Crude Oil Preannounces Negatively
Equities start the day lower as Crude oil preannounces negatively. You know the one thing that constantly amazes me with respect to capital markets is just how poor they are at pricing things. Which seems odd right? I mean I thought the goal of free markets populated by every single capitalist minded person on the planet was to provide a real time look at supply/demand/sentiment/information and then determine a price of something intrinsic to its value. A year ago we thought Crude oil was worth $105 a barrel. Now it’s got as much value as a pile of chicken in a Chipotle fridge (I do love the place but is there anyone with worse PR right now? Horrendous). Now before you write me an email saying “the world changes” I want to say this…..can it really have changed THAT MUCH in the past 18 months? Crude fell from $145 to THIS VERY LEVEL ($38) back in 2008-2009. Remember that time frame? The entire Western world was nearly brought to its knees but an earth shattering mispricing of levered risk. In the past year China slowed a bit and people worried about global deflation, certainly nothing like the screen shaking panic of Lehman failing and AIG writing unlimited insurance contracts on homes worth $200. Sure, supply has soared. Every person in North and South Dakota is pumping oil and OPEC refuses to budge on production. So yea, part of this decline makes sense, I get it. Supply is super high and demand is falling, yes, don’t think I’m being deliberately obtuse. I guess my whole point is that sentiment around oil seems to be the worst part of the past 6 months. Oil falls and it crushes a small cap company that sells wicker chairs to grandmas in Vermont. The infection is real and sometimes insane! Did you hope for a quiet end to the year? I did, all I wanted to do was decorate my living room like this and listen to Michael Buble. Do you think Michael Buble lives in some remote hideaway 11 months out of the year and comes back JUST for December? I swear you never hear a thing he does until the last month of the year. gonna be an amazing annuity for him until he dies.
After the open it appeared yesterday’s panic selling would continue unabated. Crude fell thru $37 and anyone trying to dip buy looked like this (wait for it…I’m begging you). How about this pattern in the market lately? Start at 2,100, fall to unch on the year (2,055), bemoan our lives, prepare for doom. Rip back to 2,100 because hey, it’s oversold, feel great about Santa, cheer the market. Rinse and Repeat. Will anything break this see saw in December? Stay tuned to find out. Ok, so the morning was all about oil’s continued drop and whether companies like KMI will cut their dividend. I’ll admit this openly: I thought the low in oil was early this Fall. I thought we had finally reached the point where bad news was priced in and companies in the energy sector had been set for Armageddon. Well…wrong as wrong can be so I give on calling the bottom, I guess its $0. I mentioned 2008-2009 earlier and price action in energy names bears an uncanny resemblance to banks back then. They just fall and fall and fall, then fall some more and people puke and then they fall again. We sold off in the morning but a small bounce in Crude kept us from one of those “down all day in a straight line” events. Winners NRG, COG, ALXN, AZO, ILMN, and CELG. Losers LUV, SPLS, HRB, KMI, FCX, AA, and MOS. You think these people captured this throw in one take or did they try it a few times? I bet one take.
The back 9 was sideways and the pain in Crude appeared to have less impact as the day wore on. We closed at 2,063, down 65bps, but that was well off the lows. I guess there is only so much “sell stocks because oil is weak” that the market can take. Well my friends / compatriots / compadres….so much for a quiet news less week, I woulda wagered my original R2D2 figure that Dec 7 to Dec 11 would be completely sideways and hoo boy would I have gotten smoked. Don’t people know it’s the end of the year? Who is winging around indices here with 17 days left and one week until a Fed rate hike? Hello? Are you out there? Let’s blame algos, everyone else seems to. Darn algos, take a break from all this 0 and 1 stuff will you?
Final Score: Dow -92bps, S&P500 -65bps, Nasdaq -7bps, Rus2k -42bps.
- Succinct Summation of the day’s events: I’m pretty sure $SPX and Crude had a 1.0 correlation. Actually wait, they did. Fun times when stock indices trade parallel to a commodity.
- Times they are a changing right? I remember when I used this thing called “salary” to pay off loans: “Gabi Gutierrez, like the typical college graduate who took out loans, graduated from Virginia Tech this year with around $30,000 in student debt. Unlike most of her peers, Gutierrez, an associate in forensic services at PricewaterhouseCoopers, will have help paying off those loans from her employer. Starting in July, PwC will put $100 a month toward her $250 burden, a contribution that could total $7,200 over time. PwC is one of a handful of companies offering to pay part of their employees' student debts, an increasingly popular perk.”
- Notes from the Ira Sohn Conference in London. Click here for some fresh ideas from the world’s top minds!
- These are the kinds of things that happen closer to a bottom than a top. This guy is smart money: “Howard Marks, speaking Tuesday at Goldman Sachs Group Inc.’s U.S. financial services conference in New York, said he’s seen many bonds slide to 60 cents on the dollar from 90 cents since September, and not only in energy producers. Marks said that Los Angeles-based Oaktree is spending a lot of time studying oil and gas companies.”
- This is great! JPM put out talking points for holiday dinner’s with relatives! Love this part: “If dinner table discussions become too contentious, put on some music that progressives and conservatives enjoy equally, according to Facebook’s Data Sciences group. Instead of the polarizing sounds of Beyoncé, Bob Marley and Neil Young on one side, and George Strait, Hank Williams Jr and the Zac Brown Band on the other, here are some artists that both groups like: Metallica, Taylor Swift, Aerosmith and Elvis”
- If you’ve followed me for a while you know I love Calculated Risk Blog. The guy who writes it is fantastic. Here’s his take on the endless Recession calls we are seeing now: “Looking at the economic data, the odds of a recession in 2016 are very low (extremely unlikely in my view). Someday I'll make another recession call, but I'm not even on recession watch now.”
- Top 25 News Photos of 2015 by the Atlantic. I like the guy jumping out of the plane (the 2nd one breaks my heart in a million pieces)
- Sweaty Palms. SWWWWEAAATTYYY PAAAAALLLLMMMMMMSSSSS
- Goldman puts an end to all this conspiracy theory stuff on “Labor Force Participation Rate” There has been a never ending chorus about the Labor Force Participation Rate and how the labor market is actually much weaker than the headline figures imply. Well, Goldman Sachs has put that debate to rest with some recent data. They showed that the decline in the Labor Force has been almost entirely due to natural retirement and disabled people
- You feel my pain here? Please tell me you do.
So it’s been unusually warm here in the Midwest. It’s pushed back the start of skiing season and that bums me out (amazing bonding experience with kids). For tonight’s ending link I found a skiing video with no snow! How cool is this? (especially the end)
Have a good night.