WASHINGTON – This column went AWOL Tuesday, pretty much because we’d already written a good bit on this week’s oil price and oversupply disaster here and here. And there’s no point repeating yourself. But the oil situation began to right itself today, as West Texas Intermediate (WTI) oil futures have now moved to the new current contract. Unlike Tuesday, investors rejoiced when oil went positive. The result: a bullish Wednesday buying panic. This market is insane.
The good news: the price of oil has moved from negative to positive, de-spooking the stock market and re-encouraging terrified bulls to come back and buy. The bad news: WTI oil prices still look pretty anemic at roughly $14 per barrel, not high enough for any oil company we’re aware of to make any money. Nor is the $20.31 bbl. price of Brent crude, which markets generally focus on. That’s much more encouraging for oil fans and investors. So much so that this alone (plus maybe the Senate’s passage of yet another stimulus bill) launched today’s buying panic in the market.
That said, the very fact that we’re getting a positive number again on WTI indicates that we are likely at the beginning of relative oil price stability and are ready to watch the cost of oil begin to recover. And its price to increase. That, of course, is the good news for the market.
There’s bad news, too
The bad news: the price of oil will recover very, very slowly, likely taking 6 months to a year to recover to, say, $30-$40 bbl. for WTI. So that’s how long it could take oil and oil-related companies to crawl back out of the deep hole they’re currently in.
Even here in suburban Virginia, the locale where oil price gouging seems to be the rule of the land, we’re seeing prices at the pump clustering around $2.19 per gallon. I suspect a few other areas of Northern Virginia are lower still, and further suspect that many areas of the country are enjoying a sub-$2.00 price at the pump. That’s great for consumers. But they can’t enjoy it much at present, since there’s pretty much no place for the average American to go, except maybe the local grocery emporium or Home Depot.
Which, in turn, is one big part of why we’ve been awash in a tsunami of crude oil. No one is pumping it because they’re mostly stuck at home.
Change is a constant in this market. And Americans want change. Right now.
But this has begun to change as a few states tiptoe back out into the big, bad coronavirus-invested world and take their chances.
Which brings us to the likely results of liberating the populace of the US at large. Things like today’s bullish buying panic add yet another impetus to the mass cabin fever that average Americans are ready to terminate. The demonstrations we’re seeing in favor of opening things back up are just the start. You can only hold back this economy for so long. The persistant buying panics that tend to hit the stock market right after a horrible down day or three are likely signs of real impatience in the investing community. But the market is only reflecting what’s likely going on in the vast part of America between each of our weirdly dissident coasts.
What will really happen when we re-start the US economy?
I usually avoid predicting the future, because someone or something always throws a monkey wrench into the possible variables. But only after one has made a prediction.
In other words, for something that we’ve only recently gained a working knowledge of – that “novel” coronavirus from *uh*an (decipher that spelling, social networks) – no one is really sure how this will work out in the short to intermediate term.
Which brings us to the politics of the moment – politics that shouldn’t even be there. But it’s there because America’s large, mouthy, uninformed and ruthlessly pushy Orange Man Bad contingent would rather America stay shut and fall into ruins. That would be just fine for them. Particularly if that’s what it takes to bring America’s socialists back into power this fall to complete Barack Obama’s “fundamental transformation” of the US into something more closely resembling Cuba or Venezuela. Destroying the US economy would be an excellent start. In that direction. It might give Sleepy Joe the edge he desperately needs in order to overcome our activist president in this November’s election contest.
Meanwhile, Middle America itself doesn’t want any part of staying home forever, losing all their savings, and getting more furious by the day. They’ve done their bit, have lost at least a month of income right now (until and unless they get one or more paychecks from Uncle Sam), and they’re ready to go back to work. Pronto. And, I should add, most are even willing to catch the coronavirus to do it. You won’t see this mentioned on CNN.
Rational vs Irrational
Rational citizens know that the roughly month long quarantine has allowed a temporary reconfiguration of hospitals and emergency facilities to the point where the rampant coronavirus can no longer overwhelm the medical community. So, given that what we’re dealing with is not much more than a flu with a very selective designated victim list, it is, in a way, not much different from the regular flu we’ve endured for at least a century now. One that morphs every single year, but one that’s generally been contained by annual, updated flu shots, which are fairly protective but not perfect.
As a result of the “normal” flu, people forget (and the Democrats never tell them) that the flu bug that shows up every fall in the US kills roughly 40,000 to 65,000 per year and has been for many, many years.
What will happen here is that sometime this fall or next spring, the scientific community, working at admirable warp speed, will manage to concoct a vaccine, potion, drug or other treatment that will provide roughly the same kind of temporary immunity to the novel coronavirus as we enjoy (more or less) when it comes to the garden variety flu bug.
At which point the crisis is gone. In the interim, things will remain screwed up. And people will go back to work and revive the Trump Economy at breathtaking speed. And things will be good until the next disaster shows up, uninvited, at America’s Front Door. That’s the way it goes.
So, a V-shaped recovery?
But this process will clearly form the backdrop for the US economy over the second half of 2020. If things take off at an enthusiastic clip, say by July or August, we might even glimpse an early return of the Great Bull Market. We might see buying panic after buying panic, day after day. After all, there’s a lot of catching up to do for investors who got caught in the Wile E. Coyote-like cliff-dive Mr Market took in March. Their first challenge will be getting back to even, as defined by this past February’s dramatic market peak. If that should happen, Trump will win Election 2020. And get impeached again for something.
Otherwise, if the voters turn on Trump and elect Biden (or some drafted substitute TBA), politics in The Swamp may revert to the normal situation here. An ongoing political and moral disaster best characterized by the term “snafu.” (Look it up.) The consequence: the building bull market, that had assumed a Trump victory and a rampaging bull stampede on Wall Street will nosedive so fast and so hard that we’ll quickly forget the bi-polar but still strongly negative market we continue to endure today.
That said, investors breathed a sign of relief this morning, largely because due to the re-emergence of an actual oil price. The Dow is currently up nearly 500 points as we near the 3 p.m. ET mark Wednesday. That’s a 2.14% gain thus far. IF the Dow can hold it.
The bullish buying panic continued Wednesday afternoon
The broader S&P 500 is up 67.90 points for an even better 2.5% gain. And the tech-heavy NASDAQ, which got seriously smacked around Tuesday to everyone’s surprise, is trying to claw everything back today with a whopping 252 point bull stampede for an amazing gain of 3.04%.
News media to the contrary, America is still a resilient and determined country with resilient and determined people who are ready to go back to work and pick up life where they left off. Many of them are already agitating and protesting that they want to resume their lives right now. And if they have to face what we always face anyway with the regular flu, they’re willing to take a chance on beating back the new flu, too.
It will be interesting to see how this plays out. And it will be even more interesting to investors to see how Mr Market deals with the outcome as it unfolds.
– Headline image: The bull looks set to go after the bear at the stock exchange in Frankfurt, Germany.
(Image via Wikipedia entry on market trends, GNU 1.2 license)