Here’s How Bad It Got Today

The award for best performance of a leading stock index was given to the Nikkei. It was down today “only” 0.54%. Worst on the day was Shanghai, which was off 3.5%.

The NASDAQ did not do much better than Shanghai, off around 3.00%. All other exchanges lined up somewhere in between those extremes. The Dow is looking to close off over 400 points.

Let’s analyze this a bit by first blaming the collapse of oil prices, which at 3:30 in New York is trading under $30.00 per barrel. That goes for American benchmark, oil West Texas Intermediate, and world benchmark, Brent North Sea.

It seems perfectly feasible that Bent may be the first to dip under even $29 per barrel, hovering as it is right now at 29.19. Keep in mind that U.S. oil is off its lows of negative 5.7%.

You can blame the declines in oil on a slowdown in China that is becoming deeper and looks as if it will be more prolonged. Today you can blame the decline, too, on shaky data from the U.S., with both retail sales and industrial production off for the month of December. (Honestly, they’re not off that much.)

But oil is also waiting for a monster supply change when international sanctions are lifted on Iran, which will dump 700 to 900K more barrels a day onto the world market. That announcement should come on Saturday. Presumably, Iran will target former customers like Europe and India once the spigot can be turned on.

Astoundingly, U.S. oil production rose 8,000 barrels last week to 9.23 million. Go figure. However, oil production in the world is expected to start to fall severely very shortly. (The U.S. is expected to drop by 500K barrels per week.)

Regardless of reasons, crude has fallen 20% in the first two weeks of the new year.

Gold has been the chief recipient of the turmoil in equities and amidst questions about global activity in general. It is up today as we head for 4PM in New York by a tad more than 1.00%.

Yields on U.S. Treasury bonds fell once more as face prices rose, demonstrating modest interest in the paper as a safe haven.

Fundamentally, we think everyone needs to calm down a bit. The fall in crude oil has an upside insofar as consumers ought to be able to buy much more variety of goods, travel more, go out to eat more, etc., rather than burning up money in their vehicle engines.

Theoretically, but reality has intervened again. Not only are retail sales down (due to some unusual factors, albeit), but WalMart is closing 154 stores in the U.S. in an unprecedented contraction.

Wishing you as always, good trading,

Gary Wagner