Little bit long on this post - go to the bottom if you don't have the time.
Oil is down sharply again this morning. Yesterday, the U.S. Energy Information Administration reported a "surprise" decline in weekly supplies of crude oil. The American Petroleum Institute on Tuesday reported a 2.4 million-barrel increase, according to sources. Analysts expected a rise of 3.2 million. Prices traded at $28.09. This morning it is 26.71. Last week it was in the 32 range.
I've said it before but I find it amazing the market is swinging the price of oil over a difference of 2 million barrels, a small amount of "excess crude." Especially since the average super tanker holds two to three million barrels of oil and there are hundreds of large tankers plying the earth's shipping channels. I have no intent to become an oil "analyst" but I did a cursory look at the world tanker fleet to understand it better (there are over 4000 tankers of all sizes worldwide). Others have said it is virtually impossible to know where the excess crude inventory erstwhile the market latches onto any metric it can find in lieu of actually knowing the unknowable (inadvertently channeling Rumsfeld).
Others in this forum yesterday asked "isn't it a good thing oil is so low"? Yes, gas prices are lower and it is the equivalent of a tax break windfall for the average American family. No, if you are a company that depends on oil pricing for profits. Oil companies in the USA are suffering because they can't make money under $50 a barrel (the estimate varies depending on who is asked). Those same companies borrowed money from banks they now cannot afford to pay back. Banks lose money on those loans which is what is happening to oil loans in European banks (less regulation than US banks therefore more risk). And finally, OPEC member economies decline because they are built on oil profits. OPEC countries all have large petro portfolios holding banking equities among many others – they made money both ways and now the chickens are coming home to roost. OPEC countries are selling those equities to fund their social programs and maintain their standards of living – and we see declines in US bank stock prices now as they are catching the flu from European banks. In the USA, regional banks located in oil patch areas are have some portfolios tied to oil but the rest are indirectly tied by virtue of their local economies suffering due to oil declines. Just visit Midland, TX to see a typical US oil town in a bust cycle.
Oil is still coupled to equity prices for reasons above and banks seem to be affecting the world markets also. Tying it together, my wife (not a fed) sold her long equities yesterday – capitulation in my family - while I remain G and F (heavier on G). I have heard experts say this year you won't make money in an index fund (perhaps true for TSP C/S/I) – but not altogether so; I am shorting on SPY (the S&P 500 ETF index – the down trend volatility seems unshakable). They say instead it will be a stock picker's year. So what to do? Each must make his own determination as it relates to the TSP but I don't see good news anytime soon. I do look forward to warm weather as one posted yesterday but only because I like the sunshine – stocks are not likely to go up during the summer (historically speaking).
Posted by: mil.flyer@yahoo.com
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