So can someone please help me make sense of this? Oil is essentially a predictor of demand and crashing to around 2.50 a barrel.
Meanwhile stock market is acting like the fed's tit is perma-latching. Can someone please rationalize this apparent disconnect?
Be forewarned I'm a contraction and I think a serious depression is ahead so I may be looking for the problem for my answer .
Like the shortening of a word, the shortening of a muscle, or catching a disease?
Yes
I meant contrarion but my Droid phone says it's not a word.
Hah, "contrarian" ;)
Buy an iPhone
The oil price that you saw crash 90+% today is the may contract for futures. If you look out further to the June, July, and November contracts, you’ll see oil is traded at $30+ per barrel. So why are prices today so much lower? it’s because there is only so much capacity to store oil when production exceeds demand, so once the storage fills up, producers are forced to sell at any given price. (they could potentially go negative)
Can I get a banana for calling negative?
Rumor mill says BP got caught long without the space to take delivery... ended up having to puke the whole position with the May about to come off the board.
Guess Cushing is just about full.
As for its relation to the stock market.. who cares? This is about supply - not demand. We know demand will recover over the long term (hence the never before seen contango) but what we don't know is how much supply is going to keep flowing into storage in the short term? This is the market screaming at everyone to shut their wells in. Doesn't matter what it cost, the market cannot handle anymore barrels and if you want to keep delivering them then you are going to have to pay to do so.
step 1) pull up to New Jersey gas station step 2) tell gas station attendant “look at me, look at me, I’m the captain now” and command him to pay you $20 for filling up your tank because oil prices are negative now step 3) pull out a glock to coerce cooperation and ensure speedier service step 4) leave gas station with full tank of gas and $20 in your pocket step 5) thank Saudi Arabia for the low prices and chop up a Washington Post journalist in honor of glorious crown prince Mohammad Bin Salman Al Saud
The stock market is broken. We are trading at levels from mid-2019. In fact, P/E multiples haven't changed--earnings expectations have simply dropped. That doesn't make sense to me.
The equity market is priced for a VERY rapid recovery. There is also nowhere else to put your money, and most people don't know any better. Short of a miracle cure that lets everyone go back to work tomorrow, equities seem wildly overpriced to me.
That said, not all companies are going to be losers on the far side of COVID. If I'm honest, I wish we'd let a few more companies fail. After all, how can you claim to be a capitalist when you run to big daddy government for a handout when you can't cover operating expenses for even 1 month without revenues? If there is no resiliency built into your business, you will eventually be taken out by an exogenous shock. The process of creative destruction is key to free-market capitalism, and that process requires some companies to fail when their strategic planning processes over-lever their balance sheets and weaken their chances at surviving changes to the unknowable and uncertain world we live in.
The fact that so many companies didn't have any sort of rainy day fund is ludicrous. The executives running those companies should be fired and banned from all Boards especially if they issued debt to pay dividends, overpay for M&A or buyback shares. It's laughable how much money has gone out the door to save businesses from the EXACT same mistake we harass people for when they lose their jobs.
Oh--you didn't save? You were profligate in your spending when you had a job, and now you can't survive when you lose your income? You have bills due and you can't pay them because you can't go even a month or two without income? Tough--this is America! Fuck you, you worthless piece of shit. You get unemployment for a few weeks that won't even cover half your rent and as a consolation prize, we'll also take your insurance from you. Good luck signing up to Medicaid or finding an affordable Obamacare plan.
Why we are maniacally protecting companies when we ordinarily give zero shits about people who find themselves in the exact same situation is beyond my ken. And yet, Congress is writing checks with its eyes closed. More importantly, though, the Fed has MASSIVELY overstepped its bounds. It's now trying to control the entire bond market. It intervened in the repo markets last year, it intervened in the commercial paper market a few weeks ago, it set up huge dollar swap lines with 14 central banks last month, and it's now buying corporate bonds including junk bonds (they're calling them 'fallen angels' but the nomenclature doesn't change the fact that they're non-investment grade). On top of all of that, the $500 billion in the CARES Act that was meant to go to medium-sized businesses (those employing 500-10K employees) is being administered by the Treasury. But the Treasury took $454 billion of that money and put it on deposit at the Fed. The Fed is going to use that as Tier 1 collateral to leverage the shit out of it. The Fed is going to start making direct loans to medium-sized businesses using that money. That is naked risk the Fed is NOT QUALIFIED to take.
You were asking why the equity markets have held up despite everything? For me, the answer is the Fed. Central banks around the world have adopted much of its playbook and as a result, the entire world economy is going to be the same way around and drastically over-levered on the far side of this. There will be financial crises that come as a result of this. The Fed can get away with extraordinary measures longer than the RBA, the RBI or even the ECB. But your seeing this same nonsense all over Asia, not just in Japan. It's going to end in tears.
In any case, for the moment, the market is holding up. I bet both my nuts that situation doesn't last. I guess we'll see.
And it gets better...how is this not 08 again??
1mo shutdown and everyone is begging for the government tit. Wtf...and who gives a shit about investors and middlemen? It's like clockwork...anyone who think we aren't socialist already is dead wrong.
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A top U.S. regulator is considering taking steps to ease strains on mortgage companies facing a cash crunch as millions of Americans struggling with fallout from the coronavirus suspend their monthly payments, according to people familiar with the matter.
The Federal Housing Finance Agency is weighing whether to allow Fannie Mae and Freddie Mac, the government-controlled mortgage-finance giants, to buy home loans that recently entered forbearance, meaning borrowers have stopped making payments, the people said.
That would help nonbank mortgage companies that lend to home buyers and then quickly sell the loans to Fannie and Freddie.
The strategy was upended recently when Fannie and Freddie announced they would no longer buy loans in forbearance, leaving the debt piling up on the books of the lightly regulated companies that both originate and service home loans.
Details were still being ironed out, though FHFA was expected to announce a change as early as this week, the people said.
The agency has resisted pressure from the industry and members of Congress to help the servicers, saying it wants to see more data on the number of borrowers who are skipping their monthly payments.
“We are aware of the issue,” said Raphael Williams, a spokesman for FHFA. “Currently, we are working to find out the breadth of the issue and possible solutions.”
The mortgage companies are facing a severe cash crunch for another reason: they must continue paying investors in the loans even if homeowners suspend their monthly payments.
https://www.wsj.com/articles/fannie-freddie-may-soon-buy-home-loans-in-…
Multiples may be too high in today's standards, but if you look at the history of the stock market multiples have continued to grow. In 1920's/30's an "expensive" stock was trading at 6-7x P/E multiple, fast word to 1970's/80's an "expensive" stock was trading at mid to high teens, last ten years the normal has been high teens and low 20's. At this rate, 20-30 years from now people will look back at our multiples and say wow, you coulda bought at 20x instead of the 30x we are paying?!
I'm not going to argue with any of your points, I think they are all extremely valid, and I'm not here to say what the fed/gov should or should not do. But looking at history, bottoms of recessions (think 1930's, 70's, 2008) all happened the moment the central bank stepped in and flooded the market with liquidity. The biggest difference with this recession is how fast the central bank stepped in relative to previous recessions. Look at this recession, the "bottom" happened exactly when fed announced/implemented massive QE. The best way to think about the future imo, is there's two "economies" the first is the "real" economy, the second is the "financial" economy. Real economy should/will get crushed, unemployment is record highs and wont return to "normal" right away, globalization will take a step back, business/personal sending will be cut back etc etc. But the financial market is a whole different ball game. The fed runs it, they've already stated they wont let asset prices drop, that's why during this stock market rebound you didn't see bond prices fall, because fed was there to buy them at overpriced, so even when money went from bonds to equities bonds stayed relatively the same.
So when people say we haven't hit the bottom I think we have to take a step back and remember who the real players are, pension funds who don't care about short term valuations they need growth assets and therefore will continue to buy, and the central bank which will continue to inflate asset prices. Yes this will probably cause inflation, but before you start shouting hyperinflation gotta remember the entire world runs on USD, even with Fed printing trillions there is still so much demand for USD. The real losers will be bond holders, since fed wont let bond prices fall so they'll be stuck buying brutal yields even when inflation increases so a negative real return.
That's my opinion, what do I know, would love to hear what you guys think.