WASHINGTON, December 4, 2014 – Once again, the Maven has little new to report today. December trading thus far has resembled Bill Murray’s endless temporal do-loop in his immortal 1993 comic film, “Groundhog Day.” Or maybe the action has been like the dumpy looking guy trying to order dinner on that cable TV pizza commercial, but is stuck on the phone, “waiting and holding and waiting and holding for the rest of your life…” as the jingle goes.
Scenario: the market opens up or down, wobbles around indecisively until around 10 a.m. or so, then zooms up or down some 50 points depending on whether oil stocks are up 2-4% on the day or (more likely) down by roughly that amount. At which point, usually between 2-3 p.m., these same stocks take the opposite tack, but frequently reverse again at the close as the HFTs predictably scalp the little guys with a massive flurry of nanosecond trades the little guys never see.
Déjà vu all over again, as American philosopher Yogi once put it. That’s the best way to describe this endlessly repetitive nonsense. If you had the time or the inclination, you could almost take one bet on oil stocks in the morning, then reverse it in the afternoon and make money twice a day. But who has the time to do stupid stuff like this?
And it’s not really investing. Worse, odds of winning consistently are probably worse than taking on one of those one-armed bandits in Vegas. The HFTs will get you every time. Like those “no-see-‘ums” who invisibly bite you to death on the beach, they bite you and split before you even know what happened.
Today, the bellwether Dow was off as much as 91 points at one point before moving to slightly positive. Now at nearly 3 p.m. EST, it’s off nearly 20 again. Who knows where it will close?
Oil is off a bit this afternoon, rebounding from a sharper move down this morning, and currently sitting at $66.66 per barrel of West Texas Intermediate (WTI). North Sea (Brent) Crude, the world benchmark (for some reason) is a couple of bucks higher but still anemic. So the oil companies and anything associated with them go up (and down) and up again but mostly down, as if oil prices will never recover. Which we all know they will.
Trading is frustrating enough. But how about the real-life results of this fall’s massive drop in the price of crude? Much lower prices at the pump, a welcome Christmas present for middle America whose paychecks have statistically remained stagnant for nearly a decade now. It’s the only way they’ll ever get a raise as long as Emperor Barack I remains in power.
But why aren’t prices at the pump even lower? CNBC was asking the same question online today, and reporter John Schoen says that maybe it has to do with rockets and feathers.
Economists call it the “rockets and feathers” phenomenon. Rockets zoom higher, but feathers float lower.
There’s pretty wide agreement that gasoline prices seem to rise quickly when oil spikes, but they don’t fall so quickly when crude crashes. There’s little consensus about why.
The latest data point comes with the recent plunge in global crude oil prices; West Texas Intermediate has fallen from a summer peak of about $102 to just above $66 on Thursday. That’s a 35.3 percent drop.
During the same period, the average price of a gallon of gasoline has fallen from $3.87 to $2.86—or just 21 percent.
It’s gotten a little lower in a few areas of the country, but that’s still kind of pathetic, given the continuing oil price drop. By our calculations, the national average should now be roughly $2.50 per gallon if you believe CNBC’s figures.
Schoen notes that there’s little consensus as to why gas prices rise so quickly when oil is going up but drop so slowly when it’s coming down. That’s the problem you have when discussing such stuff with East Coast journalists, though. They only talk to economists, lefty politicians, and others.
Middle America, though, came to a consensus on this phenomenon long ago. The answer: high oil prices enable big oil and service station owners to stick it to the public but good and increase profit margins. But when the per barrel price drops, their not eager to start shaving margins to help their captive consumers.
True, if the per bbl. price drops today, service stations probably have more expensive refined product in their storage tanks to sell today and maybe tomorrow before you get your next delivery of somewhat cheaper product. But, that said, turnover is fast, and at lower prices today as well. But why squeeze your fat margins when you don’t really have to? It’s the American way. Or at least has been for the last 30-40 years or so.
To consumers, this is all too obvious. But since no one cares about them anymore (since they no longer vote predictably Democrat), why should anyone listen to them?
Ditto in market trading. Oil’s gyrations are influencing not only oil stocks but other stocks as well, whether they’re remotely involved in energy or not. The only things doing more or less okay this week have been biotechs and some techs. Everything else stinks, or else it’s lather, rinse, repeat.
The Maven paired his oil holdings somewhat yesterday, just because. Discipline demands that you sell losers after exceeding a certain percentage loss. Otherwise, you keep holding the bag as HFTs slam these stocks down harder and harder, causing negative moves that, like recent ones, are magnified by forced margin selling.
We all know (and the HFTs and the Saudis know) where prices are likely to bottom, and that point is not too far from here. But the usual suspects will keep slamming these stocks down relentlessly every time the dip buyers come in, before reversing field and buying at a predetermined bottom.
That’s why it’s hard to completely abandon the oils, even though you’re getting it in the ear. You want to average some more shares in at the bottom and then ride the next (inevitable) wave up. You just can’t see it on the horizon for the moment. But the machines have got it all laid out for them, so never fear.
In short, the Maven is bitching today because the market is more than usually difficult to trade. Oil and other commodities have become a wasteland, many stocks are dropping steadily out of sympathy, and, of course, we’re all going to die. It makes for really poor trading, since no one’s “systems” are working at all. So rather than give you bad advice today, the Maven is going to sign off and have a drink, virtually certain he’ll be re-running the same day tomorrow.
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