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DOW – 315 = 17,280
SPX – 33 = 2002
NAS – 54 = 4653
10 YR YLD – .08 = 2.10%
OIL – 2.52 = 57.43
GOLD – 5.60 = 1222.80
SILV – .06 = 17.14
The fall in oil prices has been dramatic, now down almost 47% since June. Nobody was expecting it would fall that far that fast. Goldman was forecasting $85 oil for 2015 as recently as October 29. Crude-oil futures fell to their lowest since May 2009 on Friday, briefly dropping below $57 a barrel, after the International Energy Agency delivered the latest reduction in forecasts for global oil demand. On the week, oil futures have lost slightly more than 12%. So, oil is a bit oversold right here but it is never a good idea to try to catch a falling knife.
And the whole drop just tells us that something is rotten in the markets. The fundamentals of oil have not changed in concert with the price. We don't have double the oil we had in June. So why is the price cut in half? I know that's overly simplistic, but either the market is too negative on energy, or it is not diligent enough in thinking about broader implications. Low prices lead to oil being left in the ground. Low oil prices lead to debt defaults. Low oil prices can lead to collapses of exporters. Benefits to consumers are likely smaller than expected. Hoped for renewables lose luster with low oil prices. The sharp decline in the price of oil has disoriented markets and changed the perception of the creditworthiness of companies and countries. And don't forget deflationary pressures, which is great when you go to the gas station to fill up but not so great in a number of other ways.
Bill Gross, who used to run the world's largest bond fund before joining Janus Capital in September, said the federal reserve may become more “dovish” after oil prices plunged in recent weeks. Gross says the Federal Reserve would have to take lower oil prices “into consideration.” Why would they start to eliminate language that talked about an extensive period of time when the US itself is, not deflating but disinflating, and certainly not moving in the direction of its 2 percent inflation target?
The drop in oil prices likely reflective of world reaching debt expansion limit. The worry, as always, has nothing to do with the central banks' concern for you, your job, your children, wealth equality, or the future, and everything to do with the simple fact that the stability of the banking system absolutely depends on a steady stream of new loans being created. The core of the problem is that we have a monetary system that is either expanding or collapsing. It has no steady state. Oil has been an engine of growth, resulting in global spending of nearly $3 trillion over the past decade, and that means a bunch of financing. We have never spent more money developing new oil supplies than we did last year, nearly $700 billion; and for all that spending, we did not double the current production. Something is very wrong with that equation, and that means something has to give. New oil drill programs are being scrapped left and right. New drill permits in the U.S. shale plays were down 40% in November compared to October and for good reason: most of the plays are uneconomical at current prices.
