WASHINGTON, December 10, 2014 – Wednesday is a day that will live in infamy, at least for those invested in stocks. As we write this, stocks across the boards, with few exceptions, are taking a nosedive to hell. The market, in general, is beginning to resemble the very flat and very dead specimen of roadkill we’ve pictured above.
As we write this around 3:00 p.m. EST, the Dow Jones Industrials are off a blistering 254 points, the S&P500 is waterfalling down past a negative 30 points, and the NASDAQ, at -61+ points and sinking looks like it’s about to be taken out back and shot.
The big culprit, as it’s been all week, is big oil. In turn, the bigger culprit is oil itself, which is now flirting with the notion of dropping below $60 bbl. for West Texas Intermediate. That’s the price, more or less, where the Saudis said that even they might worry.
The Saudis are playing a dangerous game as they attempt simultaneously to put U.S. frackers out of business while also tormenting the
Soviet Union Russia whose Czar Vladimir has not been at all helpful to the Kingdom’s interests in the Middle East.
The Saudis aren’t being particularly helpful to fellow OPEC members either, particularly the likes of Islamofascist Iran or the Communist Kleptocracy of Venezuela. Both of these economically infantile regimes have given away far more of their oil money in recent years to buy favors from foreign governments they’re trying to co-opt.
But now their chickens are coming home to roost as well as oppressed citizens in both countries are taking notice of catastrophic inflation as well as the absence of goods on store shelves.
The Saudis at this point risk letting this get out of control. Further, if the price drops continue, OPEC risks splitting itself apart and along with this, its nearly 50-year domination of international oil prices.
The starting point for all this has been the phenomenal success of unconventional oil exploration in the U.S. Suddenly, the once-doomed, totally energy dependent U.S. is awash in domestic oil and gas, even in the face of Luddite opposition from the usual wealthy eco-freaks and their best friends in the Obama Administration which wants to price fossil fuel energy somewhere in the stratosphere and drive the middle class to extinction with high fuel prices.
So now what are they gonna do? Fossil fuel prices are dropping like a Daisy Cutter and Futureworld is as yet unknown.
Aside from obliterating stock markets, which were arguably overbought anyway, the oil price drop promises to put plenty of bucks into consumer pockets almost instantly. That’s a welcome step in the right direction, given that the average middle-class worker is still essentially flat, wage-wise, with where he or she was over 20 years ago.
It’s one of those situations that has rotten outcomes for holders of oil and oil-related stocks, for the Russians the Venezuelans and their client states, and anyone else involved in the oil patch.
On the other hand, it’s the only bonus check the average American worker will get this year, some of which, at least, will get spent on something else besides gasoline, all of which should juice earnings of consumer-oriented companies this quarter and in the quarters beyond.
Which makes us wonder why everything on the market today—save for the airlines (big low oil price beneficiaries) and healthcare (sucking in money from the Obamacare monster, presumably)—is headed straight for Hades this afternoon. Looks kind of like a good old-fashioned selling panic to us, consisting in part of short selling, margin calls, and wholesale dumping, all worsened, no doubt, by the “liquidity” the HFTs are supposedly providing.
Making matters worse are the lingering effects of the latest Chicom austerity moves—almost totally unexpected by most traders—and the increasing rumblings from the Fed, re: the dreaded interest rate increase we all know is coming soon. Just like Godot.
We’ve been reluctantly selling off the rest of our oil holdings for nasty losses. Materials stocks look like they should depart our portfolio as well. At this point, aside from an occasional dead-cat bounce, it looks like this decline could have a fair bit further to go. Much more of this and we can kiss that 2014-Santa Claus Rally goodbye.
Nothing much to recommend here to day, so we’ll cut this one short until we can survey the damage and figure out what to do next. For now, the bears are in complete control and they look particularly vindictive today. So, like Yogi says, this one “ain’t over ‘til it’s over.”