Wednesday, March 31, 2010

The Sweet Spot

At the top of this post you will find an image of the business section front page from today's New York Times. Six months of relative stability in crude oil prices (red oval) has attracted the attention of the Times. I'm sure a lot of people have noticed this, but I think the situation is about to change.

One of my primary reasons is that oil competes with natural gas in power generation. And recent technological advances in natural gas extraction technique have vastly expanded the amount of recoverable gas supplies the word over. This dramatic shift in supply conditions has made itself felt in the natural gas market (middle chart). I think a big drop in oil prices lies dead ahead. I think crude will drop below the $30 level.

Monday, March 8, 2010

Mutual fund flight

Here are two charts which appeared in today's "Abreast of the Market" column in the Wall Street Journal. The bottom chart shows the cumulative money flow into U.S. stock market mutual funds (pink graph) and into foreign stock market mutual funds (blue graph). As you can see investors have been pulling substantial amounts of cash out of mutual funds that invest in U.S. stocks and putting that much and more into foreign stock market mutual funds.

It is quite unusual to see such a prolonged outflow from U.S. stock market mutual funds. This is yet another piece of evidence that global investors are generally bearish on U.S. stock prices. And it tells me that the bull market that began in March of 2009 has much further to go.

The fact that there has been such a substantial inflow into foreign stock market funds by global investors I see as evidence that these investors are bearish on the U.S. dollar. I take this to be more support for my contention that the dollar has begun a new bull market which will carry the US dollar index to the 100 level.

Finally, the top chart above this post shows shows enormous inflows into various U.S. bond market sectors. This contrasts with the outflows from the U.S. stock market. Apparently investors who want to invest in the U.S. markets think that bonds are a better bet than stocks. This is a piece of evidence which supports my view that the U.S. and global bond markets have begun a multi-decade trend towards lower prices and higher yields.