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Page added on January 24, 2016
Volatility, oil and stock markets
“Down” is such a downer word. That’s why when prices fall for practically anything Wall Street wants to sell you, Wall Streeters talk about volatility instead.
Volatility allows for the possibility that prices will recover soon and go to new highs. Any setback is just temporary. The market turbulence, it seems, is merely designed by invisible market gods to test your character as a long-term investor. Don’t give in to panic, the investment people say, and you’ll be rewarded.
Until you aren’t!
A year ago I said the crash in commodity prices signaled a weak economy and that financial markets would eventually have to reflect this fact. The widely watched S&P 500 Index closed at 1,994.99 on January 30, 2015 just prior to the publication of the linked piece. Last Friday’s close was 1906.90. The U.S. stock market hasn’t exactly reflected the weakness in commodities, but it hasn’t gained any ground either.
In addition, last August I wrote that low oil prices were also a reflection of this weakness and that all the talk about cheaper oil giving a boost to the economy was misplaced because of the immediate loss of oil-related employment and of revenues to companies and to governments which, of course, tax the oil. The S&P 500 is down about 200 points since then, but any significant adjustment still looks like it lies in the future.
Of course, starting in August stock markets around the world began to fall. Central banks reacted with words of support, and the U.S. Federal Reserve Board of Governors put off a long-anticipated interest rate hike because of weak market conditions.
Stock prices then rebounded to near their previous levels and all was forgotten…until the beginning of this year. The continuing rout in oil prices began to underline not only the weakness in the global economy, but also the unclear situation at major banks holding large energy-related loan portfolios. The Dallas Federal Reserve Bank was reported to have encouraged banks in its jurisdiction to forebear on energy loans. Essentially, the Dallas Fed was telling banks to ignore losses in their energy portfolios until further notice so as not to cause a panic. The reserve bank quickly denied any such guidance to member banks.
The truth in this particular instance may not matter since what we do know–that energy-related junk bond losses are at 2008 crisis levels–could suggest that energy-related losses at the world’s banks may end up being the size associated with the subprime mortgage crisis that brought the global economy to its knees in 2008. It is worth remembering that in 2007 then-Federal Reserve Chairman Ben Bernanke assured the U.S. Congress that “the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.”
These and other anxieties moved stock markets and oil down sharply last week before a bounce that was in part inspired by central bankers in Europe, Japan and China who all signaled the possibility of more easing.
What many average investors don’t seem to know is that rallies in bear markets tend to be steep and dramatic, while rallies in bull markets tend to be more muted, taking place over longer periods. It should also be said that corrections in bull markets are often the kind we saw in August and January, dramatic and steep. But there comes a time in the life of every bull market when the dramatic, steep corrections just keep going and turn into a crash. Just ask those playing the oil market.
Perhaps we are not yet there for stocks. Bull market psychology is very hard to dent, especially after one of the longest positive runs in history. Even though stock prices have become detached from economic realities–crashing commodities being the reality I watch closely–stocks have continued to rally back after steep losses based on investors’ buy-the-dip psychology. The last recession began in December 2007, but the crash didn’t come until almost a year later.
Investors in oil and other commodities and in commodity-related companies have had their heads handed to them. Stock markets in commodity-exporting countries have also fallen steeply. The central banks can’t control commodity prices the way they control money and credit. For that reason, I think commodities are a better overall gauge of strength in the economy.
The question for investors this year will be something like this: Can central banks keep stock markets around the world afloat despite poor fundamentals? I’m doubtful. They didn’t prevent a crash in 2001 or 2008, the first the result of a tech bubble and the second the result of a housing bubble. Both bubbles were caused by easy credit due to low-interest rate policies by central banks that stoked overinvestment. With short-term interest rates near zero for seven years in major economies, central banks are repeating the same mistake again.
Contrary to popular belief, central banks are not omnipotent. The oil and commodity bubbles they helped to blow have already burst. Most of the world’s stocks markets are already in bear territory as of January 20. Before the late-week bounce, the U.S.-based S&P 500 Index was down 14 percent from its high in May last year. The Nasdaq Composite was off 16 percent. It’s doubtful that any major stock market will simply continue to ignore what is happening in the real economy for too much longer.
Oversupply in the oil market may explain much of the drop in the oil price from $100 per barrel to $40. Some will say that recent additional weakness was due to the lifting of sanctions against Iran, a move that opens the way for substantially higher oil exports.
But oil traders have known about this for months, and it was already priced into futures markets. In my view, only exceptional weakness in the global economy explains oil dipping into the $20 range. In doing so, the oil market has provided a warning for anyone who is willing to see it.
80 Comments on "Volatility, oil and stock markets"
onlooker on Mon, 25th Jan 2016 3:06 pm
It is a misnomer to characterize us as “doomers” when in fact we are realists. The state of the planets ecology, the immense population, the continued use of a polluting ,harmful and increasingly economically scarce principal energy source, the increasing scarcity of key resources especially relative to population and now the destabilization of the climate system leave a reasonable person with no other option than to concede we are in a predicament/mess which we will not come out of without huge negative consequences. Of course some are not reasonable hence their misguided beliefs.
Apneaman on Mon, 25th Jan 2016 3:17 pm
PracticalMaina, did they discuss the growing tech waste stream in that course you took and what it would look like if it was scaled up?
The dystopian lake filled by the world’s tech lust
Hidden in an unknown corner of Inner Mongolia is a toxic, nightmarish lake created by our thirst for smartphones, consumer gadgets and green tech, discovers Tim Maughan.
http://www.bbc.com/future/story/20150402-the-worst-place-on-earth
GregT on Mon, 25th Jan 2016 3:21 pm
Practical,
Anything that requires the growing exploitation of non-renewable resources, is not sustainable. This isn’t a matter of doom and gloom vs hope, it should be basic common sense.
Boat on Mon, 25th Jan 2016 4:19 pm
GregT,
Your just an extremist. Homes today can last for generations with replacements parts from Home Depot. Foam insulation in new homes is the best tech going. If every building in the world was foam insulated, used LED lighting and had modern efficient heating and cooling systems we could shut down thousands of FF power plants. Clear common sense.
Boat on Mon, 25th Jan 2016 4:37 pm
onlooker,
“It is a misnomer to characterize us as “doomers” when in fact we are realists”.
I have read about immediate to very soon crashes for over 10 years. Doomers were even cheering during the crash of 2007 and for a couple of years pointed out all the recession stats as proof. The last few months are no different. Some of our own doomers say three years tops and there has to be a crash. One poster here that is well respected and a doomer favorite (BC) thought the crash would have mayham in the streets by January.
I get labeled and lumped with cornucopians because if there is a major crash it will be decades from now. Saying it will take climate change that long to get bad enough to cause extreme financial impact world wide.
Then there is short who says oil will bring down the world for various reasons. Another well respected PHD popular doomer. Well he is on the clock now as BC was. We’ll see, won’t we.
See onlooker ya’ll get lumped together because you doomers as a group call us other posters names and don’t debate each even if you have differences. Your a cult of unfair practices. A bunch of doomers.
Now your predictions? Let’s get you on the clock.
makati1 on Mon, 25th Jan 2016 4:40 pm
Practical, after reading the above comments, you seem to think that all of the things you mention,(heat pumps, etc.) cannot just disappear in an eye blink. Am I wrong? Because, when the collapse comes, and it will, most tech will disappear quickly. Oh, the ones you have will last as long as their design, but there may not be any electric to power them. Then they are just expensive junk.
Suppose we get hit with a solar flare that fries everything with a computer chip in it. (We barely missed that a few months ago.) Or an EMP pulse from a foreign power nuke that wants to destroy the Us economy? Or just a breakdown in the social system that takes out the power plants?
Tech is not the cure, it is the cause of the problems today. Tech is destroying the very ecosystem life needs to exist. More tech is only going to speed that decline/death up, not slow it down.
You are correct about the planet being able to support 7-10 billion people with a reasonable lifestyle, IF we didn’t waste it’s resources on junk, to include techie toys. But the top 1 billion just want the bottom 6+ billion to go away so they can continue to play with their throwaway junk a few more years. Or so it seems to me.
onlooker on Mon, 25th Jan 2016 4:42 pm
I don’t make time period predictions. I just point out trends and pressure points building up. Truth is Boat in all seriousness I am worried. But my worrying does not mean I suspend my critical thinking capabilities and cognitive functions. So you want a time prediction okay I predict all of us here will be dead in 100 years time. So my worrying is somewhat superficial as in the end we are all dead men walking.
Practicalmaina on Mon, 25th Jan 2016 4:50 pm
Jeez I school boat and it’s like I’m stepping on you guys toes, I can’t even see back to that now. Apneaman I’ll start with you cause I like you’re links. It was discussed a bit, I talked to a solar installation company owner who told me of a website he referred customers to that graded based on environmental damage associated with different panel makers. China’s cheap panels usually score the worst. The good heat pumps are Japanese German or american, so China and Indias huge environmental crimes do not really apply, there is one small cpu in a heat pump, but you are condemning them from a computer that contains far more of these difficult to recycle elements. Are you all just so guilty you have to call it hopeless and attack anyone with a differing view? I have a knowledge huge environmental challenges that we are creating daily, I just don’t see the point in accepting defeat. None of you have a leg to stand on when it comes to attacking me because you are all on a website spewing carbon at every turn like 99%of all north americans. GREGT so anything using a finite resource is not sustainable, how finite of a resourse? carbon and iron make up a huge amount of this planet but are not renewable. If you gentleman want to prove your debating prowess, come at a person one at a time so they can address things as coherently as possible.
GREGT you just stated you have panels, why would you do that if they are so unsustainable? For after the crash? I thought it was going to be so bad the hordes where going to target homes with pv, sounds like a real waste of money, you should have buried the cash for carbon sequestration.
makati1 on Mon, 25th Jan 2016 4:54 pm
Boat … but what if there is no Home Depot? Again many of you deniers cannot see the forest for the trees you like to point out. What don’t you understand about globalization and “just in time” delivery?
Home Depot depends on deliveries of stuff from all over the world, not your local area. It depends on a working capitalist system that is dying. It depends on making a profit. For that, it needs customers able to buy stuff in profitable quantities. It is not forever, and may disappear next week.
WalMart is already closing their stores. Radio Shack, ditto. And many others are close to bankruptcy. Nothing is forever, except death.
On your timeline topic: Would you rather be prepared a day early (or even 10 years early) or not prepared when the SHTF? That TPTB have used extraordinary means to prolong the time line doesn’t mean it will not happen tomorrow or next week.
Most worthwhile preps take years, not days or weeks. You do not learn how to do permaculture/farming and get a working system up and running in a few days or even years. Better to start today and hope you have 10 years to prep, than to wait until the SHTF and then realize that the ‘doomers’ were right.
You can put down the messenger, but that doesn’t change the message.
Practicalmaina on Mon, 25th Jan 2016 4:57 pm
Mak attack, didn’t see you’re comment at first, just getting home and sucb, that was one of the most exciting things about the pumps, they’re dc! Even if an emp were to destroy circuitry I think the dc compressor could be saved to run off a fairly rudimentary power supply. BTW mak, you’re talking to a guy who has a small amount of pv in a cheap diy Faraday cage, I am a solar thermal guy, and if shit hits the fan my small pv supply will just be for moVing water threw a hot water panel and maybe a couple led lights.
Practicalmaina on Mon, 25th Jan 2016 4:59 pm
Boat I have insulated and weatherization a lot of houses, and I do not like phone, it is very toxic and flammable, and do makes it, that’s 3 strikes against it in my eyes. I am cellulose all the way, t
If foam was the answere they wouldn’t fireproof a building with cellulose and borax, mining the borax being the one downside, also dusty to install.
Practicalmaina on Mon, 25th Jan 2016 5:01 pm
Foam, trying to type on a foam, not so good. I had a rep from downtown chemical tell me how safe installing foam was. “O I have sprayed this stuff for years without a respirator with no issues.” Huge difference between spraying a cubic foot of it outside for a demo and being in a tiny knee wall spraying hundreds of board feet
Practicalmaina on Mon, 25th Jan 2016 5:03 pm
*dow makes the foam, damn autocorrect-being on a rant
Practicalmaina on Mon, 25th Jan 2016 5:05 pm
Mak, I agree true preps take years, but like you said earlier, insulation is a pretty longterm inexpensive practical prep, a carbon footprint can be greatly reduced in one day.
Boat on Mon, 25th Jan 2016 5:08 pm
Practialmania
“Jeez I school boat and it’s like I’m stepping on you guys toes”
LOL, I read your opinion about GMO seeds and said I would do some reading to see if I agree with you. Hey, never worry about my toes or anybody’s if you want to survive here. Be prepared for a lot of misinformation. BTW opinion isn’t the same as proof to me. Send me your proof about GMO seed problems. Looks to me Europe doesn’t allow them so explain how farmers have no choice on what to plant. I googled non GMO seed and you can buy it everywhere. In fact there is a growing market for non GMO food.
makati1 on Mon, 25th Jan 2016 5:08 pm
Practical, my apologies. It is difficult to get the whole story in a few paragraphs. Even long ones like some prefer here.
I hope to have a small solar panel system on our roof on the farm next year, but I have no expectations of it lasting any significant length of time. Nothing electrical does. I only point out that, if you do not own your home free and clear, you may lose all of it someday to the bank. Or be forced to walk away when your neighborhood is no longer livable.
We have designed our water system to be gravity fed to the house. The house has been designed to require no electric power at all to be livable/comfortable. Nor any hydrocarbon fuel other than wood for cooking. We live where there is about 10-12 feet of rain annually, evenly spaced, and the temps never get below the 70s or higher than the 90s. The farm is based on permaculture and is progressing nicely.
I hope all of your preps are moving forward also. It sounds like they are. Good luck!
Boat on Mon, 25th Jan 2016 5:13 pm
I meant to say it looks like Europe won’t allow GMO seeds. Looks like the US allows them but does not restrict them. Mak says the US is losing it’s freedom. Are you suggesting farmers should lose the freedom to plant what they want?
Practicalmaina on Mon, 25th Jan 2016 5:15 pm
Boat I sent links after you left about 4 people dying in dupont pesticides factory today, I also sent a link about the benefits of microbes that get killed by these poisons. Today’s news kind of benefited my case quite abit
Practicalmaina on Mon, 25th Jan 2016 5:19 pm
Farmers have lost the option to not plant go in the us, watch food ink bud, it will open your eyes bud.
Boat on Mon, 25th Jan 2016 5:34 pm
Pracitalmania,
I googled (have US farmers been forced not to plant). Here is a link.
http://www.americasfarmers.com/2014/03/12/myth-busted-farmers-are-forced-to-buy-from-corporations/
This farmer appears to disagree with you.
Practicalmaina on Mon, 25th Jan 2016 5:37 pm
Makati, I respect what you and you’re side says. I like what you’ve been saying about collapse sooner than later being good for the future of humanity, which I agree with. I have some optimism for a combo of collapse showing up to open eyes, I am hope good will come from next year’s bad hurricane season. I think I will see it in Maine with the Atlantic warming fast compared to many other places.
But also an entirely green based farming a d tech based society. Financial returns will hopefully continue to decline for fossil fuel and waste based economy. Good logistics, simpler living and green tech all teaming up to spread a halfway decent word would be wonderful, there’s always that one in a million.
Boat on Mon, 25th Jan 2016 5:39 pm
Practalmania,
http://www.dailytech.com/US+Farmers+Realize+Disadvantages+of+Genetically+Engineered+Seed/article19802.htm
Here is a link that makes a good case for not using GMO seed but nowhere does it state farmers do not have choice.
Practicalmaina on Mon, 25th Jan 2016 5:43 pm
And exon didn’t know about global warming, cigarettes are doctor recommended and and and 4 people died TODAY because of dupont I mean dow I mean did they merge? The fda just proved the insecticides are killing bees, neonectides or whatever, I have success with cow shit and no extra water and I don’t poison soil, roundup ready, spray round up on anything biological and watch it suffer.
Practicalmaina on Mon, 25th Jan 2016 5:54 pm
To expose my hypocrisy, the refrigerants are manufactured by the very same companyz, but they are recyclable.
ghung on Mon, 25th Jan 2016 6:10 pm
Mak said; “I hope to have a small solar panel system on our roof on the farm next year, but I have no expectations of it lasting any significant length of time. Nothing electrical does.”
Gosh, Mak, properly installed, your PV system should last as long as you live; 25 years or more. I guess every time I post that our first panels and controller have been in constant use for over twenty years and are still working fine, you ignore me. So this is the last time: Our first panels and charge controller, installed in 1994, are still working great. Got that?
Boat on Mon, 25th Jan 2016 6:24 pm
Practicalmania,
There are thousands of situations that need better regulations, testing and enforcement. But alas we are human with systems run by humans.
One of my fav’s is nuclear weapons. Mak says Russia is more powerful. I try to point out that Okinawa and Hiroshima has 15k nukes dropped on them. The US arsenal has hundreds of 330k nukes. If exploded over 10 or so of the largest cities in the world the debris alone would put the world in climate freeze.
So why have more than a couple dozen?
Part of the American Recovery Reinvestment Act supplied over 40 billion to refurbish every nuke in use and stock pile. This is on top of 8 billion per year for security, deployment etc. How much sense does that make. Governments are run by humans and humans run the systems. There will always be to much work to do.
GregT on Mon, 25th Jan 2016 9:08 pm
Practical,
“GREGT so anything using a finite resource is not sustainable,”
Correct, anything that requires finite resources to be used up, is not sustainable. There isn’t anything to debate here. Common sense. The moment a finite resource begins to be exploited, is the moment that it begins to run out.
“you just stated you have panels, why would you do that if they are so unsustainable?”
My life is not sustainable. I have installed PV for the same reason that I continue to feed myself. I you are unable to understand why, there is no point in trying to explain it to you.
GregT on Mon, 25th Jan 2016 9:23 pm
Boat,
“But alas we are human with systems run by humans.”
The Earth’s natural ecosystems don’t give a rat’s ass about “human systems run by humans”. We are bound to the same laws of nature just like any other animal. We either learn to live within the confines of those natural systems, or we will be removed from the natural web of life. Human systems are not above nature, they are destroying it.
makati1 on Mon, 25th Jan 2016 11:50 pm
Boat, you bought your panels when quality was still important to corporations. Today they are planned to fail about the time the last payment is made. If they didn’t engineer them to fail, they would not sell enough to make a profit.
So, your panels might have lasted 25 years but the ones today will not. Maybe 10-15, but by then there will be nothing left to plug into them. No I-toys, TVs, lights, appliances, etc. Those items are all planed to fail.
So, yes, a solar panel system is ok if you only expect it to extend your lifestyle a bit longer, but they are not forever. I think you should not invest in one unless all of your other, more important preps are in place and you own the land it is installed on.
onlooker on Tue, 26th Jan 2016 2:27 am
Practical, saying that civilization is not sustainable does not mean we must all be ready to off ourselves. Each one of us is given the gift of life and some of us feel while their is life their is hope. Personally, I have been ready to leave this life for some time now, does not mean I will intentionally hasten my end here.