• September 21, 2019

ELAM: Deflation on hand - Odessa American: Business

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ELAM: Deflation on hand

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Posted: Sunday, August 18, 2019 5:00 am

The yield on the 30-year Treasury bond fell below 2 percent yesterday. JC Penny is trading at 59 cents, may be de-listed from the New York Stock Exchange, and will begin selling second hand clothes with thredUp. Energy Service XES not only fell below $8 as predicted, it traded under $7 yesterday, a new low.

What’s going on? The correct answer is disinflation possibly leading to outright deflation.

We noted that oil prices have been falling since the $140 high in 2008.

The fracking revolution has simply been too successful. The world is awash in producers from Russia to Saudi Arabia to Iran to the Eagle Ford wanting to sell for higher prices. But oil is one half of Russia’s economy. And so the selling and weak prices have continued. Take notice of the demonstrations, not only in Hong Kong but in Moscow.

The Commodity Research Bureau index of 19 commodities hit a new low last week. 

Copper, palladium and agriculture prices in particular have all made new lows. Amid headlines expecting lower natural gas prices for years, natural gas rallied from $2.05 to $2.23 on lower than expected supply.

That does not signal a bottom, but the hysteria over lower prices does suggest enough negative social mood to look for firming natural gas prices as cooler weather approaches.

But the most ridiculous valuation is a 30-year Treasury bond yielding but 2 percent. I started trading bonds in 1984 when yields were 12-14 percent. And should the economy sag, the Fed will find itself out of ammunition. There is just nothing to be gained when by lowering rates already at, as Jim Grant put it, 4,000 year lows. 

FRAK the shale ETF and CRAK the refiner ETF both appear to be approaching some sort of August low.

The New York Stock Exchange Advance Decline line is bouncing back today.  The most positive thing about the economy is that retail sales rose .7 percent in July.

The biggest uncertainty is not our economy, but the tariff wars and whether China will crack down on what it terms as terrorism in Hong Kong.

Crashes can take different forms. Lakefront property along the Guadalupe River has soared to the high six figures.  

The dams creating several “lakes” out of the river date back to 1931.  

There have been two recent spillgate failures the last two years. Fearing more failures at the four dams, the Guadalupe-Blanco River Authority has decided to drain the lakes, letting the lake levels drop 12 feet.

Residents now have a mud bank frontal. Property tax revenue will be decimated. It is not known if there is a way to raise the estimated $180 M to repair 90-year old dams or when that might even happen.  How far prices will now fall or whether sales are possible is unknown.

As with any speculation, the buyer needs to beware.

Odessa, TX

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