WASHINGTON, February 12, 2016 – As Thursday’s meat-grinder trading session limped to an end, bulls and (perhaps) HFTs sought to pull the 2:15 Buy Program Express out of the train station. They only partially succeeded. The widely followed Dow Jones Industrial Average (aka the DJI, DJIA or simply “The Dow”), which had been down a whopping 400+ points earlier in the day, ended up reclaiming about half that distance by the close.
Why the about-face? A late oil-related rumor had arrived in trading circles mid-Thursday afternoon. Just like the previous late rumor, it seemed that the Saudis and other OPEC members were talking once again about a production cut that might put a floor underneath international oil prices which, as of Thursday, seemed headed rapidly toward oblivion. Hence the late rally attempt.
The stories and rumors gathered steam overnight and now have reached fever pitch, blasting decimated West Texas Intermediate oil futures (the U.S. number we follow here) up a whopping $3.07 bbl. as of Friday’s noon hour EST. That’s an amazing 11.6 percent in just one day. Back in normal times (remember them?), moves of a dime or three were considered pretty substantial.
This very move in the price of oil shows you just how volatile and violent all markets have become in 2016. Currency moves of 1-3 cents or more per day are also relatively common now in a world that used to experience tiny daily variations of 1-5 thousandth of a cent per day. Ditto stocks.
No more fractional moves anywhere these days, except for a select few preferred stocks, perhaps. Wild, disconcerting moves are the order of the day, and, like a roulette wheel, nobody knows at which number the insanely gyrating action will stop when the 4 p.m. closing bell is rung on Wall Street.
That’s what’s got most individual investors—and many professionals as well—so freaked out that they’re just exiting to cash, battening the hatches and hunkering down like coastal Floridians awaiting the onslaught of a Category 5 hurricane. But today, those traders and institutions remaining are enjoying what may be a dead cat bounce related to Friday’s oil move.
As we write this, stocks for the most part are partying hard, with the Dow up almost 1.5 percent. Ditto the S&P 500, up 1.41 percent. The NASDAQ is lagging a bit, up “only” 1.15 percent. But the NASDAQ alone looked a bit more healthy than the other two on Thursday.
What can anyone make of this? The alleged OPEC meeting of the minds has yet to occur and may be just another rumor to quiet down the ongoing panic in markets. No one has confirmed any kind of consensus. It’s virtually certain that some of the cartel’s more disadvantaged players, notably Venezuela and those always shrinking-violet Iranians are trying to shift oil’s tectonic plates to aid their dying economies. But that hasn’t meant a thing to the intransigent Saudis, our good pals, who only want to destroy the U.S. shale oil phenomenon before they’ll let up on their suicidal game.
If this latest OPEC rumor doesn’t have legs, we can look for another sickening market dive next week, or perhaps even later today. After all, Monday is another U.S. holiday when all exchanges are closed. Given 2016’s stomach churning action thus far, it wouldn’t be surprising to see the Big Boys book some positive trades and exit before Friday’s close. We’re not about to predict the outcome, since everyone’s predictions these days, including many of ours, end up being flat wrong just hours later.
Markets seem to sense that the heretofore-omniscient central banks have completely lost control of the actions inside the funhouse. Oil has turned out to be a particularly insane variable. Ditto the central banks’ so-called interest rate policies. Intended to stimulate both national economies and inflation, they’ve failed at both, largely because all that extra money never went where it was needed most: job creating small businesses and consumer pockets.
Finally, there are those wild and crazy “new economists” over in Chi-com Land. Much-admired, until last year, for their brilliance in improving “capitalism” by fiat, these wiseguys have rendered their own credit and stock markets utterly unreliable, drying up sources of international capital right when these Marxist autocrats thought they were on the verge of knocking off the U.S. dollar in favor of King Yuan as a standard for international transactions. Moving right along….
All this instability plays out daily in today’s markets, mostly to the detriment of investors who, unfortunately, pretty much have nowhere else to park their money even to gain a pittance of interest. Now the central banks are talking NIRP (Negative Interest Rates) instead of merely ZIRP (Zero Interest Rates). The Eurozone is already committed to it, and even Janet Yellen hinted at some openness to the tactic during her confusing Congressional testimony this week.
Confused? We sure as hell are. So let’s try to stay at least 50 percent cash and enjoy the holiday weekend before returning to the fray next Tuesday.