Dear Reader,
Two weeks ago, I started talking about the state of the energy markets.
Once oil fell under $70, I was buying. I wasn't doing it through traditional means. Instead, I sold put spreads on Occidental Petroleum (OXY) and ConocoPhillips (COP). The basic argument went that we wanted to purchase the stocks if they fell to even lower levels.
As I've noted, Occidental became a target for Warren Buffett anytime it fell under $60.
Today, shares are back above $65.00. While I argue it's a buy at these levels, I still think that the optimal trade sits back at lower levels with put spreads.
Why? Because I don't trust Goldman Sachs.
Don't Trust Goldman Sachs
Following the news that OPEC will slash oil output by 1 million barrels, Goldman Sachs issued a report suggesting that oil prices could push $95 by the end of the year.
Barring some sort of massive escalation in war, I'm not buying it. I think we'll get higher oil prices, but I don't think we're on the verge of seeing oil hit that figure. Why? Because the economy is under a lot of pressure... and because we're facing a startling recession.
Today, I want to tell you a story that shapes my mistrust around Goldman and oil prices.
Back in January 2008, I was trying to figure out what to do with my life. I'd worked on Wall Street for two years, and things were getting more chaotic by the day. A few months before Bear Stearns collapsed, rumors were swirling that Goldman Sachs analyst Arjun Murti was on the verge of projecting that oil was heading to $200 per barrel.
He had placed oil at the high end at $135 in September 2007. It drew headlines everywhere.
One night, my friend from Goldman and I went out with a team of energy traders who were closely linked to the investment firm. We sat in a dimly lit club. I asked one trader about Murti. He laughed, shook his head, and said that oil was going to $50.
Not $200. But they were looking to short oil. Despite the so-called Chinese wall. Because they knew something... something that maybe I was not quite seeing about the financial world in 2008.
Naturally, I felt an ethical pull here. I was learning who Goldman Sachs people really were.
I didn't say much after that. These guys were talking about their bonuses and their condos.
Our time was coming to a close. They put the check on a Goldman credit card. We tipped cash. Everyone was talking about their plans for the rest of the evening.
I'll never forget what came next.
One of the two traders said that they were going to a private party in the company of a
Famous New York celebrity - which I don't recall because we'd ankled into the rum by that point. Maybe Derek Jeter or Jay-Z. That didn't matter.
I asked how he found himself a member of the inner circle of this famous person.
He leaned in a wry smile, eyes up, proud.
"When you sleep with a lot of models," he said. "You get to know people in this town."
Two minutes later, I shook his hand and said goodbye.
Three minutes later, I had my coat.
Four minutes, I raised a hand to a cab.
Within five, I pushed my friend from Goldman into the backseat.
We went to a dive bar in the West Village called Down the Hatch. It had beer in pitchers, drinking games, and people who weren't climbing over one another for career purposes.
Seven days later, I put in a six-week notice to Petsky Prunier.
That conversation with that Goldman trader told me everything I needed to know about what was coming... and what they were really about.
Bear Stearns would collapse two months later. After that, rumors swirled about Lehman Brothers.
I moved to Florida in March to work on a second book and to ride out the 2008 financial storm. The head of HR at Petsky Prunier said she admired my decision to leave Wall Street to write. By her tone, I gathered she wished she could have done the same.
So, when I hear Goldman Sachs acting bullish on commodities in the face of economic concerns, I hesitate. And I look at this situation and start to plot my attack.
Momentum is positive right now, and I'd prefer to focus on high-probability trades.
We'll talk about the 80-20-100 trades we do on energy - and why you need to be a part of Flashpoint Trader. We're talking about an 80% probability of a win, at least a 20% gain, and an annualized return of 100% or more.
Today's Momentum Reading
WORLD'S BIGGEST INDICATORS
Broad Market: Yellow
S&P 500: Green
Recap: The World's Biggest Indicator (Momentum) is Green...
We're in very strong momentum conditions, coming off the back of a short rally. Bias remains to the upside, and the Russell 2000 is now back above 1,800. Volatility is a bit elevated today, but we're still under 20. Bitcoin is holding up. And we're starting to see some hedging across the broader markets. I think we have a few days of upward movement coming, although there will be a lot of volatility. Be careful right now; this is a wild one. (hypermomentum turn activated - get your positive hyperscan here)
Flashpoints I'm Watching
- Inflation Nation: The "surprise" cut by OPEC is likely to have an inflationary impact on the U.S. economy. We can expect the uptick in oil prices to increase the costs of gasoline and diesel fuel. Effectively, OPEC isn't worried at all about the impact of the U.S. dollar and any liquidity crunch. An uptick in fuel costs will spread across the U.S. supply chains and make it even more difficult for the Federal Reserve to get inflation under control. This was a predictable wrench in the situation. I expect that Congress and states will do something stupid, like provide more stimulus to help people afford gas. Of course, this is the opposite of helping, as more money just creates more demand, which helps keep prices elevated (and profits for big oil companies quite lofty).
- Bank Bailouts: Investors are still keeping an eye on the U.S. banking system. But the bigger story today centers around the ongoing bailouts in Switzerland. UBS Group (UBS) snapped up Credit Suisse (CS) for the price of a hot dog. Now, the new company is planning to slash up to 36,000 jobs or upwards of 30% of its workforce.
What You Missed
Building your fortune is as simple as $1.
Here is Nick Black's open track record for all his digital assets:
See that 4-cent trade up at the top?
If you had just invested a dollar you'd have $10...
$10 could now $100...
$1,000 could now $10,000
Et cetera...
Now, while these are open trades, and Nick can't show you the names of each move, nor can he guarantee that he'll still be up 10X tomorrow.
What he can promise you is this:
There is a FORTUNE to be made on cheap digital assets.
And he knows where to find them.
So, the question you've got to ask yourself is this...
Stay Liquid,
Garrett
The post Be Careful with the Energy Trade appeared first on Midday Momentum.
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.