What did Einstein say about what is infinite?

He said: Two things are infinite – the universe and human stupidity”. He could have added a third – human hypocrisy. This thought has been inspired by the ongoing COP 26 gabfest in Glasgow where the great and the good of the eco industry have failed to agree on anything definite, except for aspirational targets well into the future when present day ‘leaders’ will have vanished/retired and hence safe from attack when the current mania over CO2 is reversed.

I am reminded that back in the late 90s, Peak Oil was the received wisdom.  Apparently, we had run out of discoverable deposits and oil prices were going to the moon.  Wonderful and impressive charts from ‘models’ were highlighted and even appeared in the MSM.  One showed a rapid decline in production that started around 1960 (this chart is old-school pre-PC era)

    As with the vast majority of commonly-accepted forecasts, it failed spectacularly as the fracking revolution soon emerged and prices collapsed.  Oops.  The market will always find a way to satisfy demand – especially when prices are attractive.  Many pundits and economists fail to grasp this simple fact while in a strong ideological frame of mind. Also, we humans have a great tendency to extrapolate the recent past and believe it will continue forever (trend following).  History shows the fallacy of this belief.

But today, we have a similar situation regarding oil. Fossil fuels have become the equivalent of the witches of the 17th Century.  Remember, these women were widely believed to be responsible for the very cold weather (‘Little Ice Age’) and the failed crops. Starvation was rife.  Many of the ‘evil’ witches were burned alive.  Still, that made little difference and Europe had to wait for the earth to warm naturally for sanity to be restored (no CO2 back then to do the job).  Human stupidity indeed.

Now today, the ‘evil’ crude oil, NatGas and coal are fully and solely responsible for the rise in global temperature from the increasing CO2 concentrations.  Incidentally, the actual measured global temperature is in the famous 20-yr ‘pause’ where despite increasing CO output, the global temperature has remained constant for about 20 years.  

Oil companies are today right in the firing line as executives are dragged before an angry mob of politicians and forced to confess. Shades of the Spanish Inquisition! Virtually the whole of the MSM (and especially the BBC) are lined up as climate extremists/alarmists and without exception will not publish any data that contradicts the narrative of looming global disaster.  I pity parents who have small children who are fed this doom-mongering (especially at school).

The hypocrisy is stunning.  The magic of oil has enabled all humans to live far more comfortable lives than they could otherwise. Without them, we would be back to Victorian times. How could we today live without affordable plastics, paints, man-made fibres and so forth? Humans have always found ways to make life better for themselves and progress has always been upwards (except for a few dips). But are we now at a point where the upward march of progress is at least pausing? 

Is it possible that with the Western world hell-bent on eliminating fossil fuels and ‘transitioning’ into ‘renewables’, it has thus signed a suicide note (economically speaking)?  Many of the wished-for technologies are nowhere near proven on the scale needed – not to mention the vast costs involved. And the absence of China from COP and their ongoing building of coal-fired power stations flies directly in the face of all the puny efforts not only in the UK but across the Western world.

Of note is the sudden escalation of the costs involved.  Before COP, costs were measured in billions and now India has jumped the shark by demanding $1 trillion for help to transition to wind/solar.  Now with trillions the unit of measurement, you are starting to talk serious money.

But in the background, rumblings from we lowly plebs are gathering steam. Already there is talk afoot about a referendum about the UK government pledge to go Net Zero as the immense personal costs of installing heat pumps and insulation into the very leaky older UK homes looms into view, not to mention the very likely huge increase in electricity bills that are ballooning anyway from the war on fossil that is keeping NatGas prices booming.  Government subsidies to make these more affordable would truly run into the £trillions which would likely collapse sterling and shoot UK inflation to the moon.  Riots would inevitable follow.

With these thoughts in mind, I am taking the contrarian view (backed up by biological truth) that CO2 is a beneficial plant food that is truly greening the planet.  The new alternative fuels, such as hydrogen, produce water vapour (clouds), which is the most powerful greenhouse gas orders of magnitude more influential than CO2 in moderating the earth’s climate.  So is it possible that widespread use of H2 will actually increase the greenhouse effect and cook the planet more effectively that CO2 ever could?  What a delicious irony!

So now I get to the serious point about the markets.  If we are at or near Peak Hysteria over ‘climate change’, what is the likely effect on the extreme bullish investment scenario that persists today – and the likely effect on the Great Bull Market?

You have to look very hard nowadays for a seriously bearish article on the stock market (except for the pernnial sensational commercials)  That fact alone gets my interest. Investment advice in the MSM seems to be geared towards finding the next 100-bagger such as Tesla (I exaggerate).Most believe stocks can only go up. It seems retail investors and the pros are now all in.

One of the most reliable and consistent measures of sentiment I follow is the Daily Sentiment Indicator (DSI) that surveys hundreds of US investment pros on a daily basis as to their bullish/bearish stance that day.

Naturally, a survey is just that – a survey of attitudes.  It is not the same as a measure of where actual dollars are going, but I have found that when extreme DSI readings are current, trend reversals are often started. It is not a near term timing tool – for that I use my Tramline methods.  Others use other systems.

Backing up these findings, recent months have seen a record amount of cash flowing into shares and ETFs.  Are they buying at major tops?

But today, the DSI is showing an extreme bullishness – 93% bulls in the Nasdaq (highest this year) and 93% bulls in the S&P (the highest since January 2018 – a near four year high).  Out of 100 pros, only eight are bearish.  Hmm.

Not only that but the S&P has yesterday hit my major trendline resistance that has been in operation since  September 2020 which I consider extremely solid.

In addition, the S&P has closed higher in 14 of the last 18 trading days – a near-record.  Since most pro investors are trend followers, this has built up an extreme expectation that they can only go higher. Remember, most believe that what went up today will go up tomorrow.  And at some point, that rule breaks down and extreme selling takes over sometimes in a crash.

So, the big question is – will we see a kiss and then a Scalded Cat Bounce lower now?  The action Monday/Tuesday should hold the clue.

One other point: Although oodles of dosh are being thrown at alternative energy start-ups and share prices are rising (my Pro Shares members are long many issues (see last week’s blog), many of these companies will not survive without the massive government subsidies on the price of final energy produced.  A history of the companies building and operating canals in the 18th/19thCentury is instructive.  That was the revolution in transport at the time, but few made any money and share prices collapsed even though canals survived well into the late 19th Century.  Tesla investors please note.

Of course, share prices may continue a lot higher as the Fed seems determined to keep the bull running with ultra low interest rates and easy money.  Last week, the BoE reversed expectations and kept policy rate unchanged.  That tanked sterling and added to the UK’s inflationary pressure as imports became more expensive. But with PPI and CPI rising rapidly in the US and UK, they are gambling on a reversion to the normal.  That may not happen in a hurry.  And if not and if they see energy prices continue their Moonshot, they will have to be led kicking and screaming into raising.

Incidentally, many investors believe it is the Fed that is keeping asset prices rising.  But at some point, a number of investors will conclude that the next Wall of Worry is just too high for shares to jump over and they start selling. taking huge profits with them. The higher shares rise, the greater the temptation to take the money and run.  Cash is trash at the moment but in a rising interest rate scenario, near cash in short term bills make a great deal of sense.

If the Fed is forced to raise, you can be sure stock prices will have responded well before the event.  And that moment may well be nigh.  OPEC and Russia holds the reins again (as I have been pointing out for months) on the oil supply.  Last week, Biden begged them to open the taps to cool price rises while at the same time lecturing us plebs at COP to get green and avoid fossil fuels.  As I say, the hypocrisy is stunning.  But what does anyone expect from mendacious politicians (of all stripes)?

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Has the dollar finally topped?

I have been stalking the dollar for signs of a top as many readers well know.  It too is over-loved and over-bought and ripe for at least a major correction. 

Significantly, the euro made a slight new multi-month low on Friday on a good mom div and thus could well be poised to move higher.  My wave labels are consistent with the completion of a ‘c’ wave down.  If so, the upside should be quite sharp.

Yes, I know on the surface the fundamentals are for a strong dollar (interest rates), but markets do not move according to the past – they look forward.  And at some stage you can bet the Fed will have to raise.  But by then, the dollar will have appreciated and the best opportunities are gone.

I believe the kiss remains significant and of the Friday 1.15 low can hold, we should be off to the races and dollar longs will be forced to liquidate.