False alarm: Rally on oil “freeze” fades, reality intervenes

Positive post-holiday market takes a pause in the green zone in Tuesday post-Presidents Day trading. Oil wobbles, gold drops. "Roll them bones."

"Roll Them Bones." WPA drawing, circa 1935-43, by Irving Guyers. (Copyright-free Image via the New York Public Library Digital collection.)

WASHINGTON, Feb. 16, 2015 – The excitement building prior to Tuesday morning’s opening bell on Wall Street has faded quickly in the first two hours of trading. The big news hitting the tape was that the Russians and Saudis had absolutely reached an earth-shattering agreement on ratcheting back oil production, something that’s desperately needed at this point to stem the ongoing and disastrous crude oil price decline.

Unfortunately, as the Maven often tells anyone who will listen, “hope” is just another word for “mirage.” And indeed that seems to be the case for that earth-shattering Saudi-Rushki “pact.” More recent reports indicate that all this pair of major oil-producing dictatorships has agreed to is a “freeze” in current production, every so slightly below the level both countries have been pumping all along.

Given that Iran—eager to goose its own dismal production (which will further flood the market for crude)—that Saudi-Russian agreement is effectively a complete bust and not a miracle worker.

By simply agreeing not to pump any more black gold than they’re already pumping now, this stand-pat “agreement” is less than a zero sum game and solves precisely nothing at all with regard to the world oil oversupply problem. That’s because, as Iranian production begins to pick up steam, the oversupply situation will continue to get worse, not better.

Bulls, of course, are looking for any kind of salvation in what’s turning out to be the Bear Market of 2016, although it actually started sometime in 2015. West Texas Intermediate (WTI), which early in the a.m. had been up over $3 per barrel, is now actually off 51 cents, sitting at a rather pathetic $28.97 bbl. That kicked the props out from under Tuesday’s building rally. The Dow—up a good 150 points at the open, is now fading, bouncing between +95 and +110 as we reach the 11 a.m. hour.

Look for a brief secondary rally even as we write this, given the habit of American markets trading higher for at least half an hour after European markets close. Why this is, nobody seems to know, but there you go. But lately, after the 11 a.m. positive flurry, markets tend to resume whatever they were doing, which would likely mean Tuesday afternoon markets will fade.

Like even those well-known, blow-dried, lousy touts appearing regularly on CNBC-TV, however, the Maven really has no clue as to what will go on for the rest of the day. That will be determined how the machines that do most of the actual trading read the hourly headlines, tea leaves, lies and rumors.

Like today’s illustration above, “Roll them bones,” which catches a rowdy game of craps in progress, this is exactly what investing feels like in 2016.

Today’s Do Not Trade Tips

We continue to refrain from doing much investing in this environment. Since the turn of the year, little experimental trades we’ve run have consistently guillotined results in our portfolios and we’ve gotten a little gun-shy in Mavenland. Most of the problem is due to volatility—the fact that this market does nothing half way. With almost any trade you venture, including conservative trades, you either get rich or head for the unemployment office in a day or three.

This is absolutely the most treacherous trading environment we’ve encountered in decades. Even the crash of 2008-2009 was manageable, in the sense that, with only an occasional day off, everything everywhere went straight to hell, leaving you with two clear investment choices: short everything that wasn’t nailed down, or just get out, put your money in your mattress and hide.

Today, when you see a big rally, you jump in, hoping to ride the uptrend long enough to recoup some of your horrendous 2016 losses. Or, when you seen the market tanking, you cleverly pile on the shorts and short ETFs to catch some plus side profits on these downside trades.

But in both instances, whenever you act, the machines jump in and whipsaw the markets in the opposite direction and you lose again. At some point, you just have to get off for awhile so you’ll have at least some chips left to play with later on. Assuming there is a later on.

We continue to hide mostly in term-preferreds, which still get hit somewhat, but whose fixed dividends are usually safe. A few short term CDs with pitiful yields a couple of telcos (like AT&T, symbol T) and utilities, and, occasionally, an oil refiner (notably Valero [VLO]) and that’s about it. REITs look better here now than they have for a while. But the machines keep hitting them, so better to wait until the smoke clears.

In short, we all have other things to do than obsess about this rotten, unpredictable market. The nonsense will be over when it’s over. And then maybe we can start to do some financial planning once again. Right now, it’s all about portfolio triage.

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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