• April 14, 2021

ELAM: Evidence of a turn mounts - Odessa American: Dennis Elam

ELAM: Evidence of a turn mounts

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Posted: Sunday, March 28, 2021 4:00 am

Six weeks of increases have put the 30 year fixed rate mortgage at its highest level in nine months-3.17%.

Mortgage Rates Hit 9 Month High, Washington Post

This column has been warning of turn in the 39 year bull market in bond prices (lower rates) for weeks. This past week brought more evidence this is the correct analysis. And the stock market is beginning to notice as well.

Interest rates fell from the 12-14% level of 1981 to less than 1 percent in May 2020. The 30-year bond yield is now 2.356%, tripling its yield since then.

This is confirmed by the huge rise in commodity prices. Copper is up from 2.9 cents last October to 4 cents per pound today. Lumber has doubled from $450 per 1,000 board feet to $900.

Crude oil has also near doubled in price but is on borrowed time. Price lifted from $35 las October to $65 but now less than $60 at 58.56. A week ago it was announced that world demand for gasoline had peaked given covid restricted travel and the move to electric vehicles. With summer driving season, or what will amount to that, upon us 87 octane is near $3.

A bull market in stocks is marked by an expansion of new highs. More money lifts prices of more stocks. That indicator collapsed this past week. Two weeks ago the NYSE new highs reached 700+. This past week it fell to 146. Conversely the number of new lows exploded from 20 to 200+ in the same period. This phenomenon is known as a broadening top. The late comers, a surge in first time speculators opening new accounts, are buying from those who purchased at last March low at DJIA 18,000.

And none of this should be surprising. Congress passed a Trojan Horse Covid Bill of $1.9 Trillion which was really a bail out for poorly managed municipal pensions, all in Democrat controlled states and cities. Now another $3 Trillion stimulus is being planned. Like Barack’s non-shovel ready bail out, this will likely be a payoff to unions and poorly run Democrat cities like Chicago, Baltimore, and NYC.

The plan is straight out of the Hugo Chavez playbook. Simply raise taxes on the ultra-rich and the hated corporations. Believing the tax will not affect them, who in the lower income levels would object? But the parable of killing the golden goose is applicable. Long term studies of federal revenue reveal that no matter what tax rules are passed, the take is never more than about 18% of GDP.

The wealthy can and will move, and adjust income streams. They are migrating from CA and NY high tax states; the same will happen with so called soak the rich plans, wake up Bernie. Congress targeted oil companies believed to make excess profits in the early 1980s.

The result was not more revenue but an exodus from North American production. In Andrews at that time, both Exxon and Amoco abandoned their large modern buildings and employees. It simply made the real estate crash of 1987-86 just that much worse.

We have seen this before. It does not end well.

DAILY OIL PRICE: April 13

  • Crude Oil: 60.18   (+0.48).
  • Nymex MTD AVG:  60.0762.
  • Natural Gas: 2.619   (+0.058).
  • Gasoline: 1.9757   (+0.0057).
  • Spreads: May/June   (-0.06)   June/July   (+0.05).
  • Plains WTI Posting: 56.66   (+0.48).
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