Wednesday, March 4, 2015

Oil or Stocks...Will the Market Representing the Real Economy Please Stand Up!?!

The first chart is global oil production, by month, based on latest EIA data.  2014 saw significant production increases after fairly flat production in '12 and '13.
source, EIA
And just so we're clear where nearly all the production gains came from...check 2005 and note global production (x-US / Canada) barely rises on the spiking price...but US / Canada production rockets 7mbpd over the period.
source, EIA
A close up of US / Canadian production (below).
source, EIA
The below chart highlights the falling consumption in 2014 (demand) of the 34 OECD advanced economy nations despite larger total populations and trillions in stimulus and new debt.
source, EIA
But advanced economy declining demand is nothing new and some (i.e., Italy, Japan, France) have been showing declining consumption since at least 1980!

So, global production is up and advanced economies demand is in long term decline...the below chart highlights the BRICS oil consumption is still growing...but the rate of BRICS oil consumption growth is inline with periods of global recession?!?

source, EIA
A quick snapshot of global production increases (yoy) vs. BRICS (yoy) consumption increases below.  BRICS demand has been the driver for greater global production...'til now?!?

source, EIA
The below chart is the same global production change (yoy) as above but a highlight on China oil consumption change (yoy).  China's $21 trillion quadrupling of its credit bubble from '07 til now has been driven by real estate...but in the last year, China's real estate prices have fallen and mortgage driven credit is slowing with the leaking bubble.  Could China's economy be looking at an outright contraction in oil consumption in '15?

source, EIA
The above charts clearly disagree with the narrative equity and real estate markets have any linkage with the economies present or future health.  The above charts clearly indicate global advanced economy plus developing economy demand is waning akin to levels typically seen in recessionary periods.

The chart below is a reminder real estate but particularly equity markets are currently off in their own world and not supported by growing employment, wages, or savings...employment and slow growing wages seem to agree with oil.  Stocks and real estate are simply monuments to perpetually "cheaper" money.

Employee Source, US Bureau of Labor Statistics; Salary/Wage Source, US BEA; Real Estate Source, Federal Reserve System, Z.1 Financial Accounts; Equity Source, Wilshire Associates
Equities are supported by cheap money encouraging massive corporate buybacks and very favorable corporate taxation, as previously explained here.

In direct opposition to equity markets are decelerating US population and jobs growth, declining full time jobs (replaced with part time jobs), ramping debt and unfunded liabilities growing far faster than economic activity and taxes to pay for all of it.

Total Debt Source, 2013 OASDI and Medicare Trustees’ Reports. (pg. 183); Population Source, OECD; Employee Source, US Bureau of Labor Statistics; HHNW Source, Federal Reserve System, Z.1 Financial Accounts; Salary/Wage Source, Wage, GDP, & Tax Source, US BEA

But who should you believe...record stock market valuations and consensus spouting, highly paid economists who tell you all as is well...or oil, negative economic indicators, and your own eyes that this is just one more artificial boom desperately trying to run from the inevitable bust?

Be my guest to go through my previously posted book, Fundamentally Flawed, freely available online at: