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Market Massacre: Oil Crashes 30%, VIX Explodes As S&P Craters


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2020 Mar 9, 8:44am   2,859 views  83 comments

by Patrick   ➕follow (55)   💰tip   ignore  

https://www.zerohedge.com/markets/market-massacre-oil-crashes-30-dow-down-1000-points-vix-explodes-es-craters

Following what may have been the most drama-filled weekend since "Lehman Sunday", in which we saw not only another major spike in covid cases around Europe and the US, but also the total collapse of OPEC after Saudi Arabia unilaterally decided to flood the market with deeply discounted oil in a desperate attempt to crush the competition (yet which may backfire and soon lead to riots in Riyadh)


Can't really figure out what is going on with oil. From earlier reading, it seems that the Saudis wanted Russia to cut production to keep prices high, but the Russians refused.

So in retaliation, the Saudis massively boost production? WTF?

Maybe this is an attempt by the Saudis to put Russian producers out of business. It's certainly going to kill the US fracking industry, which cannot profitably extract oil at these prices.

And why would cheap oil be bad for the stock market? Seems like it would be good for everyone except Exxon.

Does this have implications for the dollar and US foreign policy? What exactly is likely to happen?

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1   RWSGFY   2020 Mar 9, 9:09am  

Patrick says
And why would cheap oil be bad for the stock market? Seems like it would be good for everyone except Exxon.


It's the stupid algo trading: crashing oil prices is being automatically interpreted as a sign of crashing demand which, in turn is interpreted as a sign of severe economic slowdown.
2   RWSGFY   2020 Mar 9, 9:14am  

Patrick says
So in retaliation, the Saudis massively boost production? WTF?

Maybe this is an attempt by the Saudis to put Russian producers out of business.


It's more than just oil producers dispute: it's political and SA is aiming to cripple Russian state which is severely dependent on oil revenue both for its social spending and military adventurism.

$15 oil brought down USSR 30 years ago. $20-25 oil could do the same to Russia if kept at that level long enough: motherfuckers need at least $42 to stay afloat.
3   MisdemeanorRebel   2020 Mar 9, 9:16am  

The_Weeping_Ayatollah says
It's the stupid algo trading: crashing oil prices is being automatically interpreted as a sign of crashing demand which, in turn is interpreted as a sign of severe economic slowdown.


Exactly, just like the Black-Shoales Model gave ridiculous results during the Asian Currency crisis. Turn off the damn computers and trade manually. Probably half the staff no longer knows how to do so.
4   Heraclitusstudent   2020 Mar 9, 9:24am  

People who let their politics influence their investments are making a capital mistake.
"it can't happen because I like Trump".
"it's all fake news."
"it's disconnected from reality." (as if WS doesn't have shit loads of on-the-ground data.)

It has nothing to do with politics and it doesn't have to be fair.
5   Heraclitusstudent   2020 Mar 9, 11:27am  

The one thing that the markets learned from 2008 is: "nothing bad can happen because the feds will always eventually do whatever it takes to bail us out".
Coronavirus: "Hold my beer."
6   mell   2020 Mar 9, 11:34am  

The_Weeping_Ayatollah says
Patrick says
And why would cheap oil be bad for the stock market? Seems like it would be good for everyone except Exxon.


It's the stupid algo trading: crashing oil prices is being automatically interpreted as a sign of crashing demand which, in turn is interpreted as a sign of severe economic slowdown.


Right, since the introduction of algos this problem has been exacerbated. Well expensive oil was seen as a sign of inflation and inflation is generally good for asset prices even if it's not good for the economy. Falling oil prices is linked to deflation and thus interpreted as ZOMG!SELL! by the algos. Low cost of oil is indeed good for many companies depending on oil, and for the consumer, as long as the rest of the economy is sound.
7   MisdemeanorRebel   2020 Mar 9, 11:47am  

Heraclitusstudent says
People who let their politics influence their investments are making a capital mistake.
"it can't happen because I like Trump".

Such as listening to Nobel! Prize! Winner! Krugman in November 2016.

Or, hoping that this will FINALLY be the thing that brings down OrangeManBad via the Economy.

Coronavirus isn't a thing. If the media never reported on it, nobody would notice jack shit in their real everyday lives, other than the fairly ordinary flu season.
8   AD   2020 Mar 9, 11:48am  

Are we in a deflationary spiral ? Check out stock prices for Carnival Cruise Line, Winnebago, Daimler AG, etc.

I remember a few years back that said oil needed to stay above $50 a barrel for US drillers to be profitable.

If oil's 200 day moving average remains below $45 a barrel for at least 120 days, then we'll start to see major defaults of US drillers.

https://www.wsj.com/articles/big-fracking-profits-at-50-a-barrel-dont-bet-on-it-1543919401
9   RWSGFY   2020 Mar 9, 11:52am  

MM1 says
I remember a few years back that said oil needed to stay above $50 a barrel for US drillers to be profitable.


"Few years" are the operative words here: that break-even price is constantly moving and moving down. So it is probably not $50 today.
10   HeadSet   2020 Mar 9, 11:55am  

Oil Stocks may be recovering from that plunge. Just bought some Marathon. I missed on Apache, it is already going back up.
11   MisdemeanorRebel   2020 Mar 9, 12:00pm  

Time to NYT, WaPo, etc. hinting at Plunge Protection Team in 3, 2, ....
12   AD   2020 Mar 9, 12:10pm  

NoCoupForYou says
Time to NYT, WaPo, etc. hinting at Plunge Protection Team in 3, 2, ....


They could be waiting until getting the signal from the DNC where Biden's lead is solidified going into the election.

It took them quite a bit of effort in 2009 to try to reverse what they started. But they timed their plunge execution plan almost perfectly by giving the stock market bottom to Obama around March 2009.
13   FortwayeAsFuckJoeBiden   2020 Mar 9, 12:10pm  

Russia and Saudi Arabia price war on oil. Hopefully this means cheaper gas.
14   AD   2020 Mar 9, 12:16pm  

MM1 says
The_Weeping_Ayatollah says

"Few years" are the operative words here: that break-even price is constantly moving and moving down. So it is probably not $50 today.


That's true such as there are realized gains due to economies of scale, learning curve, etc.

That Wall Street Journal (WSJ) article as dated in 2018. The break even point then was around $50 for the major drillers.

So adjust the break even point down 4% each year and it would be around $47 ?
15   FortwayeAsFuckJoeBiden   2020 Mar 9, 12:26pm  

Patrick says
So in retaliation, the Saudis massively boost production? WTF?


This is a common and very dirty business practice. Drop price very low until your competition dies off because they cannot compete. Next buy your competitors at fire sale, raise prices.

It works well if your competition is financially struggling. That’s even how Morgan chase killed off GE competition back in the days.
16   Patrick   2020 Mar 9, 12:33pm  

Yes, that's how Cornelius Vanderbilt took over all the ferry service to Manhattan, the basis of his fortune.

He would give away free service on each route until that route's competitors were bankrupt.

Then when he was the only one left, he jacked up the prices.
17   Patrick   2020 Mar 9, 12:44pm  

″$20 oil in 2020 is coming,” Ali Khedery, formerly Exxon’s senior Middle East advisor and now CEO of U.S.-based strategy firm Dragoman Ventures, wrote Sunday on Twitter. “Huge geopolitical implications. Timely stimulus for net consumers. Catastrophic for failed/failing petro-kleptocracies Iraq, Iran, etc - may prove existential 1-2 punch when paired with COVID19.”
18   Heraclitusstudent   2020 Mar 9, 12:46pm  

NoCoupForYou says
If the media never reported on it, nobody would notice jack shit in their real everyday lives, other than the fairly ordinary flu season.

People wouldn't notice until granny dies waiting in the line at the hospital respiratory/pulmonary services.
Then their healthy 50 something colleague.
Fear can be a potent force.
You can't ignore reality.
19   Patrick   2020 Mar 9, 12:50pm  

Another possibility suggested to me in an email by a reader:

The Saudis are using oil as a weapon to fight Russia, which cannot maintain its military with oil prices this low.

That makes sense to me. Saudi Arabia is ISIS, and they are quite annoyed at the Russians' taking Assad's side against ISIS in Syria. The Saudis/ISIS want to keep murdering "heretical" Shiite and Alawite Muslims as their Wahhabi theology demands.
20   WookieMan   2020 Mar 9, 12:51pm  

Heraclitusstudent says
People wouldn't notice until granny dies waiting in the line at the hospital respiratory/pulmonary services.

Twisted view, but granny likely would have been dead 100 years ago already before having to worry about a virus like Corona. We keep people alive and miserable today. It's inhumane.

If anyone wants to actively keep people alive longer, they're unknowingly supporting big pharma that really only cares about selling you more pills and injections to sit in a bed pissing and shitting yourself. Sounds nice, lol.
21   Heraclitusstudent   2020 Mar 9, 12:54pm  

NoCoupForYou says
Time to NYT, WaPo, etc. hinting at Plunge Protection Team in 3, 2, ....

What are they gonna do? Buy stocks?
What do you think it would look like in the current political situations?

What else are they gonna do?
Lower rates? (chuckle)
22   Heraclitusstudent   2020 Mar 9, 12:55pm  

WookieMan says
We keep people alive and miserable today. It's inhumane.

We'll see what you say when you get there.
23   RWSGFY   2020 Mar 9, 12:57pm  

Heraclitusstudent says
WookieMan says
We keep people alive and miserable today. It's inhumane.

We'll see what you say when you get there.


Some people do file DNR orders.
24   RWSGFY   2020 Mar 9, 12:58pm  

Heraclitusstudent says
NoCoupForYou says
Time to NYT, WaPo, etc. hinting at Plunge Protection Team in 3, 2, ....

What are they gonna do? Buy stocks?
What do you think it would look like in the current political situations?

What else are they gonna do?
Lower rates? (chuckle)


Send everybody a $500 check, like Bush Jr did. Or was it $300? :D
25   WookieMan   2020 Mar 9, 1:09pm  

Heraclitusstudent says
WookieMan says
We keep people alive and miserable today. It's inhumane.

We'll see what you say when you get there.

What does it matter what I say when I get old? I respect life and am certainly not wishing death on anyone. The fact is I am 100% going to die. I don't want to sit there in my own piss and shit with my kids or wife having to take care of me.

I've witnessed this with my own father in the last year. He was delusional and needed care 100% of the time. This went on for 6 months. I wish Corona virus was around and killed him sooner. My own mother has admitted as much. The people this is killing are near death anyway. While I feel for their families, as death is sad, they likely would have already been 6' under as recently as 40 years ago, before this virus existed.
26   Bd6r   2020 Mar 9, 1:14pm  

The_Weeping_Ayatollah says
MM1 says
I remember a few years back that said oil needed to stay above $50 a barrel for US drillers to be profitable.


"Few years" are the operative words here: that break-even price is constantly moving and moving down. So it is probably not $50 today.

It's in low 40's now, from what I hear.
27   mell   2020 Mar 9, 1:22pm  

WookieMan says
Heraclitusstudent says
WookieMan says
We keep people alive and miserable today. It's inhumane.

We'll see what you say when you get there.

What does it matter what I say when I get old? I respect life and am certainly not wishing death on anyone. The fact is I am 100% going to die. I don't want to sit there in my own piss and shit with my kids or wife having to take care of me.

I've witnessed this with my own father in the last year. He was delusional and needed care 100% of the time. This went on for 6 months. I wish Corona virus was around and killed him sooner. My own mother has admitted as much. The people this is killing are near death anyway. While I feel for their families, as death is sad, they likely would have already been 6' under as recently as 40 years ago, before this virus existed.


While your stance is a bit more extreme I would agree in principal. Medicine has made enormous strides in extending lives, sadly this causes usually a decline in quality of life. For some it's just bad luck and they get kept alive artificially in their last years, but for many it already starts younger because people don't live healthy lives for the exact reason that they're relying on a pill for everything, which often cause vegetative states later on. Hey I can booze every night since there's a pill for hangover, I can be fat since there's bariatric surgery, I don't have to exercise since I'll just sit on the couch and watch netflix while using some scam home-training device advertised on QVC that "guarantees" results from the couch. I would venture out to say that the majority of people relying solely on gym classes or visits would do match better if they simply did a couch to 5k training program. Once they have gained sufficient lung capacity, then they can move on to strength training and switch out the routines. But fact is without aerobic conditioning you're likely to do poorly anywhere else and most Americans can't run a 10 Minute mile, many even don't get that far. You can always be unlucky but you can up your chances of living a decent and fulfilled life greatly by exercising and eating healthy and enjoying the years you have instead of constantly worrying about what's coming tomorrow.
28   Booger   2020 Mar 9, 2:07pm  

Patrick says
That makes sense to me. Saudi Arabia is ISIS, and they are quite annoyed at the Russians' taking Assad's side against ISIS in Syria. The Saudis/ISIS want to keep murdering "heretical" Shiite and Alawite Muslims as their Wahhabi theology demands.


Then why did they wait this long?
29   Patrick   2020 Mar 9, 2:08pm  

Because they also hurt American oil producers with this, and they want America to keep protecting them no matter how many Americans and Europeans they kill via terrorists.
30   mell   2020 Mar 9, 2:10pm  

Maybe they waited for the right situation to deliver a 1-2 punch with the CV situation.
31   Patrick   2020 Mar 9, 2:11pm  

WookieMan says
I've witnessed this with my own father in the last year.


Similar with my mother. She had a 100% fatal brain tumor (glioblastoma) and was offered brain surgery that had a slim chance of extending her life for a few months.

She did it, and it ended up partly paralyzing her, and then she died anyway, probably a bit sooner because of the surgery.

But the doctor made $100,000 or so off of Medicare for the surgery.
32   HeadSet   2020 Mar 9, 2:16pm  

mell says

you can up your chances of living a decent and fulfilled life greatly by exercising and eating healthy and enjoying the years you have

+1000
33   clambo   2020 Mar 9, 2:24pm  

It's too bad that the US stock market must react to the shenanigans of Saudis and Russians in addition to the Chinese bat soup plagues, but that's how it goes these days.

The one that bugs the shit out of me is Wells Fargo, but that's my personal fuck up; I inherited some and out of nostalgia/inertia/laziness I didn't sell it. I figured Buffet loves the stock so who am I to sell what the "Oracle of Omaha" owns?

I'm underwater so deep I need two scuba tanks to give me enough air.

The bright side is that the low oil prices will translate to saving $ at the gas pump which will allow people to spend their money on other frivolities like an iPhone so stocks not related to oil may go up later on.

I wish I had new cash to invest, I would be sending it in now.
34   HeadSet   2020 Mar 9, 2:31pm  

HeadSet says
Oil Stocks may be recovering from that plunge. Just bought some Marathon. I missed on Apache, it is already going back up.


Looks like a good thing i missed Apache. It will be a better buying opportunity tomorrow, maybe.
35   WookieMan   2020 Mar 9, 2:32pm  

Patrick says
She did it, and it ended up partly paralyzing her, and then she died anyway, probably a bit sooner because of the surgery.

But the doctor made $100,000 or so off of Medicare for the surgery.

I don't know the drug my dad was taking. Liver and lung cancer (really didn't drink and never smoked). But what they showed billable on the invoices or whatever was close to $40k a month for one injection he was getting. HIPPA should protect his and my identity here, but he is one out of I think 5 that lived as long as he did with the cancers he had (a decade). So hospital probably made at minimum $4M off one patient.

It was miserable for him and our family. I have a new look on life after experiencing that. I appreciated modern medicine for sure. But some of this life extending stuff honestly causes more problems then benefits for all involved.

And Mell I know you invest in this stuff (bio-med, etc), so no hard feelings from my end. I just think it prolongs suffering for the person themselves and the family. Just my opinion and I've always had the opinion of make money where and when you can. Everyone has gotta take care of their family.

I just wish there was more understanding towards elderly assisted suicide or cases where you're terminal. It's miserable.
36   Bd6r   2020 Mar 9, 2:37pm  

WookieMan says
And Mell I know you invest in this stuff (bio-med, etc), so no hard feelings from my end. I just think it prolongs suffering for the person themselves and the family. Just my opinion and I've always had the opinion of make money where and when you can. Everyone has gotta take care of their family.

WookieMan,
there are a few new anti-cancer CURES out there which actually cure a person, as opposed to slowly poisoning. This is not my specialty, but a few friends of mine work in this - now they can cure almost half of even 4th stage skin cancers, and a substantial number of kidney cancers. This is real progress, and in another 10-20 yrs perhaps most cancers will be curable.

https://www.cancer.gov/about-cancer/treatment/types/immunotherapy
https://en.wikipedia.org/wiki/Cancer_immunotherapy

Carter had stage 3 metastasized skin cancer already in brain, and was cured with this method.
37   mell   2020 Mar 9, 2:40pm  

WookieMan says
And Mell I know you invest in this stuff (bio-med, etc), so no hard feelings from my end. I just think it prolongs suffering for the person themselves and the family. Just my opinion and I've always had the opinion of make money where and when you can. Everyone has gotta take care of their family.

I just wish there was more understanding towards elderly assisted suicide or cases where you're terminal. It's miserable.


I agree with you in general, for many there's no upside. I also think suicide should be fully legal if you can do it yourself, assisted suicide with some strict parameters around it that prevent abuse.

rd6B says
WookieMan says
And Mell I know you invest in this stuff (bio-med, etc), so no hard feelings from my end. I just think it prolongs suffering for the person themselves and the family. Just my opinion and I've always had the opinion of make money where and when you can. Everyone has gotta take care of their family.

WookieMan,
there are a few new anti-cancer CURES out there which actually cure a person, as opposed to slowly poisoning. This is not my specialty, but a few friends of mine work in this - now they can cure almost half of even 4th stage skin cancers, and a substantial number of kidney cancers. This is real progress, and in another 10-20 yrs perhaps most cancers will be curable.

https://www.cancer.gov/about-cancer/treatment/types/immunotherapy


The progress on skin cancer has been tremendous - almost all of them are curable now unless aggressive ones such as melanoma caught extremely late.
38   SunnyvaleCA   2020 Mar 9, 2:41pm  

Oil has a strange pricing model... when the price go down, producing countries that rely on it as their sole export need to keep the revenue flowing so they actually pump more. That can make for wild pricing swings and massive boom / bust cycles.

Maybe XOM will be a good buy in another month. Their $3.48 dividend yields about 7% now they the stock price is $41. I suppose the two main questions are: how low will it go and with they go bankrupt.
39   Tenpoundbass   2020 Mar 9, 2:43pm  

So it just goes to show you. Unless there are stringent manipulation in place to make sure nobody upsets the desired market price.
Oil isn't worth a penny over $30 a barrel just like Gold is not worth much more than $300.

Earning interest in the Bank with real inflation and deflation periods is the only way to grow money without taking a bath.
40   Patrick   2020 Mar 9, 2:50pm  

Boomer lament: "My 401K is a 200.5K now!"

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