneath its surface, be richer in metals than previously thought.

Using data from the Miniature Radio Frequency (Mini-RF) instrument onboard NASA’s Lunar Reconnaissance Orbiter (LRO), a team of researchers came to the conclusion that the lunar subsurface contains higher concentration of certain metals, such as iron and titanium, than estimated. The study, published in the journal Earth and Planetary Science Letters, contends the most popular theory surrounding the Moon’s origins. The hypothesis contends the satellite was formed when a Mars-sized object collided with Earth, vaporizing large portions of the Earth’s upper crust…CLICK for complete article

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The Devil is in the Details, Greater Vancouver Detached Market Update

June sales increased along with the average price, major win for the bulls? Not even close, the headlines can be deceiving. Once you take deeper dive the recent data is very bleak. The accepted offers in June 2020 are the lowest June in the past 15 years. Homes sold for a higher price than the month before but, for the first time in a quarter, and only up 2% from May.

Even during a downtrend the prices will create higher low data points while still trending lower to find the bottom. Some have stated that the Corona Virus shut down will create a pent up demand, I hope this isn’t the demand they were anticipating because it’s a blip on the charts.

The average sales price for June came in at 1.619Million, signalling the first positive data point since February. July will be hugely important in setting the next short term trend for the Greater Vancouver price chart. If the July is lower than 1.619Million there is a strong likelihood that a new aggressive downtrend will be established. The possible downtrend is indicated with the yellow downtrend marker. We have purposely used yellow as we need confirmation before the downtrend is established.

One anticipated trend that we have spoken on before is now coming to fruition, that being, the high end market is selling more readily than the lot value properties. Buyers are wanting the most bang for their buck and as a result they want the 17Million dollar mansion for 12Million and one such sale took place in June. Not too many buyers are purchasing spec land, this has an effect on the average price. Which means once those foreclosures roll in, and investors begin to dip their toes in the water. That will shift the focus from trying to buy the high end on the cheap to buying homes near lot value.

This also indicates that even while mansions are selling for very high numbers, the average price is still in the middle of the market threshold. Once the foreclosures hit and inventory is high, investors will begin buying deeply discounted lots which will force the average price to further decline. Then the market will panic, but in reality, the investors buying lower valued properties will indeed force the prices to drop but simultaneously be creating the market bottom. The pricing bottom will likely occur at 1.40 million if this threshold breaks we look to 1.225Million as the next threshold.

Detached Sales could be interpreted as “six of one and a half dozen of the other”. Simply meaning you will hear likely hear that the June 2020 sales were the highest over the preceding two year. Technically true, but the June 2020 sales was the lowest excluding the previous two year over the previous 15 years.  Don’t let the language fool you when you hear best June in the previous two years. The past three years of June sales data are the lowest in the past 15 years. Not a great trend to be a part of yet Realtors and the Real Estate Boards will likely tout this as a win.

Another truth even though it may hurt some, the pricing peak for the market occurred in 2017, However sales numbers began to tank substantially since the frenzied mentality of 2015 & 2016. Sales numbers have not exceeded 1000 since June 2017, while the average over the previous 15 years is 1050. The reality is the Greater Vancouver detached market has been trending lower for many years already, while most analysts and definitely the GVRD real estate board have been saying we were nearing the end of the tunnel by being able to see light in 2019… Eitel Insights warned that the light was a train, not the end of the tunnel.

Last truth, we know sales are from previous months accepted offers. The accepted offers in June 2020 were only 561 and the absolute lowest June in the past 15 years. For context June 2019 accepted offers were 804, June 2018 were 755, June 2017 were 1,216, June 2016 were 1,446, June 2015 were 1,816. So much for best in the past 3 years, Eh?   (Happy Canada Day)

Sales are not good nor are they average in fact they are paltry, inventory is on the rise and will continue into 2021. None of this bodes well for prices in the short term.

Inventory finally surpassed 4200 active listings which hadn’t occurred since December 2019. The inventory currently sits at 4471. Once the mortgage deferral system comes to an end the inventory will rise rapidly.

Over the upcoming year an odd phenomenon will occur to the buyer’s mindset. Far from the chaos of 2015-2016 when frenzied buyers lined up and fought over who would pay the most in history for a home. Into 2021 a whole new kind of methodology will prevail, the fear of overpaying for a depreciating asset. When inventory is at the highs prices will be at the lows but purchasers will be fearful when they should be strong.

With all that said, purchasing when a market is actually at the lows of the cycle is a great idea .Eitel Insights will be releasing a full market analysis for Greater Vancouver in the upcoming week. We proudly announce that Eitel Insights will be promoted by Michael Campbell’s Money Talks. In this report we analyze all 20 markets inside of Greater Vancouver and update the data monthly so you can know exactly when and where the opportunities reside, which are currently rare but do exist right now.

With our newest product release you will know exactly where each market inside of Greater Vancouver is with respect to the individual market cycles, for prices, inventory, sales, moving averages, strength index, and our unique supply demand chart. Use our analytical interpretation for your actionable intelligence.

Not all markets in Greater Vancouver are created equal, some areas are closer to the bottom. While others still have significant percentage losses upcoming. Become an Eitel Insights client to find out which are which.

Dane Eitel
Founder & Lead Analyst, Eitel Insights
604 813-1418

Watch Eitel Insight’s Latest Video:

Schachter’s Eye on Energy – July 1st

This week Josef talks about how the pickup in Covid cases in the US is weakening US demand for crude oil and products and that the S & P/TSX Energy Index is already down 20% in the last three weeks and has significantly more downside.

Each week Josef Schachter will give you his insights into global events, price forecasts and the fundamentals of the energy sector. Josef offers a twice monthly Black Gold newsletter covering the general energy market and 27 energy and energy service companies with regular updates. He holds quarterly subscriber webinars and provides Action BUY and SELL Alerts for paid subscribers. Learn more and subscribe

EIA Weekly Data: Wednesday July 1st’s EIA data was mostly bearish and included a large accounting adjustment. The headline number of commercial crude stocks showed a bullish  number of a decline of 7.2Mb (forecast of a decline of 700Kb). This was due to net imports falling 506Kb/d or 3.5Mb on the week and a rare accounting adjustment of -577Kb/d or 4.0Mb on  the week. If not for these items there would have been a rise on the week in crude storage. Motor Gasoline inventories rose by 1.2Mb on the week, The Strategic Petroleum Reserve added 1.7Mb and now stands at 655.4Mb or nearly 38 days of current demand (30 days or sufficient). Overall stocks rose this week by 2.8Mb (compared to a rise of 5.9Mb last week). Total stocks are now up 159.9Mb or 8.2% over last year. Refinery runs rose 0.9% to 75.5% from 74.6% in the prior week. Cushing saw a decline of 200Kb to 45.6Mb (forecast 990K decline) as refinery run activity consumed more crude. US production of crude was flat last week at 11.0Mb/d.

The most bearish part of the report was that total product supplied fell 5.4% or 995Kb/d on the week to 17.35Mb/d (prior week 18.35Mb/d of consumption) and is down 16% from last year’s level of 20.76Mb/d. Finished motor gasoline demand fell by 47Kb/d to 8.56Mb/d, and is  down 10% from 9.49Mb/d last year. Jet fuel demand reversed from prior weeks increases and fell 217Kb/d to 588Kb/d.  It is  down 1.27Mb/d lower or 60% less than last year’s 1.86Mb/d as the reticence to fly continues.

The rise in Covid-19 cases to record levels and the need to close down access to beaches and restaurants in high case areas for the fourth of July long weekend is dampening demand. There are now nearly 130,000 deaths in the US from this pandemic. With the US having 4% of the world’s population and 25% of the fatalities this is a deplorable outcome. There is now a record high of over 40,000 new cases daily.  At a Senate hearing on Tuesday June 30th Dr. Fauci mentioned in the Q&A that the US could see over 100,000 new daily coronavirus cases and over 170,000 fatalities in the coming months; if greater testing, face mask use and distancing did not occur.

Baker Hughes Rig Data: Last week Friday the Baker Hughes rig survey showed a decline in the US rig count of 1 rig (prior week down 13 rigs) to 265 rigs and down 73% from 967 rigs working a year ago. The Permian had a rig loss of 1 rig (last week down 5 rigs) or down by 70% from a year earlier level of 441 rigs. The US oil rig count fell by 1 to 188 rigs (down 10 rigs last week) and down 76% from 793 rigs working last year. Canada’s rig count fell 4 rigs (down by 4 rigs last week) to 13 rigs working and is down 90% from 124 rigs working at this time last year. We are near the end of the plunge in drilling as we saw a one rig rise in activity in Texas last week and the number of frac crews bottomed at 45 crews in May and is up now to 78 crews. Many US companies have announced that they will restart production this month given current economic prices. With a current world wide crude glut and demand waning due to the ongoing virus, any production returns at this time would be very detrimental to the hoped for industry recovery and high crude prices.

Conclusion: As we write this, WTI is at US$39.11/b for the August contract (down $0.16/b on the day) after the details of the report came out. Initially, crude oil prices rose on the headline crude inventory decline number, but then reversed. The Dow Jones Industrials which was initially up 200 points is now down 29 points to 25,784. A decline below 24,800 will start the next serious plunge in the stock markets. We expect to see lower lows (below March) before this rout is over. For crude we see a decline below US$30/b as the line in the sand for crude oil bulls (US$34.36/b next breakdown level). The breach of US$30/b should start the next phase of worry for energy bulls and restart aggressive selling of energy and energy service stocks. Much lower levels are expected once we get into the fall and the wage support programs by the governments end. Layoffs should pick up and we expect to see more corporate bankruptcies. In addition, this fall will likely be the window for the second Covid-19 wave. The energy and energy service companies with the most downside are those with high debt loads, high operating costs, declining production, have current balance sheet debt maturities of some materiality over the next 12 months and those that produce heavier crude barrels. Hold cash and remain patient for the next low risk BUY window. If over-invested hopefully you took appropriate defensive action from our previous warnings.  

The S&P Energy Bullish Percent Index peaked at 100% in early June. This is the only such reading ever. It has fallen over the last three plus weeks to 34.6% as energy stocks corrected. Last week this index was at 69.2% so it has had a material decline following the falling energy stock prices. The Energy Bullish Percent Index is likely in this situation to fall to below 10%, providing the next low risk BUY signal. The S&P/TSX Energy Index closed June 30th at 76.45 and is down over 20% from the early June high of 96.07. The next downside target for this index is the 50 level. For the S&P/TSX we see a decline to the 32-36 level at the next important low, or a two for one sale over the coming months. Downside for the Dow Jones Industrials in the near term is 22,800 with much lower levels thereafter in Q3/Q4, 2020.

We expect the market may see lower crude price lows below US$20/b before the risk tolerant speculative ownership of crude oil futures reverses. Last week speculative positions rose to a net long of 569Mb up from 554Mb the week before. Commercials are adding to their bearish positions and are now short 608Mb up from 590Mb the week before. Speculators are usually wrong and we expect them to get smacked hard once the forthcoming stock market decline has massive intermarket margin calls. At the next bottom in crude prices it is possible that commercials will move to net long position.

Our July Interim Report will come out next week on July 9th. We go over the why and how deep this stock market plunge is likely to go and what to look for at the potential end of this stock market rout. As we get closer to the bottom we will profile our Table Pounding best energy and energy service BUY ideas to consider owning by subscribers. So far the key black swan event is the pick up in Covid-19 cases in the US (Florida, Texas and Arizona facing the largest increases). The next worry for the market will be Q2/20 financial results which will start in about two weeks. The bad comparables and the outlook guidance will be of particular interest.

We will update our Insider Trading Report in this issue (last run in April).We are working on a new international investment idea and may launch coverage of this exciting growth story in our July 23rd SER Monthly.

Subscribe to the Schachter Energy Report and receive access to our previous Webinars (next webinar Thursday August 13th), our Action Alerts, our TOP PICK recommendations when the next BUY signal occurs as well as our Quality Scoring System review of the 27 companies that we cover.

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