Crashtastrophe? Oil Investments Collapsing

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Oil had smashed down into the $53 and change level in trading t65his morning, so a major market decline should continue.

It would be premature of us to start ringing alarm bells, but tomorrow’s Peoplenomics report will deal with some of the “next levels down” should the most recent declines be taken out by the current market slide.

Which ought to continue this morning.

As for how our outlook was for Monday’s trading?  Well, I said…

“But I wouldn’t bet on much of anything past the first hour today:”

And sure enough, the market was up for just a few minutes at the open and then it fell on down around 10:30 Eastern.

So let’s put on our community thinking caps and see where things are now:

    • Japan was down more than 2 percent overnight.
    • China was down a percent and a half
    • France is down 1 1/2 percent
    • Germany down another 8-10ths
    • But the Brits (serious kneelers and deniers) are down about 2-10ths.

    I take this readings about an hour before the US market opens, but that’s the “flavor of the world” this morning so another day of downside action (say another 100 down on the Dow) seems like a reasonable thing.

    On a trip into town yesterday, I saw the price of gasoline was down to $2.30 at the local Brookshire’s grocery…and the Triple A average nationally $2.526 as a national average.

    Gasoline prices in Texas have never made sense to me:  $2.22 in the Dallas area, up in the $2.36 range in Houston and all the way down to $2.14 a gallon in Amarillo (Armadillo) Tx.

    I say they don’t make sense because we are literally across the street from  a whole field of wells that are pumping day and night and because I can’t remember any refineries up around Amarillo.  Houston?  Well, yeah…so like I said, makes no sense to me.  But then neither do politics.

    The only pertinent thing in life for most people this morning is “OK, what’s next?

    If you have been paying attention, I’ve been  mumbling about how rigs will be laid down and companies will begin running into trouble as a result.  Give company troubles a few weeks to a couple of months to feed up the food chain to the banksters and by January (March, maybe latest) we should have enough blood in the water (well, red ink is close enough in finance, right?) that there should be another shark feeding frenzy.

    Will Red Fork be the company that starts the wave when present history is distilled?  Oil has been as low as $53.60 and it looks like the Saudis are going for a two-fer:  “Help” the US by containing Russia, but while they’re at it, too much help and they can take out the US energy players and come in and snap them up at bargain prices before they in turn raises prices again.  Lovely, frigging lovely.

    imageOn our 2015 outlooks we have a bunch of sticky notes: 

    The reason is it hard to be specific on start date is because of the inherently noisy way that finance works.  Just like when it starts to rain:  If you put a piece of paper outside before it rains and pout a small circle in one place, how long before a raindrop hits smack-dab in the middle of your mark?

    Kinda hard to forecast.  Of course, it will happen, but it’s a matter of when.  So we’re in the Roaring Twenties moment for as long as prices go down and no one BIG gets into trouble.

    The thing is, when  that  happens, then stuff will start hitting the fan in rapid succession. What we need to be looking for in the headlines is not about “racial strife” or any of the other media-whipped injustices which have been there all along, but which are being skillfully set up sequentially so that something besides greed in a crooked economic system will take the PR hit when this all goes poof!

    The Ugly Truth About Deflation

    The was this is done is my putting out stories about (and this is real, out of the UK this morning): how Inflation has hit a 12-year low.

    We need to sit back and contemplate stories like this one deeply:  This is a huge raindrop from our previous thought experiment, but it missed our circle on the paper.

    Moreover, is it really inflation hitting a low, or could it possibly be that deflation is picking up?

    The public has been conditioned, since about 1955, or so, to believe that prices only go one way…UP.

    But in fact the evidence is piling up to the contrary, which is why the Consumer Price report will be so interesting.  When gasoline for the family car drops a buck a gallon, that is NOT low inflation, that it outright price deflation.

    What we are seeing now (and it takes only a moment of thought to come into focus):  Things we can live without but which are in huge supply are in deflation.  Things we need, like food, are going up, although quite slowly.

    What this means is that we are in sectorial deflation and oil’s in the middle of that.  The reason that food prices aren’t coming down (and why farmers are only going to make $5 profit per acre in 2015, is that seed companies haven’t reduced their prices.  So the food and seed companies will have pricing power.

    Housing lost its pricing power 5-years ago, in case you have forgotten, but in Elliott wave terms, we should have another large downside correction ahead, and that ought to happen in the next three years.

    Meantime, the Baltic Dry Index dropped another 7 points this morning to 838.

    Housing Report Just Out

    The problem with deflation is that few believe it, and as a result, the rate of deflation is slow.  And it shows up in odd places like the Housing Starts report just out this morning from Census:

    BUILDING PERMITS
    Privately-owned housing units authorized by building permits in November were at a seasonally adjusted annual rate of 1,035,000. This
    is 5.2 percent (±1.4%) below the revised October rate of 1,092,000 and is 0.2 percent (±1.8%)* below the November 2013 estimate of
    1,037,000.
    Single-family authorizations in November were at a rate of 639,000; this is 1.2 percent (±1.4%)* below the revised October figure of
    647,000. Authorizations of units in buildings with five units or more were at a rate of 367,000 in November.
    HOUSING STARTS
    Privately-owned housing starts in November were at a seasonally adjusted annual rate of 1,028,000. This is 1.6 percent (±8.1%)* below
    the revised October estimate of 1,045,000 and is 7.0 percent (±10.2%)* below the November 2013 rate of 1,105,000.
    Single-family housing starts in November were at a rate of 677,000; this is 5.4 percent (±8.1%)* below the revised October figure of
    716,000. The November rate for units in buildings with five units or more was 340,000.
    HOUSING COMPLETIONS
    Privately-owned housing completions in November were at a seasonally adjusted annual rate of 863,000. This is 6.4 percent (±8.3%)*
    below the revised October estimate of 922,000, but is 4.5 percent (±9.6%)* above the November 2013 rate of 826,000.
    Single-family housing completions in November were at a rate of 596,000; this is 2.9 percent (±8.2%)* below the revised October rate of
    614,000. The November rate for units in buildings with five units or more was 256,000.

    What this data suggests to me is that although the recent blip up in the housing prices, as shown in the S&P/Case Shiller monthly data was nice, it is likely not sustainable.  Because housing starts are way down compared with year-ago levels and that spells trouble next yet.

    I assume you remember the Fed Board meeting starts today so tomorrow will be Janet Wednesday.

    Prophet and Loss

    With 126 people now dead in an attack in northwest Pakistan this morning by the Taliban, I’m reminded that Shiites and Sunnis have fatal differences. 

    Compared to have The Reformation took place, Christianity looks terribly peaceful by comparison.

    However, one is a religion (and separated from the State most places) while the other is a State replacement…

    Politically correct editors aren’t getting the difference and are painting those who oppose Islam as “pin-stripe Nazis” which is hardly the case.  Governments that can’t read how a “religion” has plans to supersede elective governments and their hard-won freedoms, just can’t read (or think) very clearly.

    The Robotic Takeover

    A number of readers have criticized me for the concept of the “Workberg” – which is what happens with the US economy runs into a painful (and possibly non-survivable lack of employment as we rush toward 2025 when I’m projecting a 35% unemployment rate due to robotics.

    Yet, let’s see what supports that notion?

    A fine article in the NY Times explains how “When robots get smarter, American workers struggle to keep up…”

    And that $250,000 medical degree may not be the answer, either

    More after this…

    Comments

    Crashtastrophe? Oil Investments Collapsing — 6 Comments

    1. George!
      The Texas panhandle has 2 refineries. One, Vallero, is 45 miles north of Amarillo in Sunray, Texas and the other Conoco-Phillips is 50 mile northeast in Borger, Texas. These refineries are a central distribution point for refined oil products for West Texas, New Mexico, Colorado and the Midwest. I’m sure when you were here you didn’t notice the refinery aroma because of our other money maker…Beef!

    2. “food prices aren’t coming down (and why farmers are only going to make $5 profit per acre in 2015, is that seed companies haven’t reduced their prices”

      But … The biggest input to the ag business is fertilizer. In a fair world we should be seeing a substantial decrease in fertilizer prices. Most commercial fertilizers (nitrogen) are a direct derivative of natural gas. (Due to fracking, we are awash in the stuff.)Potassium and phosphate are mined with fuel being a major expense. In that mythical fair world, I would expect to see a competitive decrease in their prices as well. Last an maybe least is the fuel it takes to raise an ag crop.

      So, maybe we get lucky George???

    3. Hello George,

      Would you agree that a greater threat to employment in this world is that ‘The Market’ cannot create enough jobs (fast enough) to keep up with population growth? (The whole robotics thing is just a ‘condition’ that isn’t helping matters at all.)

    4. How long do we have before the United States has troops in Ukraine fighting the Russian Army?

    5. There are two refineries in the Texas Panhandle. One at Borger, Conoco Phillips and One at Sunray, Valero Energy.

    6. G –
      Watch for the M&A action rather than straight bankruptcies. Bigger guys in sweet spots of shale plays can offload properties to get cash (Chesapeake did that with CNOC last year, remember?) and little guys can simply let themselves get bought lock/stock/barrel and cash out (everybody has that ‘exit plan’ before investors pony up). I am betting some sweet end-o-year bonuses are getting flanged up about now that are NOT based on oil price but on corporate reserve portfolios….

      The buyers are what will be interesting to see, and who is funding their M&A ops….or will it be so hard and fast that banks and VulCap types grab the assets, like with RedFork?

      There are finite tappable reserves, and we are running into limits in many ways in my business, ROI being the current manufactured one. This may be due to ZIRP and then OPEC cashing in on that with a wink-wink-nudge-nudge from our amazing and ever expanding gubmint. Or is it just the ever expanding reach of TPTB wanting Russian resources and determined to take their pound of flesh at any cost? Don’t know – just hoping next year doesn’t produce huge sucking sound in my nascent business.