Good Old Saudi Arabia (Market Manipulators)
If you or I pulled a stunt like this, we’d go to jail.
(And our faces would be plastered all over the news, our families shamed, and our savings would be taken away.)
But Saudi Finance Minister Mohammed Al-Jadaan — along with his counterparts at the Saudi Oil Ministry — is pulling off one of the biggest market manipulation schemes since the Hunt brothers cornered the silver market in 1980!
The stakes are high in this “pump-and-dump” power play.
And because the economic stability of Saudi Arabia rides on the success of this stunt, you’d better believe the Saudi Kingdom will pull out all of the stops!
Fortunately, as investors, we can play along with the plan, locking in investment profits along the way…
Saudi Arabia’s $2 Trillion Asset
Saudi Arabia is planning a landmark deal this year to start diversifying the country’s wealth away from just oil production.
But to reduce the country’s dependence on selling oil, Saudi Arabia must invest in other assets like international real estate, other commodities, and even shares of private companies.
Crown Prince Mohammed bin Salman has plans to set up the world’s biggest sovereign wealth fund — which is essentially a mammoth hedge fund owned by the government.1 The fund’s success will be crucial for providing for the financial needs of Saudi Arabia.
But to get this fund up and running, the Saudis need money.
A LOT of money!
And that’s where this year’s market manipulation comes in…
You see, today Saudi Arabia has one primary asset — its state-owned oil company Saudi Aramco, which holds the company’s vast underground oil reserves.
And this year, Saudi Arabia plans to sell five percent of this company to the general public through an IPO transaction.
Saudi Arabia has set a $2 trillion valuation for this oil field. So if you do the math, you’ll see that the country hopes to receive $100 billion for selling this small percentage. That’s just a crazy amount of money!
The Plan: Keep Oil High Until the IPO Is Complete
When talking about dollar figures in the hundred billions or trillions, a small percentage increase can make a huge difference!
And that’s why this year, Saudi Arabia needs to do everything possible to keep oil prices rising.
You see, if oil trades higher on the global market, the value of Saudi Aramco will naturally increase. Investors will be willing to pay more for shares of this company, because the value of their underground reserves is higher.
So Saudi Arabia has every incentive to temporarily slow production — and manipulate oil prices — so that the country can receive a better price when selling shares.
That’s largely why we’ve seen the price of oil move higher in recent months, and why I expect oil to remain high while the Saudi Aramco deal is being put together.
Even after the IPO is priced, Saudi Arabia will have an incentive to help prop up oil prices. Because if the country wants to raise more capital by selling another 2 or 3 percent of the company, higher oil prices will help them get the best price possible on this additional capital raise.
So investors can expect oil prices to remain high during the first half of 2018.
Here’s How to Play it…
With such a positive outlook for oil prices this year, now is a great time to be invested in U.S. companies that benefit from higher oil.
In particular, I’d keep an eye on major integrated oil companies like Exxon Mobil (XOM) and Royal Dutch Shell (RDS.A). Oil service companies like Schlumberger (SLB) and Halliburton (HAL) should also see their businesses grow.
And as U.S. oil companies ramp up production to take advantage of higher prices, they’ll be using pipelines to transport crude to refineries. That’s great news for pipeline companies like Enbridge Energy Partners (EEP) and Energy Transfer Partners (ETP).
In short, this is a great year to be investing in energy companies. And as more details emerge on the Saudi Aramco IPO, we’ll be sure to keep you up to speed here at The Daily Edge.
Now, let’s take a look at the five things you need to know to start your week…
5 Must Knows For Monday, Jan. 15
Markets Closed: Happy Martin Luther King Jr. Day! Today, January 15th, is a federal holiday which means the stock market is closed to remember the birthday of the late Dr. King. If you’re off, enjoy the last day of your three day weekend. The markets will be opened back up tomorrow, January 16th.
The Two Koreas Agree: Talks between North and South Korea are set to resume today, January 15th, 6 days after their first official meeting in two years convened. In the previous meeting, North Korean officials agreed to send an orchestra to perform at next month’s Olympic Games. Now the conversation will shift into the details of North Korea’s performance like how large the orchestra will be, as well as the time and venue.
Another Shutdown Looms: It’s not that I want to sound like a broken record. It’s just that Congress has continually kicked the can down the road instead of passing a long-term spending bill. The new deadline to keep the government running and funded is now Friday, January 19th. This comes on the heels of a particularly nasty week when Republicans and Democrats argued over Trump’s “shithole” comments and his comments on DACA, where he said that bipartisan immigration agreement is “probably dead.”
Happy Earnings Season!: Last week, earnings season kicked off with the reports of some major banks. And this week, the action heats up with earnings reports from Citigroup, CSX and UnitedHealth on Tuesday. Bank of America, Goldman Sachs and Alcoa on Wednesday. Morgan Stanley, American Express and IBM on Thursday. And Schlumberger and Synchrony Financial on Friday.
Commodity Update: The price of two of our favorite commodities have been buoyed over the last few weeks. Right now, gold sits at $1,341 per ounce. The tailwinds still include geopolitical risks, the falling dollar and the unsettling length of today’s bull market. In addition, the price of WTI crude sits just over $64 while Brent crude sits just under $70 per barrel. This comes after both OPEC and Russia agreed to cut production while geopolitical risks in Saudi Arabia are also pushing the price higher.
Here’s to growing and protecting your wealth!