***Official*** 2016 Stock Market Thread

[JTsyo]

Can someone draw the lines for me that show why cheap oil = lower markets? The energy sector is just one part of the market and the rest should be doing better with the fuel savings. Is the cheaper oil mainly due to lower demands and a slowdown globally?

 

[KB]

Can someone draw the lines for me that show why cheap oil = lower markets? The energy sector is just one part of the market and the rest should be doing better with the fuel savings. Is the cheaper oil mainly due to lower demands and a slowdown globally?

Oil demand is inelastic. It is a necessity as we need to drive to work, heat our homes and create plastics and we will pay for it no matter the price. If the price gets 50% cheaper we don't use 50% more to balance the supply/demand curve, instead we spend a little of the savings, but save most of it.

Meanwhile, all aspects of the energy economy are put on hold. Explorers cut capital expenditures, drillers stop drilling, oil services workers lose their jobs, dividends paid to retirees shrink. Foreign countries whose budgets depend on the price of oil, cut budgets, which affects spending and earnings of global companies. Banks who lend to energy companies may see defaults and losses. Although consumers gain by being able to save more, the total net is negative when such a large industry slows down.

 

[s0me0nesmind1]

Can someone draw the lines for me that show why cheap oil = lower markets? The energy sector is just one part of the market and the rest should be doing better with the fuel savings. Is the cheaper oil mainly due to lower demands and a slowdown globally?

Cheaper oil equals other countries suffering from increased competition. Russia, for example is in the crapper and cut their space budget by 40%.

On our side (The US) its not as much of a bad thing, although oil companies are having significant layoffs, consumers in general have more money. If there is one thing US consumers are good at its spending money on stupid shit before it even gets to their bank accounts.

Globally though, China has seen a drop in demand which greatly affects a good amount of US companies that produce there. That's just my opinion on the markets at the moment.

That said, futures are up ~1%. Not that that means anything. Seems we're having waves of large drops with mediocre gains, rinse, repeat... I don't think we have seen rock bottom yet.

 

[Udgnim]

That said, futures are up ~1%. Not that that means anything. Seems we're having waves of large drops with mediocre gains, rinse, repeat... I don't think we have seen rock bottom yet.

swear I saw futures at -0.6% earlier today

guess it popped back up due to expectations that ECB will do more QE

it's going to get sold off though

markets aren't going to rebound until after oil finds a bottom

 

[sm625]

Can someone draw the lines for me that show why cheap oil = lower markets?

First of all you have to make a distinction between "cheaper oil" and severely depressed oil. What we have now is a severe depression in all commodities, not just oil. Oil has lost roughly 70% vs its previous 5 year average, but commodities in general have lost 60%. This is shaping up to be one of the biggest commodity crashes in all of history.

If it was just oil collapsing, it wouldnt be that big a deal. In that case, we would only be dealing with a few hundred billion worth of defaulted debt. The key threat there is that the Fed cannot (legally) buy oil market related securites. But then again, the Fed could not legally buy Fannie/Freddie paper, but it did anyway. I don't think the Fed would get away with buying oil industry debt though. That right there makes this a potentially bigger problem than the housing bust. Many people assumed that the Fed would have their back on the mortgage backed securities, and they ended up being right despite the fact that Fannie/Freddie debt was not government backed debt, it said so right on the prospectus. Nobody is making this same assumption with oil. So, this debt is going to default and there will be no bailout, except from Congress. If it was oil collapsing in isolation, it would only result in a couple percentage points of GDP lost.

But since the entire commodities complex is collapsing, it is a de facto global depression. We are looking at 2 or 3 housing bubbles worth of debt defaults, and none of it can (legally) be bought by the US or European central banks. The worst part of all this is that these oil company assets will be worth next to nothing when they go to auction. So that debt is going to almost completely disappear. The same will hold true across the entire commodities complex. This will be far more deflationary than the housing bust, which was almost entirely papered over by the central banks with relative ease.

As to why commodities are collpasing, that part is the simplest. The distortions created from the printing of tens of trillions in paper wealth have fueled an asset bubble so large that the masses cannot even access these assets. With no access to assets, the demand for commodities will and must fall. When you're spending all your discretionary income on housing and car payments because asset prices are pumped up to the moon, you are left with nothing else to buy. If you cant buy a house in San Francisco, how much are you going to spend at Home Depot? Not much. That dynamic is what is plaguing our entire economy.

 

[Charmonium]

Energy is a big chunk of the high yield market but it's not that important overall. And while you will get some bankruptcies, most of the debt is going to be restructured.

The correlation between commodities and stocks is that low commodity usage indicates a slowing of economic activity. With slower activity, you're not going to see growth in revenues or profits.

In terms of why economic activity has slowed, a lot has to do with the reduction in liquidity. We saw this a couple of years ago when the currencies of emerging market countries crashed. Places like Indonesia and India saw their currencies drop like a rock because all of the hot money started leaving those countries as the fed started to taper it's bond buying programs.

 

[FelixDeCat]

sell! sell! sell!

what?

everything!

 

[purbeast0]

i put in $250 into my roth ira today since it's pay day and my account had dropped $4k since 2.5 weeks ago when i put the previous $250 into it

 

[dullard]

i put in $250 into my roth ira today since it's pay day and my account had dropped $4k since 2.5 weeks ago when i put the previous $250 into it

You should be thrilled. The stock market will eventually bounce back, so those are just temporary paper losses. Then the $250 that you put in will buy you ~10% more shares than it would have a couple weeks ago. That means you gain an extra ~$25 for every paycheck you have until the market returns.

As long as you aren't withdrawing (and assuming it doesn't lead to a massive economic failure), this drop is probably a benefit to you.

 

[dr150]

sell! sell! sell!

what?

everything!

 

[Imp]

But since the entire commodities complex is collapsing, it is a de facto global depression. We are looking at 2 or 3 housing bubbles worth of debt defaults, and none of it can (legally) be bought by the US or European central banks.

If you cant buy a house in San Francisco, how much are you going to spend at Home Depot? Not much. That dynamic is what is plaguing our entire economy.

Interesting explanation. Didn't know the debt was that big and at that high risk. I was thinking a bunch of small, relatively recent players would tank. Looks like we'll find out over the next couple months.

Not sure how it is in San Fran, but Canadians decided that there's no such thing as "can't buy" a house. Debt-Disposable Income at 1.71 now.

On another note, how the hell did oil go from February contract at $26.55 Wednesday to March contract at ~$29.50 on Thursday. I thought futures contracts would be more connected month to month.

P.S. Big build in gasoline and crude stocks, but distillates are down so let's rally!

 

[Brainonska511]

i put in $250 into my roth ira today since it's pay day and my account had dropped $4k since 2.5 weeks ago when i put the previous $250 into it

I saw the market dropping and dumped more into my roth this week. I figure I have 30+ years to retirement, might as well get in a little cheaper on the downswing.

 

[JEDI]

I saw the market dropping and dumped more into my roth this week. I figure I have 30+ years to retirement, might as well get in a little cheaper on the downswing.

meh.. I 'dollar cost avg' annually.
now worth my time to try to time $5k into a 500k retirement portfolio

 

[IronWing]

Intraday lows with late bounces piss me off. My retirement plan only lets me move stuff at the end of the day, at the closing price, and only if the order is in by noon, EST.

 

[purbeast0]

You should be thrilled. The stock market will eventually bounce back, so those are just temporary paper losses. Then the $250 that you put in will buy you ~10% more shares than it would have a couple weeks ago. That means you gain an extra ~$25 for every paycheck you have until the market returns.

As long as you aren't withdrawing (and assuming it doesn't lead to a massive economic failure), this drop is probably a benefit to you.

oh i know, i'm not complaining lol. i have a long ways to retire so it's fine by me.

 

[Brainonska511]

meh.. I 'dollar cost avg' annually.
now worth my time to try to time $5k into a 500k retirement portfolio

I normally spread out my contributions over the year, but I figured with the downturn, I may as well use it as a time to pick up a bit extra in the long run

 

[brianmanahan]

japan up %5.5 so far today, and most other markets up %1-%3

 

[FelixDeCat]

 

[Banana]

oh crap, AXP
No emoji can express my sorrow at this moment. Well at least Warren Buffett shares my pain.

 

[MustISO]

japan up %5.5 so far today, and most other markets up %1-%3

Yep, everything is perfect again. All is forgotten.

 

[Balt]

I wish today's bump were a sign of things to come, but I don't think so. I don't think the price of crude went up today based on any real short/medium/long-term fundamental change. So when it craters again, stocks will probably follow. That said, I'm not selling anything at a loss unless I want the tax write-off since I have 30 years until retirement.

I honestly think it would be better for the market if oil just stayed consistently low for a while rather than go on this roller coaster. I don't think the market will climb as much on days when oil goes higher as it will fall on days when oil goes lower.

 

[Imp]

Yep, everything is perfect again. All is forgotten.

Yep, show's over people. Everything is good again in the world.

Oh wait, markets rarely go down in a straight line...

 

[Auric]

The movie Idiocracy isn't realistic. Luckily intelligence and skill sets aren't inherited (meaning a newborn baby from a lower class is the same as a newborn baby from the upper class). Then, we only have to deal with poor parenting and lack of opportunities that often tags along with the lower class.

Epigenetics, yo.

 

[StrangerGuy]

First of all you have to make a distinction between "cheaper oil" and severely depressed oil. What we have now is a severe depression in all commodities, not just oil. Oil has lost roughly 70% vs its previous 5 year average, but commodities in general have lost 60%. This is shaping up to be one of the biggest commodity crashes in all of history.

If it was just oil collapsing, it wouldnt be that big a deal. In that case, we would only be dealing with a few hundred billion worth of defaulted debt. The key threat there is that the Fed cannot (legally) buy oil market related securites. But then again, the Fed could not legally buy Fannie/Freddie paper, but it did anyway. I don't think the Fed would get away with buying oil industry debt though. That right there makes this a potentially bigger problem than the housing bust. Many people assumed that the Fed would have their back on the mortgage backed securities, and they ended up being right despite the fact that Fannie/Freddie debt was not government backed debt, it said so right on the prospectus. Nobody is making this same assumption with oil. So, this debt is going to default and there will be no bailout, except from Congress. If it was oil collapsing in isolation, it would only result in a couple percentage points of GDP lost.

But since the entire commodities complex is collapsing, it is a de facto global depression. We are looking at 2 or 3 housing bubbles worth of debt defaults, and none of it can (legally) be bought by the US or European central banks. The worst part of all this is that these oil company assets will be worth next to nothing when they go to auction. So that debt is going to almost completely disappear. The same will hold true across the entire commodities complex. This will be far more deflationary than the housing bust, which was almost entirely papered over by the central banks with relative ease.

As to why commodities are collpasing, that part is the simplest. The distortions created from the printing of tens of trillions in paper wealth have fueled an asset bubble so large that the masses cannot even access these assets. With no access to assets, the demand for commodities will and must fall. When you're spending all your discretionary income on housing and car payments because asset prices are pumped up to the moon, you are left with nothing else to buy. If you cant buy a house in San Francisco, how much are you going to spend at Home Depot? Not much. That dynamic is what is plaguing our entire economy.

Not to mention every key economy went from knee-deep in debt before the massive waves of QEs to forehead-deep in debt now.

 

[Imp]

Not to mention every key economy went from knee-deep in debt before the massive waves of QEs to forehead-deep in debt now.

The hell you say... The world economy can't depend on China building empty cities and Canadians trading houses they can't afford...