Stocks & Equities

The Bullish Test Comes As Earning Season Begins

 

While we are certainly more bullish on markets currently, as momentum is still in play, it doesn’t mean we aren’t keenly aware of the risk.

Pay attention to what you own, and how much risk you are taking to generate returns. Going forward, this market will likely have a nasty habit of biting you when you least expect it.

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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

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Another indecisive session yesterday

 

Yesterday offered another object lesson in this market’s inability to find direction, as a curious little ramping in EURUSD intraday toward the 1.1300 handle and a tempting break to a new 1-week high was quickly batted back lower, leaving EURUSD showing five consecutive days of near “doji” indecisiveness- classic! And given today’s holiday in the US, we may make it six days of extending the USD limbo. At present, the only currency with a proper “known unknown” on the immediate horizon is sterling, where it looks as if the Brexit talks are proceeding reasonably well, especially as the EU’s stance on the jurisdiction of the European court of Justice seems to be softening. The purest expression of GBP prospects are in EURGBP where we continue to eye the 0.9000 as a pivotal one as per Wednesday’s FX Update (also referenced below).

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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.

To get access to our research please go to http://bit.ly/2OvRCbP to subscribe.

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A decade from now cloud gaming infrastructure may widely be considered a commodity.

 

Big Tech expects cloud gaming to be white-hot, if the major ante they’ve pushed into it says anything. Like a lot of cutting-edge tech, it cloaks the technology behind the magic, giving you the impression that you’re barely dealing with hardware at all. It’s a charming effect. Don’t fall for it. In interviews with WIRED, the people behind some of cloud gaming’s biggest services and data center organizations lifted the curtain on the infrastructure powering these immaterial services. Many agree that, as competition becomes more fierce, and cloud gaming sees mass adoption, success in cloud gaming could mean an infrastructure arms race.

“We live in a culture of ‘instant’ when it comes to any kind of electronic media,” says Microsoft corporate vice president of cloud gaming Kareem Choudhry. He was winding up for the cloud gaming pitch: Of the world’s 8 billion human beings, over 2 billion are gamers. Gaming is as culturally impactful as music, television, and movies. And until cloud gaming, there was no mass-market Netflix for videogames—on-demand content that’s device-agnostic. Besides, says Choudhry, “we know we’re not going to sell 2 billion consoles.”

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15-Investing Rules To Win The Long-Game

It is times, such as now, where logic states that we must participate in the current opportunity. However, emotions of “greed” and “fear” cause individual’s to take on too much exposure, or worry they have too much and a crash could come at any moment. These emotionally driven decisions tend to lead to worse outcomes over time.

As Howard Marks’ stated above, it is in times like these that individuals must remain unemotional and adhere to a strict investment discipline. It is from Marks’ view on risk management that I thought sharing the rules that drive our own investment discipline. 

I am often tagged as “bearish” due to my analysis of economic and fundamental data for “what it is” rather than “what I hope it to be.” In reality, I am neither bullish or bearish. I follow a very simple set of rules which are the core of our portfolio management philosophy. We focus on capital preservation and long-term “risk-adjusted” returns…CLICK for complete article