WTI Back Above $50 After Smaller Than Expected Crude Build
Oil prices roundtripped overnight after running back above $50 following the smaller-than-expected API-reported crude build, sliding back lower overnight, and ramping back to $50.00 ahead of the official government data thanks to promises from OPEC+ that they will meet, despite the virus concerns:
“The OPEC secretariat is in contact with the authorities in the city of Vienna on the recent reported cases of infections in Austria,” Secretary-General Mohammad Barkindo says while returning from meeting in Riyadh. “While we continue in earnest with the preparations for the meetings of the extraordinary conference next week, we are continuing to monitor developments closely”
‘There will be blood’ comes to mind.
Additionally, Bloomberg Intelligence Senior Energy Analyst Vince Piazza says E&Ps have professed heightened capital discipline in 2020, which should slow oil-production growth in the U.S and help tighten balances. But global demand remains a broader concern, with the fears of the coronavirus spreading even as oil exports from the U.S recovered recently.
API
Crude +1.3mm (+2.8mm exp)
Cushing +411k
Gasoline +74k (-1.9mm exp)
Distillates -706k (-900k exp)
DOE
Crude +452k (+2.8mm exp)
Cushing +906k
Gasoline -2.691mm (-1.9mm exp)
Distillates -2.115mm (-900k exp)
The official crude inventory data showed an even smaller build than API (and notably less than expected)
Source: Bloomberg
The gasoline draw is far greater than that predicted by API on Tuesday. National stocks are down 2.69 million barrels to 256.39 million barrels – but even with the draw they are still near a seasonal five-year high.
US Crude production remained at record highs as the rig count has stabilized…
Source: Bloomberg
WTI has surged back above $50, back towards overnight highs on the smaller than expected crude build…
President Donald Trump landed in India this week just as a new round of deadly violence erupted in Delhi, the nation’s capital. Hindu militants clashed with protesters agitating against Modi’s “your papers please” Citizenship Amendment Act (CAA) whose aim is to strip an untold number of India’s 140 million Muslims of their citizenship rights and perhaps throw them in detention camps that he is constructing around the country. The militants lobbed petrol bombs at Muslim homes in northeast Delhi, set a mosque on fire before hoisting a Hindu flag on it, and looted Muslim-owned shops. A sickening video shows four men dragging a bloodied and pleading Muslim man on the concrete road. Even as thesehorrors were unfolding, Trump and Indian Prime Minister Narendra Modi were holding talks merely miles away. So far, 27 people have been killed and hundreds injured.
The Delhi police—under Modi’s control—initially did little to stop the mayhem or help the injured, forcing a local hospital to make an emergency petition to the court at 1:42 a.m. to order authorities to stop vandals from attacking ambulances as they transferred the more seriously injured victims to a better-equipped hospital.
Anti-Muslim violence has become depressingly regular fact of life in India since Modi was first elected in 2014 and his supporters started thrashing and lynching Muslims suspected of consuming beef. But Modi’s landslide re-election last summer has made things much worse. Hardly a day goes by when either the police or Hindu vigilantes don’t go on a violent spree against Muslims or their supporters. In recent months, they have been targeting college campuses and brutally beating up students agitating against the Modi regime.
The current round of violence occurred after a prominent leader of Modi’s party issued a thinly veiled calladvocating violence to evict protesters from a site where they have been holding a monthslong 24/7 vigil to stop the CAA from going into effect. The same man had earlier in the month called for bullets to rain on the “traitors” protesting Modi’s actions. Instead of disciplining him, the Modi government suspended the civil servant who complained against him.
President Barack Obama was no slouch when it came to serving as Modi’s useful idiot. Far from speaking out against him, he feted and fawned over him.
Still, the situation in India has become so dire that most U.S. presidents would not have picked this moment to make a state visit to India or, if they went, they would have at least made India’s deteriorating law and order situation and the growing abuse of human rights a major focus of their talks. Trump did none of those things.
He landed in Gujarat, Modi’s home state, where 1,000 men, women, and children (mostly Muslim) were slaughtered over the course of a few days on Modi’s watch in 2002. Then Trump whisked Melania to the Taj Mahal that some Hindu militants want to tear down along with other monuments and mosques built by Muslim rulers on sites where Hindu temples stood. His final stop was in New Delhi where the duo, accompanied by Modi, made an obligatory pilgrimage to Mahatma Gandhi’s shrine. Gandhi, who was assassinated by a Hindu militant for advocating a tolerant India where Muslims and other religious minorities were safe to practice their faith, would have died a hundred times over by now at what Modi was doing to his country. But Trump gave a speech where, after mangling the name of the most revered Hindu theologian, he made comments praising Modi as a champion of religious liberty. “He wants people to have religious freedom, and very strongly,” said Trump.
“They have really worked hard on religious freedom,” Trump added. “We talked about it for a long time and I really believe that’s what he wants.”
Why would Trump make such a farcical statement?
Here are some possible explanations:
He’s Trump.
He didn’t want to be rude to Modi after Modi had arranged 700,000 Indians to greet him (the biggest crowd Trump has ever witnessed in his honor, anywhere).
He was in India to prod Modi to relax its tariffs—especially on agricultural goods—and to sign a trade deal, and he didn’t want pesky human rights concerns to get in the way. (He did not succeed in convincing Modi to open up on trade, although Modi did buy $3 billion worth of U.S. weaponry as a consolation prize.)
If he had brought up Modi’s human rights record and his Muslim bashing, Modi would have queried Trump about his Muslim travel ban, his detention camps, and his deportation squads and the bromance between the two would have been over.
We live in an age of “you ignore my atrocities and I’ll ignore yours” diplomacy that the darling of national conservatism, Yoram Hazony, has advocated. Hazony believes that stable nation-states require “a majority nation whose cultural dominance is plain and unquestioned, and against which resistance appears to be futile.” If this means that majority groups have to occasionally engage in massive repression against troublesome minorities, so be it. Raising concerns about their tactics is liberal imperialism and an affront to the principle of national sovereignty and the right to self-determination.
Whatever the reason, it is safe to say Trump’s abdication did not make India a better place. As the president of a country founded by those escaping religious persecution, he should have shown solidarity with India’s persecuted religious minorities and those dying in the streets for their rights. Instead, he may have given Modi the green light for worse atrocities.
Bonus Material: The sometimes-funny Noah Smith’s hilarious riff on Trump’s visit to India.
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President Donald Trump landed in India this week just as a new round of deadly violence erupted in Delhi, the nation’s capital. Hindu militants clashed with protesters agitating against Modi’s “your papers please” Citizenship Amendment Act (CAA) whose aim is to strip an untold number of India’s 140 million Muslims of their citizenship rights and perhaps throw them in detention camps that he is constructing around the country. The militants lobbed petrol bombs at Muslim homes in northeast Delhi, set a mosque on fire before hoisting a Hindu flag on it, and looted Muslim-owned shops. A sickening video shows four men dragging a bloodied and pleading Muslim man on the concrete road. Even as thesehorrors were unfolding, Trump and Indian Prime Minister Narendra Modi were holding talks merely miles away. So far, 27 people have been killed and hundreds injured.
The Delhi police—under Modi’s control—initially did little to stop the mayhem or help the injured, forcing a local hospital to make an emergency petition to the court at 1:42 a.m. to order authorities to stop vandals from attacking ambulances as they transferred the more seriously injured victims to a better-equipped hospital.
Anti-Muslim violence has become depressingly regular fact of life in India since Modi was first elected in 2014 and his supporters started thrashing and lynching Muslims suspected of consuming beef. But Modi’s landslide re-election last summer has made things much worse. Hardly a day goes by when either the police or Hindu vigilantes don’t go on a violent spree against Muslims or their supporters. In recent months, they have been targeting college campuses and brutally beating up students agitating against the Modi regime.
The current round of violence occurred after a prominent leader of Modi’s party issued a thinly veiled calladvocating violence to evict protesters from a site where they have been holding a monthslong 24/7 vigil to stop the CAA from going into effect. The same man had earlier in the month called for bullets to rain on the “traitors” protesting Modi’s actions. Instead of disciplining him, the Modi government suspended the civil servant who complained against him.
President Barack Obama was no slouch when it came to serving as Modi’s useful idiot. Far from speaking out against him, he feted and fawned over him.
Still, the situation in India has become so dire that most U.S. presidents would not have picked this moment to make a state visit to India or, if they went, they would have at least made India’s deteriorating law and order situation and the growing abuse of human rights a major focus of their talks. Trump did none of those things.
He landed in Gujarat, Modi’s home state, where 1,000 men, women, and children (mostly Muslim) were slaughtered over the course of a few days on Modi’s watch in 2002. Then Trump whisked Melania to the Taj Mahal that some Hindu militants want to tear down along with other monuments and mosques built by Muslim rulers on sites where Hindu temples stood. His final stop was in New Delhi where the duo, accompanied by Modi, made an obligatory pilgrimage to Mahatma Gandhi’s shrine. Gandhi, who was assassinated by a Hindu militant for advocating a tolerant India where Muslims and other religious minorities were safe to practice their faith, would have died a hundred times over by now at what Modi was doing to his country. But Trump gave a speech where, after mangling the name of the most revered Hindu theologian, he made comments praising Modi as a champion of religious liberty. “He wants people to have religious freedom, and very strongly,” said Trump.
“They have really worked hard on religious freedom,” Trump added. “We talked about it for a long time and I really believe that’s what he wants.”
Why would Trump make such a farcical statement?
Here are some possible explanations:
He’s Trump.
He didn’t want to be rude to Modi after Modi had arranged 700,000 Indians to greet him (the biggest crowd Trump has ever witnessed in his honor, anywhere).
He was in India to prod Modi to relax its tariffs—especially on agricultural goods—and to sign a trade deal, and he didn’t want pesky human rights concerns to get in the way. (He did not succeed in convincing Modi to open up on trade, although Modi did buy $3 billion worth of U.S. weaponry as a consolation prize.)
If he had brought up Modi’s human rights record and his Muslim bashing, Modi would have queried Trump about his Muslim travel ban, his detention camps, and his deportation squads and the bromance between the two would have been over.
We live in an age of “you ignore my atrocities and I’ll ignore yours” diplomacy that the darling of national conservatism, Yoram Hazony, has advocated. Hazony believes that stable nation-states require “a majority nation whose cultural dominance is plain and unquestioned, and against which resistance appears to be futile.” If this means that majority groups have to occasionally engage in massive repression against troublesome minorities, so be it. Raising concerns about their tactics is liberal imperialism and an affront to the principle of national sovereignty and the right to self-determination.
Whatever the reason, it is safe to say Trump’s abdication did not make India a better place. As the president of a country founded by those escaping religious persecution, he should have shown solidarity with India’s persecuted religious minorities and those dying in the streets for their rights. Instead, he may have given Modi the green light for worse atrocities.
Bonus Material: The sometimes-funny Noah Smith’s hilarious riff on Trump’s visit to India.
from Latest – Reason.com https://ift.tt/381CDNB
via IFTTT
Well, CNBC’s Markets in Turmoil failed to spark its typical boost to equities as stocks continued their selloff yesterday as fears over coronavirus continue to rattle investors’ confidence.
The Dow Jones Industrial Average has now lost 6.59% over the last two days, its worst two-day loss since February 2018. The S&P 500 has lost 6.28% over the last two days, wiping out $1.737 trillion in market value, marking the worst two-day stretch since August 2015. Lastly, the Nasdaq has lost 6.38% over the last two days, marking the worst two-day stretch since June 2016.
One of the more obscure stats to take note of is the S&P 500 closed down more than 2.5% for consecutive sessions while above its 200-day moving average for the first time since 1938.
More than 64% of S&P 500 companies have entered a correction, meaning they’re down at least 10% from their 52-week highs, while 25% of S&P 500 companies have entered a bear market, meaning they’re down at least 20% from their 52-week highs.
Interestingly, U.S. President Donald Trump—who doesn’t watch the stock market, is reportedly “furious” the markets have been selling off. The Washington Post reported he has warned aides against discussing the impact of coronavirus over fears that stocks may continue to fall.
Officials at the Center for Disease control appear to have concluded it’s only a matter of when, not if, coronavirus spreads throughout the U.S.
“It’s not so much a question of if this will happen anymore but rather more a question of exactly when this will happen and how many people in this country will have severe illness,” Dr. Nancy Messonnier, the head of the National Center for Immunization and Respiratory Diseases at the Centers for Disease Control and Prevention, said.
Meanwhile Gilead Sciences has begun a clinical trial of its drug remdesivir on a patient hospitalized with COVID-19, marking the first clinical trial in the U.S. to find a treatment for coronavirus. The participant is an American who was quarantined on the Diamond Princess cruise ship in Japan and volunteered to participate in the study.
“We urgently need a safe and effective treatment for COVID-19. Although remdesivir has been administered to some patients with COVID-19, we do not have solid data to indicate it can improve clinical outcomes,” said NIAID Director and U.S. Coronavirus Task Force member Anthony S. Fauci, M.D.
It’s anyone’s guess where markets go from here. Unlike other issues that have popped up during this bull market, a deadly virus sweeping the globe is not something that central bankers can easily overcome by printing money or cutting interest rates.
Federal law imposes criminal penalties on any person who “encourages or induces an alien to come to, enter, or reside in the United States, knowing or in reckless disregard of the fact that such coming to, entry, or residence is or will be in violation of law.” On Tuesday, the U.S. Supreme Court heard oral arguments in a case that asked whether that federal law should be struck down for restricting speech that is protected by the First Amendment.
The case is United States v. Sineneng-Smith. Evelyn Sineneng-Smith, the operator of an immigration consulting firm in San Jose, California, was convicted in 2010 on several counts of illegal “encouragement.” Her lawyer, Mark Fleming, told the justices that the federal law itself should be wiped from the books.
“This is a statute that uses very broad words. It uses them in the context in which all they can do is ban free speech,” Fleming argued. “The result is that vast amounts of truthful and accurate and heartfelt speech that’s in no way related and much less integral to any actual crime is subject to five years in federal prison. I would submit that the First Amendment is wisely designed to protect us from just this kind of law.”
Several justices seemed potentially open to the merits of that argument.
“What about a charity?” Justice Brett Kavanaugh asked Deputy Solicitor General Eric Feigin. “A charity provides food to someone who’s in the country unlawfully…it’s designed to provide food for people who can’t get it elsewhere and they know that the people taking advantage of that are here unlawfully?”
Feigin conceded that such a charity might find itself on the receiving end of unwanted federal attention. “To the extent that a charity were doing something that violated the plain terms of the statute,” Feigin answered, “that amounted to giving—effectively giving money to people to—or something that is the equivalent of money to people with the purpose that those people reside in the United States unlawfully, that might violate the statute.”
Justice Sonia Sotomayor made a point similar to Kavanaugh’s. “I read ‘encourage or induce an alien to come, enter, or reside in the U.S., knowing or in reckless disregard of the fact that such coming to, entry, or residence is or will be in violation of law,'” Sotomayor told the deputy solicitor general, and it “seems to me” that all sorts of constitutionally protected speech and activity would be in trouble. “The hospital that’s treating…an illegally present child with a disease, the church who provides worship to illegal aliens,” both of these real-world examples, Sotomayor pointed out, “would be a violation of the statute.”
Justice Neil Gorsuch raised another First Amendment concern with the government lawyer. “What do we do about the fact that most applications, maybe not all, but most applications here of the underlying conduct would be civilly punished?” Gorsuch asked. “And here you wish to criminally punish the speech.”
In other words, while it is merely a civil offense to be unlawfully present in the United States, the federal law at issue makes it a criminal offense to encourage or induce such unlawful presence. “I could be reckless in my speech in encouraging somebody [to remain in the country illegally] and wind up a federal criminal even though the underlying violation is merely civil. Is—is that the gist of the government’s position here?” Gorsuch demanded. “Normally, in the criminal law,” Gorsuch observed, we “don’t allow punishment for speech greater than the underlying conduct itself. That would seem to be a basic First Amendment value.”
A decision in United States v. Sineneng-Smith is expected by June.
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New Home Sales Soar To Highest Since July 2007 As Prices Hit Record High
Following a disappointing drop in Existing Home Sales, New Home Sales were expected to buck their recent trend and rebound in January. And rebound they did, jumping a shocking 7.9% MoM (vs +3.5% MoM and a major revision for December from -0.4% to +2.3%)…
The monthly jump is the biggest since June 2019 and the highest SAAR for New Home Sales since July 2007…
Source: Bloomberg
The median sales price jumped 14% from a year earlier to a record $348,200 as more expensive properties made up a larger share of purchases.
Purchases of new homes, which account for about 10% of the market, increased in three of four U.S. regions, led by the Midwest and West.
Of course, with mortgage rates crashing to 8 year lows…
Source: Bloomberg
The supply of homes at the current sales rate declined to 5.1 months, the lowest since November 2017, from 5.5 months in the prior month.
Federal law imposes criminal penalties on any person who “encourages or induces an alien to come to, enter, or reside in the United States, knowing or in reckless disregard of the fact that such coming to, entry, or residence is or will be in violation of law.” On Tuesday, the U.S. Supreme Court heard oral arguments in a case that asked whether that federal law should be struck down for restricting speech that is protected by the First Amendment.
The case is United States v. Sineneng-Smith. Evelyn Sineneng-Smith, the operator of an immigration consulting firm in San Jose, California, was convicted in 2010 on several counts of illegal “encouragement.” Her lawyer, Mark Fleming, told the justices that the federal law itself should be wiped from the books.
“This is a statute that uses very broad words. It uses them in the context in which all they can do is ban free speech,” Fleming argued. “The result is that vast amounts of truthful and accurate and heartfelt speech that’s in no way related and much less integral to any actual crime is subject to five years in federal prison. I would submit that the First Amendment is wisely designed to protect us from just this kind of law.”
Several justices seemed potentially open to the merits of that argument.
“What about a charity?” Justice Brett Kavanaugh asked Deputy Solicitor General Eric Feigin. “A charity provides food to someone who’s in the country unlawfully…it’s designed to provide food for people who can’t get it elsewhere and they know that the people taking advantage of that are here unlawfully?”
Feigin conceded that such a charity might find itself on the receiving end of unwanted federal attention. “To the extent that a charity were doing something that violated the plain terms of the statute,” Feigin answered, “that amounted to giving—effectively giving money to people to—or something that is the equivalent of money to people with the purpose that those people reside in the United States unlawfully, that might violate the statute.”
Justice Sonia Sotomayor made a point similar to Kavanaugh’s. “I read ‘encourage or induce an alien to come, enter, or reside in the U.S., knowing or in reckless disregard of the fact that such coming to, entry, or residence is or will be in violation of law,'” Sotomayor told the deputy solicitor general, and it “seems to me” that all sorts of constitutionally protected speech and activity would be in trouble. “The hospital that’s treating…an illegally present child with a disease, the church who provides worship to illegal aliens,” both of these real-world examples, Sotomayor pointed out, “would be a violation of the statute.”
Justice Neil Gorsuch raised another First Amendment concern with the government lawyer. “What do we do about the fact that most applications, maybe not all, but most applications here of the underlying conduct would be civilly punished?” Gorsuch asked. “And here you wish to criminally punish the speech.”
In other words, while it is merely a civil offense to be unlawfully present in the United States, the federal law at issue makes it a criminal offense to encourage or induce such unlawful presence. “I could be reckless in my speech in encouraging somebody [to remain in the country illegally] and wind up a federal criminal even though the underlying violation is merely civil. Is—is that the gist of the government’s position here?” Gorsuch demanded. “Normally, in the criminal law,” Gorsuch observed, we “don’t allow punishment for speech greater than the underlying conduct itself. That would seem to be a basic First Amendment value.”
A decision in United States v. Sineneng-Smith is expected by June.
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ABC Suspends Socialist Correspondent After Project Veritas Sting
ABC Newssuspended senior correspondent David Wright after he was caught on undercover film by Project Veritasadmitting that the network bosses spike news that is important to voters, and that ABC is unable to provide relevant news to Americans due to their bias.
Wright, who joined ABC nearly 20 years ago, reports for “Wold News Tonight,” “Good Morning America” and “Nightline.”
As a national political reporter at a legacy broadcaster, Wright said he feels left behind by the new digital media.
“We live in a moment where people live in echo chambers and the truth suffers and, in an effort, to compete, we’ve become an echo chamber ourselves. We’ve been in the mainstream media we have an effort to match the zippy news cycle with responding to the latest tweet and trying to keep pace with the desperate pace of it all.”
The desperate pace means reporters like him lose focus, he said.
“As a result, we’re easily distracted and that means that we don’t bring focused attention to something that could make a difference,” he said. “I think, some of that at least in the place that I work [ABC News], and places like it, is that we’ve, with Trump we’re interested in three things: the outrage of the day, the investigation, and of the palace intrigue of who’s backstabbing whom. Beyond that, we don’t really cover the guy [Trump]. -Project Veritas
Wright added that networks can’t stop Trump from dominating news cycles every day. “The first story is the big story, about Trump. And it’s about whatever outrageous thing he said or tweeted about, and it’s about, or it’s about this effort to unseat him, or it’s about, you know, ‘Today we found anonymous’ or ‘Who’s he [Trump] throwing out of the White House today,’ or ‘Who’s blowing the whistle and stabbing him [Trump] in the back?’”
“We’re not disciplined enough to cut [Trump] off and we second-guess ourselves because we’re sensitive to the accusation that we’re in the tank for the Democrats. And so that enables them, and so we enable them. And every time we take the bait on it and that’s what he wants,” Wright told a Veritas operative at the Doubletree Hotel in Manchester during ABC‘s coverage of the first Democratic primary.
“It’s totally and abusive relationship. He’s [Trump’s] the nightmare spouse that you can’t win an argument with,” Wright added.
“Would you consider yourself a Democrat Socialist?” Wright was asked.
“Oh yeah. More than that I would consider myself a socialist; like I think there should be national health insurance. I’m totally fine with reining in corporations, I think there are too many billionaires, and I think there’s a wealth gap–that’s a problem.”
Explosion Rocks Largest Oil Refinery Plant On West Coast
A massive explosion ripped through the largest oil refinery plant on the West Coast in the overnight hours, sending giant fireballs into the sky, visible from 20 miles away.
Fire crews on Tuesday night were dispatched to the Marathon Petroleum Corporation’s refinery in Carson, California, around 10:50 pm PST for reports of an explosion in a cooling tower.
The Los Angeles County Fire Department (LAFD) said the fire was contained hours later in the early hours on Wednesday morning.
#MarathonIC *UPDATE* Firefighters continue to make progress reducing the size of this fire, while providing protection to exposures. Residual pressure from remaining flammable gas is still contributing to limited fire activity. Engineers continue work to isolate fuel sources. pic.twitter.com/qVmZiA0sQW
Pricilla Reyes, a resident of Carson, told NBC Los Angeles that she heard multiple explosions at the plant before the fire broke out.
NBC Los Angeles’ photographer Kenny Holmes said the fire was visible from 22 miles away in Santa Monica.
LAFD said fire crews worked with refinery personnel to keep the flames in check via “fixed ground monitors” while working to depressurize the system.
LAFD said there was no need for a community evacuation considering the fire was contained.
The refinery is the largest on the West Coast, processing upwards of 363,000 barrels per day. The plant processes crude to make gasoline and diesel fuel, along with distillates, petroleum coke, anode-grade coke, chemical-grade propylene, fuel-grade coke, heavy fuel oil, and propane.
There was no word via Marathon or any other authorities if supply disruptions would be seen thanks to the incident.
Dramatic video of fireballs lighting up Carson’s sky was captured on Twitter.
One Twitter handle said the incident forced LAFD to close northbound lanes of the 405 Freeway for approximately 30 minutes while crews battled the fire.
Hope everyone is okay. Scary fire erupted in Carson off the 405 😱😳 Cops are closing off the freeway SB pic.twitter.com/YMnM5idpuX
Helicopter video from NBC Los Angeles captures an impressive video of the incident.
WATCH LIVE: The 405 Freeway is completely shut down in Carson due to a large refinery fire, and a viewer said he felt an explosion as far away as Bellflower. https://t.co/89JCtADUZWpic.twitter.com/arhvQteTnJ
The incident comes as WTI tumbles into a bear market, down -25% in the last 33 sessions, mostly due to a demand shock from China after the Covid-19 outbreak shut down two-thirds of its economy.
Monday’s 1,000 point bloodbath was followed by Tuesday’s 879 point rout, lobbing 8% off total market value in less than 48 hours. The two-day drubbing has left traders and fund managers in a state of shock. Growing pessimism and uncertainty are pushing markets to the brink of a vicious downward spiral which will lead to heftier margin calls, more liquidations and fire sales, more knock-on pain among blindsided counterparties, and mounting defaults in the oil sector. So far, the Fed has waved off demands that it implement further easing by dramatically slashing rates, but its resistance will not last for long.
As institutional investors pile into risk-free assets and equities continue to swoon, the Fed will be forced to intervene once again this time buying up ETFs and individual shares to prop up inflated values and stop the hemorrhaging. While this latest iteration of QE could slow the selloff, it will forever undermine confidence in free market capitalism. Even so, the scheming miscreants at the Federal Reserve would rather save their own constituents than preserve the system that created the biggest and most prosperous economy on earth. It’s a question of priorities.
On Tuesday, Fed Vice Chair Richard Clarida said in a speech in Washington,
“It is still too soon to even speculate about either the size or the persistence of these effects, or whether they will lead to a material change in the outlook.”
This is just more diversionary jabber. The Fed spent the last 10 years fine-tuning a system that faithfully transfers trillions of dollars to its fatcat friends on Wall Street while the real economy sputters along at an anemic 2 percent. The Fed is certainly not going to throw in the towel now especially when its crooked pals are getting clobbered daily by a pandemic they never saw coming. Despite its vehement denials, the Fed has already settled on a Plan B that will involve a direct market intervention to purchase a set amount of individual shares per month that will be added to its already-bulging balance sheet. If the bloodletting persists throughout the week, we could hear the Fed make some type of announcement as early as Friday.
No one dreamed that a mutant virus could cause this much trouble and, in fact, very few have yet to grasp the long-range implications. The worst part for the markets is the nagging uncertainty. How long will the crisis last and how damaging will it be to the global economy? Will researchers find a cure or will the pandemic spread like wildfire incinerating the flagging economy on the way? No one knows for sure, which is why the only rational option for investors is to take some chits off the table and wait til the storm passes. This, of course, is a prescription for a full-blown stock market crash the likes of which we haven’t seen since 1929.
According to market analyst Mohamed El-Erian, “Coronavirus cannot be countered by central bank policies”. This means that slashing interest rates and injecting liquidity into the financial system (QE) will not prevent the widening economic carnage or stop the bleeding on Wall Street. This could be true, but we’re betting that the Fed will expand its existing toolkit and buy stocks directly hoping to put a floor under share prices. This is the only strategy that has any prospect of calming the markets and preventing a catastrophic “reset” that would essentially push stocks off a cliff.
On Tuesday, the benchmark 10-year Treasury yield fell to a record low of 1.32% while the 30-year Treasury dropped more than 3 basis points to a new all-time low of 1.7%. These rates are considerably lower than they were immediately following the terrorist attack on 9-11 which attests to the level of terror that has engulfed trading floors across the planet. What these rates indicate is that the markets are in deep distress, the lights are flashing red and the Wall Street sirens are howling. Investors are willing to lend the government money for a mere pittance in exchange for assurances that the government will repay them sometime in the future. The yields suggest that despondent investors see no sign of inflation or growth for the foreseeable future. The yields are an indictment of central bank policy which engineered the weakest recovery in post-WW2 era, inflated the biggest asset-price bubble in history, and is presently on-track to oversee the biggest stock market crash in the last century. The vast devastation of the US economy and financial system is largely the work of the Federal Reserve. Here’s an excerpt from an article at CNBC:
“The Centers for Disease Control and Prevention said that the coronavirus, or COVID-19 as it’s officially known, is “likely” to continue to spread throughout the U.S. and outlined what schools and businesses should do if the disease becomes an epidemic.
“Ultimately we expect we will see community spread in the United States,” Dr. Nancy Messonnier, director of the CDC’s National Center for Immunization and Respiratory Diseases.
Total confirmed cases globally have surged to more than 80,200 and at least 2,704 people have died of the coronavirus. Overnight, South Korea reported 60 new cases to bring the country’s total to 893 infected, while China’s National Health Commission reported 508 new confirmed cases and 71 new deaths.” (CNBC)
The virus, that has not struck the US in any meaningful way, not yet at least. But it has reined down holy hell on the markets. It has pummeled the the airlines, the banks, technology stocks and the oil sector which is now on life support. The problem with domestic oil production was poignantly explained in a short video on CNBC. Here’s a clip:
“Capital’s John Kilduff said that the $50 level is critical for energy companies. “This is it, this is the line in the sand. This is where they really start to hurt. This is where they start to not be able to service their debt, this is where the expense ratio does not work for Wall Street, for private equity, for anybody,” he said Monday on CNBC’s “Worldwide Exchange.”
It’s getting grim in Galveston (Texas) because you have $87 billion in debt that is due between now and 2024 and 60% of that is speculative “junk”. The bonds of some of these companies are down to 50 to 60 cents per share. These were once $8 and $10 billion dollar companies. You have hundreds of companies in this space that are struggling to meet their debt obligations. I’ve said it before, Oil is a four letter word, D-E-B-T, and this is the last thing that an industry that is already crushing under the weight of debt, needs.” CNBC–See video here)
So, the oil producers are going bust which hurts the banks and private equity firms who loaned them money. Those debts may have been insured with derivatives that create a whole new layer of knock-on pain for other financial institutions which, in turn, contracts the system putting deflationary pressure on businesses that no one knew were connected to oil. It’s all one big daisychain that falls apart when the thread is broken.
So it’s not just the fact that the world’s biggest oil consumer, China, is down for the count or that oil is currently the worst performing sector on Wall Street or that oil has slipped below the magic “$50 per barrel” mark. It’s also linked to the Fed’s cheap money policy that has kept poorly-managed, over-extended companies puttering along while sinking deeper and deeper into the red ink. Coronavirus is pushing these companies towards a painful reckoning that will greatly impact the lenders who threw them a lifeline figuring that oil could only go higher. Their miscalculation will undoubtedly intensify a broader selloff in the market forcing the Fed to respond.
It helps to read Keynes theory of how markets perform in times of great uncertainty. During periods when the economy and society seem relatively stable and information seems somewhat reliable, it is easier to make informed investment decisions based on the way things have unfolded in the past. But in times of political and financial upheaval, investors are more likely to pull back and divest until they feel less anxious. Stock prices don’t reflect the current value of the stock as much as the expectations of shareholders who anticipate greater value in the future. The investors greatest enemy is uncertainty, the inability to feel confident in one’s view of what will take place in the future. A pandemic, about which little is known and for which there is no cure and no way to know how extensive the damage will be, could be the greatest challenge that global markets have ever faced.
Investors do not yet understand that the markets have entered uncharted waters. There are no familiar points of reference or stars to point the way forward. The only rational choice is to bail out until the situation clarifies itself and one’s objective again becomes visible.
