The Uneasy Truth- 3 Precedents of Fact 

We believe, the upcoming oil meeting will be a complete failure and a disappointment to an oil market who has advanced nearly 50% on head line chasing. The outcome of the meeting could trigger the next market clearing— constructive outcome has a low probability. The two major players in the deal are Russia and Saudi Arbia. Those 2 nations have 3 precedents of oil talks, which end in complete failures. The data stretches back to the mid-1990s, where the outcome is both nations increase output despite cut/freeze agreements.

1Q16 Marked a pivotal point in Russia and OPEC (primary Saudi Arabia) to rebalance the oversatured oil market. News flooded the world on freeze agreements, which sent oil +50 advancement on speculation ex fundamentals.  Less than 2 days into 2Q16 the oil narrative of everything is awesome was dismantled. In fact, Saudi and Russia outputs increased in March contradicting agreements and or statements in the earlier quarter. Hmm, where have we seen this before? Refer to diagram above.

The outcome is simple: No Production Cuts and Or Freezes. If there was even a freeze both nations are at levels much higher than 1Q16, which would make no difference, but would rally WTI for a intermediate timeframe, then as large lots of physical hit the market widening spot, the market will return to fundamentals. Lower for longer and clear the excess is the narrative which will return until the next OPEC summer meeting. The multi decade mean is at 20 for WTI. As we know, markets tend to deviate from a mean, find an unfair level, and then revert back. Global growth is anemic, its a demand side issue to fix oil. Supply infrastructure across the world is at full capacity, and central bank interests rates are at ZLB or NIRP. So, that means growth is limited going forward. Welcome to the world of lies of how to move oil 50% on false narratives and short squeezes, we welcome the next market clearing. 

Great Research Report-> Russia and OPEC: Uneasy Partners

The Battle of the K Wave

K Waves in Commodities and Corporate Profits are attempting  reversions to baseline growths present day. The baseline growth glide path was contributed by the FED in lowering the interest rate from 19% in the earlier 1980’s to present day Zero Lower Bound. The baseline growth was artificial in nature due to cheap monies. Fast forward today, and growth is anemic with a crashed commodity complex as the interest rate sits on the ZLB. Next attempt in spuring growth was NIRP. The ECB and BOJ have been experimenting with such policies to only find unintended consequences much different from academia.

 Yellen entered the US Economy into a tightening cycle mimicking the dual mandate of 1999/2000 FED of the Dotcom era. She’s preparing the US Economy for a mean reversion via reduced inflation and unemployment before the economic shock. Cracks in the system are already evident as an earnings recession is nearing the 4th consecutive Q Y/Y, which would be the worst since the great recession. On the subject of earnings recession, the word recession means a deviation from a glide path, but reverts in an intermediate timeframe. This time around a much larger cycle known as a K wave could transition the earnings recession of current date into a more prolonged timeframe. We’re merely seeing signs of mean reversions. Prepare wisely.

What are K-Waves? 

Corporate Profits vs. Interest Rates 

Commodities vs. Interest Rates