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Leonard Brecken

Leonard Brecken

Leonard is a former portfolio manager and principal at Brecken Capital LLC, a hedge fund focused on domestic equities. You can reach Leonard on Twitter.

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Government Influence Over Asset Prices Growing

Government Influence Over Asset Prices Growing

Where most analysis on oil markets tends to fall short is on the depth of analysis vs. reading headlines and group think, the latter of which is heavily shaped by misinformed media and government propaganda.

The facts are OECD stocks have fell in October, not increased. That runs against the generally accepted belief that storage capacity is full and we are oversupplied by around 2 million barrels per day (mb/d). That suggests that the IEA is underestimating demand and grossly exaggerating inventory levels.

Further, the EIA has consistently overstated supply in its weekly data release, "adjusting" inventory up by seemingly arbitrary amounts. Now, according to Cornerstone Analytics, last week we find that the EIA is under-sampling small producers whose production is rapidly declining. Also, monthly production figures continue to be inflated. This conclusion from Cornerstone Analytics is noteworthy: Related: How Far Will Oil Sink Before Christmas?

“On the USA, one point we will leave you with is that there appears to be some scope for the DOE to revise down American oil production figures for the past few months. Our sense is that the monthly survey numbers for production have ‘undersampled’ output from small independent producers whose output has been more negatively impacted from the activity fall-off as compared with the larger producers.”

The problem these days is that markets are controlled by people who don’t take care to delve deep into numbers and simply don’t question numbers being fed to them by media or government agencies. Instead they trade off headlines and care less about their validity because it suits their agenda, ideology or, even more likely, unconscious bias, reinforced by propaganda.

Between these imprudent trading practices and the fact that assets are being controlled by mad central banks pursuing a political agenda –makes it extremely difficult for those who do real fundamental research. In the end it lengthens the time horizon when fundamentals become accurately reflected in prices. It also begs the question of whether markets are actually free or not, as all rational thinking goes out the window. Related: Does This Emergency Move Mean Trouble In China's Mining Sector

What is more worrisome is the question of how deep governments are directly or indirectly influencing asset prices. As we stated in our last piece, it is clear that the Federal Reserve is doing both, and on a historic scale. The media’s role in moving markets has increased enormously over the past two decades. In the past the media was more subtle, but now so many outlets do not even hide their agenda or ideology.

Governments too morphed from influencing assets and corporate investments indirectly through tax policies or regulatory agencies such as the EPA, to what is now occurring through the Fed. However, we may have taken things one step further as now the Secretary of State is referencing influencing markets through the recent climate change agreement that passed. I first came upon this quote below via a Yahoo! Article, which struck me as odd given the direct reference to investors to liquidate investments in fossil-based energy, particularly at a time they are already being liquidated. On December 11 several high-yield bond funds announced restricted redemptions tied to plunging illiquidity and prices in high-yield energy. I believe this and concern over interest rates sparked a sell off in almost every asset class on Friday. Related: OPEC Sees Oil Demand Grow, But Not Enough To Jolt Prices

May Boeve, executive director of 350.org, an organization pressing financial institutions to divest from fossil fuels, also said the 1.5C reference was key. This marks the end of the era of fossil fuels. There is no way to meet the targets laid out in this agreement "without keeping coal, oil and gas in the ground," Boeve said. "The text should send a clear signal to fossil fuel investors: divest now."

Then we came upon this from Foxnews Sunday. First we have the Secretary of State, of all people, now directly referencing markets on how the accord “sends a clear signal to markets”.

So what is the conclusion? To sell energy and stop investing in it? The point is that there is growing evidence that the investor class better be wary of government’s heavy hand on influencing asset prices, directly and indirectly, as well as the growing detachment with fundamentals. There appears to be no end in sight, and the price for all of this meddling will be very high when reality finally sets in.

By Leonard Brecken of Oilprice.com

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  • Amvet on December 15 2015 said:
    Note the BP World Energy report 2015.

    Global oil consumption 92.086 million bpd
    Global oil production 88.673 million bpd.

    Old data but the latest that BP had.

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