North Korean Internet Goes Dark; Nat Gas Collapses; Crude Realities For 2015; Russia Faces “Full-Blown Economic Crisis In 2015,” Says Former Russian Finance Minister
The North Korean Internet went dark today, and for the ’14’ or so North Koreans that can actually access it — I guess it is an inconvenience. North Korea has four Internet portals that require Internet traffic to be routed through China. As some method of comparison — the U.S. has 150,000 portals. So, shutting down or attacking the North Korean Internet is not a complex operation. Let’s hope that the U.S has some plan to hit the illicit movement and laundering of money that it uses to finance the lavish lifestyle of its brutal dictators and his circle of enablers.
Natural Gas Collapses; Panic Selling Ensues
Alex Rosenberg, writing on CNBC’s website this evening that Natural Gas plummeted some 9 percent today, with many of the blue-chip and best in class companies/stocks getting hammered with losses on average of greater that 5.5 percent in one day. Some companies endured a terrible day, which saw some natural gas stocks down greater than 10 percent — in one day. Mild weather forecasts across the Northeast and Midwest, coupled with and overabundance of supply; and, the general swoon in energy all created a perfect storm of bearish news for the sector. Mr. Rosenberg writes that “nat gas futures were as low as $3.12 per million British thermal units, which is the lowest level since January 2013; and, represents a decline of 15 percent in just the past two days.” Last winter, when the weather was much colder and more extreme, natural gas futures traded as high as $6.49. Today, “when many traders had been hoping for another “super-spike,” are panicking out of the trade,” said Brian Baruch, Senior Market Strategist at Chicago-based iTrader. “This is panic selling right here,” he added. Mr. Baruch forecasts natural gas to continue trading lower; and, has a target price of $3.05 for at least a near-term bottom. That would represent another +2 percent decline from today’s levels.
Mr. Baruch sees this panic selling as a buying opportunity; and, “is stepping in here to buy $5 March calls today,” Mr. Rosenberg writes. But, Andrew Lipow, President of Lipow Oil Associates, is on the other side of that trade. Mr. Lipow said, “We could easily see a buildup in natural gas supplies to the 3M BTU level — something he said “is not that far away; but, psychologically — it’s a big number.” “Then people would probably start talking about $2.75 – $2.50 — but, he acknowledged we’re a long way from that with much of the winter still ahead of us.
It does seem to me that it might behoove me to hold my nose and put a small portion of the portfolio in oil and natural gas. But, I do not believe that this will be a “quick” trade. And, if you don’t think natural gas can go much lower– back in 2010, natural gas actually went negative in the Midwest; and, firms were paying for someone or some entity to actually come and take excess production away. Still, I am tempted here to take some small. positions in the sector. FYI, Southwest Energy (SWN) is considered best-in-class. The stock is down 25 percent ytd in 2014.
Crude Realities For 2015
Oil, which appeared it might have stabilized at Friday’s close near the $60 mark, suffered a 3 percent decline today to settle at $55.34. The resumption lower for the black gold came in the aftermath of statements by Saudi Arabia’s Oil Minister that OPEC “would not cut production at any price.” “It seems like an all-out strategy on Saudi Arabia’s part to finish all the weak players in the market — who can’t survive at sub-$60, or even sub-$50 oil,” said John Kildufff, Partner at New York Energy Hedge-Fund – Again Capital.
The outlook for oil going into the first six months of 2015 is not very bright, according to most of the commodities soothsayers on Wall Street. There is plenty of supply heading into the new year, coupled with weak demand, and anemic global growth. Most on the street are betting that oil continues to suffer a hangover until at least the second half of 2015. “I think we’re going to take a run at $50,” for West Texas Crude ($55.34 today), said Andrew Lipow, President of Lipow Oil Associates. “Not only have they reiterated that that they’re not going to cut production, we’ve seen the Iraqis announcing they’re going to increase production in 2015. It seems like a game of chicken to see who is going to cut first, and the answer is no one. No one is cutting their existing production,” Mr. Lipow said.
“Crude below $60 has pushed various oil drillers to pare spending on exploration in 2015 and delay, or even cancel drilling projects,” CNBC noted on its website. “We have found in the past, it has taken approximately 100 days after the market has bottomed — to start a sustainable rally,” said Macquarie Capital’s Vikas Dwivedi. “We believe enough upstream capital spending cuts are underway around the world to allow the oil market to rebalance; but, probably not until early 2016,” he said in a note to clients.
So it could be a while before we see any sustainable rally in oil — absent a Black Swan type event like a pre-emptive Israeli strike on Iran’s nuclear infrastructure. But, such a strike is not likely in the immediate term, since new elections won’t be concluded in Israel till March 2015.
Russia Faces “Full-Blown Economic Crisis In 2015” Says Former Russian Finance Minister
“Russia faces a full-blown economic crisis in 2015, that will trigger a series of defaults; and, the loss of its investment-grade credit rating ” said Alexei Kurdin, a longtime ally of Vladimir Putin, and widely believed to be the most likely to succeed Dmitry Medvedev as Prime Minister, wrote Jack Farchy in this evening’s Financial Times. Mr. Kurdin’s “warning, came as Russia’s Central Bank was forced to prop up a mid-sized lender — in a sign of the financial strains pulling on Russia’s entire banking system Mr. Farchy noted. “Today, I can say that we have entered, or currently entering a full-blown economic crisis; next year we will feel it full force,” Mr. Kurdin said.
Russia’s Central Bank said it “would inject 30B rubles ($530M) into Trust Bank, the country’s 28th largest lender by assets, “to prevent bankruptcy.” Mr. Kurdin forecasts that the Russian economy would contract by 4 percent in 2015 — if oil prices remained at or near the $60 level. Russia’s Central Bank is even more bearish on 2015, forecasting a 4.5 – 4.7 percent economic contraction. A deep recession — if not depression. No wonder a record number of Russians are applying for British visas. “Russia will have its rating downgraded, it will be cut to junk,” he said. “Due to the economic disruption…payment discipline will fall significantly; and, we will see a series of defaults of medium-sized, and large companies.”
Mr, Kurdin also predicted an increase in disaffection among the population that could have political impact,” or fallout. “There will be a fall in living standards, it will be painful. Protest activity will increase,” he said.
Certainly, this could be the kind of unfolding drama that could certainly lead to this current stock-market rally — scrambling in the other direction. We have moved so far so fast in the upward direction in stocks in the month of December, I may sell at least 50 percent of my equity position as we go into the first week of 2015. I do not think this Russian economic story is going to get better anytime soon. V/R, RCP