Professor Elam

4/11/2025

A Week of Chaos

If oil prices fall further into the $50 range, you have the potential to

bring US production down.

Andy Hendricks, Economist at Patterson UTI

May crude touched $55 this week recovering to around $60 today, Friday.  The percent of energy stocks in a bullish pattern fell from  70% to zero to 4%today.  Momentum indicators have yet to bottom.

Apache APA has been cut in half since last summer now trading at $14.19. Every energy stock in my extensive list is trading down today.

Markets dislike uncertainty and Trump’s tariff policies are just that.  One day he has the spine of steel according to his Press Secretary and the next day he rolls all tariffs but China back.  Stocks started about even this morning but have now turned minor losses.

I suspect the Permian Basin needs to look after itself. After hearing encouraging talk on the campaign trail, prices have already fallen to a level which discourages drilling.

Here is an idea.  Data centers require lots of energy. The sun does not shine at night and wind is uncertain. Can the Basin encourage someone to build a natural gas fired refinery?  The Basin has the space and is energy friendly something which cannot be said about either west or east coast states. Yes, it would be distant from the source of data but all the other boxes check. It would have available energy, a friendly environment, a dry climate, and an airport served by Southwest Airlines.  Could it be finance with municipal bonds?  If a major tech company agreed to construct the date center, perhaps so.

In round numbers the DJIA traded at 45,00 in early February, It hit 37,000 this week, a drop of 18%, that is 2 points from bear territory.   The markets are till nowhere near a good buy.  Stocks still trade around a price earnings ratio of 20.  Average value would be 15 and a bargain or undervalued would be 10. That translates to 2,500 for the SPX now trading 5,261.  The 200-month moving average is  2,654, so we have a way to go. The index last traded there in 2009 at the end of the sub-prime bust.

Usually the bond and dollar markets rally in such chaotic sell-offs. That has not happened. The dollar is down further depressing the oil price traded internationally.

We now have stocks, bonds, oil, and the dollar in decline, hello deflation.   This column has recommended the safety of Treasury bills for months. That is working nicely.