Every now and then the actual numbers surprise me. In several posts I’ve tried to show what the markets looke like in the post LENR era (or, if it’s easier to comprehend, post Saudi unlimited oil production era). Not taking the investment risk (volatility) into account in those charts might look nice and powerful, but in reality doesn’t say much about the actual global capital flows as a whole.

So, I put together a chart where I take volatility/risk into account on daily basis, adjusting movements with a 14 day ATR (average true range). Here it is:

The first thing that hits, is that cash USD has outperformed everything. Although since everything is measured in USD that is not entirely true. Putting your USD cash in 20y+ treasuries have been even better and so also some sectors of the stock market like health and med care, utilities and consumer goods.

The next thing that hits, is that it’s obvoius that staying out of European currencies and commodities, especially oil, have been a really good idea.

The third and last thing is that this massive market move has been over since april 2015. Since then the markets have been relatively stable!! China is having serious trouble, and of course oil, copper and energy. And high yield corporate bonds have been a real mess.

Here is another way to look at it in terms of 3-12 months strength/trend, with 2-3 week momentum (color).

As we can see many asian, european and emerging markets (Poland, Singapore, Brazil, Spain, Hong Kong, etc.) are having trouble. Including some currencies (GBP, CAD, CHF) and commodities (oil mainly). Also the high yield bond market has shown seriuos troubles since april being among worst performers (oil exploration is not a wild guess here …).

Allthough weaker the trend continues. While USD and US treasuries have been stable, capital flow is moving from the areas mentioned above to primarily German, Japanese, US corp. and municipal bonds.  Among stocks (US market) Utilities and Consumer goods (and technology) shows best performance in a week to month timeframe.

Has this anything to do with LENR then?

Certainly not directly. However the insight that there are way more oil both in the ground, and above right now, than will be consumed in any foreseable future is fundamental for the Saudi all in production strategy (incl. Russia, Iran, Iraq, etc). And then they all desperately need the cashflow for various domestic reasons. They realize that oil in the ground is worse than a NIRP bank account. I mean, if they believed for a second that the price of oil would rise again, keeping it in the ground for now and print money (sell bonds) for cashflow would be good business. But obviously that is not their strategy …

Finally, from the positive side, I’d like to focus on the fact that Utilities, Technology and Consumer goods are the markets performing well. I do not think this is a coincidene from an energy price perspective:

We will use more energy,

LENR will be integrated,

the Utilities will charge for the bandwidth,

innovation will be intense,

and the money saved will be used for consumption.

I’ve been asked how to short oil quite a lot.

The by far most traded instruments are of course the oil futures traded on the NYMEX exchange, ie. the symbols “/CL” and “/QM” .

For normal net worth people the problem is that it is quite risky. If you sell one “/CL” contract it means you are selling 1,000 barrells of oil, which makes it a $31,000 sale today. If the price of oil then rises $2 you lose exactly $2,000. And these kind of moves are common …

The “/QM” contract is mini version of the CL that is covers 500 barrells of oil, which reduces your risk by the same amount. So the $2 up move will be a $1,000 loss instead.

These futures are traded five days a week 24/7.

Among the ETFs we the main and most liquid one is “USO”. But to short oil you need to short/sell this ETF and that seems not to be possible anymore, since there are no lenders (this has not always been the case).

What I have been doing though is to buy put options on USO. This is nice since the risk is limited to the price I pay. My strategy since 2011 have been to by cheap out of the money puts in different time frames and then roll them forward a week or two before expiry. They are then either worthless (if there is no move down), but have a tremendous upside if there is a move. Needless to say this strategy have worked out well with a constant low risk exposure.

Lately I have also been using another ETF – the “SCO” which is an ultrashort (inverse) ETF in oil. It has moved from $24 to $189 since oil hit $110s in the summer of 2014. Good thing about it is that risk is limited to the amount you pay for it (unlike the futures). And it is reasonably liquid with a volume of 500k – 1M shares per day. Generally though I’m a bit sceptical of these types of instruments since I dont know exactly how they are executed by ETF fund managers.

ETFs are traded normal US stock trading opening hours.

A strategy I have not used is buying put options directly on the futures, but it is also possible and one way to manage risk.

Other instruments I have not used are CFDs (Contract For Difference) which behaves like the futures but with an extra “middle man” like IG Markets. In Sweden there are also there a number of exchange traded certificates (bull and bear), which I have not used. These behaves like ETFs.

Finally, this is the two year graph on SCO. Hard to beat 600%…

The guiding principle is to manage risk. To always know what the $1 price move will get or cost me. 

Of course this post is not an investment advise, only a description of what I have been doing (or chosen not to).  

To be honest they have actually reduced their short position by some 30% since October when price was in the $45-50 range. That probably generated some cashflow for the books, but still a 8 billion dollar short position in oil. Why?

Well.The only explanation is that they must be absolutely certain that the probabilities of oil hitting $25 is bigger than hitting $45 again. 8 billion however must be compared to the $40 billion short position they had in the $90 range.

CFTC.GOV CoT data link

For the perspective, here is todays fresh low in oil – $30.88 .

So. Where is the LENR included long term resistance of the oil price on the down side? Well I believe I predicted the $20-$30 range two years ago, and I believe this is what we’re going to see during 2016. There is “War” risk that could trigger price upwards, but it has to be physical (i.e. real bombs on Saudi resources), not like the recent Saudi/Iran issue. However, if LENR gets real mainstream media momentum when verified proof of the 1MW E-Cat in Florida is released in march, then $10 is possible. Only Mid East oil producers can handle that so from there on its all about Aramco.

Actually I think this scenario is interesting, and since I do not think the Saudis and their McKinsey advisors are completely stupid 🙂 I believe this is in their plan. Oil will be useful for a long time and Aramco will have ~100% market share, and the market will stabilize since the migratíon to LENR in transportation will take time. Their assets are also in refining and other upstream activities which are valuable even with LENR enabled synthetic fuels.  And then of course they need the cash NOW to avoid serious domestic troubles – An IPO is a brilliant idea.

Link to the site

This is sort of old news but new to me so I’d like to share it. In 1993 Arthur C Clarke had these insights about the future of fossil fuels and LENR.

The next scenario: CF can be scaled up to moderate levels—say 100-1000 kilowatts. Even that could be revolutionary, if cheap and safe units can be manufactured. It would make possible the completely self-contained home that Buckminster Fuller envisaged, because the electric grid would no longer be necessary for domestic distribution. And it would be the end of the gasfueled car—none too soon . . . Automobiles could, quite literally, run on water—though perhaps only heavy water!

 

The third possibility is that there are no upper limits: in that case, the Age of Fossil Fuels has ended. So has the Age of CO2 buildup, acid rain, and air pollution. Twenty years ago, when OPEC quadrupled oil prices, I remarked, “The age of cheap power is over—the age of free power is still fifty years ahead.” I may have been slightly too pessimistic . . .

Unfortunately he was not as pessimistic as he thought at the time, but probably SPOT ON. Real “free” energy is still a couple of years ahead but we’re getting there.

Finally I’d qoute the letter sent to Al Gore in 1993.

18 March 1993

Dear Mr. Gore,

COLD FUSION (?)

I am happy to learn that you are being briefed on the above—perhaps misnamed—subject, as it is impossible to imagine anything of greater potential importance from both the economic and geopolitical points of view.

After initial skepticism, I have now seen so many positive reports from highly respected organizations (e.g. NTT—which is already marketing experimental kits in Japan!—ONR, U.S. Army Research Office, SRI, MIT) that there can be no further doubt that excess energy is being produced by some previously unknown process, not essentially nuclear. I am sure that your staff has already seen much of this material, and I also refer you to Representative Swett’s statement in the Congressional Record for 16 February, 1993.

Whatever the source of the energy, which I am sure will be elucidated in the fairly near future, the sixtyfour trillion dollar question is: (1) is this merely a laboratory curiosity of no practical importance, or (2) can it be scaled up for industrial and perhaps even domestic use?

If Number (2) is correct, the consequences are immeasurable. It would mean essentially the end of the “Fossil Fuel Age” and an era of cheap, clean power. The environmental benefits would be overwhelming; at the very least, concern with CO2 build-up and acid rain would vanish.

Clearly, no effort should be spared to resolve this matter speedily, by supporting scientists who are obtaining results (and, perhaps, discouraging those who have been obstructing them). One witness you might call is my friend, Dr. George Keyworth II, President Reagan’s Science Advisor and an expert on fusion physics, who remarked in a recent letter to me: “The conventional path we’ve been pursuing is trying to build a bridge across the seas instead of inventing a boat.” Perhaps “cold fusion” may give us the lifeboats Spaceship Earth so badly needs!

Respectfully,

Arthur C. Clarke

Obviously Al Gore should know about LENR since … long, but for unclear reasons have chosen to ignored it.  Even in his best selling 2013 book “The Future” the possibilities of LENR was not mentioned at all. Needless to say the book is filled with environmental threats of every kind imaginable …

Actually this only fuels my suscpision that the “greens” are among the biggest enemies of LENR for reason that … is not entirely aligned with their marketing. The tax financed (SR) Swedish Public Radio (Ulrika Björksten et al) comes to mind …

I’m absolutely amazed by the Economist articles and interviews with the Saudi deputy crown prince  Muhammad bin Salman.

Obviously he/they belive the price of oil will never be higher than today again. Otherwise there would be no better bank than keeping the oil where it is. So they plan to use the Big Banks to sell the soon-to-be-worthless oil fields to the pension funds of the world… Actually I have to admire it. Brilliant move. Probobly advised by McKinsey (as mentioned in the Economist article and interview here and here).

The Economists is actually on the right track. Look:

Another threat is alternative forms of energy, such as wind and solar, which may well challenge fossil fuels. Selling shares in Saudi Aramco could thus be intended to cash in before the “decarbonisation” of the economy starts to gain credibility. It would also fit with a trend that has started to transform the oil industry for the first time in half a century—denationalisation.

Only question for the Saudi prince is: If there is time enough?

Two years ago I suggested what I thought was the “Fool Proof LENR Trade”. Buying the Russell 2000 Index and shorting oil (IWM/USO).

The Fool Proof LENR Trade

Looking back today is nothing less than amazing. 220% is kind of hard to beat …

To be honest I see no reason to exit this trade at the moment. If I would change anything I would maybe focus more on innovation on the long side switching from R2k to Nasdaq, but that is not essential.