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Wednesday’s markets: Obsessing on oil, UPDATE on the Fed

Written By | Feb 18, 2015

WASHINGTON, February 18, 2015 – We expected more action in Wednesday’s markets after a lackluster post-holiday Tuesday performance. However, it’s more or less like our favorite metaphor for boring days this morning—Waiting for Godot.

Oil is slightly to modestly down this morning, which is strange enough, given this morning’s banner headlines about how market-timing guru and head of the One World Communists, George Soros, disclosed that he had invested in the oil patch big time in Q4 2014.

Personally, we despise this cynical investing pro. But his calls tend to be on target, whether or not he’s manipulating market sectors in his direction with the billions of dollars he controls. What that oil patch investment likely means is that we’re hovering around at least an intermediate-term bottom in the per-barrel price of oil.

We predicted some time ago that for “a considerable period of time” as the Fed was once wont to say, that oil prices would likely meander between $40-60 per barrel of WTI for the indefinite future. Soros’ bet makes this scenario rather more likely, although in these markets you never know, and even Soros has his limits. Though we rarely see them.

But, as we hit the noon hour today, what the market is really hung up about is what the Fed will say when this financial oracle shares its observations later this afternoon.

The Wall Street Journal reports that Fed hawks are pushing hard for the removal of the central bank’s current market-soothing magic word: “patient.” As in, the Fed will be “patient” as it considers not if, but when it will start raising interest rates.

According to the Journal’s reliable inside guy, John Hilsenrath,

“Cleveland Fed President Loretta Mester is joining a chorus of central-bank officials who want to take a tentative step toward raising short-term interest rates at midyear by altering their pledge to be “patient” before making a move.

“Dropping that language about patience in its policy statement, as Ms. Mester suggested she wanted to do, would mean the Fed is done promising continued near-zero rates and is officially opening the door to a rate increase in June. The central bank has kept rates near zero for more than six years.”

In other words, the usual suspects in favor of eliminating or altering the magic word have apparently added to their number the new, more hawkish, opera-loving president of the Cleveland Fed. This makes it likely that the Fed’s statement will include a more specific Washington-speak weasel word, perhaps pointing to a June rate increase, something many investors are starting to bet on.

Of course, what really matters more than when is just how aggressive the Fed plans to be once it starts jacking those long moribund interest rates back up again to some semblance of normalcy. Anyhow, we’ll just have to wait and see.

Given that the markets seem to have factored a rate increase into their prognostications already, we may not see much of a move this afternoon. However, if the bears are ready to party hearty and if the HFTs decide to turn today’s Ash Wednesday into a negative extension of last night’s Mardi Gras Festivities, we could catch a wave of selling after the announcement.

Or actually, slightly before, as “they” always get the news ahead of time while the 99% have to wait. We’ll add a slight update to this column telling you where things end today, likely just after the market closes at 4 p.m. EST. So check us out around then for the rest of the story.

UPDATING: We’re back, a bit after 4 p.m. EST to report that the Fed indeed left the magic word “patient” in today’s report. While the number of Fed interest rate hawks seems to growing, the Fed reports, in Washington-speak of course, that the numbers they’re seeing aren’t exactly robust, implying that any interest rate move that make may have to wait until the third quarter. But that’s a guess.

Bottom line: This was good news for the bulls. But apparently, bullish Wall Streeters were celebrating at New York’s downtown watering holes and not buying, as the Dow closed off a bit as did the S&P 500. The NASDAQ, however, was modestly higher. Maybe tomorrow will be more interesting, particularly if oil continues today’s decline, which also weighed on the market on the whole, as did the report that Warren Buffett had dumped his entire position in Exxon Mobile (XOM). That didn’t help the Dow very much, for sure.

Today’s trading tips

Today would be a treacherous day to get into anything, although the Maven did sniff around a bit, picking up a partial position in Devon (DVN) an oil driller-producer with primarily domestic exposure.

Devon was reportedly one of Soros’ targets last quarter, meaning he bought his shares lower. But this has been an undervalued play for some time and, given that it’s been hit for over two points on the downside today, we decided to take a small bite of the company’s stock with a 50-50 chance we may have to average down.

Oil and oil stocks are still highly unstable. But this modest purchase of DVN, we think, constitutes relatively informed bottom fishing, although it may require a considerable period of “patience” before we can do our happy dance.

We already have a small position in Netherlands-based international oil giant Royal Dutch Shell (symbols RDSA or RDS/A) that we’ve been down to flat on for over a month, which is fine. In fact, we actually hope the stock takes at least one more big trip to the cellar so we can add to our position, averaging down in the process.

We also continue to pick into a few of Schwab’s ETFs, a trivial five shares at a time, trying to average down for what hopefully will be a decent market move upward before we have to start worrying about “sell in May,” an old saw that may be a damned good idea this year.

Remember, though: this stuff is what the Maven is either doing or considering. Since the Maven is no longer a registered anything, you’re best off checking any of his ideas with a professional investment advisor before you act. 2015’s markets have been extraordinarily touchy and treacherous thus far, so caution remains the watchword.

* Cartoon by Branco, reproduced with permission, which entails providing a link to the original at Mr. Branco’s website.

Terry Ponick

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