Or, “Did you print enough money to pay for those…?” (barrels, babies, wives, iPhones, container ships, 3D printers, fill-in-the-blank)
I have empirical proof that babies affect both portfolios and wives much more strongly than the Fed, possibly more than OPEC or Putin. Perhaps this is because investors are babies who react to the same news (e.g. China is slowing, but not much… Iran will want to resume production before cutting, but of course and you would too…) over and over for a year and a half as if they never heard it before. And there is the reaction to the inventory build today. Duh, the inventory didn’t build “today” but last week and has no effect on Iran and Russia’s decision to begin limiting production. (Full disclosure, I have long been long oil in case it wasn’t obvious)
Consider this chart which is utterly striking in the coincidence of life events and losses of net worth in one million dollar quanta…
Frankly, nothing more needs to be said. The correlation with OPEC comments is not nearly as sharp. They announced March 11, 2014 there would be no production cuts at the June meeting (citation), which was the start of the rise of the bubble in the middle of the chart, not the end of it! Certainly not the precipitous second slide that began with my Siberian wife’s first heat exhaustion episode on a late June afternoon in Houston.
Russia’s invasion of Crimea was 5 months before (citation) the crisp beginning of the slide. But it began almost to the day of my son’s birth, which meant of course I was not exactly market-watching.
The risk to and from oil markets is not excess supply. It is as one blogger put it, “…with no grown up in charge. Spare capacity is wafer thin, despite the glut, and any upset could trigger an oil shock.” (citation, Fri. Feb. 19th, 2016, after oil reversed its “talk” rally and fell on the backward-looking inventory build)
But the Sheikhs and Tzars who cannot realize they would triple their revenue with a 5% production cut, are not the dumbest players in all this, which has affected financials, shipping (a long gone never-to-recover industry), and now even tech stalwarts. It is the U.S. Fed which has no concept that money is required by people to buy things, and that if they stop QE3 in 6 months (coincident with the fall of oil, by the way), which was propping up 80% of the U.S. government financing, there will not be enough money to pay for what the Chinese factories can make and U.S. “tech stalwarts” can re-brand!
Not to mention stuff that lots of clever people figured out how to pump out of the ground without even exploring and drilling new wells. And if the prices of stuff falls because there is not enough money to pay for it, people go bankrupt and banks get in trouble (European banks currently, but a myriad of bank-like lenders, BDCs, REITs, etc. are down more than my portfolio and headed into the fire sales as we speak. Falling employment is a deeply lagging indicator.