Let's look back and then a bit forward in the markets.

I am filing the column early this week on Wednesday, Dec. 21, to allow
our editors to meet Holiday deadlines. Let’s look back and then a bit
forward in the markets.

Since 2014 we had warned that there was no reason for crude oil to be
trading over $100. Indeed with fracking and OPEC and Russian exports,
supply was expanding but price was not dropping. That prediction or
warning finally came true.  West Texas Intermediate tumbled al the way
to the mid 20s.   Share prices of energy and service companies fell
dramatically.  Some had to take bankruptcy.   Frantic headlines warned
that the supply would likely never drop. Oil prices turned right
around, and we caught that also, in February and marched right up to
$50.  Since then it re-tested the $40 level and is now attacking
recent highs at $53.

Prices firmed on the ‘news’ that OPEC would cut production and yes,
even Russia would join in.   In truth, Russia had been expanding
output already. It simply agreed to keep output at the now expanded
level. With no enforcement mechanism, we doubt there has been any real
cut in production. Indeed, production here in the States is as strong
as ever. And the long term US rig count is turning back up.

Instead we sense a shift in social mood towards commodity prices
throughout this past year. Gold and silver bottomed in
December-January 2016 and had quite a run of 30 percent.  Iron ore
prices bottomed along with energy prices.  And now we have a serious
cold front across the northern US.   No one wants to be short oil
futures in a blizzard.

Heating oil nearly doubled from $.90 to $1.70.   Unleaded gasoline
nearly matched the numbers running from $.90 to $1.60 today.   That
kept sales of SUVs and pickups expanding this year.

Natural gas had a great run. It just about doubled from the $1.60
level of last March to near $3.80 this month. Prices are now pulling
back from an overbought condition.  We suggest a spring target of

We suspect that commodity prices as an asset class bottomed in 2016.
We expect big advances in the future.   That is reflected in rapidly
increasing interest rates.   The surprise on the upside, after endless
dithering by the FED, may well be much higher rates much faster than
our Central Planners expect.

Our calls on the stock market were not so successful. But then neither
were the polls on the Presidential Election.   The better view is that
the Dow Transports peaked in November 2014.   A correction then took
place right into early 2016 dropping the index from 9250 to its
50-month moving average around 7,000 at that time. The news of the
election has resulted in near all US stock indexes soaring. The
Transports have risen from 8,000 to 9,500 since the election.   The
promise of regulation roll back and a green light for US Energy
Production has prices and Trump’s popularity on the upswing.

What is happening is that the markets are pricing in positive social
mood for 2017.  Historically, the seventh year of a decade has seen
problems in the past.

The year 1957 ushered in a recession causing Ike’s popularity to drop.
The markets topped in 1966 and began falling in 1967.  The 1970s were
just lousy, period.   Ask Jimmy Carter if you doubt me.  October 1987
brought us a bear market that came and went in about four months time.
Interestingly, one can view John Templeton on Wall Street Week after
that one day 20 percent drop on YouTube.. He correctly observed that
the crash might already be over.

Stocks advanced in 1997.  But the market struck back, peaking in 2007
and then crashing in 2008.   Markets are at new highs now, just as
they were in 2007.

Readers can follow along in more detail on my free weblog at

Enjoy the Holidays and plan on a Happy New Year.

Contact Professor Elam at dennislelam@gmail.com