Oil Market Hype And Crisis Signal Greater Troubles Ahead
Most people are not avid followers of economic news, and I don’t blame them. Financial analysis is for the most part boring and tedious and you would have to be some kind of crazy to commit a large slice of your life to it.
However, those of us who are that crazy do what we do (and do it independently) because underneath all the data and the charts and the overnight news feeds we see keys to future events. And if we are observant enough, we might even be able to warn people who don’t have the same proclivities but still deserve to know the reality of the world around them.
Most Americans and much of the rest of the planet probably were not aware of the recent oil producer’s meeting in Doha, Qatar this past Sunday, nor would they have cared. A bunch of rich guys in white dresses talking about oil production levels does not exactly spark the imagination. What the masses missed, though, was an event that could affect them deeply and economically for many months to come.
A little background highly summarized…
After the derivatives and credit crisis launched in 2007/2008 the Federal Reserve responded to disastrous levels of deflation with a fiat money printing bonanza. Everyone knows this. The problem was the central bankers never had any intention of actually using all that “cash” to support Main Street or the fundamentals of the economy.
Instead, they used their printing press and digital loan transfers to artificially re-inflate the coffers of banks and major corporations. It was a blood transfusion for vampires, if you will.
Through the use of TARP (Troubled Asset Relief Program), quantitative easing, artificially low interest rates, and probably a host of secret actions we’ll never hear about, a steady stream of capital (or debt, to be more precise) was pumped through corporate conduits. The goal? To keep the U.S. from immediate bankruptcy through treasury bond purchases, to boost bank credit, and to allow companies to institute an unprecedented program of stock buybacks (a method by which a corporation buys back its own shares to reduce the amount on the market, thereby manipulating the value of the remaining shares to higher prices).
As the former head of the Federal Reserve Dallas branch, Richard Fisher admitted in an interview with CNBC:
“What the Fed did — and I was part of that group — is we front-loaded a tremendous market rally, starting in 2009.
It’s sort of what I call the “reverse Whimpy factor” — give me two hamburgers today for one tomorrow."
Why would the Fed want to engineer a hollow rally in stocks? As I have said in the past, they did this because they know that the average American watches about 15 minutes of television news a day and gauges the health of the economy only on whether the Dow is green or red.
From 2009 to 2015, the Fed felt it needed to support markets through fiat and keep the public placated and apathetic.
Stocks and bonds were not the only assets being propped up by the Fed, though. In tandem, oil markets were artificially inflated.
Oil suffered a historic spike in 2008, then collapsed to near $40 (WTI). Starting in 2009 and the initiation of major stimulus measures by the Fed, oil prices came back with a vengeance; almost as if the spike in 2008 was merely a measure to psychologically prepare the public for what was to come.
In 2010 prices climbed near the $90 mark, then in 2011 they peaked at around $115 a barrel.
Then, something magical happened — in December, 2013, the Fed announced the Taper of QE3, something very few people predicted would actually happen (you can read this article breaking down why I predicted it would happen).
The taper involved slowly cycling out Fed purchases a month at a time. By mid-2014 the taper was nearing completion. Suddenly, oil markets began to tank. By October, 2014 the Fed finished the taper and oil collapsed, from $95 a barrel to a low of under $30 a barrel at the beginning of 2016. The correlation between the Fed taper and the overwhelming drop in oil prices is undeniable. Clearly, high oil prices were primarily dependent on Fed QE.
While equities fluctuated heavily after the end of QE3, they were still supported by the Fed’s other pillar – near zero interest rates. NIRP allowed the Fed to continue funneling cheap or free money to banks and corporations so they could keep stock buybacks rolling, but oil was done for.
Now, until recently, oil markets have NOT reflected the true state of the global economy. All other fundamental indicators have been in decline since the crash of 2008, including global exports, imports, the Baltic Dry Index, manufacturing, wages, real employment numbers, etc.
Oil consumption in the U.S., according to the World Economic Forum, has sunk to lows not seen since 1997. Current levels of oil consumption are FAR below projections made in 2003 by the Energy Information Administration. By most tangible measurements, we never left the crisis of 2008.
Oil demand continued to fall but prices remained high because of Fed intervention. My theory:
As with stocks, the Fed at that time needed to pump up the only other indicator the mainstream might notice as a sign of dangerous deflation – energy prices. Dwindling demand is the real problem being hidden in chaos surrounding arguments over production. The establishment prefers we focus completely on supply while ignoring the warnings of falling demand.
QE was the first pillar to be pulled from the false recovery, and oil markets plunged. At the end of 2015, the Fed removed the second pillar of NIRP and raised interest rates. OPEC members met to discuss a possible production freeze agreement but the conference failed to produce anything legitimate. This resulted in stocks crashing in extreme volatility to meet up with oil.
Then something magical happened once again. In mid-February, OPEC members and non-members arranged yet another meeting, this time with much fanfare and steady rumors hinting at a guaranteed production freeze deal. Oil began to climb back from the brink, and stocks rallied over the course of six more weeks. All eyes were on Doha, Qatar and the oil agreement that would "save markets".
I bring up the recent history of oil markets because I want to give some perspective to those people who suffer from a disease I call "ticker tracking". This disease causes extreme short attention span issues and loss of long term memory. The dopamine addiction of ticker tracking makes people forget about long term trends and their relation to the events of today, to the point that they ignore all fundamentals in the name of watching little red and green lines day in and day out.
For example, the fact that the Doha meeting failed but did not result in an immediate and massive slide in oil and stocks sent ticker trackers crowing that the market "will never be allowed to fall".
Their affliction keeps them from realizing that the effects of Doha, like any other major financial event in the past, take TIME to set in. Not to mention, they seem oblivious to the implications of oil struggling to move comfortably beyond $40 a barrel.
Remember, oil was around $60 (WTI) six months ago, and had held over $100 (WTI) for years before then. The crash in oil markets has ALREADY happened, folks. What we are witnessing today is the last vestiges of that crash playing out in extreme volatility. Now we wait for equities to fall and meet oil, as they did at the beginning of 2016, and as they eventually will again.
Are stocks tracking oil prices? It may not be an absolute correlation, and they do tend to decouple at times, but the overall trend has been consistent; when oil falls, stocks loosely follow.
The Doha meeting was always a farce; that much was obvious before it even took place.
Bloomberg along with other media outlets were planting rumors of backroom deals between Russia and Saudi Arabia before the Doha event which would solidify a production freeze.
Numerous mainstream “experts” claimed an agreement was essentially a sure thing. Even some skeptics within the liberty movement were doubtless that a deal was certain because “the internationalists would never allow oil prices to continue to drag on the public perception of the economy.”
First, I am not a believer in the idea that global economic decisions are really made at these meetings.
Any nation that has a central bank that is tied to the Bank of International Settlements and the International Monetary Fund is a CONTROLLED nation. Period. Economic arrangements are handed down from on high, not debated spontaneously in open forums. Read Harper’s 1983 article on the BIS titled “Ruling The World Of Money” for more information on how globalists control the economic policies of nations.
Second, even if a person believes that such vital economic decisions as a global oil production freeze are decided in closed meetings while the press waits just outside, why would anyone buy into the Doha event?
I am not quite sure why some people were gullible enough to think that after 15 YEARS of oil producers refusing to come together on any form of meaningful agreement they would suddenly shake hands this year. The only hope markets had was the possibility that the Doha meeting would result in an empty deal that they could spin in the mainstream news as a legitimate “production freeze.” Apparently they won’t even be getting that.
The Doha talks ended in failure. All the signs said this would happen. As I wrote in my article “Lost Faith In Central Banks And The Economic End Game”:
For anyone who was betting on oil markets to continue their rally past the $40 per barrel mark, there was a lot of bad news. Saudi Arabia crushed optimism by announcing that it would not be entertaining a “production freeze” proposal unless ALL other oil producing nations, including Iran, also agreed to it.
Iran then doubly crushed optimism by announcing an increase in production rather than committing to a freeze.
Russia then administered the final blow by releasing data showing that their oil output had risen to historic levels, indicating that they will not be entering into any agreement on a production freeze.
Besides a recent overly optimistic (and rather suspicious inventory draw) which has caused a short term rebound, all indicators show that oil will be headed back to the lows seen at the beginning of this year.
The effects of the Doha failure were delayed by a convenient labor strike in Kuwait, which caused algo trading computers to buy en masse despite the negative news. As I pointed out on Monday, though, the Kuwait situation would be very short lived. Now, it is time to watch and wait for Saudi Arabia and Iran to begin battling over market share and increasing production even more. These things take a little time to develop.
Currently oil has dropped back below $40(WTI) and markets are extremely volatile. I do not believe the failure of the Doha meeting alone will translate to a fantastic drop in stocks. But, I do believe that it is a very heavy straw added to the camel's back, and there is a negative trend developing before our very eyes that will become apparent in the next couple of months.
As I have said in the past, a market entirely supported by rumors and hearsay can rally quickly, but also lose all gains at the drop of a hat. What the Doha debacle represents is a signal that the establishment is incrementally abandoning support for market systems. This is translating to a loss of faith in central banks and major financial institutions.
On top of this, look at the incredible amount of misinformation and misdirection that went into Doha, now completely exposed. The truth is crystal; the MSM lied and obfuscated helping the establishment to drive up oil prices and stocks, all for a mere six to eight weeks of market security. As soon as these lies were revealed, volatility began to return.
If the oil market bubble can implode (as it already has) in such a way due to the striking of fundamentals, then stocks can also be destabilized as well. It will happen, and I believe 2016 is the year it will happen.
There are those out there that miscalled how the Doha meeting would end because they were blinded by a particularly dangerous bias; they have assumed that central banks and internationalists want or need to continue propping up markets indefinitely. This is not necessarily true. In fact, I have outlined time and again evidence showing that they are planning the opposite. That is to say, they are planning to deliberately bring down markets in a controlled manner.
Oil was the most recent system to be undermined, and stocks will likely follow before the year is out. The fall in oil and the circus at Doha signals a change in strategy by the globalists. It signals a shift towards the controlled demolition of our economy and the centralization of fiscal power into a single global administrative entity. Order out of chaos.
There is a steady stream of events in the next few months that can be used as a steam valve for sinking global markets. Watch the April Fed meeting carefully. The Fed recently held two “emergency meetings” along with a third surprise meeting between President Barack Obama and Fed Chair Janet Yellen. The last time such a meeting occurred the Fed hiked rates less than a month later. I expect that the Fed will raise rates once again either this month or in June.
Also, watch for the Brexit (the British exit from the EU) referendum in June. Such a development would greatly shock an already unsteady Europe as well as the rest of the West.
And, of course, watch for trends in oil and stocks, but do not get caught up in the day-to-day mindlessness of ticker tracking. It is pointless and will not help you to understand what is happening economically. In any economic crisis, stocks are the LAST indicator to turn negative and daily analysis by itself is in no way a crystal ball.
The next couple of months should be very interesting. Stay vigilant.