Crude craters again, ruble routed, chaos reigns in stocks

Crude craters again, ruble routed, chaos reigns in stocks

Wile E Coyote.
Wile E Coyote is back again, telling us which way stocks are going this morning. (Warner Bros. character, mod by the author)

WASHINGTON, December 16, 2014 – Last week’s stock market horror show, arguably kicked off by Saudi Arabia’s extreme oil aggression game, continued in Monday trading action on Wall Street with the Dow getting whacked another 100 points or so. But early last evening, futures indicated we’d likely be getting that oversold bounce rally we’ve been looking for today.

Wrong answer. Enter the Rushkies and Czar Vlad I. Shocked at how badly the Russian economy has been battered by Western sanctions—levied in response to Vlad’s naked aggression in Ukraine—the Russian government was more staggered than most oil producing nations by the Saudis’ ham fisted attack on oil prices, geared toward maintaining their world oil market share at whatever the cost to anyone else.

That cost proved too high last night in the Kremlin. So, primarily to protect the oil-fueled ruble, which has been sinking at a rate at least twice the speed of sound.

Market futures were even happier for a moment. The ruble briefly soared, the Russians were prepared to announce the success of their bold interest rate move, and stocks were set to rally this morning on Wall Street.


After what seems like about 15 minutes of reflection, futures, world markets and the ruble did a quick, decisive 180 and started nosediving again with a vengeance. Adding literal fuel to the fire, oil, which seemed to be stabilizing, has started to head south once again as a prelude to this morning’s trading.

Here’s a simple, blow-by-blow account from ZeroHedge, with bracketed terminology translations by the Maven for those who don’t follow all the jargon:

“The latest rout continues to be driven by the relentless plunge in Brent [North Sea Crude, the generally accepted world benchmark] which also continued crashing overnight to fresh 5 year lows, sliding decidedly under $60 as WTI [West Texas Intermediate crude, the American oil benchmark] dropped well under $55 as well. …. it is not just Russia, but every single petroleum exporting country that is suddenly seeing a currency crisis, and spreading to all EMs [Emerging Markets] with the Indian Rupee weakening the most since 2013, Indonesia lowering the Rupiah’s reference rate by the most on record, and so on. Ironically, this happens as the USDJPY [U.S. dollar-Japanese yen currency pair] is also crashing and dropping moments ago to 116.25 [yen to the dollar], the lowest level since mid-November. At this rate the Fed will have no choice but to intervene, however in the opposite direction, and admit that despite all its best intentions, the US can not decouple from the rest of the world and a rate hike – so very priced in by everyone – is just no going to happen in the coming years (which sadly means that the latest subprime debt driven “recovery” is about to be called off).”

In other words, in the opinion of some, the worst thing the Fed could now do in its announcement tomorrow is eliminate their soothing magic words, “for a considerable period of time,” when referencing how long they still intend to keep interest rates low. Common wisdom has it that if they do alter this phrase, the world will come to an end.

Common wisdom, of course, comes from the ignorant business punditocracy, a cadre of lousy touts who are always hawking their book while “guiding investors.” Likely all these naysaying clowns want to add to the panic since most of them went short some time in October or November when they saw the writing on the wall.

Today’s trading tips

Mr. Market always has surprises in store for those indulging in hubris, so we plan to lay low, stay on the sidelines, escape a few more positions if we can while staying fairly fully invested, and laying on a bit more in the way of hedging, increasing the position in SH (the S&P 500 short ETF); possibly juicing it with the double short S&P ETF, aka SDS; and maybe even taking a shot at DUG, the double short oil and gas ETF—although we should probably have taken that train last week. A snapback rally at some point this week is now more in the cards than ever, making DUG a theoretically short-term trade at best.

Aside from this, it’s likely to be more weeping and gnashing of teeth, at least at the opening bell this morning. Everything is likely to get badly hammered, as people just want out and are jamming the exits.

HFTs and hedgies continue to bang things down as well. This creates a situation where there literally are no bids. Thus, spreads between bid and ask, even in major company stocks can get huge and unstable, and, as the asks just seem to disappear, the bottom starts to fall out.

What would be nice if we could get a record volume day with a 2008-2009-style washout at some point. This would exhaust the selling and perhaps start things back up again much more slowly this time and on a more even keel.

Problem is, the downtrend is also accelerating tax-loss selling, so it’s hard to find even a dead cat bounce let alone a good snapback rally.

So, aside from the possible above suggestions, we’re probably going to go down the street and take the new Silver Line metro somewhere interesting and wait until all the idiots get done ruining pensions and retirements again, largely thanks to our good friends in Saudi Arabia who hate fracking even more than Obama does.

Caveat: Again, the Maven tells you what he’s up to. Do your own due diligence—no recommendations here. And if you mess with leveraged ETFs like SDS and DUG, remember: you could lose half your money in 10 minutes or less. These are not even remotely investments, just hedges meant to be entered and exited very quickly. If you can’t watch your portfolio like a hawk—i.e., if you’re at a day job—careful, careful, careful.

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Terry Ponick
Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17