The Setup Matters More Than the Story

1) RATES – Big macro stuff is still important in the New Year…like rates.  2YR Yields continue to signal bearish TREND with lower lows on the daily trade signal.  Meaning?  Rate cuts are still being priced in.  10YR, 20YR, 30YR Yields are all bullish TRENDS after testing their respective levels last week.  Meaning?  Steeper yield curve signaling accelerating growth into Q1.  Meaning?  Goldilocks.  US10YR Yield range is 4.11%-4.22%...with it currently at 4.17%, a move toward that 4.11% in the short term would not be surprising. 

2) MOVE – Bond volatility is also still signaling a bearish TREND with a significantly lower low on the daily trade range, now down to 53.53.  I’m expecting the MOVE Index to fail near 66, then continue its move lower.  That would be welcome to both stocks and bonds.

3) OIL – Don’t expect the Venezuela situation to “crush” oil prices in the near term.  Sure, Venezuela has the world’s largest oil deposits…over 300 billion barrels of reserves.  More than any of the middle eastern nations.  Many are bantering that all that oil is now going to get released.  But we have to remember they don’t ship much due to infrastructure.  Venezuela has the world's largest estimated oil reserves, but its crude output is a fraction of its capacity due to decades of mismanagement, lack of investment and sanctions.  Canada exports 4.3M bpd to the US.  Venezuela's entire production is 23% of what Canada already ships.  The rebuild timeline is a decade minimum, likely longer.  Rice University's Monaldi says at least 10 years and $100+ billion in investment to get back to 4 million bpd. PDVSA (Petróleos de Venezuela, S.A.) itself says $58 billion just for pipelines that haven't been updated in 50 years. That's before you drill a single new well.  Even if Venezuela eventually gets production up in the 2030s, it's the same heavy sour crude Canada produces.  More heavy crude globally just validates continued investment in heavy crude refining infrastructure, which likely benefits Canada.  So oil isn’t likely to drop significantly in the short term…BUT it is still bearish TREND and signaling lower lows toward $56/barrel (WTI-West Texas Intermediate).  Good news for everyone that drives a non-EV.