I’m not getting it

The oil price falls as Saudi Arabia starts a price war.

This is good for growth. Excellent in fact.

So, why’s the stock market falling off a cliff?

What is it that I’m missing?

40 thoughts on “I’m not getting it”

  1. Correlation not causation. Stock prices are falling because of worries about growth (and because it was looking pretty expensive anyway) and oil prices are falling because 1) supply war 2) worries about growth. Usual problem of people conflating different things.

  2. Western political pork have run up a mountain of debt. Lebanon I believe has already announced they are defaulting on debts. None of the shite from 2008 was ever sorted out–interest rates should rise but the Fed is desperate that they do not. Things are not good Tim. Much as I hate that cunt Murphy he is correct that things are in a bad way. Doug Casey has been promising doom forever–but with the hysterical over-reaction to the re-named flu–this time he may be right.

  3. Slightly sucky for the airlines at least.
    Fuel being one of their major expenses it would normally boost them but it is cheap at a time
    when virtually no one flies.
    Alanis knows if that is ironic or not.

  4. Markets were very over-bought. the actual economic effect will be fairly mild – probably on the order of around 1-1.5% off growth this year. It’ll be fairly catastrophic for airlines and bad for tourism.

    The Italians have totally fouled this one up though – not altogether a surprise. no doubt they’ll use it as an excuse to spend more than the 3% cap on deficit spending – and the EU might embrace it – since the pro-EU party is on board.

    Will the slowdown bring about a major global recession? Possibly, but this reminds me more of 1987, the precursor to the far worse slowdown in the early 1990s.

  5. Inflow of foreign capital to USA to stop, dollar plunge, consumer prices up, print money, hyperinflation, gold to the moon!

    Because if the stock market has to crash, let’s do it properly.

  6. What are you missing?

    Someone’s shorting something…?

    If so, not like you to miss that …

  7. He waited his whole damn life to take that flight
    As FlyBe went bust, he thought “well isn’t this nice?”

  8. It’s a mix of effects.

    Bond yields are falling because of expectations of rate cuts, possibly leading to a flight from equities to bonds. Hey I’m not a trader.

    Saudi oil price cutting, either aimed at Russia or at US shale or both, potentially leading to asset sales to cover positions in the oil markets. The fact that “safe” assets such as gold are not really rising makes you suspect that this might be happening.

    The oil price cuts have also led to massive drops in oil major share prices – The FTSE 100 is heavily weighted towards oil and miners, so these price cuts have led to massive drops in oil company share prices, 2 majors in that index.

    The Chinese shutdown has had major impacts on mining stocks, ditto FTSE 100 impact…. Corona is impacting a range of industries – travel, airlines, hospitality, entertainment (the latest Bond film is having a delayed launch etc)

    The companies where the share price is rising are pretty much limited to a few specialist pharma companies that make hygienic wipes and sprays and masks etc

  9. Diogenes

    Don’t forget the added delight for the Saudis of being able to put the boot into Iran, just as Iran is going into meltdown over Covid.

  10. “Don’t forget the added delight for the Saudis of being able to put the boot into Iran, just as Iran is going into meltdown over Covid.”

    Oh, I like that kind of stuff. That’s the kind of stuff I like. Both as geopolitical realpolitik and as getting down to brass tacks.

    Now, how do we put the goolies of the House of Saud into the wringer …?

  11. The question is, if and when will FED start buying stocks. Apparently, if 401K’s lose 50+% then all hell break loose/it’s too late/doomed as companies really start going bust at that point.

  12. People have realized that the FED cutting 50 basis points from the front end can’t really jumpstart folks spending money when they don’t want to go outside to spend money if it means having to mix with a coronafectious crowd.

    People have to buy 10-year bonds as a hedge for the mortgages that they issued that are about to get refinanced. I’m not sure if the 10-year treasury actually hit 50 basis points but it did fall to a 50 basis-point handle. It was 108 basis points about 5 days ago.
    30 year Treasury is yielding less than 1% for the first time ever!?!?!
    … Yield curve inversion here we come!

    Here in New York Governor Cuomo has declared a health emergency. Nobody seems to know what that means. Does it mean “da Govenur” is going to shut the subways & cabs and I will have to learn to live within a 20 block radius of my apartment? Does it mean I have to stop referring to Governor Cuomo’s little brother Chris as “Fredo”? … No one seems to know.

  13. Rational Anarchist

    So assuming that one had a little money to invest, would now be a good time, and what’s the best way? Tracker?

  14. “So assuming that one had a little money to invest”

    That’s my problem. I only have a little.

    Problem is there are no buyers. Only a chump, or someone who really, really needs to sell now is selling.

    Like most investors, I am doing nothing.

    Sorry, Rational, it’s complicated. What is your savings horizon? If you are approaching retirement, a “tracker” like VFINX is an excellent choice. For a longer horizon, the options are too broad.

  15. Because it is a fall in price from lack of demand, not from an increase in supply, and most businesses, not just the saudis, depend on demand for their income.
    The fall in oil price may/will eventually help boost demand, but for now it is a a big bearish signal.

  16. “big bearish signal”

    Or a shot across the bow of Putin’s ship of state. The Saudis are tired of Russia’s interference in the Middle East.

  17. Usual question. Is anyone actually selling anything? What’s the volume? Times of uncertainty, buyers stay away. There will always be stock offered on the market because there will be people needing to liquidate investments. So, it depends at which level it finds a bid. If the price is forced down a long way, there’s your falling market.
    I can remember days like this when I used to do this for a living. Sitting watching great chunks being bitten off the index. Phone never rang once.

  18. @Tim W

    Oil price down as demand for jet fuel, bunker oil, petrol etc has fallen

    Tesco & Costa (inc car park) almost deserted yesterday, only 4 staff on tills and no queues – we had choice of two idle staff

    @T.C.

    imo Fed cut has been counter-productive and heightened panic

  19. “What’s the volume?”

    Question of the day.

    I just wish I had bought that last pack of toilet paper at Walmart yesterday!

  20. I have to say that I’m worried about the effects of the corona as well. I would also not blaim the italians too much. They imposed more restrictions than any other EU country has done when hitting the same number of infections. Italy e.g. started closing schools in 15-20% of the country when 200 cases were hit (something that hasn’t been done in Germany, Spain and France yet, despite surpassing 1000 cases…) . By my calculation DE and FR are 8 days behind Italy in terms of spread, ES 9 days and the UK 12 days and neither country has implemented anything close to what Italy did in terms restrictions. Death rate is higher in Italy though – not sure what the reason is.

  21. Going back to the original question, some of it must be because of the strong representation of oil companies in the indeces. Add to that fear of the unknown effect of Coronavirus and automated selling, and the answers emerge. Sure, plenty of businesses are going to run out of cash before the rebound, but so far, all sell-offs represent a buying opportunity.

  22. Oil prices see biggest drop since 1991 – Fox Business

    The Schork Report founder and editor Stephen Schork, Gibbs Wealth Management president and CIO Erin Gibbs and Capital Wealth Planning chief market strategist Jeff Saut discusses oil prices and markets
    https://www.youtube.com/watch?v=cNMNJyrAZu0

    Too much supply, not enough demand – Econ for Dummies Mr Worstall

  23. Bloke in North Dorset

    Gamecock,

    Like most investors, I am doing nothing.

    As a general rule that’s the usual thing to do at times like this based on past experience, although usual caveats about past experience apply. At the margins:

    Regular savers in to pensions and stock ISAs benefit, but in the long run it makes little difference, pound cost averaging means they lose out when its high.

    If you’ve got a bit of spare cash doing something else, I’m maxed out on Premium Bonds, now might be a time to switch it back in to funds. Alternatively I might off that for a while and stop my draw down.

    We’re just about to become bank of mum and dad for a hefty thwack, I’ll probably delay that for a while.

  24. It’s not a fall in price from lack of demand

    “DUBAI, March 8 (Reuters) – Saudi Arabia, the world’s top oil exporter, plans to raise its crude oil production significantly above 10 million barrels per day (bpd) in April, after the collapse of the OPEC supply cut agreement with Russia, two sources told Reuters on Sunday”

  25. @Emil

    The death rate probably isnt higher in Italy – it’s the incompetent Italians didnt detect all the cases, which is why it’s spread. You’re assuming that that the Italian numbers are remotely close to being correct, which they’re not. How do we know this? Because the ineffective measures the Italians put in place saw massive spikes in the number of ill, which is only possible if they had hundreds infected who went on spreading it. Hence this

    “On 22 February, there were 54 confirmed cases of Covid-19 in Italy. By 2 March, that number had surged to 1,694.”

    https://www.thejournal.ie/italy-coronavirus-5038359-Mar2020/

    Even with the relatively high infection rate, this type of spread is highly unlikely. The Italians are 100% to blame.

  26. Ken:
    A) the Italians have put in stronger measurements than most other European governments at the same order of spread
    B) those are exaclty the numers you would expect to see and we are seeing in most Eu countries

  27. Emil

    A) Not if their numbers were incorrect. Which they were.
    https://en.wikipedia.org/wiki/2020_coronavirus_outbreak_in_Italy

    At the time the Italians put in controls on schools on the 22nd February they claimed to have 79 cases and 2 deaths – two days later they had 7 deaths and 227 cases – which suggests they had failed to find several hundred cases prior to this – so the disease was running rampant and their measures were utterly ineffectual and lagging. They tested 25,000 people by 3rd March, finding 2,502 cases. In comparison the UK has tested 25,000 people and found 319.

    https://www.gov.uk/guidance/coronavirus-covid-19-information-for-the-public

    To see how utterly useless the Italians were, you just need to compare the death rate with cases. The Italians had 320 cases on the 25th February with 10 deaths, suggesting that they had failed to detect between 180 and 680 (based on a death rate of 1-2%). In comparison the UK has a death rate of 3 vs. 320.

    Take a look at this table which shows the difference in new cases detected in the UK and Italy. The UK has stayed in double digits for 9 days, the Italians blew through in 5.

    Italy UK
    31/01/2020 2
    06/02/2020 1
    21/02/2020 17
    22/02/2020 59
    23/02/2020 71
    24/02/2020 77
    25/02/2020 93
    26/02/2020 125
    27/02/2020 205 3
    28/02/2020 238 4
    29/02/2020 240 3
    01/03/2020 566 12
    02/03/2020 342 8
    03/03/2020 466 12
    04/03/2020 587 34
    05/03/2020 769 30
    06/03/2020 778 48
    07/03/2020 1,246 43
    08/03/2020 1,492 67
    09/03/2020 1,797 46

  28. I think the economy is struggling, due to right wing greed. In my home towns Deganwy, and Llandudno, we see tough economic times brought about by missrule in the economy by the Tories, and Trump. They only care about the rich. They do not care about the poor. I have worked for hotels and work for a scaffolding company. We face tough times. We need to grow the economy by proving finances for the working and lower class. We need to tax the rich, and increase spending on the working and lower class.
    We ned to grow the economy from the bottom up. Also stop blaming immigrants for tough times. We need immigration for economy and what they bring to the country.
    Leaving the European Union has been a disaster, and now the economy will colapse with pressures to the virus, and losing markets in the European Union causing economic decline.
    Nod doubt the right wing will blame minority groups and the poor for tough economic times. They always do.

  29. Ken & Emil

    Italy did drop the ball, in numerous ways, but the biggest factor in screwing them up is the one not mentioned: the tens of thousands of Chinese workers in their textile sweatshops, sunglass manufacturers and accesories producer. They went back to Wuhan – where they are almost exclusively from – for Lunar New Year, returning at the end of January, beginning of February.

    Seems there is a cost to be paid for being able to put ‘Made in Italy’ on the items you produce with Chinese wages and benefits.

  30. DD

    Take a bow….

    Recusant

    Thanks, I didn’t know that. Looking at the detailed numbers, I had come to exactly the same conclusion as Ken – what you’ve said adds some substance to it. Especially as I also heard that the Italian government (because they are left) were reluctant to be at all too tight on free movement around that time, which might put the Wuhan movements firmly into perspective.

  31. Tim, Interesting, this looks like it may have been the second place to have been locked down, in early Feb?

    “But 10 days after locking down Wuhan, authorities imposed similar draconian measures on Wenzhou, a coastal city of nine million people in Zhejiang province, part of the eastern industrial heartland that has powered China’s economic rise over recent decades.”

    https://www.ndtv.com/world-news/coronavirus-china-puts-wenzhou-city-under-lockdown-as-deaths-cross-300-2173669

    The key point is surely that it was only when people started dying that Italy twigged it had a problem (the first significant infections were announced at the same time)? Which presumably meant people lying in hospital, very ill, and no one (at all) thinking “Hmmm, these symptoms? What’s that stuff happening in China at the moment; is this perhaps similar”. Or maybe I’m missing something?

  32. There was a report on news yesterday that the lock-down of an Italian town was leaked. Footage showed hoardes of people leaving with luggage. Looked like one of those migrant caravans

    Italy not handling this well:
    https://www.timworstall.com/2020/03/10/interesting-difference-isnt-it-2/#comment-965365

    Supermarket Report – Morrisons today:
    – customer numbers normal, food stock normal
    – glut of 80% Off strawberries and 90% Off cheddar being snapped up
    – no UHT milk
    loo rolls in abundance inc pallets still in wrapping

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