Good Morning America, All Heck Broke Loose in the Markets Overnight

Crude Oil Collapses 32%, US Stock Futures Plunge nearly 5%, 10-year Treasury Yield Gets Closer to 0%, Gold Jumps to $1,700, Asian Stocks Plunge, Nikkei -6%.

By Wolf Richter for WOLF STREET.

WTI crude oil futures collapsed by 32.3% on Sunday evening, to $27.96 a barrel at the moment, the lowest since the darkest oil-bust days of February 2016:

This plunge comes after Saudi Arabia’s Aramco announced it would slash prices to its customers for April. In addition, there were strategically placed rumors that Aramco would also increase production from the current 9.7 million barrels per day to 10 million barrels per day when the previously agreed production cuts expire at the end of March. This is its move in a price war with Russia over market share.

On Friday, Russian Energy Minister Alexander Novak had thrown down the gauntlet when he told reporters at the OPEC+ meeting in Vienna: “As from 1 April we are starting to work without minding the quotas or reductions which were in place earlier.”

The primary target of this price war, however, are the investors in the US shale oil sector. These investors – chasing yield and looking for deals – have been fueling the shale oil sector’s relentless and highly efficient cash-burn machines with hundreds of billions of dollars over the years. And the sector keeps ramping up production not matter how much money they lose and how much cash they burn.

By crushing these investors and sending a bunch of these shale-oil companies into bankruptcy, Saudi Arabia and Russia might hope that new money will refuse to flow into the US shale oil sector, and that the companies will run out of cash to burn, and that production in the US will finally decline and take some pressure off the market.

The timing is impeccable. US shale oil production is still hitting records, flooding the market with crude oil and petroleum products, even as OPEC and Russia were trying to agree to lower production to prop up prices in face of declining global and US oil consumption, now driven by plunging demand from airlines globally and from drivers in China and other countries that have been hit hard by the coronavirus.

If OPEC and Russia increase production in the second quarter, with US production still ramping up and demand globally in steep decline due to the efforts to slow the spread of the coronavirus, then global markets will be awash in oil. And the expected collapse in prices is now being priced into crude oil futures.

Stock Futures Plunge.

US stock futures plunged in overnight trading, with futures on the Dow Jones Industrial Average down 1,222 points, or 4.7%; with the Nasdaq futures down 4.8%, and with S&P 500 futures down 4.9%:

Asian Stock Indices plunge.

In early trading on Monday in Asia, it was bloodletting-time all around:

  • Japan’s Nikkei 225 index: -6.1% to 19,473.
  • Hong Kong’s Hang Seng: -4.0% to 25,075.
  • In China, despite the government, state-owned banks, and state-controlled market players struggling mightily to contain the damage, the Shanghai Composite Index: -2.4% to 2,961.
  • India’s BSE Sensex: -3.3% to 36,340.
  • Singapore’s FTSE Straits Times Index: -4.4% to 2,832.

The 10-Year Treasury Yield Falls Closer to 0%.

Under huge demand by spooked investors trying to flee risky assets, 10-year Treasury prices rose and the yield plunged 25 basis points from the record-low close on Friday, following the plunge on Friday and the plunges on prior days. Sunday night, the yield fell to 0.496%.

The chart below reeks of fear. The Fed should just take this opportunity to express its unbroken confidence in the markets by doing the opposite of what those spooked investors are doing, and it should sell its longest-dated Treasury securities, which would not only inspire confidence but also satisfy investor demand, hahahaha:

Gold jumps.

In line with the theory that this is sheer fear expressing itself here, gold futures jumped 1.6% Sunday night, or by $28 an ounce, to $1,702 an ounce, the highest since December 2012.

So this turmoil in the markets overnight should — and I’m going to stick my neck out here — make for some highly caffeinated trading in regular hours in the US on Monday. Whiplash warning in effect.

Airline bonds, holy moly. Read… It’s Crazy in the Treasury Market, But the Corporate Bond Market is Starting to Dial in the Coronavirus

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  219 comments for “Good Morning America, All Heck Broke Loose in the Markets Overnight

  1. drg1234 says:

    This is a risky move by MbS. If memory serves, Saudi Arabia needs oil at $60/barrel to break even on their national budget. Raising production into an environment of cratering demand … how long can can they withstand oil at $20?

    • elysianfield says:

      DRG,
      Well, apply the old metric;

      Oil prices can remain irrational longer than others can remain solvent (paraphrased).

      In a race to the bottom, who has the greater solvency? The House of Saud, I would expect, will have longer legs than Russia, or even the Fed backed shale gambit.

    • Ghassan says:

      The kingdom can manage for few months even if they give it away for free as long as it kills the shale oil once and for all.

      • Cas127 says:

        How do you kill a technology once and for all?

        Once prices rise again, so does the technology.

        • Wisoot says:

          By introducing non oil based energy transport – search US patents office – all there waiting in the wings. But who has the key? MBS?

        • cas127 says:

          Wisoot,

          Don’t play coy, list the non-oil tech ready to take over within the next 1 to 5 years.

        • roddy6667 says:

          The technology in shale oil are in the financing, not the drilling and pumping.

        • Ghassan says:

          It’s not about the technology, It’s the shale industry that no one wants to invest in anymore once it collapses.

        • Cas127 says:

          “The technology in shale oil are in the financing, not the drilling and pumping.”

          Eh…no.

          Once oil prices rise above breakeven production costs (as low as $40 to $45 for some shale fields) new fracking will re-commerce.

          Just because some shale producers take on asinine levels of debt, at asinine assumed oil prices, does not alter the fundamental economics of the technology.

          Fracking is significantly more expensive than traditional production, but not nearly as expensive as it once was. Once oil gets much above $40, new fracking will commence in low breakeven fields.

          Alternatively, Saudi could decide to utilize its 250 billion barrel reserves with single digit production costs, to keep oil under $30…like it did from 1985 to 2004.

      • Harvey Darrow Cotton says:

        So this is what greatness feels like.

    • 911Truther says:

      I don’t blame them. They cut and the US banks just keep the frackers drilling and producing more and more. Saudis should have done this right the first time when WTI got down to $26. Like putting a lame horse out of its misery.

      US oil doesn’t come out of the ground without borrowed money. To kill shale, you have to kill the fiat banks and the Saudis and Russia have just declared WW3 at a time when the banks can least afford it.

      • Harrold says:

        Never underestimate Texan’s ability to throw money into the ground in search of a fortune.

    • Mark says:

      I suppose they figure longer than the US shale oil producers and probably Russia as well.

    • Ghost of T Boone says:

      IMF says $86 http://data.imf.org/regular.aspx?key=60214246

      $20 buck oil is no problem, you just put a gun to the head of each billionaire in Saudi, and a laptop in front of them, hand them the government bank account number, then tell them to make the transfer :)

    • 2banana says:

      It is more like $80 a barrel for Saudi Arabia to pay for its massive welfare state (which is the only thing keeping the current monarchy in power)

      It is going to be game of who can stand the pain.

      Russia
      Saudi Arabia
      Oil Shalers

      Of course, two of them can print money and deficit spend for awhile.

      But one of them has a nasty war to finance.

      • Realist says:

        Russia seems to be quite able to handle low oil prices. Russian oil is cheap to produce, the country is not indebted to international players. Sanctions have forced Russia to develop domestic industries, look at shelves in a typical supermarket over there, before stuffed with imported food, now domestic brands rule.

        And remember, Russia has for years been stockpiling the yellow metal.

        • Harrold says:

          Russia needs about $68/brl to balance its budget.

        • FluffyGato says:

          The oil collapse of 2014/2015 almost destroyed Russia and the Ruble.

          The House of Saud remembers this. Crippling Iran (their mortal enemy) is icing.

          And as mentioned above, their real target is US Shale

      • WES says:

        2banana:. My bet is on Russia.

        Putin started this oil ball rolling downhill by saying “NO!”.

        Who has a better track record? Mbs or Putin?

      • Drater says:

        “The Russia Finance Ministry said on Monday that the country could weather oil prices of $25 to 30$ per barrel for between six and 10 years.”

        -Zero Hedge article

      • Michael Fiorillo says:

        History has for the most part not been kind to those who underestimated Russia’s capacity to absorb suffering.

    • Cas127 says:

      Oil very, very rarely went above $30 pre 2004 – the crazy prices since then have been the result of Chinese demand and (mostly) our “Ally”/protectorate the Saudis refusal to proportionately increase supply (they have 250 billion barrels in reserves and the US uses a total of about 7 billion per year, less than half of which now comes from imports).

      The current price fall results from the breakdown in our “Ally”‘s deal to restrict supply with the (ooga-booga) Russians.

    • hidflect says:

      I’ve read as high as $80 to cover their sovereign cost.

    • Stephen Cavaliere says:

      I thought deficits didn’t matter anymore. And don’t they have their own currency? Can’t they print whatever they need to keep their populace flush? Not sure if I should add the /S or not.

    • VintageVNvet says:

      Maybe so, likely NO: Perhaps long term, but short term we read that SA has a large reserve of cash to run their country; and, more important in the long run, their cost of production is single digits.
      While the supply side is clear, the demand side of this is not at all clear for more than a few weeks IMO. Could be a lot worse by May, esp USA.
      Time will tell, eh?

    • oee says:

      they are a gov’t , and they can outlast any company. they can borrow money and print their own currency. Also, they have a police & army that can put down dissent.

      An oil company does not have that capability. the company will have to file bankruptcy at some point. they will fire workers and then will cause a recession that will ultimately cause less consumption of ..oil.

    • mike says:

      The market will likely go down even more in the future, if the US government ever realizes that it must imitate Italy and impose more than one cordon sanitaire. The actions of the markets and the government lag behind scientific thought and findings. For example, there are now tiny lights that can be seen at the end of the tunnel (during the late sprint and summer, at least.)

      Apparently, the coronavirus (like other viruses) may not survive well outside the body in high temperatures and high humidity. (I am now keeping my house at 90 degrees with humidifiers running constantly and using a fan to blow air at myself and my family.)

      Moreover, a pre-print German study indicates that viral shedding in persons with few symptoms becomes minimal after ten days. Thus, in countries with adequate testing programs (which the USA could become if the administration merely ordered it to be paid for by the government), the government merely needs to order the majority of the still limited number of infected among the public to stay in their homes (with compensation) at high temperatures for say 12-14 days, to be sure that they were less likely to be infective.

      Then, it needs to order the cleaning of all public spaces with bleach or some less damaging substance in case the virus has survived on objects or substances outside, e.g., hydrogen peroxide. After allowing huge numbers of their population to die abandoned in their homes, due to governmental incompetence, this is similar to what the Chinese communists did, which indicates that their doctors have far higher intellectual abilities than Chinese communist (or US) leaders.

      If our US leaders had not foolishly told the public that face masks do not help (and are dangerous/harmful!), but merely told them that they work best with sealed goggles and constant hand washing and clothes-washing, with changes of clothes at home, many Americans would not be infected. Thus, the disaster which the incompetence of this administration has brought upon us, with many of our regions having hospitals chock full of the infected, needing critical care and respirators, so that thousands cannot receive adequate treatment in a timely fashion and die, is still oncoming.

  2. Ghassan says:

    Hi
    First time commenter long time follower here, Couldn’t resist saying something! Is it fair to say we are witnessing an important point in history, a plunge as magnificent as the one in 2008 maybe? Not just the stock market but everything else, including real states? I’m getting really excited.

    • Suzie Alcatrez says:

      1929 would be my guess.

      Lot of companies will go under.

      Where is our FDR?

      • Ghost of T Boone says:

        ‘FDR’ has been in play since the GFC. Just like the original FDR he has been pumping out insane amounts of stimulus to try to kick start the economy.

        He’s kick started it but unfortunately, it cannot run on its own and the stimulus is no longer having any effect.

        • MD says:

          ,..only the FDR money was spent on the country’s democratic infrastructure to enable industry to flourish, whereas money for the last 10 years has been given to financial speculators in order to pump up stock markets and asset prices.

          Hence the bifurcation of the economy, the burgeoning income and wealth gap and the turn towards socialism by those who are excluded from the fast, easy money party.

          After all – of what interest is capitalism to those who have no capital?

        • Les Francis says:

          Watch out for your gold.
          They might come for it like FDR did.

      • Deanna Johnston Clark says:

        Even FDR and his sidekick Eleanor had to report higher up….but today we have no one with his amazing charm or her tender heart.
        Without both shrewdness and pity, we have no future.

        • VintageVNvet says:

          Other than who was the ”sidekick” of whom in that pair, I agree with your sentiment entirely as far as the leading crooks parading as politicians these days.
          I had high hopes in 2008, dashed almost immediately by the deal for the nukes in the Carolinas, and as a committed optimist, I have high hopes today for as soon as we can get out act together to hire one of the younger females currently in training to be our pres.
          Unfortunately, that training has, so far, failed to supply anyone near Eleanor, but I will continue hoping.

        • Calvin Tompkins says:

          Extremely well put !!!

    • Wisoot says:

      1285 – same astrological set up

    • Mark says:

      “a plunge as magnificent as the one in 2008 maybe? Not just the stock market but everything else, including real states? ”

      Never before have the fraudulent vulture “capitalists” offered up such varied criminal frauds – in the value of the US cash dollar, US bond values, US stock values, and US real estate . ( And a criminal racketeering health “care” system).

      Maybe the War Party Of The Rich finally hit the wall ? Stay tuned.

  3. My oil shorts are doing very nicely. It will be the most successful trade I’ve ever done.

    • 911Truther says:

      Same here. I shorted Whiting Petroleum in Nov after they finished Q3 with no cash on the balance sheet. The great thing about shorting stocks with shitty balance sheets in a market like this is that they get killed on bad days and when the market moves up, they go flat.

    • ric says:

      And the last one.

      • Ric, my next successful trade will be going LONG OIL. We are looking at reaching $70. We’ll have to see if it goes higher. When this market turns around, it will be one of the most glorious times ever.

  4. Tom Stone says:

    Wolf, you certainly picked a good time to short the market!

    • Ghost of T Boone says:

      If this continues on the current trajectory, there will be no market.

      Keep in mind things are just getting underway in America with respect to the virus.

      • Suzie Alcatrez says:

        I think it will get bad and then get worse.

        There will be no quarantining of cities or regions or stopping of travel.

        • Les Francis says:

          Why not?
          Italy is starting to do just that.
          I’ve spoken to my GP here in Australia and it’s expected that a variation of the China quarantining will happen here if things get bad.

        • Kent says:

          Election year.

        • VintageVNvet says:

          Nonsense: the ”fine print” of the ACA contains plenty of basis for martial law as a result of epidemic, not to mention pandemic episodes.
          That will authorize quarantine, and even house to house forced removals.
          Please, let’s not have our heads stuck in the sand in denial about this, as the first quarantine has already occurred in Rocklin, CA.

        • Harrold says:

          2nd Amendment will make quarantines impossible.

          Unlike Europe, China, etc., American citizens are fully armed and will not be stopped.

        • fajensen says:

          American citizens are fully armed and will not be stopped.

          Ho Ho Ho, so it’s Christmas already:

          Anyone stupid enough to pull a gun on the cops “for freedom” are really going to be giving them 2 weeks of paid leave while the inquest clears them from any wrongdoing in popping 200 rounds into whoever tries this!

    • Seen it all before, Bob says:

      Wolf,

      I posted previously that I agreed with your short but was chicken.

      I bought 10K in VXX when it was 13 and sold when it was 20 thinking I shouldn’t be a pig (that was soon to be slaughtered).

      Today it is at 36. I am such a chicken. Bawk.

      Fortunately, I bought Chlorox which is up 7%.

      Hang in there.

      • NBay says:

        Don’t feel bad. Back when I used to do stocks I had 50K shares of Siri at an avg price of 0.34. (my spec stock). I was really proud when I sold it all at 79 cents in ’09.
        Some people are not cut out for this gambling BS.

    • NBay says:

      Free Wolf Street mugs for true believers? Or would this be considered cheating?

      https://personal.vanguard.com/us/content/Funds/FundsToolsCircuitBreakersJSP.jsp

    • FluffyGato says:

      Speaking of…where are all of those who mocked Wolf mercilessly for shorting?

      Guessing they got the taps on the shoulders for brutal margin calls.

  5. tommy runner says:

    as long as nobody gets hurt, there’s no reason this cant be fun.

    • Sunni says:

      I’m with you. It’s a fire sale — you know, the blood in the street thing. Everyone thinks I am crazy. That’s good.

  6. Island Teal says:

    For all those that don’t ask…I will…Got Au and/or Ag ???

    • 2banana says:

      So much for those new Aramco shareholders.

      They had to have known that real owners of Aramco had no fiduciary responsibilities to them.

      • Erle says:

        I wonder what the Bid/Ask is on Aramco’s new issue. I need a better brokerage to find out the really funny things in the markets.

      • historicus says:

        The market tips over with the largest IPO in history…coincidence?
        This what the BOJ and all the other central bankers that buy equities forget….
        There are those who can “print” stock just like central bankers printing money. The reaction to the action.

    • David Dawei says:

      I am wondering if Silver is going to turn out to be a DOG?
      Silver has been a HUGE disappointment in 2020.
      It feels like it’s on its way to 150 to 1

      • DP says:

        Ag looks much like it did in 2008. Hit hard when everything was sold off. Bottomed @QE1, exploded @QE2. I firmly believe it will move hard and fast once more on any announcement of (official) QE.

      • WES says:

        David:. Yeah, silver has been a real dog for decades! Hit 100 tonight!

        I remember as a teenager (17?), my Dad, a mining engineer, taking me down to the heavy metals vault in the basement of a downtown Montreal bank.

        We merely walked in, my Dad said hi to the clerk, and I proceeded to wonder around alone looking at all the gold and silver bars loaded on the many large heavy steel wheeled trolleys!

        I mean hundreds of tons of the dam stuff! Not a few hundred pounds! Black Beard never saw that much gold and silver in his lifetime!

        I remember my Dad warning me not to get my fingers trapped under the heavy bars! I had a few close calls nonetheless!

        Them dam bars weighted well over 75 pounds each! All I could do was lift one end of the bars, they were so dam heavy!

        What really struck me, was how casual the whole place was! More like a bunch of trolleys in a wharehouse! Nobody cared what I was doing!

        The door into this vault was just an orindary steel door just like all the other steel doors in the bank’s basement! You just had to know which door though!

        I remember remarking to my Father afterwards that the vault was kind of disappointing as I was expecting high security and armed guards, you know like for safety deposit boxes!

        I said the only security seemed to be how heavy each bar was and how difficult it would be to move (steal) them!

        I think my Father just nodded and smiled at me!

        • Deanna Johnston Clark says:

          Good story…thanks.
          Was it all moved to the Far East in the 1980s? Nobody seems to know where the US gold went!!

    • Silver Fox says:

      Got Gold?

      It didn’t take long for the selling to start and knock down the POG from US$1700 around 11:00pm to US$1660 at 12:45am.

      In just under 2 hours traders wiped off US$40 per ounce and the POG is still now trading under yesterday’s close.

      Silver was hit even harder – as usual.

      From a high of US$17.62 it was knocked back all the way to US$16.55 and is still trading down 61 cents per ounce from the previous close.

      “Somebody’ just decided to drop around 2 million ounce of silver into the market a little after 12:00am – how nice of them.

      • VintageVNvet says:

        Same thing happened in late 1980 when those TX bros tried to corner the silver market, apparently not knowing Russia was holding millions of ounces of the stuff.
        I was lucky to get in and out fast enough to make a nice profit, then waited and went long again when the price went right back down to where it had been before the attempt to corner, then gradually went back up to par with gold briefly, or so I remember.

      • Shiloh1 says:

        “Somebody” – the JPMorgue? Selling what they can to cover the oil losses?

      • economicminor says:

        As the destruction continues I would imagine that selling will extend to everything and anything (including gold and silver). All institutions need cash to keep doors open. In a crash, cash becomes scarce as in the increased repo demand is showing. I see this as the tide still going out. The markets are selling off hard but this is still the fluff and not the meat.

        Once this first big wave of selling slows and the markets look around I think they’ll discover all those who were swimming naked. At that point bonds will sell off and interest rates will go up. Maybe as big and fast as the stock market’s first stage of collapse. To many companies relying upon ever increasing debt to fund everyday operations. I did a short survey of expected EPS yesterday and noticed how many were negative. It is eye opening.

        The Covid Black Swan came to town and started the earthquake that started this tsunami. Like I said, it is still going out.. The real damage will be when it comes ashore and wipes out all those Unicorns, Zombies and over priced real estate loans being supported by the ability of the UZ’s to borrow. There is no perpetual exponential growth in a finite system. All trends eventually come to an end.

        In the end, the FED will probably put another 10 trillion$ on its balance sheet but this will be a reaction to the effects rather than in anticipation of them. Holding PMs thru this will be a very emotional experience.

    • Frederick says:

      You had better get some soon if you don’t Teal

  7. Mark says:

    So the next trade is to take your gains from Treasuries and pile into gold?

    Once the (almost assured) intervention from the Fed is announced, we switch from a deflationary recession to an inflationary one, and gold really screams higher?

  8. Jest Love says:

    It looks like the start of the end of the world!!

    • 2banana says:

      Buy when there is fear and blood in the streets.

      • Frederick says:

        WAY too soon to think about buying equities or real estate

        • historicus says:

          agreed. So many people leaning the same way … over leveraged…all due to central bankers cattle driving everyone to yield chasing and “desperation investing”.

        • sc7 says:

          Yes. I have to laugh at all the “GoOd TiMe tO BuY ReAl EsTaTe” people. Yes, rates are low, but if this is really the black swan, things are just getting started. I’ll buy more RE after rates slide below 3.0% on the 30 year, and prices correct off of this insane peak from what is almost assuredly going to be increasing unemployment.

      • MD says:

        Only if you can pinpoint the mechanism via which stocks are going to rise again from the crash levels.

        Buying the Nikkei when there was ‘blood in the streets’ in 1990 would have taken you a very long time indeed to just break even…

        Caveat emptor, I’d say.

        • MD says:

          When I say, ‘break even’, I should have said get back to where it was before the crash.

          The index itself has never recovered from its high but even including dividends it was a long time before your investment would have matched the pre-cash level.

        • Harryflashmanhigson says:

          If you bought when it had fallen 25% in the hope of it coming back, you’d still be down 50%(top was nearly 40 thou, it’s at 19 and change now)

  9. Archie says:

    Hi Wolf,

    I would tike to track the whiplash effect on NYSE & NASDAQ. Which TICKERS do you suggest I follow.

    Note that I do not intend to trade.

    Archie

  10. Tbv3 says:

    Wolf, the SPUs won’t come off the limit down price. The band widens during the US market trading hours.

    If SPUs are still limit down just before stocks open for trading tomorrow morning, I fear the Fed mays say or do something crazeeee.

  11. Nicko2 says:

    Saudi seems to be using the virus as some kind of power-play. In the past 24 hours, they’ve shut down the Umrah pilgrimage, shut down travel with half a dozen regional countries, arrested several princes (shakedown?)….and oh yea, vastly cut oil production.

  12. Matthew Brandley says:

    expect markets to be broken all day. funds to liquidate. bankruptcy carnage. banks broken. mass mayhem. and all because of a bug less threatening then the flu? good God we have lost our minds people!

    • DP says:

      Mortality rate in Italy has reached 5%. The flu with available vaccine is 0.01%. Rest assure it’s not the like the flu.

      • 2banana says:

        Of those that have been tested and reported.

        How many not? 98%+? And nearly all those survived.

        The 0.1% flu deaths is an estimate based on historical data on all those who will get the flu.

        Not an apples to apples comparison.

        “Mortality rate in Italy has reached 5%…”

    • Frederick says:

      If you believe that the ONLY cause of this is the beer virus than I’ve got a great deal on a slightly used bridge for you

    • cas127 says:

      Panic is part of it, long standing overvaluation driven by decades of ZIRP is another part.

      And just enough reality mixed in so as to make it bear watching.

      • Lisa_Hooker says:

        I’m not panicked. I’m disgusted. Every time limit down breakers stop losing trading for the rich and prevent the little people from getting out with market orders.

        I’m thinking of shutting everything down and going to the zoo to watch bears.

  13. MCH says:

    It’s ok… this too… shall pass.

    Or may be not, but if it doesn’t, it’ll be a lot of fireworks.

    Now, might be a good time for the airliners get in on some serious oil hedges and offset their future costs.

    Hey, people still gotta fly, so why not. Eventually, the Coronavirus will blow over. The US govt needs to back up the truck and load up on the SPR when prices fall enough.

    • Erle says:

      No kidding, even stupid me would lend money to the airlines strictly for fuel if it was secured by the contracts being in my name.

  14. Kasadour says:

    It was only a couple years ago when the KSA had considered issuing bond-like instruments (IOUs) to pay off its debt to foreign contractors due to a serious liquidity crisis. The world was on notice then that the KSA was in financial trouble and couldn’t afford to play ball with OPEC. It appears that thw cash-strapped KSA is once again trapped in a spiraling demand destruction and has no choice but to undercut its competitors for its own survival. It bears repeating: this is a race to the bottom.

    • Erle says:

      True what you say. The Sheikh of Araby will imprison and asset strip more of the Saudi extended family. It is a matter of survival.

    • Frederick says:

      Couldn’t happen to a nicer bunch of psychopaths
      Oops is that politically incorrect Too bad, deal with it

  15. Pelican says:

    “The Fed should just take this opportunity to …… sell its longest-dated Treasury securities”

    Well yes! If it were up to me, that’s exactly what would happen. Sell my assets when there is a yuuuge demand! A few steps towards Balance sheet normalization as well! But then, I’m a nobody!

  16. Erle says:

    Hey Wolf, gold did jump but with this mass selloff it will get taken down too. There are a cornucopia of previous examples.

    • WES says:

      Erle:. Yup, the invisible hand has once again struck down the unprecious metals!

      • Nat says:

        Might be a margin call type thing. When big players getting margin called and one of their few assets that is up and thus can be liquidated to make the call is gold, then gold gets sold heavily for these institutions to keep themselves alive.

        • WES says:

          Nat:. Yeah, that is what I heard in back in 2008 too!

          But it still royally pisses me off!

          The stuff is supposed to go up when all hell breaks loose, like tonight!

        • Bobber says:

          Gold goes up when they start printing money again, like when Trump announces fiscal spending plans (today).

          There is only one force to counter deflation, and that is inflation. They can inflate only by printing money in combination with fiscal stimulus.

      • polecat says:

        Musta been that pass with a soppingwet market-wipe ..

    • goldbug says:

      yeah there are a cornucopia of examples where it goes down temporarily then rebounds up more sharply than ever! since 2000, gold has quadrupled whereas nothing else even comes close. gold is all you want!

  17. Erle says:

    Funny stuff with all of the comedies and silver goes with the pack.
    I would be shorting VIX on the US bonds now because it all just got ridiculous..

  18. Erle says:

    It would be good to have an edit option so that spelling and grammar foulups can be repaired. I promise that if you incorporate an edit function I will toss some more in your beer fund.
    Thanks for your unrequited efforts.

    • nick kelly says:

      How about a common- sense function so nonsense can be screened? I am a bit surprised that the moderator hasn’t had much to say about this ‘it’s just the flu’ insanity. I think it may about time because it is potentially dangerous to the US govt’s laggard attempts at response. It’s not just more innocuous insane opinion, like maintaining that the moon landings were faked.

      The most drastic measures have been taken in China where it began and quickly claimed the life of the 34 year- old doctor who first treated patients with it. (Heard of any young doctors dying of flu lately? Anyone anyone..)

      This ‘it’s just the flu’ theory assumes the Chinese are a bunch of delicate violets and the CCP frets if any have the sniffles.

      For a substantial part of this population, maternity leave is maybe 48 hours. More than a hundred million older Chinese will have experienced near starvation and many more will have heard their parents’ stories of the Mao famines (millions died)

      The everyday toughness of this population and its stoic acceptance of hardship can scarcely be imagined by post- WWII North Americans.
      But the ruthless CCP has supposedly ‘panicked’ and shut down a lot of its economy when ‘it’s just the flu’.

      • roddy6667 says:

        You are grossly uninformed about China. For starters, the universal maternity leave is 5 months pay and medical coverage. Starvation is a thing of he distant past. The citizens of the large Chinese cities now live longer than the average American. You are correct about the people not being wusses. It is not part of the Chinese culture to whine. The country here is getting back to normal. Over half the people are back to work, and the numbers are growing rapidly. The economy will go into overdrive for a while to compensate for the month off. In the long run, it won’t big a big loss.

        • nick kelly says:

          ‘Starvation is a thing of the distant past’

          Guess we have different definitions of ‘distant past’

          I’m 71 and remember Mao and the Cultural Revolution, although not the Great Leap Forward Famines of the late 50’s, because I wasn’t reading news then and also little was known outside China.

          The victims of the CR remember it better than I do.
          (Being deprived of food was standard punishment)

          Five months pay? No doubt for some. But I do know that about 80 % of the Chinese health care budget is consumed by CCP members and their families. So what does that leave for the other billion plus people, especially those in the villages? We know what the absurd, built in 2 weeks, so called ‘hospitals’ offer. An alternative to a real hospital, what we would (generously) call a hospice. A place to die. .

    • Wolf Richter says:

      Erle,

      Don’t fret over typos here. Autocomplete and autocorrect do their jobs. I make types and I have an edit baton :-]

  19. WES says:

    Wolf: Eskimos Quinn. Things are looking so bad in the markets that I am seriously thinking of jumping out of the 50th story window of my igloo!

  20. aqualech says:

    I love the whiplash comment – can’t wait to see the over-reaction by “The Authorities”.
    For my part, been wanting to go long VIX for weeks but afraid of said “backlash”: Still just sitting around watching.

  21. crv says:

    I don’t get it. If oil goes down, this should be good for users of oil. But stocks are down? Crazy world.

    • Social Nationalist says:

      It’s the weight of financial debt plus the counterparties. That was not there 20 years ago. It’s a massive wealth transfer from the middle of the country to the coasts structurally. Though the coasts have to deal with the debt cyclically, which is uncomfortable.

    • Lance Manly says:

      The US no longer really benefits from oil price reductions, since there is so much economic activity hre producing it.

      • cas127 says:

        Hmm…I think *maybe* fracking has just made price falls closer to a wash…direct employment in Oil is only about 200k…whereas a very, very high percentage of households own cars…and essentially everything gets delivered by trucks, etc. And we are still importing 35 pct or so of our oil…

    • Kent says:

      Oil prices go down. Stocks tank. CEOs get scared and slash staff and purchases. Unemployment rises. Lots of oil users don’t have money in their pockets. Those that do, keep it in their pockets because they don’t want to leave their houses due to coronavirus. Which way from here?

    • nick kelly says:

      There are the stocks of the oil cos. Even the majors not over exposed to shale are down double digits.
      Shale cos owe 200 billion of which about 80 is due in two years. They borrowed against reserves which at these prices are worthless.

  22. Gandalf says:

    A few thoughts:

    1. The SP 500 Shiller PE is still around 28. We are no where near a market bottom. The Shiller PE was 30 at its peak in 1929 before the Crash and around 27 at the peak before the GFC in 2008.

    2. This Everything Bubble created by three decades of monetary expansion, QE, ZIRP, etc. has skewed things quite a bit. At the bottom of the stock market collapse on March 31, 2009, the Shiller PE was still 15, which was as high as it had been in previous decades during economic BOOM times, prior to the current free money era.

    3. I hate the gobbledygook spouted by technical anal -ists, many of them predicting a quick rebound without a single clue as to how the COVID-19 pandemic will turn out.

    4. I hate the gold bugs. Gold prices skyrocket up during times of fear, and collapse during nice safe boring times – there’s an incredibly simple and predictable and understandable future history of gold prices available that PROVES THAT! If you think the world will be consumed TOMORROW by a zombie apocalypse and you will need gold to buy a ticket on that last refugee boat out of Dothan, Alabama then buy gold now. If you like buying high and selling low, buy gold now. Otherwise, wait 2-5 years after gold prices have collapsed from the current panic and buy gold for potential future needs with getting seats on refugee boats – it will be a much better value buy then

    5. The COVID-19 fears are causing a demand side loss from all the social isolation/quarantining going on. The real biggie will be if it re-surfaces and SPREADS in China and then causes a continued supply side loss to the world economy. There are strong suspicions that China is simply not reporting new COVID-19 cases anymore outside Wuhan, which is now the only major city in China that has not returned to normal levels of activity (via Tom Tom traffic site)

    6. That’s important because a prolonged supply side shock combined with the Fed’s interest rate cuts and monetary expansion is very likely to accelerate inflation. The return of inflation will mark the end of the Fed’s ability to use ZIRP and QE to boost the economy

    7. The US oil industry has weathered huge downturns before, especially in the 1980-1990s, when WTI dropped for long stretches to under $20. The fracking boom started when oil shot up to over $100 in the mid 2000s, largely due to the booming economic modernization of China. And yes, despite what some people have claimed here, fracked oil is very profitable at $100 or over.
    Here’s what else – people in the oil industry don’t jump out windows when markets crash. They hunker down and wait for prices to go up again and start anew. It’s the nature of the industry. Corporations may go bankrupt, investors and bankers may go bankrupt, but the experienced industry veterans will have extracted enough assets before the bonfire to bunker down for the next go round. Because there will be another go around.

    • Tinky says:

      Gandalf –

      Must you regurgitate the same, inaccurate nonsense about gold?

      – the vast majority of “gold bugs” do not view the metal as an investment, but rather insurance, or a store of value, and it WORKS

      – ALL fiat currencies are degraded by governments, lose value in the process, and eventually die

      – gold has retained value over thousands of years, and is a reliable store of value during currency crises

      – inflation of fiat currencies doesn’t get “resolved”, it degrades their value and ultimately kills them

      – the USD has declined over 90% in value due to inflation since the FED was created; at that time, gold had a “fixed” value of $20.67 per ounce; 20 1914 dollars now buys roughly $2 worth of goods and services, while an ounce of gold is worth ~$1600

      – most “gold bugs” have appeared since around 2000, after the tech bubble bursts, and the FED began its obviously flawed, serial bubble blowing policies, and the metal has increased in value over 7x since then

      – gold is at or around all-time highs vs. most currencies right now, and for reasons that were predicted by most “gold bugs”

      – viewing gold only through a USD lens is misleading at best; there are many individual examples, but holding gold in Argentina rather than pesos would have yielded MASSIVE benefits (it is up over 800% over the past few years alone!)

      – comparing gold to stock or bond markets is an exercise in futility, as the timelines chosen will produce radically different results

      Etc.

      • Gandalf says:

        Tiny,
        Believe it or not you actually have not contradicted anything I posted about gold. I’m sure you think you did but no, you didn’t

        I don’t expect to hold onto my gold for 1,000 years, btw

  23. Blockhead says:

    Would this be the time to short Trump?

  24. David Hall says:

    Banks are holding oil company debt. Midland, TX might expect layoffs.

    Vacation home real estate is a luxury not all can afford. Casino hotels are a ripoff. A coronavirus cruise is a bad trip.

    There are fewer new coronavirus cases in China than outside China. As China reopens businesses other parts of the world shutdown.

    Less than 4000 dead of a virus and the world panics. Fear destroyed more than a virus. Stimulus does not stop a stampede. The economy will worsen before it gets better. People are living in tents on sidewalks in LA.

  25. Mikey says:

    Fed will start buying shale bonds and stocks

  26. Sara Racano says:

    You have to give it to the Saudi´s & their IPO, selling right at the top of the market.

    • Lune says:

      Actually they weren’t all that lucky. They only sold 1.5% of the company at the IPO, on their local market, mainly to local investors who were gently “suggested” by the king that they should buy shares. International investors (which is where the real money is) balked at the price and stayed away.

      The goal was to do a nominal IPO in their local market where they could fix the price, make the price stay stable / go up for a year to reassure foreign investors, then do the real IPO for a much bigger chunk of the company in a foreign market in a year or so.

      Now that the price has gone below the original IPO, no one outside KSA will be touching it, and the whole IPO plan is screwed.

  27. hidflect says:

    I’m shorting banks in anticipation of the next wave: credit crises. How many more Lehman’s are there out there at the moment. It’s a safe trade because in the interim before they get exposed, they won’t be going up anyway.

    • p coyle says:

      i’m planning to sit tight until such a time the blood in the streets is so deep i have to start doggy-paddling to keep my head above it. then, and only then, will i take a flier on some bank stocks. that way, if they go to zero i don’t lose much (moral victory) and if not i get some fiats to spend on stupid plastic things.

  28. Brendan says:

    I find it hard to believe the Saudis would act against US interests. Is the oil crash designed to ameliorate supply induced inflation? Amazing how these guys love the “free market” when it works for them. Huge suppression of the gold price has been occurring lately. Give up guys it’s like a finger in the wall of a dyke. The whole system is gonna collapse. Soon.

    • Dan Romig says:

      ‘House of Bush, House of Saud’ by Craig Unger is an educational read.

      Saudi oil can be traced back to the first major find in 1938 at Dammam.

      In February 1945, FDR met with Saudi’s king and founder, King Abdulaziz, aboard the USS Quincy in Egypt’s Great Bitter Lake, and the USA won the rights from the king to develop the oil industry. Britain lost this because they had supported the Hashemite royal families of Jordan, and the king did not trust them.

      In 1948, the Ghawar oil field was discovered, and the rest, as they say, is history.

      https://www.fpri.org/article/2009/08/the-u-s-and-saudi-arabia-since-the-1930s/

      P.S. Wolf: Prescott Bush has an interesting history with Ray Kravis of your home town, Tulsa.

  29. otishertz says:

    Darn, I feel so sad. Here is my tiny violin. It plays a sweet sanguine song, remembering ten years of bullcrap.

    The chickens are coming home to roost. Nothing to eat but bullcrap.

    • Dave says:

      Watching the “Everything” bubble happen since 2008 has been bewildering. Not having the coin to be an investor I just made sure to pay off all debt and save. If this is the big one we are going to be in for a hell of a ride.

      At least I can afford popcorn now.

    • MC01 says:

      There’s a British toy company that manufactures miniature electric instruments called Tobar. I have their miniature violin in the top drawer in my boss desk here at work: each time somebody tries to play the pathetic angle with me it comes out.

      I suggest buying one right now because I fear sales are about to go through the roof.

    • polecat says:

      I’ll bet it plays a hot contango.

  30. Max Power says:

    So basically it comes down to this…

    Over the past decade central banks have goaded companies to load up on more and more and more debt (mainly used for financial engineering rather than investment, or if investment then much of it of malinvestment). Now, having loaded this gargantuan pile of debt on their books, companies have no slack to withstand even the slightest downturn.

    To add to this, having kept interest rates near the lower bound for far too long, central banks have run out of ammunition to respond to anything but the slightest downturn.

    Basically, everything was set up for perfection…

    Now out of nowhere emerges a Black Swan.

    Ooops! I guess we’re &00$#d!

  31. Michael Engel says:

    1) The new sultan kill his brothers, step brothers, his deceased
    father concubines and confiscate their assets. He build his own assets with fresh, beautiful concubines in his harem.
    3) Thus, shale must die, before MBS will fill his harem with $150 WTI.
    4) Putin smile. The Fed will plunge a coupe attempt and SPX500
    will backup.

  32. Paulo says:

    No worries! Think of the competent leadership in the WH.

    Artificially low interest rates kept the charade in play, and those making money off this nonsense played along with inertia and hype in order to profit. And now the brick wall.

    I got slammed for this, yesterday, but I look for war.

    “Follow the money”. You think the powerful are going to let MBS take down entire economies? This is the end of Shale, but I look for KSA to fall as well. I read all of the above comments and others on different sites, and this is not a gleeful moment. This is a financial Cuban missile crisis, a blockaded Japan, a thrashing harpooned whale.

    It’s always about money and the power it brings. Someone will strike out. If you think American leadership is going to stand for a repeat of FDR soup lines, Hoovervilles, and WPA projects in a time of instant social media and during an election year it’s time for a head shake. What will an oil glut do for an infected Iran? (It will increase desperation by a million times.) For oil oligarch thugs who own governments? Furthermore, when leaders are seen to be incompetent, are incompetent, they want to divert attention. This has always meant war. It might take a few months but it will come. Look for a sinking tanker, or two. Look for a response. Something will happen if the economy tanks, and how can it not? There was no economy to begin with, only manipulation for the selected few. And now, populations are becoming sick. All of it on Facebook and Twitter.

    This is way beyond making money shorting banks. These players are the ones who run the World. They won’t give up and go away while peons profit on shorting their weakness. The fuse is lit, in an election year, and they won’t go away, quietly.

    regards

    • Unamused says:

      TThe fuse is lit, in an election year, and they won’t go away, quietly.

      Yeah, right, elections.

    • VintageVNvet says:

      Good summary IMO, Paulo. Been saying for a year or so, in spite of no one wanting to listen:
      What happens to the economy between now and the next general election will indicate who the oligarchy want to be next pres of USA; and now, in spite of the recent actions of the FED, (owned by the oligarchs through their puppets in banking and politics) that appeared to be coordinating with the incumbent, this crash will lead to the more social one, or, more likely the biter who will continue to be obedient.
      This crash, coming now rather than closer to the election may also change the candidates on both sides, a lot, and give us a real choice this time, instead of having to choose between two crooks, eh?

      • Unamused says:

        This crash, coming now rather than closer to the election may also change the candidates on both sides, a lot, and give us a real choice this time, instead of having to choose between two crooks, eh?

        The opportunity will not go to waste. You won’t have a choice.

      • RD Blakeslee says:

        The best-laid plans o’ (the oligarchy) gang aft aglee (apologies to Robert Burns) The chosen one may not remain functional until November.

    • wkevinw says:

      I don’t know if shale oil is the main target, but it is certainly one of them.

      Other targets (my guess): Iran, Russia.

      US interests may have been aware of or involved in the price action by SA.

      The shale oil is like every other thing being traded: at some price there is a buyer (and producer).

      I suspect the little guys will go bankrupt and the big guys will buy up the assets.

      Same as it ever was.

  33. otishertz says:

    Witness deflation as a monetary policy tool.

    • otishertz says:

      I give it four months before there is a whole roll of obituaries in the financial toilet papers, Mortimer.

      Relax Mortimer… you see, if we destroy money now we get to create more later. Now, pass me my mint julep.

  34. Page88 says:

    Wolfe,

    Can you “color the comments lines (with different colors) that reply to previous comments”?

    Some comments have numerous replies stacked upon a comment that has numerous replies. When you “scroll up” to see where the reply “replied to a comment” there are numerous “vertical lines” attached horizontally to comments. Some “threads” are extensive.

    Thank you for observations and analyses on a wide variety of topics.

    This is “hands down” one of the best economic web sites out there.

    • GirlInOC says:

      Following replies on mobile is almost impossible. It’s much easier on desktop. (I’m on mobile right now and not even sure if I’m replying to correct comment ha!). But a drop-down for replies would be cool too (a la YouTube comment section)

      Wolf, how about a Wolfstreet app? I assume plenty of unemployed techies up there will need rent money soon.

  35. Michael Engel says:

    MBS and Putin signed a secret handkerchief deal to destroy US shale.
    Destroying US shale will crown comrades Burnie and AOC who hate shale.

    • Unamused says:

      MBS and Putin signed a secret handkerchief deal to destroy US shale.

      Destroy US shale? No. They’re fighting back to in the attempt to prevent their own destruction. They’re losing. Economic warfare can be very expensive, but the US shale oil industry can burn through all the free money it needs to win it. It should be obvious that profitability is not its goal.

  36. Say it aint so says:

    The days of easy money are over…Main Street investors are going to leave in droves and all of the Index funds will see mass exodus…wait until we start reading more about the locusts in Africa…Food Scarcity will become more of an issue than the oil and the run on toilet paper at Costco

    • doug says:

      Why would easy money go away??
      I suspect free cash for the right folks for a long long while.
      I don’t see what will change that, and would like to hear. Thanks.

    • Shiloh1 says:

      Kudlow, Powell and Mnuchin buying up the toilet paper at Costco to print more $.

      Vlad in the express line, buying popcorn.

  37. breamrod says:

    Wolf you have the perfect opportunity to cover your short. Congratulations on a great trade!

  38. Iamafan says:

    Wait, doesn’t the rich own most of the stocks?
    Reason for some optimism. Who cares?

    • doug says:

      Pension funds are not just for the rich…
      Many folks indirectly will be affected.

      • Iamafan says:

        They were already underfunded a long time ago. What’s the difference? So are define contributions, they are losing too. But they had a choice, right?

  39. Herman Böök says:

    Thanks for the great insights, Wolf! What are your thoughts on the future of Deutsche Bank, and whether it will finally be put down?

    • Wolf Richter says:

      Whatever happens to Deutsche Bank, the German government will not allow it to collapse. It’s too important for the German export machinery. Shareholders may get wiped out and CoCo bondholders may get wiped out, and the state may become a big owner, but the bank will live.

      Also note that it has been shrinking for years, shedding divisions and assets. So the bank is a lot less risky to global banking than it was back in the day. And it will continue to shrink. Its role, as far as the government sees it, is to support Germany’s industry, as it used to do before it tried to turn itself into a Wall Street hedge fund.

      • Trent says:

        Wolf,

        That’s not what i’ve heard via wallstreetonparade. They claim DB is a ticking time bomb due to the amount of derivatives they hold and the connectedness to other big banks

        • Wolf Richter says:

          That’s because these folks don’t understand or don’t want to understand how Germany operates.

        • Otherdayz says:

          And, to add humbly to Wolf’s re not understanding, ,,, any and IMO now a days, mostly, all posts are some combination of/and, and/to ”boots on the ground” personal reports, and, IMO, ” opinionating. ”
          Doesn’t really matter which side or any side of any real challenge or question, most all posts are, as said, combo of rumour, very subjective observations, at least some seblence or pretence at/of/ claimed subjective fact, (usually in my now extensive experience with extensive hidden, or even unknown by them, )opinions of fact collecting folks…
          Have fun with it, FREAK with it if you enjoy that sort of thing, but, eventually, do YO r best to figure out what is, in clear, concise, and commonly available numbers, YOUR best bet.
          Perhaps more close attention to both basic hygiene and YOU, as a possible carrier/sharer of this or any virus? YES, do it, for YOU and YOURS.

          (Sorry Wolf, got involved with more than on e subj at a time

    • fajensen says:

      If it ever gets to 3 EUR a share, buy lots of it! Maybe buy some now. DB will never go bust.

      Danske Bank I’d buy below 90 DKK/Share for the same reason – “Systemically Important”!

  40. DanS86 says:

    When did the CME put the SP500 E-Mini Circuit Breaker in place and does this only apply to the shortest duration contract?

  41. Paulo says:

    I just heard Cramer stating 0% loans for businesses to survive would be his choice, plus expect a bailout for the airlines. It was amusing watching the disbelief as Cramer finally stated we were in a Bear Market.

    At least the WH has stayed silent this morning. That’s a good thing, anyway. :-) (Picture this: 3 aides holding DJT down while someone someone else is smashing his phone).

    How an over reaction doesn’t kickstart inflation I have no clue? They’ll print and print and bail. Who is driving the bus, anyway? Oh yeah, the KIng of Debt, the Stable Genius. No worries, mate.

    • Say It Aint So says:

      Banks are too big too fail…
      Buffett too big to fail…
      Airlines too big to fail??? Have you flown lately…the flying experience has declined so badly in the past 5 years….they are all in collusion…check prices on a Monday…reporting Billions in profits…and now they are crying Wolf?
      There is no natural market anymore…FED will save the day….this is insane…

    • Harrold says:

      The White House hasn’t had a press conference this year.

      The grownups have all gone now.

      Nothing but the clowns left and they are partying like its 1928.

  42. RD Blakeslee says:

    “I think that I shall never see (wealth) as lovely as a tree”

    Apologies to Joyce Kilmer

    • Lisa_Hooker says:

      A Mountain Ash, for example, will grow two to three metres a year at an early age. This growth will slow to half a metre by age 90 and then stop growing altogether by 150. The total lifespan of a Mountain Ash is about 250 years.

      • RD Blakeslee says:

        Lisa, Unfortunately we have lost all of our Mountain Ash to the Emerald Ash Borer. What could not be harvested for saw timber was sold for pulp wood and we are burning some of the dead slash for firewood. Who to thank? Guess.

        https://www.arborday.org/trees/health/pests/emerald-ash-borer.cfm

        • Lisa_Hooker says:

          I’ve lost 3 beautiful Ash trees to the EAB. $600-800+ apiece to remove. We are not allowed to sell for timber because of the beetle, so I burned some this winter, and next winter, and next…

          As 2 of the trees were immediately south of the house I’ve lost a major component of my AC in the summer.

      • polecat says:

        I’ll see you your mountain ash, and raise you a white pine.

        • Insta says:

          A ranger taught the scout group I was with last spring how to mak tea from white pine needles. It was actually very good. It can be identified by 5 soft needles from each bud. He said not to try with red pine or ponderosa because they would be more bitter.

  43. Iamafan says:

    Meanwhile overnight Fed repo is at $112.932 billion this morning. Totally ridiculous.
    No circuit breaker for that.

  44. IslandTeal says:

    Bailout the airlines… Just get Softbank and Moshi to cover. Got an email from SW Air advising of the enhanced cleaning service….. LOLLOL

  45. Millenial says:

    Good job Wolf!
    I was laughing when you shorted stock market, but I see I have lots of to learn from you.

  46. The collapse in energy provides blowback through bankruptcy, jobs and then corporate debt in the aggregate. When the drillers close shop, the supply of energy is finite and prices rise – dramatically – unemployed oil field worker paying $5 gallon at the pump. A global conflict is one catalyst. Inflationary recession. Disconnect here between futures (global) and the market (domestic) doing what it always does (buy the open). As the day wears on fear of the overnight traders reasserts itself. In this hyper-accelerated world the other shoe does not need months or years to drop.

    • Iamafan says:

      I can just imagine those who left California for Texas and the other fracking States. Where do they go now?

    • Paulo says:

      Good comment, AB.

      “In this hyper-accelerated world the other shoe does not need months or years to drop.” That’s a lot of the problem isn’t it? Everything speeding up; growth, decline, fear, expectations, reactions and effects. All right now and yesterday. Hard to find perspective in this unrecognizable world.

      I just heard Richard Quest speaking on how this is no where near as bad as 2008 because the banks are now sound. My thought was this is just different, as all the wasted (borrowed) money buying back stocks has to now be paid for with declining cash flows. When the zombie companies can no longer find credit to keep the lights on and the office staffed, this will further speed things up.

      If the emperor has no clothes, he can’t have any cash in his pockets, can he?

      Tough times are good learning experiences. It won’t be the end of the World for those who have expected this to happen.

      • FluffyGato says:

        The Banks themselves are fine. Nicely capitalized and (generally) not engaging in reckless speculation a la 2008.

        The problem, which is being glossed over, is all the loans on the books to zombie/bad companies.

        Cov lite and ultra-tight pricing.

        Finance companies are far worse off.

  47. Iamafan says:

    Bloomberg just reported on the lack of liquidity to get out of the bond market. I think we’re gonna test ETFs soon. We’ll see if those passive index funds (actually derivatives) are going to behave on a major downturn.

    • Petunia says:

      This has been a known known for a couple of years already. Really have no sympathy for anybody caught in the liquidity trap for a few extra pennies.

    • VintageVNvet says:

      About damn time we got back to something at least close to basic appropriate relationship between companies and investors.
      The current scenario just a warble, waffle, and wind in the willows event, blowing what used to be just the paper, now just a few electrons (thanks Wolf for that) around and around, profiting only those crony, crafty, and corrupt enough to ride on the back of the real workers.
      As a life long small and local capitalist, now reaping the appropriate rewards of eating, drinking and being merry in the middle of my 8th decade, I can only hope this does some of the work to enable similarly focused and hard working younger folks to live their golden years in peace and prosperity, instead of their savings, etc., being ripped off constantly by the crooks currently in charge.
      My advice to the young folks is the same as was given to me at age 18: work hard, and ”buy a lot” (of dirt) for cash as soon as you can. And stay in cash as much as possible, only taking on regular payments when you have very clear regular income to cover the payments plus expenses.

  48. Iapetus says:

    Another reason for this OPEC price war might be a coronavirus related demand slowdown. China, which accounts for over 20% of total crude oil imports, has probably made significant coronavirus related cuts to its oil purchases. Japan and South Korea, which together account for an additional 14% of total crude oil imports, are probably starting to do the same. Other countries soon will follow.

    http://www.worldstopexports.com/crude-oil-imports-by-country/

    OPEC countries are deeply dependent on oil exports to finance massive fiscal budgets, and their royal families lifestyles. In the past, significant drops in oil revenues has forced OPEC countries to sell foreign assets in order to cover the resulting budget and current account deficits.

    https://www.reuters.com/article/oil-price-saudi-reserves/update-1-saudi-drawing-down-fx-reserves-to-cover-deficit-data-suggests-idUSL6N0WS4BU20150326?

    If OPEC countries believe that demand for exported oil will meaningfully shrink in the near term, then this price war may be a consequence of every member trying to maintain their current revenues by capturing a larger share of the shrinking oil pie.

  49. Shut Down Congress NOW says:

    With 66 of 100 senators over the age of 60, the average age of the House at 57 years old, and the presidential canidates in their 70s (per Bloomberg), I think Congress should shut down as if only ONE of them gets critically sick from this virus, it will create real panic as it becomes reality to Americans that this is more than the flu.

    Shut down Congress…too many elderly and pre-existing conditions members who are highly likely to get sick and destroy what confidence is left. What we should be fighting is Panic, not the price of SP500…

    • WES says:

      Shut:. For all the reasons you have listed, we should keep Congress open!

      • polecat says:

        I don’t know about that, WES ..

        The putrid gas-baggery that abounds within each of the CONgressional Chamber pots is Quite a force to be reckoned with .. especially when any chance for fresh air ‘changes’ to enter the sausage factory is automatically blown back out amoungst the plebbians, by positive grift pressure ..
        The only thing one can do now, is to hold one’s nose, turn one’s back, and Run !

    • Swamp Monster says:

      On the contrary, keep Congress open and make sure not to disinfect.

      Drain the swamp!

  50. Saylor says:

    One note of interest regarding said virus. I have a friend in western Mass. This friend has two clients that are degreed and certified health care professionals. There are now 5 known and quarantined cases in the immediate area.
    —No mention of it in the local media.——
    The local media outlets are owned by the Sinclair dynasty.
    The Sinclair dynasty is very conservative.
    Guess who they support?
    That aside. I’m betting on a deflationary period setting in. The oil event is a separate black swan from the virus event IMO

  51. MCH says:

    Can you imagine if Coronavirus turned out more like the spanish flu, the market will go back o what it was in 1987.

    The problem now is all about the velocity of information and the speed of the reaction, it’s happening way too fast. Before anyone has a chance to think about it, a computer with an edge case somewhere already picked up on the news and sold all of its existing position, which cascades and triggers other computers to do the same. All before anyone has even gotten up to think about things, the market has been wrecked.

    • Saylor says:

      This does not look like an algo fire sale. The oil plunge appears to have happened just after the last OPEC meeting happened.
      The commodities drop looks more like a supply chain event.
      Oh wait….Larry Kudlow says there is no supply chain problem.
      LOL

    • polecat says:

      Docktor polecat looks throught he scope .. humm

      He sees a Financial Blowup fused to a Bio Contagion, to form a double helix made in Hell .. with the markers p-a-n-i-c attached to the rungs of a downward spiral.

    • VintageVNvet says:

      Do not agree,,, I, without a ”dog in this fight/situation” have been getting out of the sack early for a couple days, just to tune in and find out how much fun happened while i slept… and, after that, just trying to keep on having fun watching…
      ONLY with the velocity of information at the same and honest level as his,,, going forward will We the People catch up to JP to be able to trade in real time in accordance with our own inclination, intuition, and real time information.
      I would really and truly hope that all of the BIG boys of the walled street and similar could come to understand that is the only long term way forward, sooner or later and no matter how much suffering it takes.
      Until then, all of them and us ”peon investors” will continue to suffer from the very very bad synthetic offerings based on the backs of the working people.

  52. Bobber says:

    Anybody heard from Powell? I heard he may have fled the country. sarc.

    Bernanke and Yellen are probably holed up in a forest somewhere, looking for good squirrel and crow recipes.

  53. The market is waiting for a coordinated response. A number of stocks related to energy are trading in forced limited range. The market has front run the Fed, implying lower rates they would mandate using QE. The next crisis is USG funding. Who wants it? Hedge funds buy the bond ETF, the ETF holds the (hot potato) paper? Rates must rise and nimble players switch quickly to short bond funds, volatility reigns. Then heck freezes over (but not in a straight line).

  54. Chukulik says:

    Hi foxy
    There has been a bit of adjustment… so what! As you have always said dead wood needs clearing and the cycle can start again… hey nothing new too see here.

  55. Curious says:

    While there’s concern for Saudi and Russian profit losses, along with our own oil companies, it seems few are mentioning the major benefit to consumers and businesses.

    Oil prices are now about half what they were a few months ago. Gas prices are dropping at the pumps. So considering that the average American spends nearly $400 per month on gas, why aren’t we cheering? Then add in the money to be saved by businesses, including trucking, shippers and airlines, retailers, and of course home owners, who will be saving on heating, and it seems that most Americans will be saving a lot.

    Why does it seem like everyone feels sympathy for drillers and OPEC companies, when average people are the ones supporting their industries?

    • JM says:

      Good demand, the free market is starting to work again, which is the best solution for the economy by saving billions from consumers who will revive the world economy. The drop in the cost of oil is the longest news.

    • Jonathan says:

      Pump prices always rises instantly with crude price rises, while it takes forever to go down after crude drops.

      Sorry, what sympathy for these petroleum jerkasses again?

  56. elysianfield says:

    “Why not?
    Italy is starting to do just that.
    I’ve spoken to my GP here in Australia and it’s expected that a variation of the China quarantining will happen here if things get bad.”

    Les,
    Why not? Because we are not nearly as civilized as you might think. Try to quarantine Detroit, Baltimore, Oakland or a number of other cities and they would burn.

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