Oil down sharply Monday as Saudis, Iran, Russia pump away

Monday report finds that old-fashioned active fund managers, aka “stock pickers,” take worst hit ever in 2016 according to Bank of America Merrill Lynch data.

Wile E. Coyote must have added oil stocks to his portfolio at the wrong time. (Warner Bros. cartoon image mod. by the author)

WASHINGTON, April 4, 2016 – As of the final hour of trading, Monday’s insane market moves are making it seem as if trading firms, funds and HFTs alike forgot that April Fool’s Day was Friday and not today. A continuing and rapid drop in the price of West Texas Intermediate (WTI) oil from its market-exciting plus-$40 peak just a week or so ago isn’t helping. WTI currently sits at around $35.77 bbl., off a nasty 2.77 percent.

CNBC has been a cornucopia of information today on the whys and wherefores of the oil drop, but mostly we’re dealing with the usual suspects here. The network reports online that

“Iran will raise its crude output and exports until it reaches pre-sanction levels, the semi-official Mehr news agency quoted Oil Minister Bijan Zanganeh as saying. Last week, a Saudi prince reportedly dismissed a production freeze plan without Tehran’s involvement.”

The Iranians refusing to cooperate with the Saudi-Russian fake freeze in oil output? We’re shocked! Shocked! In truth, why would anyone ever believe anything Iran’s mad mullahs and their lying minions ever say anyway? Since their 1979 “revolution,” what passes for a government in Iran has been lying nonstop. (They even give the North Koreans a run for their money.) You can only believe Iran’s government when they say they want to destroy Israel and the U.S. That remains the absolute truth. It’s rock solid. A lead pipe cinch. It’s axiomatic that everything else is always a lie.

Which the Saudis and the Russians already knew when they got everyone excited by sort of announcing a possible “freeze” in oil output. They knew the Iranians were eager to replenish their DOA economy so they can finally afford to manufacture the missiles and nuclear warheads it will take to create Armageddon in Jerusalem.

The mullahs are now on track to pump all the oil they could find just as soon as now that Barack Obama has given them the billions of dollars to do so. Which means the Saudis and Russians are laughing their heads off at the West for ever having believed their phony “offer” to begin with.

The naïve West continues to underestimate the cynicism of these players, none of whom can ever be believed. So why today’s news seems to be such a surprise to traders is beyond the Maven’s ken.

Despite this news, however, the Maven suspects that the massive short squeeze in oil futures finally ran its course last week, the longs got over confident about oil’s potential to extend its winning streak, and now they’re getting hit with a fresh batch of enthusiastic shorting, since habitual shorts never quit the game, even after a beating.

It’s all a game for the big boys, in the end, having little if anything to do with reality and a lot to do with buying and selling on the rumor or on the latest news reports. This, in turn, makes it almost impossible to make money in today’s markets by any traditional means or by following previously time-tested investing methodologies.

It’s likely this phenomenon that drove a second key CNBC story today, headlined “Stock pickers just had their worst quarter ever.” Reporter Jeff Cox writes

“Fewer than 1 in 5 large-cap funds beat the S&P 500, the lowest level since at least 1998, the furthest back Bank of America Merrill Lynch data go. (The S&P gained 1.4 percent in the first quarter). For growth-focused funds, the news was even uglier: Just a 6 percent beat rate at a time when the S&P benchmark has gained just over 1 percent year to date.”

In case you don’t quite follow this one, the steadily shrinking tribe of mutual fund and hedge fund managers who try to beat the market averages by picking the right stocks have had their faces rearranged thus far in 2016. In the main these are the guys who work their tails off trying to make the right stock picks at the right time based primarily on technical analysis (charting) and/or fundamental analysis (finding stocks that are trading cheaply in spite of superior and reliable earnings).

Back in the early 1980s when the Maven was actually in the business, you’d find the hot analysts in your firm and go with their picks to get the best returns for your clients, which, of course, was always the best way to build your client base and your business. It was a no-brainer.

But today, after a great deal of turmoil in the industry, the art of stock picking is failing, big time. The reason is quite simple: HFTs have destroyed the system, either by mass buying or selling huge batches of individual stocks in a given industry, or by doing the same with the larger exchange traded funds (ETFs) that passively include the entire basket in one unmanaged fund that tracks the averages.

When the HFTs collectively make their move in these vehicles, everything in that sector moves right along with them, up or down, since the volume of trading they creates obliterates the trading volume of regular old hedge funds, mutual funds, and the vanishing individual investor.

Trying to fight these clowns and their clearly illegal game is getting ever more frustrating to old-time stock pickers—like the Maven, alas—so to survive, the non-HFT actors in this business need to figure out a better way to game the gamers.

That’s our quest here in 2016, and we have some ideas about how to do it, which we’ll begin to unveil in a future column.

We thought last week we might have some good trading tips today. But let’s settle down and see how this latest game in the oil patch plays out before we take a chance on getting feisty. No point in giving away even more of our cash to the rapacious HFT crooks who continue to run the table while the SEC and this Administration look the other way.

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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