Oil Plunge Has More To Go [Seadrill Ltd, Transocean LTD, Chevron Corporation, ConocoPhillips]

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December 15, 2014 11:52am NYSE:BNO NYSE:UCO

short-oil-etfMartin D. Weiss: Have you been shocked by the oil price plunge?

Most pundits have!

So have the big oil magnates in Saudi Arabia, Russia, Venezuela, Mexico, Malaysia, and every other country that was betting on stable oil prices.

But Money and Markets editors Larry Edelson and Mike Larson have hit the nail on the head.

Larry has been shouting from the rooftops with his warnings of sharply falling oil prices since at least November 11, 2013, when Brent crude was selling for just under $100 per barrel.

That was 13 months — and about $40 in oil-price declines — ago!

Plus, on Wednesday of last week, just when the pundits and the magnates were swearing oil couldn’t possibly fall a penny further, Larry was weighing in with this blaring headline …

“Oil Plunge Has More to Go”

Now, as you know, some economic soothsayers always like to throw in various versions of wiggle phrases to cover their you-know-whats. They hem. They haw. And they remind you of President Truman’s refrain:

“I wish I could find myself a one-armed economist,” he said. “Maybe then I’d have an adviser who could never begin every second sentence with … “but, then again, on the other hand …”

Admittedly, we’re guilty sometimes too. When we’re uncertain, we say so. We don’t stick our necks out just for the fun of it. But if it’s an area we know well and we have the evidence, we have no hesitation in bucking the crowd of analysts, no matter how smart they may be.

That’s certainly what Larry has done — not just in words (which might be subject to interpretation), but also in a bold chart (which is completely unambiguous).

This chart left no room for ifs, buts or butt-covering. It showed very clearly that the price of crude oil would …

1. Plunge through its first line of major support near the $65-per-barrel level (which it already has done) …

2. Fall still further below the $60-per-barrel level (which it has ALSO already done), and …

3. Continue falling to its next major support line, which, depending on the time frame, could be somewhere in the $50s — also quickly becoming a reality.

When did he first publish this chart? Last week while oil prices were already plunging? Last month, after OPEC virtually declared a price war on the fast-growing U.S. oil industry? No.

It was back on the date I just mentioned — November 11, 2013 — long before the pundits had a clue about any of these events.

Edelson: “More Losses Coming For Oil”

In his most recent missive, just this past Wednesday, Larry wrote:

“More losses are coming for oil. Oil is now hovering just above that first major support level [on his 11/11/13 chart above]. Once it cracks that, oil will plunge to as low as $40. That leg down to $40 could begin any moment, or perhaps after a short-term rally.

“The crash in oil prices is hard to believe, when there are so many diehard oil bulls out there. Even more so when you consider all the political hot spots around the world that are now causing so much turmoil.

“But from a fundamental point of view, oil is not bullish. Global oil inventories are fine now; there is no squeeze in supplies.

Moreover, as we all know, the U.S. now has more energy of its own than it’s ever had.

“So what is driving oil prices lower? The answer, in my opinion, is simple. And no, it’s not some far-fetched market manipulation to bring down Putin and Russia.

“What’s driving oil lower is the same thing that is driving nearly all commodities lower. It’s called deflation. That’s especially true for Europe. The euro region is in a freefall. Almost every country in Europe is contracting, severely. Unemployment remains sky high, threatening to move even higher.

“And all across the globe, rising geo-political tensions and conflict are driving most business people and investors to play it safe, park money in cash, take risk off the table, and hoard and protect their capital and wealth.”

Plus, these are the same forces that

are driving foreign investors

to U.S. equity markets.

This is why every time the U.S. equity market dips, a flood of new money drives it sharply higher.

It’s why they are seeking the highest-quality investment they can lay their hands on.

And it’s why the lowest-risk, most stable, blue chip, solid-balance-sheet companies are outperforming higher risk small caps, mid-caps, and junk bonds.

The Junk Debacle

Money and Markets editor Mike Larson explains it this way:

“High-yield bonds and ETFs that own junk (which I’ve been panning for several months) have also gotten hit hard. The reason? Concerns over billions of dollars in defaults from the most highly leveraged energy firms.

“Just look at this chart of the SPDR Barclays High Yield Bond ETF (JNK). You can see that it tanked this week to the lowest level since June 2013:

Click for larger version

“Why such carnage?” Mike asks.

“The general argument is that too many lousy companies took out too many easy loans to fund too aggressive oil and gas drilling plans.

“Well, I predicted the housing and mortgage crisis in advance, and I helped investors navigate the terrible fallout. I witnessed the rise and fall of the dot-bomb boom first hand, working at an Internet company on the front lines.

“I have to tell you that I don’t think this one measures up. Sure, there will be some defaults, some companies will go belly up, and all of that. But the dot-bomb and housing bubbles pervaded every corner of the economy, and every part of the capital markets. The bubbles drove the economy on the way up, and when they imploded, they plunged us into deep recessions and huge market collapses.

“This situation looks a lot different to me, a more localized affair that doesn’t have the same widespread economic tendrils that those other bubbles did. And if there’s anything else we’ve learned from the past two wipeouts, it’s that they create tremendous value in shares of the survivors!”

My view: Larry and Mike are right. The oil plunge may be a disaster for oil companies, oil countries and their cousins. But for the rest of the U.S. economy it’s potentially a great bonanza:

It’s a big boon to consumers and consumer spending.

It’s delivering tremendous cost relief for airlines and transportation companies.

And it’s also giving us some unusual buying opportunities in the extreme high quality stocks we identify with our Weiss Stock Ratings.

But if that changes, rest assured we will be among the first to warn you. We are the last ones in the world to pooh-pooh the dangers or paint lipstick on a pig.

This article is brought to you courtesy of Martin D. Weiss.

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