Why Grandma Has the Jitters

[planosteve]

The low oil price is not good news

The wider impact of plummeting oil prices is just now starting to be considered. Just about all ‘experts’ are way behind the curve. There’s still people insisting it’s all be a big boon to all of our economies. Not here, as you know if you follow TheAutomaticEarth.com, or as you can find out by retracing us over the past 1-2 months. I said from the get go that this cannot end well. Oil is too large a part of the economy to let a 40% price drop be reason to party.

And now both the Federal Reserve and the Bank for International Settlements have clued in, with urgency, to leveraged loans, their role in CDOs, AND their link to the energy industry. And whatever we may think of either institution, when both hoot the red alarm horn at the same time, we should pay attention.

And the erstwhile booming leveraged loans, the ugly sisters of junk bonds, are causing the Fed to have conniptions. Even Fed Chair Yellen singled them out because they involve banks and represent risks to the financial system.

This is the story of today. Oil is everywhere. In all aspects of our lives. If oil prices suddenly move up a lot, people driving cars get hit, bad for the economy. If they move down much, the industry gets hit, jobs are lost, also bad for the economy. And everyone’s invested in that industry, whether they know it or not. We simply can’t afford $40 oil anymore than we can $200 oil; that is, in the short term. Our pensions funds, mutual funds and especially our banks are too heavily invested in it. Let alone our governments.

Falling oil prices are not just set to create future mayhem, they’re doing it now, you ain’t seen nothing yet. Much of the industry itself is scrambling to stay alive, many parties won’t make it if prices stay low or go lower, and the financial world, including your pension funds and mutual funds, will go south with it.

http://www.theautomaticearth.com/more-than-a-quantum-of-fragility/

[GFB]

If one wishes to, they can always find something to bitch about.

[planosteve]

If one wishes to, they can always find something to bitch about.

It wasn't bitching, it was a warning. Oil company and bank stocks took a big drop yesterday.

[GFB]

If one wishes to, they can always find something to bitch about.

It wasn't bitching, it was a warning. Oil company and bank stocks took a big drop yesterday.

"Stocks tend to fluctuate."


J.P. Morgan

[Mark]

I'm not really all that concerned with the markets. Low gas prices are great for consumers. When they spend less for transportation, they have more to spend on other things.

Get the price of gas down to 50 cents per gallon. Watch our economy boom.

[planosteve]

I'm not really all that concerned with the markets. Low gas prices are great for consumers. When they spend less for transportation, they have more to spend on other things.

Get the price of gas down to 50 cents per gallon. Watch our economy boom.

So your saying that the oil industry and the banking and investment industry are not part of the economy? You may have more money in your pocket, but your IRA, your 401k and your mutual fund investments may tank if they are invested in banking or energy.

[GFB]

I'm not really all that concerned with the markets. Low gas prices are great for consumers. When they spend less for transportation, they have more to spend on other things.

Get the price of gas down to 50 cents per gallon. Watch our economy boom.

Do you just post something...positive?

[GFB]

If the price were 50 cents..we'd pretty much just be paying the tax.

[planosteve]

Worst week on Wall Street in 3 years. Grandma is probably crapping her pants right now. If not she should be.

And more bad news out in the Shale Patch. From Stockman it's time to duck and cover:
What is the collateral for the 5% yields advertised by these fly-by-night funds—–often issued and managed by the same folks who sold housing sector CLOs and CDOs last time around?

Why its the leveraged loans issued by E&P operators in the shale patches. The collateral for these leveraged loans, in turn, is shale rocks 4,000-9,000 feet down under that have been worthless until approximately 2005 and would be worthless today without dramatically over-priced crude oil and drastically underpriced debt capital.

That is to say, the vaunted collateral in the shale patch craps out after about two-years unless new money is poured down the well bore and oil prices are above $75-$80 per barrel on the WTI marker price to cushion the sharp discounts back to the wellhead. But with marker price now plunging into the $50s, the drilling will soon stop, the production will crap-out, the shale rock collateral value will regress toward the zero bound, the E&P borrowers will default, the energy CLO’s will implode and the hapless yield chasers will be left high, dry and panicked.

http://www.lewrockwell.com/2014/12/david-stockman/duck-and-cover%e2%80%a8/

Ken Moriff where are you? Are you listening????????

[GFB]

In that "worst week on Wall Street for three years"..the market is about 3% off it's all time high.

[GFB]

Here's some perspective for Planosteve.

If gold was only 3% off it's all time high, it would be well over $1800.

[planosteve]

Here's some perspective for Planosteve.

If gold was only 3% off it's all time high, it would be well over $1800.

I'd say the correction in gold is over. The correction in stocks is just beginning.

[GFB]

Here's some perspective for Planosteve.

If gold was only 3% off it's all time high, it would be well over $1800.

I'd say the correction in gold is over. The correction in stocks is just beginning.

Wow..that was some correction.

(Corrections tend to be 10 to 15%..I think we'd have to say gold is in a protracted bear market)

[planosteve]

Stocks and gold have decreased for very different reasons. Stocks were blown up in a bubble from all of the FED's QE's which created a giant speculative bubble. It will pop, the only question is when. The gold market, like all markets overshot and corrected. It has probably bottomed out. Gold has intrinsic value, stocks are just a piece of paper.

[GFB]

Stocks and gold have decreased for very different reasons. Stocks were blown up in a bubble from all of the FED's QE's which created a giant speculative bubble. It will pop, the only question is when. The gold market, like all markets overshot and corrected. It has probably bottomed out. Gold has intrinsic value, stocks are just a piece of paper.

You just posted yesterday that stock holders are the "real owners" of the companies.

That sounds like some serious value to me.

[GFB]

Stocks and gold have decreased for very different reasons. Stocks were blown up in a bubble from all of the FED's QE's which created a giant speculative bubble. It will pop, the only question is when. The gold market, like all markets overshot and corrected. It has probably bottomed out. Gold has intrinsic value, stocks are just a piece of paper.

And the speculative bubble seems to go on and on..decade after decade.