Trump promises a truce in the oil wars, which led to a jump in markets.
Only problem is, I’m not seeing any real signs of a breakthrough. Both KSA and Russia have a reason to crush US shale.
I agree - it was weird news to move prices as much as it did. Kremlin denies that Putin spoke to MBS (as Trump had claimed), and all Trump said in his tweet was that he hoped and expected that there would be production cuts. It’s not the case that he was announcing that anyone had agreed to anything.
In the short-run, the price is killing SA and Russia, but, yeah, in the long-run, if they can last that long, killing off higher-priced producers (US Shale, eg) would be good for them. I wouldn’t be surprised if they tried to cut production a small enough amount to keep the price below the point of profitability for US Shale but high enough to prevent something crazy, like negative oil prices.
I could see a temporary truce if only to prevent a suicidal crash in prices, but anything long-term is probably not going to happen. KSA and Russia are highly dependent on oil, and US shale is a major competitor. Even if it’s ill-advised to double down on oil, they’re still going to do that anyway because resource-rich, authoritarian societies typically find it difficult to diversify economies. Not saying it can’t be done, but the system of kleptocracy and corruption that they’ve developed is most likely built around it. Tinkering with the system in any meaningful way risks creating a rival economic and political class.
It kinda, sorta works in China because China has a 1,500 year history and culture of civil service and administration - shit, you could argue that they invented it. But elsewhere, it’s going to be a major challenge.
Govt. has the tools to discourage buybacks (buyback taxes etc.).
The thing is we all want to think that we are all good enough to save/earn whatever money we did but we wouldn’t acknowledge the fact that our jobs were created/sustained by QEs plus low interest rate scenario in some way.
My country(India) has much less domestic household wealth invested in stock market(it’s mostly in gold, real estate) than America. so America naturally has to support it’s stock market more than my country.
Hmm. A quick Google search shows that the Indian market has a $2.27 trillion market cap, while the US market is $21 trillion. That’s the NYSE. NASDAQ is 11 trillion. I’m not sure when the site I found was published, so it might be a bit less now.
Today the stimulus package forbids companies from using any loan money for buybacks, plus it would not be politically feasible. However, about half the tax cut for business money was used that way. The question is, is that an investment?
Low interest rates might support good companies, but they also support companies that really should die and would without access to cheap capital.
In America unfortunately a small percentage of people own most of the stock. The remainder are affected by market collapses not from losing investment money but from losing jobs. I’m sure it is the same there.
Anyhow, I hope you are safe and are able to get food and other necessities. I have lots of former colleagues in India and helped start a technical conference in Bangalore (scheduled for June, it will probably get postponed) so reading about your situation is very scary.
WTI @ $25/bbl is good enough for Russia’s and Saudi Arabia’s needs in regards to putting a good sweating to overleveraged American shale producers. They’re not trying to put Exxon or Marathon out of business, they’re killing all the guys with 1-20 leases and tons of debt.
Thanks. I am safe and am able to get the food and necessities. Pray the same for you and your family.
I hope and pray that medical therapies and measures similar to lockdown work in USA and everywhere else and soon we get back to normal.
Here, the holding structure is let’s say 55% promoter, 30% FII, 5% HNI and retail and just abt 10% domestic mutual funds. Here, retirement funds don’t invest in stocks, it’s 99% fixed income. If an individual has got surplus money which he has to invest he will most likely do so in real estate probably 1% will come in mutual funds. What I am trying to say is that Americans in whatever extent they may be investing in stocks, is far more than an average Indian:)
I am one of the very few people who were nearly 80- 90% invested in stocks when this crash happened and that money is down 30-40% in one month 
Yes there are hazards but I would still say net-net it’s a positive. Start ups Companies which are now big ones like Uber,Tesla etc. come to mind.
I’m having trouble wrapping my head around the long game here. The US oil and gas doesn’t go anywhere. The current highly leveraged owners and their financers may go out of business, but the juice is ready to flow for anyone who buys it up at bargain prices.
Unless the plan is to keep prices low forever.
Once shut down, it will take significant capital to reopen, and it takes a very large capital investment to frack for new wells. The hope is that a large wave of bankruptcies will deter banks and investors from putting that capital forward next time. Once bitten, twice shy. I think it’s really more fair to call that a medium-term play. Even SA and Russia probably realize that the long-term demand for oil will crater as the world (slowly) creeps towards taking climate change seriously.
I think this is just getting started. By the time the Great Depression reached its peak, the Dow was down 90%.
This is a different beast. Tread carefully. There may be a lot of volatility on the way down (which may provide trading opportunities) but there is almost no way the dow doesn’t drop more.
And yet we are constantly being told that 401Ks are better for you than a pension.
It took 30 years for the stock market to recover from the Great Depression. The DOW was at ~5200 before the stock market crash. The Dow did not see that again until December of 1958. That’s damn near 30 years. Who can afford a 30 year recovery period? Can you?
I live in Silicon Valley, so I like start ups. But a lot of these companies are zombies, which means that their income does not cover their interest payments. Their bonds are just above junk status and with the hit in revenue will be going into junk status, which means a lot of funds will have to sell them. Which means they will go under permanently.
That loss of jobs is going to hurt for longer then the loss while companies shut down. I think people here are just beginning to recognize how bad it is.
I lost a ton of theoretical money in 2008. I held on and made a bundle.
Thanks for the information on how your system works. I never spoke of investing with my friends. And we’re doing great. Both us and our kids and our grandkids.
We were one of the first to lock down, and it seems to have helped.
You do realize that March 27th was a triple witching date right?
Don’t try to predict where the market will be tomorrow. Try to predict where it will be in 6 months.
Market volatility is still very high. Premiums are high for both puts and calls. That’s sort of the way volatility works. But over the long run, it’s hard to see how we maintain these market prices.
I expect companies to start missing dividend payments. Then watch out.
I don’t. This isn’t my first rodeo, and I am well aware of the billion of factors that can affect the market day-to-day. But, nonetheless, one listens to the news, sees 6.6 MM first-time new jobless claims - 8x what we saw during the worst weeks of the Great Recession - and the market goes up a few hundred points. Long-term valuation metrics put the market at middling-to-highly valued while the economy is melting down around us, and one just shakes one’s head.
There seems to be a drumbeat of “the market fell 20% from its highs, so it must be a good time to BUY BUY BUY!” All without any recognition that the market valuations at its peak were insane, and a return to normalcy isn’t a sign to buy under normal circumstances, and a return to normalcy during the beginnings of what will be at least a very sharp recession means we’re still grossly overvalued.
One just shakes one’s head.
The only thing I’m seeing so far is that US regulators have been invited to participate in an OPEC meeting, the focus of which appears to be cutting the global glut of energy. Any “deal” would likely require the US to agree to steep production cuts, so if Saudi and KSA agree to anything it’s probably going to be predicated on the US energy sector going dark for a while.
Politically sensitive considering PA and OH are energy states. Trump’s going to get tossed a live one.
Ten years with dividends, nominal, so not even counting deflation.
Just thinking out loud here and getting this out of my system so that I hope I don’t ‘see’ this in my dreams, but what are the chances that we pump 5-10 trillion (with a T) of stimulus into the economy…and it still ends up collapsing anyway?
Not because there’s not enough will and not enough money, but because of incompetence (and yeah, corruption), and because economic institutions don’t have a lot of experience in these situation, the stimulus doesn’t get out fast enough, and into the right hands, and in the right amounts in the right hands, and it’s horrifically mismanaged and wasted all over the place.
Aaaaaaand just like I thought: Trump’s “deal” is a crock of total shit.
In other words, the markets got fucking played. Maybe investors are going to learn that just because Trump has inside information he doesn’t necessarily know what the fuck he’s talking about.
Here’s the reality: at least one of them - KSA or Russia - but quite possibly both have a reason to crush US energy production. Our energy independence is an existential threat to both MBS (and the House of Saud) and Putin’s kleptocracy. As I mentioned before, the economics of resource-rich states, more often than not, lead to over-dependence on these resources and discourage real diversification. This is not destiny, but rather tendency. And these corrupt kleptocracies have now built their little micro-empires around the systems that have a desire to keep the status quo. Moreover, these resources are also ways to keep the peasants just content enough not to call for violent overthrow of their governments. And in Russia’s case, energy is political leverage over Europe. Competition from abroad undermines all of this. There is no fucking way that they can ignore US shale and US energy independence. It just doesn’t work for them.
Any “deal” is going to have to have major, major concessions from the US side, and we’ve not even gotten to the negotiating table yet to find out what they are. My hunch is that this “disagreement” (okay, yes, I’ll confess: my conspiracy theory) is a way to put more pressure on the US. This is the perfect time to wage an oil war, when the US president is running for re-election and the economy is in a free fall. He’s not in a position to fight wars on multiple fronts. The “deal maker” is going to get played because unlike so many times in the past: he’s not the well-hung billionaire in the room. It’s MBS and Vladimir Putin who are. This time, he’s the contractor that’s going to get schlonged – well, he and a lot of others in the American economy.