Thursday, October 16, 2014

Making a living by 11am, Oils big reversal and EBOLA - EVERYBODY FREAK OUT!

For the second straight day stocks took a dive on the open only to sharply recover most of those gains by the end of the day.  I've been telling people that I talk to that October has felt like someone is desperately trying to make their entire bonus for the year in 2 weeks.

By moving the markets violently in one direction and then whipping them back in the course of an hour, active traders in options are making small (and not so small fortunes) as long as you are on the right side of the trade.

Today's recovery seemed to be driven by the sudden, and as of right now, unexplained spike in oil prices this afternoon.  As I mentioned earlier this week, oil prices have been tumbling on rumors that Saudi Arabia was going to sell oil below the market price to hurt the economies of two major producers (namely, Russia and Iran).  However, what the parties involved forgot was that the US Shale boom is premised on oil being at or above $100 (exploration and extraction of shale oil puts the cost per barrel at $65-$90/barrel for most locations).  With oil trading at $80 this morning, many of the US shale companies were starting to get crushed in the stock and bond market.  This is the funny thing that all of the "frack, baby, frack" people tend to forget.  We've known that this oil was in the ground for decades but it's only economically feasible to get it out at a certain price.  When oil is $100 and you're paying $3.85/gallon, they will keep fracking.  If oil fell to $50 per barrel (I know that seems crazy but oil spent most of the 90's and early 2000's between $18-$38/barrel), you'd see every domestic oil project come to a halt.

I hesitate to mention the ebola hysteria, but I will say that the most disconcerting fact to me is that of the 4,500 deaths 200 of those deaths (4.4%) have been health care workers.  I know that protocols weren't always followed perfectly but the fact that 4% of the deaths in this outbreak have been health care workers is troubling.

In my opinion, the greatest risk from ebola isn't catching the disease for the average American.  Rather the risk is that fear grips the nation to a point where people stop traveling, avoid going to work or school, etc.  This is a worst case scenario but today I read that 50% of Americans were re-evaluating plans to travel overseas (I'm not sure how they came up with that number b/c I'm pretty sure most Americans don't travel overseas to begin with but another story for another day).

If that became 50% of Americans cancelling Christmas ski trips or golf trips to Myrtle Beach our economy which is on shaky footing could tumble right back into a recession.  That is what you should fear when you hear ebola and that may explain why certain AM radio hosts are so worked up about it (they stoke the fear which leads to reduced economic activity in 2014-15, the economy slips into recession and BOOM Mitt/Jeb/Christie to the rescue :) )

Cheers!

PS - as election day draws near remember that your vote is not for sale.  I'm working on writing something on this subject but for now remember that if you don't fall for Party A or Party B's million $ ad campaigns, you can change course of history.

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