Two days ago we reported that, after predicting back in September that "oil is not going above $55 for years", Dennis Gartman told clients to buy oil just as WTI was trading at.... $55. To wit:
NEW RECOMMENDATION: We know that this shall catch many off-guard given our marked propensity to have erred always bearishly of crude, but with the term structure shifting as bullishly as it has and with the markets for WTI and Brent having “gapped’ higher yesterday, and with those “gaps” still intact, we’ve no choice but to buy crude oil this morning upon receipt of this commentary.
We shall not wish to risk much on this trade; the bottom of the gaps in front month WTI and Brent shall suffice; that is, if crude does close the “gaps” left to the upside we’ll exit the position. For now, we shall buy both February WTI and Brent upon receipt of this commentary… a “unit” of each being more than sufficient… happy to be buying it nearly $2/barrel below the highs of yesterday and as the markets are “correcting” that initial panic buying.
To which we said "Sorry OPEC", and sure enough moments ago WTI has tumbled back under $50.
Fast forward just two days later, when we find that Gartman has Gartmaned himself, having once again top-ticked oil. As a result, in his latest note today, he has a brief comment on his trade from Tuesday:
We were taken out of our position in crude oil yesterday following the Iraqi and Fed “news” and now we shall stand aside… likely for a good long while.
While it is largely irrelevant - his own buy reco was a sufficient catalyst to sell - this is how Gartman explains the resulting selling panic since his sell recommendation:
CRUDE OIL PRICES HAVE FALLEN SHARPLY SINCE YESTERDAY with the dollar’s strength stemming from the Fed’s actions… and from its implied future actions… weighing upon prices as they have weighed upon commodity prices generally. But even before the news of the Fed hit the tape in the afternoon there was other, meaningful and quite material news that weighed upon prices. That news was from Iraq where the State Organization for The Marketing of Oil… the SOMO as it is commonly referred to… said that it intends to export 7% more crude from Basra in January than it had exported in October. Interestingly, the plan in question was of December 8th, more than a week after Iraq and the other OPEC nations had agreed to cut production.
This is of course a problem because Iraq’s Oil Minister, Mr. Ali al-Luaibi, had made it quite clear that Iraq intends to abide by the new OPEC production quotas. Apparently, however, no one had notified SOMO and so the “cheating” that we have talked about at great length… which we didn’t think would actually begin until perhaps February or March of next year a month or two after the new production quotas went into effect… is set to begin even as the quotas go into effect!
By its own accounting, Iraq has increased its output to 4.8 million bpd this year from just a bit under 3 million barrels a day a few years ago and as we understand it Iraq exports 85% of its production and it needs… badly… the revenues from its exports as it continues to wage wars in the area. Further, Iraq is not alone in its need for export revenues. Iran needs the same; Saudi Arabia needs the same; Kuwait and Qatar need the same. It is interesting simply that Iraq has rather “publically” exclaimed its intention to cheat upon the quotas that have not even gone into effect yet. Thus, that news set the stage for weakness; the Fed’s announcement simply added to the situation:
And so on.
So what about stocks? Is Gartman long allowing the long-anticipated flush to finally occur? Alas, no.
We have argued for the past four or five trading sessions that stocks here in the US were egregiously, preposterously, exaggeratedly over-extended to the upside. With the CNN Fear & Greed Index well above 80 into what we shall suggest was terrifyingly “greedy” territory, we have said that although we cannot and did not wish to be short of equities, certainly we could not condone being a buyer at these lofty levels for historically buying equities when this Index is above 75 has proven in the past and shall prove in the future to be “ill-advised.” We stand by that statement here this morning and we shall reiterate it once more to be certain that our meaning is clear: Buying stocks when the CNN Fear & Greed Index is above 75 is utterly and completely ill-advised.
To that end, in our retirement fund here at TGL we liquidated our long positions entirely and we covered all of our hedges and parked money in a closed end fund traded on the NYSE whose largest ten holdings are Australian 20 year treasuries; some Queensland, New South Wales and Victoria, Australia debt securities with maturities between 1-8 years in length and some South Korean and Indian treasuries with 5-7 year maturities.
So... short Australian Treasuries then?