(click on picture to enlarge)
Crude Oil, also known as West Texas Intermediate, spiked this morning to 128, testing the underside of the 130 level I mentioned last week. This happened as President Bush met in Saudi Arabia with their oil ministers about increasing production. They told him, and Saudi King Abdullah agreed, that they'd let the market determine the price and production levels. Essentially, they told America to "use it lose it", but don't tell us what to do. OUCH ! The froth in crude can be seen below the serface by comparing how bullish traders are currently compared to previous extreme bullish readings in sentiment.
The DSI (Daily Sentiment Index, courtesy of MBH Commodity Advisors, http://www.trade-futures.com/) percentage of bulls shows how expectantly traders greeted the move to within a few dollars of 130 (June contract). In recent days, the daily figure hit 95% and the 5-, 10- and 30-day moving averages all crossed above 90%. As of yesterday, all four permutations were above 90%. The latest to cross that threshold is the 30-day figure, which just hit 90.33% bullish. Getting traders above 90% bullish on anything for 30-days is a rare feat. The only higher 30-day readings are a 90.9% in late October 2004 and 90.43% last November 26. The first was followed by a 22% decline in two months and the second saw prices slip 8.4% in a few days. The unparalleled persistence of the bullishness is another consideration. In October 2004, the 30-day average was above 85% for 10 days before the peak. Last November, bullishness stayed above 85% for a little over a month before the peak. This time traders have been 85% bullish or better since March 18, almost two months. If the positive psychology toward crude oil yields to the usual equal and opposite negative response, the next oil top should be followed by a tsunami of selling, marking the peak for many months or even years. Below 120 will hints at a short term peak and coming test of 100, while below 89 all but guarantees the bubble has burst. This would coincide with dramatic declines of gold, silver, and the Euro toward 650-775, 9.3-13.6, and 1.22-1.37 respectively.
Recently, I have highlighted the growing rebellion by us little people toward those that have taken advantage of us during the past period of "good times". I mentioned the demonization of former "Maestro of Money" Alan Greenspan, and the growing "throw the bums out" sentiment that is pushing Obama toward the White House. Today, ABC News reported that "communities around the country are taking banks and lenders to court for failing to fix up foreclosed homes", causing property values to decline for those that aren't in foreclosure.
Negative undertone is spreading globally as well, as the United Nations reported Thursday, "The world economy is "teetering on the brink" of a severe downturn and is expected to grow only 1.8 percent in 2008", blaming the weakness on "further deterioration in the U.S. housing and financial sectors in the first quarter", which is expected to "continue to be a major drag for the world economy extending into 2009." Domestically, AAA predicts the first Memorial Day decline in US travel in six years, due to fuel prices.
The next shoe appears ready to drop on our economy in time to spoil the rest of 2008, as we move from the mortgage crisis to the credit card crisis. When times get tough, we do what we have to do to pay our bills. For more and more people, that means maxing out credit cards to put food on the table and gasoline in the family car, even paying the mortgage. This isn't good financial practice when times are good, but is disastrous when times are worsening or bad. The house (no pun intended) of cards that is built when mortgages are paid with credit cards, which are then defaulted on threatens America's largest banks. Nationwide, the credit card delinquency rate in the final quarter of last year jumped 32 percent over the previous year according to TransUnion.com. The fact that much of that credit card debt has been securitized into money market portfolios, bond mutual funds, and hedge funds means that our financial System is on shakier ground than ever in history.
Thinking of making yourself feel better by going out and buying a cheap house? Don't hurry, the bottom in home prices is still a ways away. Today, bad news was again reported by CNNMoney.com, regarding housing: "Construction of single family homes fell to a new 17-year low".
If you are wondering why you're not feeling the tension building, imagine the feeling of those dancing in the ballroom of the Titanic during the hours leading up to the collision with the ice.
For what it's worth,
Ken
The DSI (Daily Sentiment Index, courtesy of MBH Commodity Advisors, http://www.trade-futures.com/) percentage of bulls shows how expectantly traders greeted the move to within a few dollars of 130 (June contract). In recent days, the daily figure hit 95% and the 5-, 10- and 30-day moving averages all crossed above 90%. As of yesterday, all four permutations were above 90%. The latest to cross that threshold is the 30-day figure, which just hit 90.33% bullish. Getting traders above 90% bullish on anything for 30-days is a rare feat. The only higher 30-day readings are a 90.9% in late October 2004 and 90.43% last November 26. The first was followed by a 22% decline in two months and the second saw prices slip 8.4% in a few days. The unparalleled persistence of the bullishness is another consideration. In October 2004, the 30-day average was above 85% for 10 days before the peak. Last November, bullishness stayed above 85% for a little over a month before the peak. This time traders have been 85% bullish or better since March 18, almost two months. If the positive psychology toward crude oil yields to the usual equal and opposite negative response, the next oil top should be followed by a tsunami of selling, marking the peak for many months or even years. Below 120 will hints at a short term peak and coming test of 100, while below 89 all but guarantees the bubble has burst. This would coincide with dramatic declines of gold, silver, and the Euro toward 650-775, 9.3-13.6, and 1.22-1.37 respectively.
Recently, I have highlighted the growing rebellion by us little people toward those that have taken advantage of us during the past period of "good times". I mentioned the demonization of former "Maestro of Money" Alan Greenspan, and the growing "throw the bums out" sentiment that is pushing Obama toward the White House. Today, ABC News reported that "communities around the country are taking banks and lenders to court for failing to fix up foreclosed homes", causing property values to decline for those that aren't in foreclosure.
Negative undertone is spreading globally as well, as the United Nations reported Thursday, "The world economy is "teetering on the brink" of a severe downturn and is expected to grow only 1.8 percent in 2008", blaming the weakness on "further deterioration in the U.S. housing and financial sectors in the first quarter", which is expected to "continue to be a major drag for the world economy extending into 2009." Domestically, AAA predicts the first Memorial Day decline in US travel in six years, due to fuel prices.
The next shoe appears ready to drop on our economy in time to spoil the rest of 2008, as we move from the mortgage crisis to the credit card crisis. When times get tough, we do what we have to do to pay our bills. For more and more people, that means maxing out credit cards to put food on the table and gasoline in the family car, even paying the mortgage. This isn't good financial practice when times are good, but is disastrous when times are worsening or bad. The house (no pun intended) of cards that is built when mortgages are paid with credit cards, which are then defaulted on threatens America's largest banks. Nationwide, the credit card delinquency rate in the final quarter of last year jumped 32 percent over the previous year according to TransUnion.com. The fact that much of that credit card debt has been securitized into money market portfolios, bond mutual funds, and hedge funds means that our financial System is on shakier ground than ever in history.
Thinking of making yourself feel better by going out and buying a cheap house? Don't hurry, the bottom in home prices is still a ways away. Today, bad news was again reported by CNNMoney.com, regarding housing: "Construction of single family homes fell to a new 17-year low".
If you are wondering why you're not feeling the tension building, imagine the feeling of those dancing in the ballroom of the Titanic during the hours leading up to the collision with the ice.
For what it's worth,
Ken
