Random Thoughts 3
Since it’s truly the dog days of summer and not all that much is happening economically, I will hit on a few key elements of today’s market.
BITCOIN
It pains me to even go over it but if you have followed any of the business channels, it is the lead story today so it becomes mine. Unfortunately, there isn’t really much to say about Bitcoin (or any other cryptocurrency for that matter) that I haven’t already said. I think some of the strength of Bitcoin is due to PayPal creating some sort of market in the UK for Bitcoin. Investors might think that is another block in the tower of credibility and taking a longer term view, it is a positive, but I still maintain my feelings that investing in Bitcoin is a high risk and if you have room in your portfolio, go for it. However, I still believe it will never be a viable currency in any traditional sense. Because some hackers returned most of the crypto they stole does not make me feel any better about security of the currency(again, it’s used very loosely here). I still will argue that the risks involved in any transactional business are too high and until there is some moderating factor in the marketplaces that risk will doom or at the very least delay indefinitely the use of any crypto as a standerd form of exchange.
OIL
What I am seeing and I would love to hear any other opinions on the subject, is that the oil markets are beginning to show a pattern that will actually be trade-able. There seems to be a price range developing and as you all know, I am no technician. I see patterns like everyone else and in those patterns I see reasons for bottoms and tops. Technician see price patterns and don’t care about reasons. I do. I like fundamentals as well as price movements so I will explain how this works in the oil market. Again, keeping it simple. Pricing of oil varies between 66% speculation and 33% Supply- Demand and 10% Speculation and 90% Supply-Demand. Keeping that in mind I think we are in a period where the supply-demand element is way more important than speculation and seeing oil bounce off of $60 a barrel a couple of times, there lies your bottom(short term of course). Why though? Well it would seem that certain forces in the oil market (Russia, Saudi Arabia) would rather oil trade higher so they will reduce supply subtly and watch as demand forces oil to a better working level for them. Sure they would love to see oil trade at $110 a barrel but at those levels the impacts are almost devastating and demand falls off a cliff. Why does all stop at around $70-$72 a barrel and not go to $80? Simple at anywhere above $70 a barrel more supply comes to market. Fracking and half dead wells in the US. Smaller countries that have reserves of oil but the costs to extract it make it prohibitively expensive seem to come online at the $70 level and your supply keeps the price steady until something happens outside of the oil suppliers control (war, pandemic, etc). Having a solid trading range for oil is good for all involved even though we hate to see $3.50 a gallon gas, we do know the supply will be there. We can live with it.
HOUSING
I bring this up because I do think there is a major shift coming to the housing market and I am not really sure how it is going to play out. I follow the housing market differently than most people. It, to me, is a ghost indicator for many different components of the US economy. It has been an almost perfect indicator of potential recessions and conversely it has an almost 100% effective rate of predicting the end of a recession as well. Reading deeper into the housing tea leaves you can see trends in industries as they are developing and you can also predict future industry trends by digging into those housing numbers. What we are starting to see, and as I said I am not sure where this going, is big investment vehicles buying more and more housing. From rental communities to individual homes, these companies are taking advantage of people wanting to move to new, cheaper areas and landlords looking to get out of bad investments due to Covid rent restrictions (evictions mainly). This turning over of housing is scary and it may be unstoppable. Big money management companies are creating investment vehicles to buy thousands of homes and then create a rental income platform. With those assets, they can then offer that to the public per se and retain some ownership and collect fees. The rental end of the housing industry has been dealing with this for years but now it is seeing individual homes being purchased and put into these large investment pools. To the individual homeowner does it make a difference if you sell your home to any investment vehicle or a private party? Cash is cash right. If you are buying a home, does it make a difference if you buy your home from an individual or an investment vehicle? Considering that the housing market in the US is huge it may not really have much of an impact but as I said, I really don’t know at this point. It is something to keep an eye on.