Monday, January 25, 2016

Fight: Bulls Vs. Bears

What a strange few weeks it has been.  Oil prices fell all the way down to $28, just to rebound a few days later to $32 -- as of 10 minutes ago they are just north of $30.  The stock market is in crisis -- we seem to be having a major correction, although its not entirely clear that its a major correction (it could just be a garden variety version -- after all the US economy is NOT in recession).  Some segment of the economy are in trouble, this morning all the talks were that another shale oil producer was about to "give up the gost".  Granted in America we are not talking about liquidation we are talking Chapter 11 with a write off of debt and equity -- new owners will keep on pumping.  The world is awash with oil, Chine diesel consumption is growing slowly, Saudi Arabia's bet that they can get the world to stop producing --- seems to be hurting them most.  The impact of a transfer of wealth from the producer to the consumer is the great unknown as for economic impact.  On thing for sure is that low oil prices are devastating for the alternative sector.

The GOP talks about "depression" caused by Obama, and they talk is that things in Texas are dire, although it cannot be worse than what we are seeing in Alberta -- Canada's money machine has been shut down.  Again the impact is about to get interesting.  

My experience is that the Feds will not do anything to influence the outcome of the election.  Should a recession occur in 2016 (its possible -- but has not really happened yet) it could impact the outcome of the election -- imagine President Trump... Economics trumps all other issues and the market is wondering where things will be this time next month.  Apparently oil options are trading at $25 -- don't know how much faith I would put into that, still it could just be out of the money protection.  Canada's economy (about 35% which is ressource based) is suffering from low energy prices and the precipitous drop in commodities -- the fall of the CAD has helped the economy (although food inflation has beens steep (around 15% in the past 3 months) a reflection of the massive imports of good from our Southern neighbors, it remains that part of Canada's economy are near depression levels (I'm talking about you Alberta).  The fight about oil pipelines via eastern Canada has gotten nasty -- don't entirely know why the failure of the BC pipeline didn't cause as much resentment.

Anyway, the CAD is on a one way slide, just 5 years ago the CAD was trading at 0.9 to the USD. Now we are looking at 1.39 and the slide appears to continue.  

My rambling about economics also needs to include Europe; the banking sector is hurting, DB had some rather horrible results and I already indicated that the Italian banking sector was in real trouble. So the markets are skittish, which is understandable.  After year of slow rise in the stock market and negligible volatility, vol is back with a vengeance -- which should make hedge funds happy places (maybe).  Where the markets will go, no one knows.  Bob Janjuah a guy I really respect (and an old friend) is convinced that the big correction is upon us!  maybe, but the North American fundamentals are just not there.


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