Oil Markets Prepare for Red Alert By Andrew Gordon 
Everybody knows the U.S. government has a terrorist alert system. When it flashes yellow, homeland security, other security and first-responder folks segue into an enhanced state of readiness. Red alert means something big and bad is brewing. No increased chatter ... no suspicious Internet activity ... nothing uncovered by our intelligence agencies ... means an uneventful day. No news is good news.
Wall Street seems to have a similar warning system for the oil market. But unlike homeland security, there’s no such thing as an uneventful day.
When the dollar skips in overnight trading, we wake up with the oil market flashing yellow. We’re in a state of heightened alertness from the get-go ... traders prepare to bid crude higher in the futures market or look for a stand-down signal in the form of news that could calm the market.
And if the dollar traded up while we were sleeping, we pretty much know by now it just takes one event somewhere to turn the yellow-alert switch on.
Last Friday was a busy day for the oil market. So much happened, it’s worth taking another look at how the events of the day affected prices and oil’s outlook.
Actually, to set the stage for Friday, we have to go back one more day – to Thursday when China held the spotlight.
Dateline Thursday 9:00. Crude stretches above $137.50 on dollar weakness. It had been going down following a high on Monday when it almost kissed $140. Dateline Thursday 15:00. Crude falls as word filters out that China is lowering its oil subsidies for the first time since last November.
Dateline Friday 8:00: The price of crude rose on overnight trading – mostly on dollar weakness. Americans wake up to see crude already over $134.
Dateline Friday 8:00–11:00. An orgy of news hits the fan. First, word from Nigeria that an offshore production vessel had been attacked. Royal Dutch Shell immediately suspends export obligations of its Bonga crude oil for the remainder of June plus July.
Then the New York Times reports that Israel ran a practice drill simulating a bombing attack on Iranian nuclear facilities. Next we hear that Chevron is unable to negotiate an end to the labor dispute in its Nigerian operations. Wall Street is left to wonder how much of the 350,000 barrels a day Chevron produces there will be affected.
China’s lowering of subsidies gets more nuanced treatment one day after the news first broke. It’s now seen as more mixed. Free to raise prices, it’s now expected that oil companies and retailers will be rushing oil products to market. Instead of decreasing, oil imports could increase. Initially greeted the day before as the kind of news that could ease crude supply concerns, China’s price action is seen in a more neutral light as the day progresses.
Dateline 11:00 – 14:00. The talking heads take over. The “what would happen if...” discussions dominate the afternoon news cycle. “What would happen if Saudi Arabia announces an oil production increase at the Jeddah Summit on Sunday?” “What would happen if Shell can’t protect its deepwater operations?” And so on. With a little perspective, the market settles down in the afternoon.
Dateline 13:00. I’m dragged into Fox TV studios and asked the most explosive “what if” of the day: “What would happen to the price of oil if Israel attacked Iran?” Gee, thanks Fox. “Would prices go over $140 per barrel?” “Without a doubt,” I say. “$150?” “Yes.” “$160?” Most likely.” “$170?” “It’s possible.”
That scenario, my friends, would be the equivalent of a full-on, blaring red-alert day. Is that day coming? Thankfully I wasn’t asked that question. But I will say this much. I can’t see Israel allowing Iran to develop nuclear capabilities.
It’s the hurricane season. Oil supply is always at its most vulnerable during hurricane season. This year, however, it’s the political hurricanes that threaten to do all the damage.
Invest well,
Andrew Gordon P.S. To let me know what you thought of today's article, send an e-mail to: feedback@investorsdailyedge.com. [Ed. Note: With a bear market looming, it’s more important than ever to select safe investments that produce monthly dividend income. Click here to learn about Andy Gordon's INCOME service that selects the best dividend-paying stocks available.] False Hope and False Bottoms
Still Define Banks By Andrew Gordon The last time I recommended a bank to anybody was last August. And it was a Canadian Bank – Bank of Nova Scotia (BNS). Once upon a time – not that long ago – banks were solid, safe investments that generated a steady stream of income through the dividends they issued. As their share prices declined, their dividend yields went in the opposite direction. That undoubtedly attracted investors who thought such high dividends would put a floor under how much share prices could drop. In the meantime, these investors could just sit tight and collect dividend checks earning them six, seven, or eight percent interest on their investment. But it hasn’t turned out that way. Both the floor and yields proved ephemeral. Guess which of the companies in the one-month chart below have cut their dividends? 
KeyCorp (the dark green line) – 50 percent down in the last month – is one. Citibank (the brown line) – 10 percent down – is another. Washington Mutual (the pink line) –35 percent down – is a third. And Fifth Third Bancorp (the red line) – 50 down – is a fourth. And all the others in the chart are on the chopping block for future possible cuts. Well, all except the Bank of Nova Scotia. The shares of this Canadian bank aren’t doing great, but it’s doing much better than most U.S. banks. If you’re waiting for banks to bottom, you’re playing a dangerous game. Many are raising capital in expectation of future write-offs. The rapid rise of foreclosures is increasing banks’ bad debt. And, whenever the market falls precipitously, it’s usually led by financials. Banks are leading the market down ... not showing it the way up. If the worst is really behind banks (I can’t tell you how many times I’ve heard that), what’s coming up is pretty damn close. If I were you, I’d stay away.
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