Pax Romana Moment Is Over

I think we have entered a new phase in the market where uncertainty is so thick on the economic front; with respect to the Fed, confidence is so low that the pain is unavoidable. However, relying on conventional wisdom, some folks are taking big wins off the table.

Apple (AAPL)
Facebook (FB)
Under Armour, Inc. (UA)

It also includes fundamentally sound stocks of companies that are world-beaters in their respective industries with great top line, great margin expansion, market share gains, and fantastic management. Now, the best of the best are trading as rams with zero value propositions.

These companies have a strong history of crushing the Street time after time, but the only things being crushed this week are their shares. After annihilating biotechnology, its high-technology's turn as the same valuation argument isn’t there, and politicians (especially Hillary), loves Silicon Valley and would never cap their profit.

The good news is how to get severely oversold opportunities - disconnect in share price from fundamentals and potential. It’s how future earnings are discounted. It’s not as much fun as buying a stock and watching it go straight up; in fact, a period of peace and calm is over for a moment.

Riding It Out

Mistakes are going to be made, including holding stocks that will be losses in the future, but the biggest mistake is taking hits on great businesses; down with the market, not on merit. I suspect we will know where the market will go with greater clarity after the jobs report on Friday. I am still prepping for a year-end rally.

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This is a rough ride that feels more ominous than the more recent bumps in the road. There are many reasons, including the age of the rally, weakness in the global economy, and mass confusion over where the U.S. economy stands or wobbles (see what I mean?).

Equities & Oil

Originally valued at $59.8 trillion, Global Equities have lost more than $13.0 trillion in value, which is the kind of destruction that has consequences. This one might surprise you.

Last year, Saudi Arabia launched a war on American oil producers and it has been wildly successful. It’s been so successful; in fact, there’s growing speculation that they’ll declare victory and begin to manipulate crude oil prices to go higher.

In the most recent head count, U.S. oil rigs in operation continued to slip. As of now, there are 640 rigs, down from 1,592 a year ago. To date, the problem has been actual production; it has continued to increase, but now it appears to be peaking as well. Of course, the Middle Kingdom wants the production to decline. The fracking miracle propelled the United States to the top of the heap.

Despite the fact that oil is 80% of Saudi Arabia’s revenue and the plunge in price hit them hard in the wallet; that country has been steadfast in its determination to hold the line and to suppress prices by keeping their spigot overflowing. That could change because of war and global financial markets. Funding the battle against rebels in Yemen and preparing for a potential invasion from ISIS cost billions each month…that money has to come from somewhere.

Here’s the breakdown on the search for cash (a little more than sofa cushion money):

Make no mistake; it’s far cheaper for Saudi Arabia to pull oil out of the ground, as this is a perilous game and situation to take back shares.

Other Players

This week, it’s been reported that the lower global stock markets is taking a toll on major players in the oil patch.

Qatar

There are reports of losses of $12 billion from its $250 billion sovereign wealth fund as eight of its top ten holdings, including Volkswagen and Glencore, have been hammered.

Norway

The managers of the world’s largest sovereign wealth fund have egg on their collective faces after posting the first quarterly loss ($8.8 billion) in three years. It may seem like a drop in the $870 billion bucket, but a couple more like this could add up quickly.

Moreover, if there’s further weakness in equities and a global credit crunch, it would be dumb for OPEC and other non-cartel members not to squeeze the spigots, although the demand side might deteriorate. Either way, it’s a game where the winner can only enjoy a pyrrhic and temporary victory.