Just last week I wrote about the growing likelihood that extremist politicians will destabilize the European Union. Unfortunately, the tragic attack of Charlie Hebdo last week adds fuel to a fire that’s threatening to rage out of control. Geert Wilders, the Dutch politician facing trial for inciting racial hatred, claims Europe is now “at war” and called for the “de-Islamization” of Western societies. He is not a fringe politician. Wilders’ Party for Freedom is currently leading public opinion polls in the Netherlands.
In France, Marine Le Pen’s National Front party is polling extremely well, attracting voters from the far left and right. The party has few priorities beyond disliking the rich, big business and foreigners. Alternative for Germany, an upstart party that wants to limit immigration and take Germany out of the euro, is considering a partnership with Pegida, or “patriotic Europeans against the Islamization of the West.”
While I don’t think this is the likely scenario, it’s now within the realm of possibility that the EU could breakup for reasons that have nothing to do with economics or debt. Although I can’t help but think extremism would decline if the youth unemployment rate in Europe wasn't 22%.
Moving on, I’m still getting a lot of questions about my directional view on oil. Crude oil is an immensely complicated market, and I’m not sure there’s a model on earth that could accurately forecast prices. Jim O’Neill, the former chairman of Goldman Sachs Asset Management, offered great insight last week saying, “Oil prices may not start rising in the coming months, but forces that will eventually halt their decline are begging to appear.
Furthermore, O’Neill advised investors to pay attention to the oil curve five-years forward relative to spot prices. The five-year forward price is much less influenced by speculation, and more representative of commercial needs. At the moment, the price of crude scheduled for delivery in January 2019 is still trending lower, indicating oil has not completed its descent.
I didn’t anticipate trading so much in the Cup & Handle Fund this month, but I’ve been adding to existing positions and establishing new ones. We gained a little more than 1% last week, which is nothing to write home about, but the fireworks haven’t started yet. The market is patiently waiting for the ECB meeting on January 22, when it’s expected Mario Draghi will provide details on the ECB’s first QE package. I’m not sure Draghi will be able to “beat expectations,” so I’ve positioned myself accordingly. The January Investment Letter is nearly ready for publication– if you’d like to start receiving these letters click here. It’s $8.25/month and there’s a free-trial… what do you have to lose?
Today’s letter will cover several topics, including:
With that, I give you this week's letter:
As always, if you have any questions or comments or just want to vent, please send me an email at email@example.com.
Until next time, tread lightly out there,
Managing Editor – Cup & Handle Macro