Posted on 12/12/2014 2:50:14 PM PST by John W
NEW YORK — A rout in oil prices shook financial markets Friday, pushing stocks to their worst weekly loss in two and a half years.
The stock market fell sharply as investors worried that slumping oil demand is signaling that growth outside of the U.S. is weaker than earlier thought. And while consumers and airlines will benefit from lower fuel prices, energy companies will see their earnings suffer. Some may even go out of business.
(Excerpt) Read more at tribtown.com ...
>> “But I’ve long argued that the market as we know it today only distantly at best reflects how well a business is doing” <<
Absolutely correct.
.
Most metals have been doing nothing of significance for a long time.
They rise and fall on emotions, but the rise and fall has not been noteworthy. Gold is sitting within a few dollars of where it was a year ago.
Sometimes you have to wonder whether the highly educated spokesmodels on the corporate mainstream media are really as vacuous and clueless as they appear or whether they are just paid to look pretty and mouth the corporate line. They seem incapable of comprehending the unintended consequences of various events. The collapse in oil prices is one of those events.
There is no doubt that lower oil prices will lower the price of gas for the average American. Estimates say they will save $368 per year, which can be spent elsewhere. The highly paid shill economists who declare this will boost spending seem to be math challenged. Retail sales figures include gas stations. What isn’t spent there will be spent in another category, most likely healthcare or groceries as prices in both areas continue to escalate. It’s a zero sum game. No new spending will occur.
The worldwide supply of oil has only increased marginally over the last few years. The U.S. shale boom has been offset by declines elsewhere (Libya, Iran, Mexico). The reason for the collapse is the same reason for the 2009 collapse – worldwide demand is contracting. Europe is in a depression. Japan is in a depression. Russia’s economy is contracting. China is decelerating rapidly. The U.S. demand is flat. The implications of another global recession after five years of central banks printing trillions of fiat currency are alarming to say the least.
The cost to extract shale oil and transport it to a refinery capable of processing it is high. Honest analysts will tell you that a price of $70 to $80 is required to breakeven. Most companies don’t build breakeven into their plans. Bakken shale oil sells at a discount of about $14 per barrel due to the difficulty of extraction, transport, and processing. It is now selling for $47 per barrel. The number of permits for new rigs fell by 40% in November when oil was still selling for $75 per barrel. Do you think permits for new wells will fall at a price of $61 per barrel? Capital spending by the energy industry accounted for 33% of all capital spending in the last few years. I’m sure some other industry will pick up the slack. Right?
It seems the shale oil boom has resulted in a few jobs being created since the 2010 recession trough. In fact the states where fracking is prevalent have accounted for all the job growth in the nation. I wonder if a shale oil bust will have any employment implications. There are 9.3 million jobs related to the energy industry across the country. The plunge in oil prices created by Saudi Arabia in the 1980s created a depression in Texas which contributed to the S&L crisis. This plunge will reveal who has been swimming naked in the high yield bond market and derivatives market.
More from Jim Quinn via The Burning Platform blog in this OUTSTANDING article posted here...
http://www.zerohedge.com/news/2014-12-11/should-you-believe-what-they-tell-you-or-what-you-see
‘I filled my car up with $2.19 gas. It will take awhile to make up for the $5,000+ I’ve lost on energy stocks.”
I’ve lost nothing on my energy stocks since I haven’t sold them. I purchased them in the early 1990’s and enjoy the dividend checks I receive quarterly. As long as the dividend checks continue I’ll hold onto them no matter the price in the market on any given day. After all the annual cash dividend is 25% or more of the original purchase price. I can’t find an investment anywhere with a 25% annual rate of return and the low risk of dividends from Exxon, Chevron, and a few other oil companies.
At today’s closing price the dividend yield on Exxon is 3% and the yield on Chevron is 4%. Much better than CD’s with much less risk unless you believe the oil industry is going to collapse and the majors will reduce or eliminate their dividends.
I just sold some low yield stocks the other day in order to pay for car repairs (the county just raised my property tax and hit me with a high car tax (another property tax), medical bills (I go into the hospital Monday for several CatScans, and house repairs (If it can leak, it does).
I may have escaped unscathed. For once I would like to get ahead of the game before Obama destroys our economy.
I was thinking the same thing with respect to employment. This has me really worried.
http://www.bloomberg.com/news/2014-12-11/fed-bubble-bursts-in-550-billion-of-energy-debt-credit-markets.html
The way i see it is that the gov’t will not be able to support itself because we will refuse to pay their salaries. That’s when it will all come crashing down.
When you get this extreme volatility, it means some bets in the financial and futures markets got destroyed. This can create shadow runs in the banking system.
“This is so Alice in Wonderlandish. Cheaper energy helps any business that must consume energy in the process of producing or doing what it produces or does.”
Which is pretty much everything, including food, which consumes massive amounts of energy inputs into fertilizer manufacture and farm equipment operation.
Consumers can only benefit from lower energy prices.
When the lion's share of a business's expenses goes to advertising and marketing and financial machinations, then more is lost when hedged bets go sour than is gained by lower energy costs.
We live in an Alice in Blunderland economy.
“I was thinking the same thing with respect to employment. This has me really worried.”
Yeah, I’m keeping a close eye on this one. Many agendas at play - foreign & domestic - RINO & ‘rat - TBTF and controlled demolition.
(Here come bad news)...
https://www.youtube.com/watch?v=y6Sxv-sUYtM
https://www.youtube.com/watch?v=d-diB65scQU
https://www.youtube.com/watch?v=9Y-0nWVdBH4
Happy? Prepare.
A certain scene from Fantasia comes to mind, starring Mickey Mouse.
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