Notes From The Street: 'FLASHBACK....Oil Going To $200/Barrel'

The following is Kenny Polcari's morning note. He can be found on Twitter @KennyPolcari:

January 10, 2015

FLASHBACK........

May 21, 2008…..The NY Times ran with a story titled:

“An Oracle of Oil Predicts $200-a-Barrel Crude”

That oracle was NOT Warren Buffett…..oh no – the oracle here was Arjun N. Murti – a GS analyst who became the talk of the town by issuing one ‘sensational forecast after another’. His takeaway – “that the world’s seemingly unquenchable thirst for oil means prices will keep rising from here”…….How’d that work out? Apparently we’re not so thirsty anymore…..or maybe we have just gotten more efficient, or maybe it is all of the new production that is causing a supply shift…..

And then November 9, 2009 – the NY Times ran another story titled:

“Blankfein Says He is Just Doing ‘God’s Work'”

So yesterday the bankers to ‘God’ cut their oil price forecast to $47 but noted that we could see it trade to the high $30’s…. Well there’s a kick in the pants – no? I mean I just sayin’…….

And now an ever increasing number of analysts/strategists are coming out of the woodwork – as they try to make a name for themselves - all calling for lower oil prices in the future. It is the forecast of least resistance……it’s an easy call to make right now….the tone is so negative – but …….Ahhhh……..where have these guys been? Do they realize that oil is already down some 50% in the last 6 months – what's the upside to this call? Maybe another 5%?

Congratulate the guy that cut his estimate 6 months ago when oil was trading near $100 – that guy had some set AND he stuck his neck out and made the call….. Does the guy who says oil is going to $40 when it’s already at $45 really add any value? Talk about Monday morning quarterback….

So when they all start downgrading oil after the 50% move lower – then we must be near the bottom……it is called capitulation or ‘momentum analysis’ just like momentum trading – just jump on board and follow the trend….….and in the middle of all this we get the President of Venezuela – Nicholas Maduro begging OPEC to cut production as he needs oil to return to $100/barrel in order to provide economic equilibrium for his country… Apparently he did not get the memo from God’s bankers… And the plot thickens.....

Up next - Earnings.....and while the emphasis on this earnings season will be how the energy sector will impact earnings....it is important to understand the impact that a strong dollar will have on earnings...by now you would expect that analysts have already taken this into account and made the appropriate adjustments....well - I guess we are about to find out.

About half of the companies in the S&P 500 are multinational and therefore have to be concerned with the stronger dollar - and if they have not guided analysts then yeah - there will be some surprises - but any good CFO understands this impact and will do all he/she can to guide projections - exactly so that there are no surprises.....any negative implications should already have been discounted - the move lower (if necessary) should have already happened - but things are not always what they seem.....

If we start to get a sharp downturn in earnings then investors/traders will react negatively unless there is even a hint of more stimulus - whether it's from the ECB, The FED, The BoJ, The BoE, The PBoC or the RBA.? WARNING: If earnings sharply deteriorate this season then P/E ratios will soar if share prices hold steady and that my friends will make for an extremely expensive mkt which will cause tremors across the globe.

So last night we heard from Alcoa Inc AA and it appears that the season got off to a brilliant start….. with Alcoa beating estimates. The aluminum maker - long regarded as a bellwether stock - reported ‘adjusted earnings’ per share of 33 cts for the 4th quarter, up from 4 cts a share a year before. (This was ahead of forecasts of 29 cts). Revenues of $6.38 billion beat expectations, and was up from $5.59 billion a year ago. So we have both top line and bottom line growth. This morning in early trade the stock is up 30 cts or almost 2%.

US futures are soaring once again.....currently up 10 pts at 2033 - once again struggling to move above its 50 dma at 2039.....This is key....2039 has represented significant resistance as the mkt has toyed on either side for the past 2 weeks. A break here will likely take us to the 1995/2000 level and a surge higher will surely test 2050 before it hits resistance.

Today we will hear from KB Home KBH, IHS Inc. IHS and CSX Corporation CSX - JPMorgan Chase & Co. JPM is sponsoring their Health Care Conference today so expect all kinds of news around the likes of Regeneron Pharmaceuticals Inc REGN, Cardinal Health Inc CAH, Eli Lilly and Co LLY, Aetna Inc AET, Varian Medical Systems, Inc. VAR, Pfizer Inc. PFE, C R Bard Inc BCR and Merck & Co., Inc. MRK....

We will hear from two FED speakers today...one hawk and one dove...so think of the confusion....Plosser at 8 am and Kocherlakota at 5 pm.

Financials kick off starting tomorrow with JP Morgan and Wells Fargo & Co WFC the first to grace the runway......Thursday brings BlackRock, Inc. BLK, Bank of America Corp BAC and Citigroup Inc C and 'God's Banker is due to report on Friday along with Charles Schwab Corp SCHW....

Eco data today includes retail sales - exp of negative 0.1%, ex autos and gas look for +0.5% and at 2 pm - we will hear from the FED when they release their Beige Book Report.

Strap in and hold on - this is where it gets exciting.

European mkts are in positive territory this morning - again........Retailers leading the way.....In the UK - we got a weak report on inflation - it fell to 0.5% in Dec - that is the lowest in 14 yrs.....so back to the turn of the century.....this is on top of the weakening data out of the EZ...which only creates the speculation that the ECB is preparing to launch. FTSE +0.52%, CAC 40 + 1.26%, DAX +1.12%, EUROSTOXX +1.24%, SPAIN +1.19% and ITALY +1.22%.

Take Good Care

KP

"The market commentary is the opinion of the author and is based on decades of industry and market experience; however no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of O'Neil Securities, Incorporated or its affiliates”

Image credit: Martyn Gorman, Geograph