Stocks & Oil

It’s been a while since I looked at stocks, largely because with Trump running things the only decision was “hold or buy the dips”.

IMHO, that’s now changed. We have companies that either are shut down or will be. First will be airlines & cruise ships. Then hotels, oil & gas and more.

Anyone dependant on China for sales or on tourism is up first. China is quoting June for new orders and our ports are now empty. Companies who can’t make it to June without new inventory or sales will either have big layoffs and poor profit reports, or be bankrupt.

Right behind them, shipping from China, ports, trucking, and rail shipping will also slow. Since rail & trucks also carry our produce, they get hit less.

Then with little product and fewer customers, retail starts to take a hit. With major gatherings shut, sports and conventions hit the skids, and hotels & restaurants with them. With China fuel buys shut down, and our trucking & rail winding down, oil demand will plunge (now down about 1/4 already). As sickness and deaths ramp up, insurance companies take the hit, spreading the pain to the financial sector..

I’d been unwilling to embrace this point of view, hoping the USA would be ahead of the Covid-19 epidemic. However, given that we have had exponential growth of cases in the USA and after a month or screwing around STILL do not have effective mass testing or community isolation in place, odds are now high that this ends badly.

Present evaluations are high after a very long positive run. Poised for bad news to knock it down, and we have bad news.

The FED cut interest rates by 1/2% to about 1.5%. Stimulus is high and not much to show for it. Low Fed rate will not put people in airplanes nor fill ports with Chinese goods nor fix a sick workforce. “Good luck with that”.

So, what’s the chart now?

SPY vs Oil vs Others 5 Mar 2020 1 yr

SPY vs Oil vs Others 5 Mar 2020 1 yr

Not good. About 1.5 weeks ago prices fell off a cliff. Volume spiked. All three simple moving averages were violated along with PSAR. MACD rolled over to red on top and is below 0. DMI is red on top.

All the indicators are in “be out” configuration. I’d expected The Fed to throw money at this, so didn’t say to be out before. Now they have cut rates and you can’t see much result.

That bottom gold XOI line is the oil & gas index. Clearly tanked. Eventually a bottom, but not yet. It does show that China isn’t buying yet, so isn’t back to production yet.

IMHO, best to be out and preparing to bottom fish when things are darkest.

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
This entry was posted in Economics - Trading - and Money, Energy and tagged , , , , , . Bookmark the permalink.

26 Responses to Stocks & Oil

  1. p.g.sharrow says:

    @EMSmith; Looks like we are walking into uncharted territory. Your prognosis looks to be sound as to the probable way forward. I don’t like what I see coming. Just try to stay healthy and ride it out.
    I’m concerned about Larry, not like him to be away from a keyboard and he complained about being under the weather health wise the week before he went off line. Larry is my age..pg .

  2. philjourdan says:

    Being in the right place at the wrong time. I moved my money just a week ago, for other reasons.

  3. E.M.Smith says:

    I’m mostly in cash. Some more could be done I suppose. A bit too timid about what the Fed might do to short.

    This video has both virus and market information in it. At about 11 minutes has a graph comparing nations. You can clearly see who is moving fast and succeding and who is moving too slowly and in an exponential.

    The USA & Europe are in the too slow and exponential group…

  4. Gail Combs says:

  5. Another Ian says:

    Short Canada?

    “And The Budget Will Balance Itself”

    http://www.smalldeadanimals.com/index.php/2020/03/06/and-the-budget-will-balance-itself-8/

    “Business & Finance Warren Buffett’s company backs out of Quebec energy project due to anti-pipeline blockades”

    https://wattsupwiththat.com/2020/03/06/business-finance-warren-buffetts-company-backs-out-of-quebec-energy-project-due-to-anti-pipeline-blockades/

  6. Another Ian says:

    If I’d seen this before it would have been the subject hearing! From comments on the SDA item above

    “Canada is being run by a student council from a special needs high school.”

  7. E.M.Smith says:

    Because people worth $ BILLIONS want it that way so fund their campaigns and “success”…

  8. Tony Hansen says:

    E.M, What is your take on the Saudi oil price drop? What happens next?

  9. p.g.sharrow says:

    ” The Wall Street Journal reported, specifically pointing to Saudi Arabia, which slashed prices for its benchmark crude after talks with Russia collapsed.
    Saudi Arabia also reportedly planned to boost its oil production by well over 10 million barrels per day.”
    “Brent crude, the international standard, lost $11.17, or 24.7 percent, to $34.10 per barrel, as of 10:15 p.m. Eastern time Sunday after earlier touching its lowest price since 2016”

    Looks like the Saudi’s want to corner market share during this period of market stress, specially squeeze out American producers. $35.00 is below break even for most of them. They will have to close in their wells and be unable to service their debt at this level. Or is this a Saudi drive to maintain their gross income in the face of declining demand?…pg

  10. E.M.Smith says:

    In the oil cartel, Saudi Arabia is the swing producer. They set the price and others fall in line. Sometimes they all cheat a little and overproduce. If they take guidance, that’s fine. If not, the swing producer can ramp up production, destroy prices, and enforce production discipline.

    Russia is not an OPEC member, but usually appreciates the price leadership. But this time refused to cut production.

    So The House of Saud, having many $ Billions invested in other stocks and businesses (not to mention politicians and governments):

    1) doesn’t want economic collapse, so low oil price stimulates the economy.

    2) wants to discipline Russia.

    3) won’t mind at all if a bunch of American and Canadian oil sands companies are bankrupted.

    So it’s just “Clean up on isle 7” in price discipline / leadership land.

  11. RickA says:

    I am a buyer today. This is a rare opportunity, and I want to look back on today and say I took advantage of the panic by buying when a lot of people are selling. Hope it works out!

  12. Ossqss says:

    VIX banged on 60 today. Been a long time since that happened.

  13. E.M.Smith says:

    Old stock adage: !”Never try to catch a falling knife”

    You may miss a little of the exact bottom, but you will avoid a lot of stair step down bear market moves. I wait for what I call “crash, bang, tinkle”. Three deceasing down steps to a flat.

    Big spike down superhigh vix? Day trade or swing trade only. Buy bottom of spike, sell next rally.

  14. philjourdan says:

    By the end of the week.

  15. David A says:

    E.M. I know ZH is click bait, and I dislike many articles and the tone of many that comment there.

    Yet some reasonable sounding people I know say this whole repo thing is what will cause a crash. And to be honest, I do not follow such articles well. What in heck are they talking about, and us the threat so big?
    https://www.zerohedge.com/markets/funding-freeze-getting-worse-dealers-demand-record-216bn-liquidity-fed-repo

  16. cdquarles says:

    @David A,
    I want to say that Armstrong Economics had an article referencing the repo market thing recently. You might want to search them.

  17. H.R. says:

    I have finally reached a point where I have lost money on my capital in stocks. I am down $3,000. I expect that to go down further by perhaps quite a few thousand more.

    As I have mentioned here a few times, I don’t really care as I have positioned myself in dividend-paying stocks.

    a) I am expecting a few of my stocks to suspend paying dividends due to the disruption in global supply chains. If you don’t have the components, you can’t make the goods, and you’re not generating sales and profits. Some of my stocks will hunker down and suspend dividends.

    ii) Some of my stocks have inelastic demand and will have revenues pretty much in line with what they have always had, though most likely off perhaps a touch.

  18. E.M.Smith says:

    @H.R.:

    You have not lost money until you sell. For now, you just have an offer you don’t like…

    @Per Repos:

    These are just very short term loans on valued collateral (often over night) . The Fed can fund a near infinite amount if needed. I’m not excited about it. Some bank didn’t plan on folks spending like crazy, so needs cash. It puts up some collateral like bonds or mortgages to get cash and promises to “repurchase” it tomorrow. No big.

  19. David A says:

    Thanks E.M.! Some think it is the end of the world.

    In this market can the Feds lose control of interest rates if those in trouble must raise cash?

  20. E.M.Smith says:

    @David A:

    Since the fed can just create all the money it wants, or destroy any excess; it can use use that to shift rates if needed.

    Basically, Fed says interest rates ought to be 2%, but market is selling paper at 1.8%, Fed can issue $ trillion of bonds until buyers demand more interest to take paper. Bonds selling at 2.2% instead, Fed can wish cash into being and flood banks with cash to where loans are so cheap you can sell your bonds at lower intered to folks desperate for returns. “Open market operations” and monetary policy. (Fiscal policy is actual government spending).

    The Fed is the Lender Of Last Resort, and has no reserves requirement. All other banks under it must carry some percentage of reserves. The Fed can create new “cash” by either reducing reserves required, so member banks can loan more; or it can just creat cash it selfish via a couple of ways. One us thst it can just “buy assets” via trading a journal entry of $ for a journal entry of an asset. IIRC, it just did that for about a $ Trillion…

  21. David A says:

    Thank you for all your sharing . Very generous. The only profundity in this area is my profound ignorance (-;

    My concern is, can this global liquidity crisis be cause of liquidation of US debt obligations, of an amount to great to control, forcing the yield to rise.

    I may not be expressing this correctly, and am aware of that.

    Perhaps I should articulate my position. Aware of my ignorance, I am not in any stock positions now.
    My asset allocations are about 35 percent Treasury Bonds, 2 – 5 – 7 – and 10 year, yielding 2.3 to 2.8 percent, plus 25 percent I Bonds, yeilding about 3.5 percent with the inflation adjustment. Then about 12 percent precious metals. ( Just a crash fallback)
    The remainder, about 28 percent cash in two banks and one credit union.
    ( Pretty darn conservative, eh,)
    22 years ago, after major life challenges, I had exactly 10 K, before debt, worked my tail off, got a decent retirement, and total assets here are about 350 K – zero debt.

    So, I have a brother, smart guy, but like most all of us, a tendency to be overconfident in his own perceptions.
    However he has been doing well in this market, PUTS, shorts etc…

    For three days he has been telling me the unwinding debt structure in the global markets are going to force massive liquidation of US debt for desperately needed cash. His thought is to take the gains on my currently above market yields, and achieve more flexibility in cash, as, three days ago he said the yields would rise.

    Now me, yes, I could take some decent gains I suppose, selling into the secondary market, perhaps 10 percent plus. But I did not buy these to play a bond leverage game. I bought them for steady income stream enhancement.

    Sheesh, I don’t know where to put the cash I have now. It occurs to me banks can fail before the US dollar, and who knows what the FDIC can – would pay out. It also occurs to me that in the event of some unpredictiable global collapse and reset, the US would have a role in that reset and reincarnation of Treasury Bonds assets. ( Maybe)

    Yes, I would like to sell at a good gain now, and even buy back at a higher yield later, perhaps more I bonds, yet my comfort range is to take my current cash, and savings yielded from my retirement income, and invest that in conservative revenue generating streams. If rates rise, as the two and 5 year yields mature, just float into those higher yields.

    Perhaps cathartic to write this, as I am thinking my brother is thinking of what he would do, and it may not be right for me. I mean damn, if the US government defaults on Treasuries, cash will likely have little value anyway, and I don’t feel qualified to play market games.

    Oh, while writing this Brother sent me this article. ( Ya, Zero Hedge)

    https://www.zerohedge.com/markets/global-dollar-buying-panic-sparks-asiapac-fx-collapse-us-equity-futures-plunge

    Anyway, EM, your thoughts are always appreciated. I would have articulated my appreciation more eloquently, but my wife came from poverty, and my first concern has been her comfort. She is getting to the point now that I can be more flexible.

    All the best always…

  22. p.g.sharrow says:

    @DavidA; from what you put forward I would say you have a safe allotment of assets that fit your needs. Yes, there are more risky ways to magnify the income or gains from those assets but I doubt you would be comfortable with the risk.Your cash position might prove useful after the “Dead Cat” bouncing of the stock market is over if you really want to play. Just be sure to pursue income rather then appreciation as the first criteria for selection. Just my 2bits worth…pg

  23. E.M.Smith says:

    Cash it just a US Bond that pays no interest. Like Treasuries, it is ultimately backed by the USGovt taxing authority. But since it is instantly liquid, you get no gain. (Technically it is a debt instrument of The Federal Reserve Bank, but I’m glossing over that for now).

    Roughly equal $ Trillion lots are held by Japan, China, Saudi and US Institutions (roughly,, last I looked). Saudi doesn’t need to sell anything. They drag in a few $ Billion a day… Japan depends on them for retirement plans, so not up for trading. China could dump them to try causing trouble, but that just turns them into $ US at no interest. So not much point. Then US Institutions are largely pensions, insurance companies and the like, or mutual fuhds / ETFs with specific allocation goals. They won’t change holdings much.

    Then there are the two biggies:

    During times of crisis, folks dump stocks and runs to bonds.

    IF China decided to dump $ Trillion of bonds, it would drive their price way down for the duration of the sale, hurting them, then the price would return to equilibrium. China loses. But, should The Fed wish to prevent that, it just creates a $ trillion cash entry on its books, movies that entry to China and collects the bonds, “expanding its balance sheet” in an open market intervention.

    When the US Government want a $ Billion (or, more recently, a $ Trillion) it creates bonds out of nothing and hands them to The Fed. The Fed makes “Federal Reserve Notes” (that federal does not refer to the federal govt, but to The Fed…) and hands them to the government (actually makes a leger entry and the Treasury does any physical printing desired). Very similar to what it would do with a seller of bonds.

    Both the bonds and Federal Reserve Bank Notes (“cash”) are just paper and The Fed can make notes as desired. Eventually, too much shows up as inflation, but folks seem ok with that. The $ today being worth about 5 ¢ of the $ of the 1950s.

  24. David A says:

    Much appreciated gentlemen.

  25. David A says:

    Further food for thoughts or comments, preferably thoughtful comments, (-;

    The ever debated deflation inflation discussions continue. Will there be too much money chasing to few goods, or will that money be punchless, pumped into the black hole of debt, desperate too keep the markets and financial institutions alive, and on the consumer end, the scared 1/2 employed in debt citizen will only purchase necessities and pay his rent or mortgage.

    I know if I get a 1 k check from the government it will not make a lick of stimulus to the economy now. Besides, I have nowhere to spend it.
    If we are still on lockdown it will only go to necessities, and I expect price controls on food and medicine if those prices get out of hand.

    Cogent question on supplies; are durable goods, electronics, phones computers, cars etc or tight supply lines. In other words how long until shortages there trend a
    down instep with demand?

    So inflation in things we need, deflation in other things, or inflation, or hyperinflation as trillions are manufactured?

  26. E.M.Smith says:

    There’s some statistic I heard where most folks can’t put together $400 or so for an emergency. No paycheck, no eat no rent.

    The money to Everyone is really a bailout of the landlords and quieting of food riots, payments to stay home and not mix it up.

    Those folks with money and income will leave it in the bank, shoring them up.

    Nobody is out buying csrs and new TVs with it, so not price led inflation. Yet.

    When this is all over, there will be “money in the bank” that some will spend driving a return of commerce, and others won’t, keeping banks liquid. The landlords will be whole, and the workers fed. Much better than the alternative.

    Government debt will be higher, but present demand for goods is so low it is deflationary. World demand for the $ driving it up to pay $ denominated loans.

    Net net? I’d guess in the short term neutral, in the long term, not quite enough to prevent some price collapse in some sectors, and in the very long run adding to the debt problem, but mostly ss pulling in the date when it becomes an issue.

    Overall, I doubt anyone can say. I’d say it will model on the debt of W.W.II where we had a big spike, but the economic rebound after it was over swamped it.

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