Freefall /Black Swan Event In Oil Continues; Stocks Getting Hammered Again; Bill Gross Warns Investors On 2015; ‘Slow, But Potentially Catastrophic Collapse Of Venezuela’ — As Well As Greek Elections Loom Large
The sea of red and selling on Wall Street is getting follow through today; and, if we close at or near where we are now; the trend is definitively down — at least for this month – IMO. Oil continues its freefall, with Brent Crude down $1.94, or -3.6 percent to $51.21, while West Texas Crude is off $2.06, or -4.1 percent, to $47.98. As of now, this is the worst three-day session to start a new year for the S and P 500 — in the history in the index (percentage-wise) -3 percent to date. Oil is definitely having a Black Swan event, whose global repercussions are going to be felt/evident very soon. Between oil’s freefall and concern that Greece may be invited to leave the Eurozone — if the leftist candidate wins the January 25, parliamentary election — and, those two things alone are enough to concern investors. Add to the mix potential social unrest in Russia — due to the freefall in oil and the prospect of a credit downgrade of Russian debt; the “slow, but potentially catastrophic collapse of Venezuela,” as Jackson Diehl wrote in the January 5, 2015 Washington Post; and, Bill Gross warning investors that 2015 will be a lot different than 2014 — and a risk-off sentiment for stocks is not surprising.
“Oil hasn’t found a bottom, and that’s a concern for investors,” said Paul Nolte, Senior Vice President, and Portfolio Manager at Kingsview Asset Management. “Lower gasoline costs are a boost for consumers, bolstering discretionary spending and income levels; but, it’s a headwind for companies within and around the energy patch,” said Terry Sandven, Chief Equity Strategist for UBS Wealth Management. I would also add that any savings middle-class consumers are seeing from lower gas prices is being offset by higher premiums and deductibles as a result of Obamacare.
Former bond king Bill Gross, added to investor/trader concern after he issued a warning in a note this month to his clients writing that investors should be “cautious and content with low positive returns in 2015.” “The time for risk taking has passed,” Mr. Gross wrote, who oversees the Janus Global Unconstrained Bond Fund. Mr. Gross tiled his letter “Ides,” as in the Ides of March, and warned investors to stay vigilant.”
“When the year is done, there will be minus signs in front of many asset classes. The good times are over, and said some asset classes may turn negative for the year” he said. “Should that happen,” he wrote, “investors should consider high-quality assets with stable cash flows, such as Treasury and high-quality corporate bonds…as well as equities levered corporations with attractive dividends; and, diversified revenues…both operationally, and geographically.”
I don’t know that I am as bearish as Mr. Gross; but, he may well be right; and, there are certainly enough geopolitical headwinds that could prompt a negative year in stocks globally. The U.S. stock market remains “the best house in a bad neighborhood,” as traders like to say; but, it is certainly a very troubled global outlook shaping up in 2015.
Deep Trouble In Caracas
Jackson Diehl, writing in the January 5, 2015 Washington Post, says “POTUS Obama is ignoring the slowly mushrooming crisis that triggered Castro’s distress; and, that ought to be the focus of U.S. energies in Latin America. That is the slow, but potentially catastrophic collapse of Venezuela, a major U.S. oil supplier, with three times Cuba’s population that, as of 2015 — is well on its way to a failed state.” Venezuela gets 95 percent of its GDP from the sale of oil. Venezuelan leader Maduro, “has overseen the degeneration of his country’s economic, political, and social situation from abysmal to truly disastrous,” Mr. Diehl wrote. The Venezuelan economy is in freefall along with oil, and inflation has risen north of 60 percent. An estimated one-third of consumer goods are in short supply; and, “that was before the 50 percent drop in the price of Venezuelan oil, which provides 95 percent of the hard currency for the country — that imports most of its food and medicine,” Mr. Diehl noted.
Socoete Generale has a 90 percent probability that Venezuela defaults on its debt obligations by the end of 2015, or early 2016.
May Re-Initiate And/Or Add To Stock Positions In The Last Trading Hour Today
We are now down over 500pts. in the DOW in the past two days. I may, may use the last hour to half hour today to add to my FaceBook position, stand pat on ISIS, and re-initiate positions in Palo Alto Networks and Acadia Bio-Pharma (ACAD). Want to see what traders are doing in the last hour to half hour today. That is the critical put up or shut up time. Will we get accelerated selling into the close; or, will there be some buying and we close off the lows. If it is the former, there in no need to be brave and buy today. If it is the latter, I may do some small, selected buying. Good luck. V/R, RCP