The Great, Big, Bad, Oil Bear is BACK!

WTI and Brent oil prices both fell more than 20% from their highs, officially entering bear market territory as crude prices continue to languish. WTI prices fell below $43/barrel despite some support in the currencies markets. Saudi Arabia has previous defended oil prices in the low $40 range.

Of paramount concern to investors these days is the rate at which US production has begun to rise, and whether or not OPEC can hold together its production cap in the face of potentially losing marketshare to North America. OPEC is currently dealing with difficulties from Libya and Nigeria

In-depth article on oil markets today. https://www.bloomberg.com/news/articles/2017-06-21/oil-holds-losses-in-bear-market-as-u-s-output-extends-advance

Unfortunately for investors, this is now the third time that oil has sold off a few months after appearing to have bottomed. Should OPEC hold output caps while maintaining cohesion among cartel members, then crude prices may not have that much more room to fall. But hey, who knows? The uncertainty is causing some investors to rethink and redesign their portfolios to avoid pitfalls from the energy sector.

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Hurricane Cindy, in the meantime, is responsible for the shutdown of about 17% of crude production in the Texas / Gulf of Mexico region.

The Black Swan is an ugly if - just right now - cheap bird

If Black Swans are very negative market-moving events that are difficult to predict, then this must be a White Swan market where everything is hunkey dorey as we all hold hands and skip towards the sunset as the stock market climbs higher and higher. Okay, okay, that analogy did get a bit out of hand. On to the stuff of substance.

The cost for hedge funds to insure themselves against unexpectedly large drops in the stock market (Black Swan events) has never been cheaper. With the VIX continually hovering near all-time lows, the bet that the market WON'T decline by that 6-7% figure in the next month is somewhere around 25-to-1. While the author certainly doesn't bet against a market that continues to grind higher - especially with the potential for tax reform up ahead - these odds may be tempting for some funds. If nothing else, their hedging strategy keeps getting cheaper.

Read about the VIX and some recent hedge fund activity here https://www.ft.com/content/f9fef394-4e8d-11e7-bfb8-997009366969

Sell in May and go away

A ship in harbour is safe, but that is not what ships are built for." - John A Shedd. Phuket, Thailand.

Equity markets have seasons, too, and "Sell in May and Go Away" is supposedly helpful, from a historical perspective, since May - November tends to have high volatility with some underperformance for the broader market. However, equities don't always know their history, and life goes on in the corporate world whether or not the retail investor is sitting on a Phuket beach in southern Thailand while sipping a Mai Tai cocktail (eg The Ignorant Investor in this case, where the above photo was taken by yours truly) or in a dusty cubical peering over six computer screens while chatting on Bloomberg Terminal. Investors can really miss out on some good runs if they do sell everything during those summer months!

Just put a sign on my desk "gone fishing" as The Intelligent Investor is checking out for a few weeks of R&R.