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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: dvdw© who wrote (116252)	2/11/2016 1:01:19 PM
From: elmatador	Read Replies (1) \| Respond to of 217792

Oil Is the Cheap Date From Hell Wherever oil goes, the stock market goes. This relationship has got to end. February 11, 2016 — 1:00 PM SAST It’s scary out there. The rout in the stock market that began around Jan. 1 took a turn for the worse early this month. By Feb. 10 the Standard & Poor’s 500-stock index was down 9 percent for the year. That’s its worst start since the recession year of 2008. Falling oil prices were blamed: A meeting between Saudis and Venezuelans aimed at curbing production had ended inconclusively. West Texas Intermediate fell again below $28 a barrel—more than 70 percent off its 2014 high. Trigger-happy investors have gotten accustomed to selling stocks whenever oil dips. With oil in serious oversupply, it’s hard to sustain any kind of recovery on Wall Street. “The toughest problem for people to deal with is oil getting linked with the market,” says Tobias Levkovich, Citigroup’s chief U.S. equity strategist. Just in time for Valentine’s Day, it appears that oil and stocks have developed an unhealthy, codependent relationship. They’re way too deep into each other. Where one market goes, the other follows. If they were people, a counselor would be urging a trial separation. “This is highly unusual,” Torsten Slok, chief international economist at Deutsche Bank, wrote to clients in late January. “Call it the oil correlation conundrum.” Or oilmageddon, as Citigroup economists have named it. Before you join the Cassandras, though, here are a few things to consider: First, cheap oil isn’t the boogeyman you’d think it is from reading the headlines. Upward spikes in energy prices cause recessions; dips don’t. The national average price of gasoline is down $1.01 from last summer. The money people save is fueling purchases of things like takeout food. “If you’re driving to work every day and you save $10 at the gas pump, you stop at Starbucks or whatever and spend part of that savings,” says Michael Montgomery, an economist with IHS Global Insight. True, Americans are banking most of their savings right now. But that’s good in the long run, too. Americans’ debt payments, rent, leases, and other obligations are close to their lowest share of income since the Federal Reserve began tracking the ratio in 1980. Since consumers account for the lion’s share of the U.S. economy, anything that improves their financial situation makes it more resilient. Second, the notion that cheap oil signals recession—the idea being that the price decline indicates declining global demand—is contradicted by the evidence. Far from falling, world oil consumption rose by 3.1 million barrels a day in the two years through the third quarter of 2015, according to the International Energy Agency. It’s just that the supply grew even faster, by 5 million barrels a day. “With the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term,” the agency said on Feb. 8. Prices might even go lower temporarily before rebounding. “I wouldn’t be surprised if this market goes into the teens,” Jeff Currie, Goldman Sachs’s head of commodities research, told Bloomberg TV on Feb. 8. Third—and now we’re laying out the other side of the argument—all this doesn’t mean Wall Street is entirely irrational to tremble when crude tumbles. The market turmoil is shaking up companies as far afield as St. Louis-based Emerson Electric, headed since 2000 by Chief Executive Officer David Farr. Emerson makes products ranging from oil-production instruments to closet organizers. “The last 30 days have been what I would call the most unusual in my time at Emerson. I’ve never seen a marketplace go so volatile,” Farr told analysts on Feb. 2. ExxonMobil is facing a potential credit downgrade for the first time since the Great Depression. ConocoPhillips is cutting its dividend for the first time in a quarter-century. Energy stocks account for 6.6 percent of the S&P 500’s market value. While that’s only half their share of five years ago, it’s still big enough for them to drag down the overall index on bad days. In 2014 the energy industry accounted for nearly one-third of S&P 500 companies’ capital expenditures, according to data compiled by Bloomberg. At least $1 trillion in spending is getting canceled, says Steven Kopits, president of Princeton Energy Advisors. When energy companies cut back, pipe makers, truckers, railroads, and businesses in other industries suffer.