Crude Oil at 5 years low — Sentiment and News Flow Extremely Negative

Crude Oil has been dropping like a rock over the past few weeks, which leads the total decline of CL1 (the front trading WTI contract) to more than 45% since it was trading at above $100 dollars at its peak in June to $58 today.

This is a historical decline. Not the biggest drop in history (that was in 2009) but still a historical one.

USO — the largest oil tracking ETF — is now trading well under $22 (currently trading at $21.87, while typing this post), making a historical low, below the 2009 crash level when WTI bottomed and bounced off at about $32 (The reason is the roll cost of commodities contracts, and show that buy and hold in futures contract is very inefficient).

Everybody bets on oil dropping, the newsfeed is only negative, and even at one of my clients, a tech shop, the PA knows that it will drop until at least $50 until mid Jan.

Quote from Bloomberg:

“I can see no news that would give any reason to buy oil at the moment,” Christopher Bellew, senior broker at Jefferies International Ltd. in London, said by e-mail.

Another quote from another Bloomberg report:

“It’s a new era,” said Carl Larry, a former trader who is now a Houston-based director of oil and natural gas at Frost & Sullivan 

[...]

Known for his conviction that oil prices will rise in the long term and that U.S. shale drilling is overhyped, Hall — [pej: aka Oil Trading ‘God’] — still sees reasons for an oil rally -- eventually. First he sees crude prices falling further to as low as $50 a barrel before recovering in the first half of next year, according to his Dec. 1 letter to investors.

Based on this, I have decided to bet against the crowd, and opened an initial position in USO @21.90

Contrarian Signal — Citi's Dutch Strategist calls "useless Gold a 6,000 years bubble, the longest-lasting bubble in human history"

After more than 3 years of steady decline (as forecast on this blog), pessimism around gold and silver have reached such extremes that these assets should now become vey attractive to true contrarian investors.

Here's the most anti-gold report I have ever read in my life:

The gold bubble is, of course, pretty impressive. Intrinsically useless gold has positive value. It has had positive value for nigh-on 6,000 years. That must make it the longest-lasting bubble in human history.

The author even question the fact that gold has any value at all, and calls it a 6,000 years bubble. Can you get any more bearish than that? I can't see how.

Based on this, I have added to my GLD (@113.29) and SLV (@14.99) positions.

Stocks to Rally another 10% on QE2 Announcement?

Barton Biggs, another great contrarian indicator, is weighting in the bandwagon of overbullishness and one-way markets:

Oct. 29 (Bloomberg) -- U.S. stocks may rise 10 percent should the Federal Reserve announce a program of asset purchases known as quantitative easing, and emerging-market shares will keep rising, according to hedge-fund manager Barton Biggs.

“The conventional wisdom is the markets are going to probably sell off,” Biggs, managing partner of New York-based Traxis Partners LLC, said in an interview today with Betty Liu on Bloomberg Television’s “In the Loop.” “Investors may in fact get a “surprise” with “another 10 percent rally.”
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If the conventional wisdom was that the market would sell-off, people wouldn't be buying every catastrophic economic data. The conventional wisdom is that of David Tepper: that no matter what happens, the markets are going to rise.

“We are only halfway along the way to a gigantic eventual bubble in the emerging markets,” Biggs said. “But we are not there yet, the fundamentals are too strong, too good, too much growth, and the valuations are still attractive.”

It would be a mistake for government stimulus measures to stop because the world economy is still in a “very dangerous position,” the 77-year-old investor said.

How can the fundamentals be too good, too strong, and the position be very dangerous at the same time?

“The Fed is doing the right thing,” he said. “Our government is not doing the right thing. We are still yammering away about fiscal austerity. We need more economic growth, and we need to make sure that we don’t tip ourselves and the world back into another recession. The price of that is going to be a bubble at some point.”
[...]

The Fed is doing the right thing for money managers and bankers — at least in the short term, until reality settles in again. We need more economic growth, but we aren't getting any. We are getting money creation growth, and waste growth. But this is a self serving statement from a portfolio manager...