Nothing like the smell of deflation in the morning…
The realization that the fall in oil prices isn’t all to the good finally seems to have dawned on Mr. Market. Bloomberg has taken advantage of its new format option to cluster the grim news of the day:
However, as I’ve been drafting, the stock market has made a bit of a recovery, with the S&P going from down 1.96% to down a mere 1.86%.
As Bloomberg points out, part of the reason for the further slide in oil is a run to the security of the dollar in the face of heightened Grexit worries:
West Texas Intermediate oil dropped below $50 a barrel for the first time since April 2009 as surging supply signaled that the global glut that drove crude into a bear market will persist.
WTI slid as much as 5.2 percent in New York. Brent fell below $55 in London for the first time since May 2009. Russia’s output rose to a post-Soviet high while Iraq, the second-largest producer in OPEC, plans to boost crude exports to a record this month. The price drop accelerated as the dollar climbed against the euro amid investor concern Greece might leave the currency union.
A warm winter in the US has made the consumption side worse than expected. And as we’ve written before, the US shale gas producers have to keep pumping to service debt. They can’t turn off the supply spigot. But many have credit lines that are due for renewal in March. I am also told that that is when many of their price hedges expire. So that is likely when we will see serious cutbacks. Based on the initial (optimistic) Wall Street forecasts that oil prices would rise in the second half of 2016, it appears that analysts assumed a 6 month lag between supply adjustment and oil prices firming up. If that is correct, it’s probably no sooner than third quarter before we see a meaningful recovery in oil prices. And if the warm winter continues and the Eurozone hits the shoals, who knows how long it takes.
From the Wall Street Journal story, U.S. Stocks Tumble Along With Oil Prices:
U.S. stocks tumbled, with the Dow industrials shedding more than 300 points in afternoon trade, as a renewed slide in oil prices sent energy shares sharply lower.
The Dow Jones Industrial Average recently fell 320 points, or 1.8%, to 17513. The S&P 500 index slid 37 points, or 1.8%, to 2021.
The Nasdaq Composite Index declined 67 points, or 1.4%, to 4660.
Though stocks began the first Monday of 2015 with a modest decline, the losses piled up as oil prices plumbed new lows, with beleaguered shares of energy companies leading the push lower. U.S. oil prices fell below $50 a barrel for the first time in nearly six years Monday, sending shares of S&P 500 energy companies tumbling nearly 4%.
“It seems like everyone is taking a step back instead of running into the new year,” said Viren Chandrasoma, managing director of equity trading at Credit Suisse . “There hasn’t been a real buying-on-the-dip mentality today.”
Though the decline in oil prices has led to lower gasoline prices and boosted the fortunes of ordinary consumers, it has also curbed profits for the once-booming energy sector, which has grown in recent years to be a bigger piece of the U.S. economy amid resurgent domestic oil production.
The S&P is now down a mere 1.81%. Wonder if anyone will try pushing it more closer to the close.
Updated: From a Wall Street Journal news alert:
U.S. Stocks Mark Biggest Declines Since October
U.S. stocks closed sharply lower Monday, with the Dow Jones Industrial Average and S&P 500 marking their biggest point and percentage declines since October, as a renewed slide in oil prices sent energy shares tumbling.
The Dow slid 331.34 points, or 1.86%, to 17501.65. The S&P 500 fell 37.62 points, or 1.83% to 2020.58. The Nasdaq Composite was down 74.24 points, or 1.57%, at 4652.57.
The moves came after U.S. oil futures briefly dipped below $50 per barrel in New York trading. The euro also hit a nine-year low against the dollar and the Stoxx Europe 600 index closed lower by 2.2%, amid fresh uncertainty over Greek elections that some worry could pave the way for the country’s exit from the eurozone.
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The Eurozone.
A true global reserve fiat currency, money reserved for the globe, should be able to help countries like Greece or Spain and others.
If Greece and Spain wanted help they wouldn’t still be in the eurozone.
But a truly global reserve currency will trump all that provincial issues.
Says who?
Otherwise, it’s not a truly global reserve currency but just a global reserve currency.
And that’s what we have – a plain ordinary global reserve currency that benefits one country’s elites at the cost of her ‘my job has been outsourced’ workers and of all other nations.
In that sense, it’s not ‘truly global.’
A reserve currency is something nations choose to save in, not one they all spend in. What you’re asking for is a global currency, not a global reserve currency.
Don’t look at the past or the present but the future. A truly global reserve currency, to be differentiated from just a global reserve currency, is a global currency. And we can have it if we can work the details out peacefully with anyone desiring to be a hegemon, because whoever issues that global reserve currency is always tempted to be one.
More specifically what you suggest is a supranational currency rather than a global reserve currency.
My hope is to go beyond ‘says who’ and try more child-like ideas.
How about the Greek government issues a ‘trillion dollars or some other unit platinum Greek coin’ and the US government, after issuing enough money so that all American workers are working and we can look forward to helping our international fellow workers, authorizes our local NATO military base to purchase it, at a discount no less, for, say, $100 billion US dollars?
Or our MMT government spends some of our global reserve currency to build high speed railways in Greece employing Greek workers (after we have taken care of US workers, of course)?
It’s in contrast to the dollar being abuse by economic hit men everywhere.
All this we can do under the present system, in theory, I believe.
Or bury $100B in notes and let the Greeks search for it. I don’t believe a railway is going to end Greece’s problems, even if you finance it by issuing reserve currency out of thin air. It’s just adding more complexity.
Greeks are masters in dodging taxes and their debt problems stem from even before the Euro. Other EU members were well aware of that. Now I don’t believe austerity is going to solve the problem, but neither do I put faith in more public spending. Right now it’s just looking more and more like the economics of the Weimar republic. The interest burden is too high for Greece ever to recover.
Those 24% who have no jobs have paid their dues by now. Most EU countries have prospered for a long time with exports to Greece in this ponzi scheme. The only unfairness in a Greek default would be perhaps that the small group of Greeks that has done very well for themselves for over a decade will keep their wealth.
How about a clean sheet under the condition of stricter regulation on collecting taxes and entering into public debt?
Which Greeks are dodging taxes?
How would Greece minting a trillion dollar coin which is then bought by he United States for $100 billion help anyone? Is it your plan to force Greece to adopt the dollar when they clearly want the euro?
gold?
it’s shiny!
Looks like “The Streak” has finally come to an end:
http://kimblecharting.tumblr.com/post/107227538901/longest-streak-in-87-years-looks-to-end-today-the
A song in its memory, dedicated to those who use the markets as a policy tool:
https://www.youtube.com/watch?v=n8AR_ovbwXI
Still, the Primary Trend remains intact. So, in the immortal words of Bill Murray in the great fim Caddyshack, “We’ve got that going for us.”
Of course, as stocks plummet, many people’s 401(k) plans are dropping now. This ties in with the recent NC article about the war on pensions. But many executives still have lucrative defined pension plans. I noticed this while reading about the S&P drop:
http://www.bloomberg.com/news/2015-01-05/target-ceo-47-million-retirement-illustrates-401-k-gap.html
lol, what stocks are “plummeting”. Come on man, this post is pure bullshit. This is barely a blimp that will be reinvested in the market before the week is out. Man, this board tries way to hard, way to hard.
Caterpillar is down 5.28% for the day, Citigroup down 3.15%, US Steel down 4.6%, Exxon Mobil is only down 2.74%. I guess we’ll know more later this week.
My bet is we will bounce.
Our money-printing, equity friendly central bank will make an offer these sellers can’t refuse.
Central bank? You kidding right. This was barely a blip. Posts like represent the decline of naked capitalism.
that doesn’t do us any good today.
If this is the big one, we need to go short NOW. Every time we do it’s the same story. you lose money. I can’t run to the Fed to bail me out.
Was it this hard for Jesse Livermore? I guess he was’t as lazy as some of us are. You just want to wake up one day and have a few million in your brokerage account and then say to yourself “I’m not going to work today. i’m going to grab the xanax, pour a glass of wine and just lay around in a comatic bliss.” You need to get lucky. Even the lottery could work but it’s a pain in the ass to go buy the tickets. why is it so hard? Why is it such a pain in the ass to get rich quick. It should be a lifestyle choice, like selecting a gentlemanly fashion style that combines elegance with sporty manliness and a hint of bohemian counterculture erudition, not a chronic ordeal of confused money losing chaos.
Was it this hard for Maynard Keynes, picking gold mining shares out of the Times of London in his silk smoking jacket over morning tea?
These days, gentlemen prefer bonds … long bonds. TLT, a Treasury fund with a duration of nearly 18 years, took a ferocious pop today (+1.57%), after a +27.3% gain in 2014 which beat stocks by a long shot.
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=tlt&insttype=&freq=&show=
But it’s not for widows and orphans, with volatility that can take your breath away. If the dreaded deflation materializes, long govies are the last best hiding place on earth.
Curious that you should say that. Your plaint reminded me of John Fowles little ‘Book of Lists’ named “The Aristos.” Somewhere in it he mentions the “fact” that most people generally give more value to the idea of winning money than working hard for it. What’s this? Our favourite post existentialist author extolling good old fashioned exceptionalism? What is this world coming too? I for one can see the value in embracing the absurdist theatre that is the modern economy. What, after all, is Calvinist Predestination but an attempt to explain the vagaries of Fate? O tempora, o anti-mores!
Count on the Fed to issue some dovish remarks soon. After all, we can’t let the market fall.
First of all, stop with the “people’s 401k” stuff. The “people” have no money. Those that actually have a 401k that matters are very rare, and, chances are, they are the ones who stupidly sold their equities low in late 08 and dropped into bonds, which wasn’t a big bad bet, but, dumb move. The other 90% could care less.
The smart savers are watching this one to bounce, or not. Doesn’t really matter, because equities won’t really crash, and, lord knows, a correction is due. If you can’t handle that, buy munis. (Ha Ha). You tell me where to put money. But, I’ll bet a hundred bucks that airlines and trucking companies and delivery services and Reits and most large corporations that use a lot of energy, which is all, come in with suddenly awesome earnings results, considering this massive cost cutting that fell from above. Therefore, a great 2015, again.
I get the smell of inflation frankly. The government houses a “printing press” in Texas for American Currency and it has running the fastest in a decade the last month. Your talking about price deflation, but real money inflation is rising faster in the US than anytime this decade. No wonder the Americans are feeling better.
You don’t seem to understand high oil prices are deflationary for REAL money creation.
Inflation is defined as a continuous rise in the general price level not an increase in money supply. Given you don’t understand the difference between money and wealth your confusion cones as no surprise.
Weren’t you going by “Aaron” the other day?
You obviously have a different view of money creation than I do. Price level and money creation are 2 very different things. One inflation means something, the other, it doesn’t.
Very true. Unfortunately, Ben is right (for reasons stated) and you are wrong.
Nope, I am right, Ben is wrong. You will learn that lesson and quickly over this year.
Where does on pay homage to such divine assertions origins pay tell????
You don’t have a right to make personal definitions of words in the dictionary. You are indeed wrong.
“Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.” — Milton Friedman
That is Friedman’s explanation for what causes inflation, not it’s definition. That is, rising prices (inflation) is the result of a rapid increase in the supply of money, but a rising money supply can, for some time as we have seen since 2008, not create a inflation.
Ben is correct, as others have noted.
Why in the hell would anyone in their right mind [non criminal] listen to, or consider, anything Milton Friedman [criminal] said.
Skippy…. FFS way to much energy is devoted to constantly dealing with debunking authors and their criminal gangs… cough schools of thunkit.
Don’t worry, if Wall $treet made Bad Bets On Oil, their guardian angel (the US Taxpayer) will bail them out — because it’s now the law. It’s Automagic. Thanks #CROmnibus and may I say that was impeccable timing.
Looks like oil wants to bounce off the round number of 50 dollars. In Wall Street parlance, energy might be effed up enough to buy.
As for stocks, the S&P is down 3.35% from its record high on Dec. 29th. Not even worth calling home about till it reaches 5 percent.
Folks is just upset because the new year is supposed to kick off on a high note, but it didn’t. Same thing happened last year, with a 5.8% dip into early February. Wasn’t till March that the new highs machine got back in gear.
WaRs are about to get cheaper.
There is no flag large enough to cover the shame of killing innocent people.
H. Zinn
The traditional response to Mr. Zinns’ observation is to ‘manufacture’ shame deficient functionaries. Militaries throughout history have known this. That’s why the basic training in any well run military starts with the breaking down of the recruits personality and its’ replacement with an officially sanctioned ‘psychopathy.’ Reintegrating ‘good’ soldiers into the society is usually harder to do than ‘militarizing’ them. Most systems don’t even try, just ‘criminalizing the hapless buggers. Today, the elites have learned something from history, and are reintegrating the veterans as police and state security officers. That’s why I fear for us going into the near future. The State has assembled a force of psychologically ‘damaged’ servants to do its’ will. It will not be pretty to watch, much less become embroiled in.
Excellent points, all!
+1000 Great insights. I would add that CIA Torture revelations made it very clear that psychopaths will do WHATEVER they are told to do — no questions, no shame, no remorse. All we need now is a psychopathic leader, like a Pinochet or Cheney, to turn the million man police force into a disappearance squad.
The people who tortured are oftentimes not psychopaths especially if that torture is in a group setting. Classic social experiments have shown as much. Humans will follow the authority figures since we are pack animals.
Individual torture is probably different.
100% agree with the elites integrating soldiers into the security forces. Cops have never been scarier or trigger happy. Once this collapses the social unrest will be met by force.
It seems that the larger picture is not recognized.
The addition of enormous liquidity to the system by central banks in order to avoid write offs of debt that will never be paid back results due to the caused price distortions increased instability over time. This may be the start of it but central banks will, of course, fight it tooth and nail and they maybe be successful for another round or two until the day when it becomes obvious that they lost control and confidence dives.
Meaningless babble. Excess reserves are part of repo agreements and have nothing to do with “write offs of debt”.
It certainly is meaningless if one cannot the see the forest for the trees.
Linus, you make it up as you go along and can’t be taken seriously. Inconsistency and incoherence are not virtues.
Well, I do not make it up as you say.
Money supply has been growing at astounding rates over the past years (far above economic growth) which is by definition inflationary monetary policy. To indirectly imply that all this is not to a high degree on account of central bank monetary policy whether in the form of zirp, of regulatory changes (e.g. weaker accounting standards), QE or whatever other means, is simply false. It is the Fed itself that claims success in different areas resulting from the aimed at credit creation. If the Fed would not have chosen this path the necessary write offs would have surfaced which is best demonstrated by the support it had to provide to the banks at the beginning of the crisis and the change of accounting standards in 2009. In addition, liquidity was pumped into the system which is best demonstrated by the growth of the Fed’s balance sheet which naturally lifts all boats however without resolving the underlaying problem of excessive credit in the system but fuels it further.
Your understanding of money is limited to the superficial function and neglects to recognize the necessary attributes that money as reliable measure of value and relative value has to play in the service to society in the form of a medium of information. The present difficulties relate exactly to the indoctrinated models of your mental framework that lead to not anticipate the crisis of 2008, like most economists.
Ben,
I’ve been watching the TOMO account at the FRBNY fluctuate by huge sums on a daily basis (as I recall, yesterday by over $140 billion). Is there a link of which you’re aware that explains how their repo and reverse repo agreements work? With excess reserves being included in repo agreements, I am confused how this represents any risk exposure for the banks.
Thank you for this comment and for your past comments, particularly about MMT. If a response to my question is burdensome, please disregard it.