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Thursday, March 28, 2024

Monday Market Madness

Oil is at $142.50.

That's it, I can end my column there.  What do you think is going to happen with oil over 100% higher than the high of Q2 last year?  You can cut back your consumption by 30% but if they drive the price to $200 a barrel, you'll be just as broke – only 30% less mobile than you were.  This morning we had the usual pre-market Nigerian rebel attack…  Well, that is to say according to CNBC there was a platform attack in which 5 people were killed.  I'm still waiting to see it pop up on a legitimate news source but I think it's just another case of CNBC reading Wednesday's copy by accident on Monday, ahead of the scheduled attack.  These mix-ups occur frequently in the summer when Rent-A-Rebel requires advanced notice of all attacks so as not to conflict with vacation schedules

Don Harrold made a scheduled attack on the Fed over the weekend and I can't say I disagree with him at this point.  Certainly the free market couldn't possibly screw the people of this country more than an active Fed has been doing lately.  The only possible way I could find a legitimate justification for the Fed's actions last week was if they KNOW, for an absolute fact, that the oil bubble is about to collapse and they are leaving liquidity in the market in order to lessen the devastation of the now $6Tn energy sector dropping 30% in short order. 

With oil at $142.50, it seems more likely that Don Harrold is right and even Cramer was right, after he was wrong, and then right, and then right even though he was wrong…  I spent the weekend reading lots of different viewpoints on the market and my conclusion is – nobody has a clue what's going on so I may as well stick to my guns.  My position is:  I think the markets are oversold.  I think that the woes of the world are entirely due to commodity prices, particularly oil, which is sucking up 10% of our Global GDP and 30% of the planet's disposable income, taking much needed money away from housing as well as goods and services.  I think the price of oil is greatly exaggerated due to speculation and I think that the price is unsustainable.  That is the crux of my bullish premise so if oil keeps climbing here, I can't be bullish.  

This isn't about the dollar, the dollar was just 3% higher last November when oil was 42% lower.  As I mentioned in today's article on the dollar, the entire S&P 500, when measured in the price of oil, is off 62% from last June – that's a pretty steep decline!  The S&P's value peaked out recently against oil in Jan '07 at 26.88 barrels of oil to the index (about 1,425/53) .  On Friday's close, you could get just 9.07 barrels of oil in exchange for the index.  That is a 66% decline from the peak – isn't that enough of a sell-off in the value of US companies?  If oil goes to $200 a barrel and the S&P falls another 20% we will achieve an exchange of just 5 barrels of oil to the index, another 40% effective decline in the S&P and we will have cut the value of our market by 80% to OPEC, who use oil to create their wealth.

That's how bad this situation is folks yet you allow it to go on every day that you don't do something about it, don't make other people aware, don't ask your elected leaders to act.  This is your country that is being sold down the river, one barrel at a time while this administration tells you that more drilling, not less consuming, is the answer.  This country does need to become energy independent but it is much faster to conserve.  In WWII rationing cut our use of fuel by 25% almost overnight.  I'm not saying we need to ration, but we sure need to start getting rational!

Asia continues to feel our pain as the Nikkei drops another 0.5%, most of it in a very steep drop after lunch, back below the critical 13,500 mark.  The Hang Seng flatlined for the day, holding the 22,000 line (down 50%) while mainland China dropped another half point and India took a 2.5% hit as banks fell out of favor around the globe. 

ChartOver in Switzerland, the Central Bankers got together to talk about inflation and the European markets are very mixed this morning, with the UK up a point and Germany down half a point.  Euro-zone inflation hit a record 4% and is driving the dollar further down as EU bankers HAVE to act to get back to their 2% target zone.  The Bank of International Settlements issued their annual report from Basel yesterday and they paint a dire picture for the global economy, stating we are at a "tipping point" where further increases in oil and commodity prices can lead to a global collapse and "urged most central banks to raise their key interest rates. 'With inflation a clear and present threat, and with real policy rates in most countries very low by historical standards'."

At home, things are going to be simple – our markets will do whatever oil doesn't, there's not enough data to suddenly buck that trend.  Even the cost of rebuilding the World Trade Center has gone up 50%, "just" 6.5 years after GWB promised to do everything he could to help NY get back on it's feet, the only thing we can say is thank goodness we're not New Orleans – those guys REALLY got screwed! 

We'll be hoping to rebuild our virtual portfolios this week but I'm expecting a flatline into the holiday with the real action coming next week as earnings season kicks in.  Would I like to trade a barrel of oil for a share of IBM plus $20?  Sure I would!  Would I rather have 10 shares of Apple or 8 barrels of oil, 21 shares of Boeing or 5 barrels of crude, perhaps a share of Google in exchange for 4 barrels?  Things have certainly gotten crazy but I think a prudent investor can skip a couple of $75 fill-ups to buy some VLO at $40 or INTC at $21 – there are so many things I would rather have than a barrel of crude and I don't think the speculators will be far behind me, now that we've knocked the S&P down 67% to the barrel.

 

 

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