Allah Does Not Set The Price Of Oil

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Saudi Arabia’s Oil Minister Ali al-Naimi made the following statement recently:

No one can set the price of oil — it’s up to Allah 

in an interview with CNBC. It is not clear if he said this as a joke or he was really serious. Regardless we all know that Allah does not set oil prices. In fact, Jesus, Lord Shiva, Buddha or any other God that people worship do not set the price oil. It is humans that determine the price of oil on a daily if not on a minute by minute basis.

Unlike other markets, price of oil is not based on supply and demand alone. For instance, the OPEC cartel carefully manages production levels among the member nations. There are a gazillion factors that affect the price of oil. For example, here are 10 factors that can impact oil prices:

  1. Demand increase in China
  2. Oil pipeline attack in Nigeria
  3. Russia increasing production
  4. Political crisis in Venezuela
  5. Escalation of Iran tensions
  6. Decline in Strategic Petroleum Reserves(SPR) storage
  7. Weather conditions in the U.S.
  8. Saudi conflict with Yemen
  9. New oil well discovery
  10. Death of a Saudi King

As shown above, anyone can come up with a list of reasons why the price of oil goes up or down.

The following chart shows the change in oil prices due to various geopolitical and economic events:

Click to enlarge

Oil Price Changes Chart

Source: What drives crude oil prices?, EIA

Here is a price chart from 1861 thru 2010:

Crude Oil Prices 1861-2010

Data Source: Source: BP Statistical Review of World Energy, June 2011

Source: The driver of oil prices, Asia Times

Related ETF:

  • United States Oil ETF (USO)

Disclosure: No Positions

Comparing the Forward P/E Ratio of China and India

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Chinese equities have outperformed India and other emerging market so far this year.The Shanghai Composite is up by about 33% year-to-date while Sensex is basically flat in dollar terms. Yesterday the Sensex fell 2.64% in the local market.

Based on the forward P/E ratio Indian stocks are expensive as they are trading above the 10-year average compared to Chinese stocks.

Click to enlarge

China vs India PE Ratio

Note: The data used in the above is as of March 23rd.

Source: Investment Strategy – Margin of Safety, March 2015, Societe Generale

Currently 12 Indian firms trade on the US exchanges as ADRs. China has 107 stocks trading on the US exchanges and many more on the OTC markets.

Related:

Three Differences Between S&P 500 and DAX Indices

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The S&P 500 is the widely followed benchmark index of the U.S. equity market. It is generally considered as the barometer of the economy as all the major industries are represented in the index. The DAX Index is the major benchmark index of the German stock market. Similarly to the S&P 500, it contains representative companies from the major sectors of the German economy.

Earlier this year the DAX reached an all-time and the S&P 500 has reached many records in the past few months. In this post let us take a look at some of the differences between the two indices.

The following are some of the differences between the S&P 500 and DAX indices:

1. IT has the highest weighting in the S&P 500 with a weightage of around 20%. The other two major sectors in the index are financials and healthcare. These three major sectors account for about half of the S&P 500 weightings. As the U.S. is a consumer-driven economy, Industrials have a weightage of just around 10%.

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S&P 500 Sector Breakdown:

SP500 Composition Chart

The major sectors in the DAX are shown as of Feb, 2015 in the table below:

SectorWeightage
Chemicals23%
Automobiles & Parts17%
Industrial Goods & Services14%
Insurance11%
Technology8%

Unlike the U.S., the German economy is an export-based economy. Germany exports more goods and services than it imports. And the technology industry is very small in the country. The DAX index is dominated by companies in the Chemical sector which account for nearly one-fourth of the index. The second and third largest sectors in the DAX are Automobiles & Parts and Industrial Goods and Services.

2. The S&P 500 is a price-return index meaning dividends are not included in the return calculation. But the DAX is a total-return index. Hence the DAX figure includes dividends reinvested. So even though the DAX reached high this year, in terms of price returns it is actually lower than the previous peak according to an article in The Wall Street Journal. This is also the reason why the DAX attained record highs compared to other major European indices like the FTSE 100, CAC 40, IBEX 35, etc.

3. The S&P 500 is a mix of large cap and small cap companies. The minimum market cap required to be included in the index is just $5.3 billion. On the other hand, the DAX is represented by the largest market cap German companies.Hence the DAX is more similar to the Dow Jones Industrials Average than the S&P 500.

Sources:

What’s in the German stock market?, Barclays

S&P 500, Standard & Poors

Related ETFs:

Disclosure: No Positions

The Periodic Table For Canadian Investors

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While researching on periodic table of investment returns, I came across the following chart which can be very useful for Canadian investors. This chart shows the comparison of returns for various asset classes. Canadians can use this to plan their portfolio allocation strategies.

Click to enlarge

Periodic-table-of-annual-returns-for-Canadians-2015

Legend:

Text Represents
RRB Real return bonds
S&P500 S&P 500® – S&P Dow Jones Indices
L. Bond Canada Long Term Bond Index – FTSE TMX Canada Indices
S. Bond Canada Short Term Bond Index – FTSE TMX Canada Indices
TSX S&P/TSX Composite (CAD) – S&P Dow Jones Indices
Wilshire Wilshire 5000 Total Market Index – Wilshire Associates
All Bond Canada Universe Bond Index – FTSE TMX Canada Indices
US Bond Barclays US Aggregate Bond Index
Gold Gold bullion
Emerging MSCI Emerging Markets Indexes – Emerging Markets – MSCI
EAFE MSCI EAFE Index – Developed Markets – MSCI
T-Bill 3 month Treasury Bills (T-Bill)

Source: Finiki

Here is one way to interpret this chart. In 2014, the S&P 500 shot up by 24% in Canadian dollar terms. But the TSX Composite index was up only 10.6%.Similarly the TSX lagged the S&P 500 in 2011, 2012 and 2013 as well.

Related ETF:

  • iShares MSCI Canada (EWC)

Disclosure: No Positions

MSCI Single Country Index Returns Review: Emerging Markets 2005 To 2014

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Yesterday we reviewed the Periodic Table of Investment Returns for Developed Markets. The chart below shows the MSCI country returns for Emerging Markets:

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MSCI Single Country Returns Emerging Markets 2005 to 2014

Source: Blackrock

Brazil has been an average to poor performer since 2010. It is surprising that Indonesia and Philippines are among the top in terms of 10-year annualized returns. Mexico’s 10-year annualized return is also decent at over 10%. Mexico’s economic growth is closely tied to that of the U.S.