13 January 2016

China Drops 5-6%; Oil Poised To Break Below $30; RBS Advises Clients To Sell Everything’ And Brace For A ‘Cataclysmic Year’

January 12, 2016 ·
China Drops 5-6%; Oil Poised To Break Below $30; RBS Advises Clients To Sell Everything’ And Brace For A ‘Cataclysmic Year’
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Another seesaw day in the U.S. stock market today; as the DOW and the S&P 500 eked out a small gain while the NASDAQ closed in the red. Considering oil fell 6 percent and is likely poised to break below $30. U.S. stock futures were up fairly moderately this morning, even though the Shanghai Composite closed lower by -5.29 percent, while the Shenzhen Composite lost -6.6 percent. There is reliable/credible reporting that the wealthy are moving their cash holdings out of Chinese currency and exchanging into either U.S. or Canadian currency. Credit ratings agency Fitch reported that there was $909B in currency outflows from China between the 2nd quarter of 2014 to the 2nd quarter in 2015, nearly a trillion dollars. And, this flight has apparently picked up steam in the past few months. It was a surprise that the DOW and S&P were able to eek out a gain while oil continued its slide. U.S. oil settled down $1.75, or -5.28 percent to $31.41. And oil looks like it is going to break below $30. Morgan Stanley, in a note to clients today forecast at least another $5 drop in the price of oil, should China devalue the yuan by 10 percent — which many traders believe they will.

U.S. Oil Industry May Need A ‘GM-Style’ Bailout ‘Oil Could Hit a Catastrophic Low’
John Kilduff, of Again Capital, in an interview on CNBC this morning said he is getting increasingly worried that oil could hit a catastrophic low. Mr. Killduff a well-respected oil analyst, believes oil could fall as low as $18 per barrel, which will lead to a fractured and disorganized shuttering of wells and leaving bankrupt companies in its wake,. Mr. Kilduff warns that if that scenario plays out, without some kind of intervention by the Federal government and the Department of Energy (DoE), the U.S. will lose its energy independence, and will once again find itself hostage to foreign benefactors that don’t have our best interests at heart. Mr. Kilduff is also worried about the critical skill-set atrophying, which would further undermine the U.S.’s ability to recover its critical oil infrastructure.

Fadel Gheit, the Senior Oil and Gas Analyst at Oppenheimer & Co., in an interview with CNBC today that “half the U.S. shale oil producers could go bankrupt before the crude market reaches equilibrium.” Mr. Gheit believes crude will ultimately “stabilize near the $60 level; but, forecast that “it could take more than two years,” before reaching that price range. “By then,’it will be too late for many marginal U.S. drillers, who must drill into, and break up shale rock to release the oil and gas through a process called hydraulic fracturing,” Tom DiChristopher wrote on CNBC’s website this afternoon — January 11, 2015.

It looks like the outlook for oil is pretty bleak. How is this going to play out in Russia and Venezuela? Will this free-fall, cause Vladimir Putin to become even more belligerent and militaristic in an attempt to focus the Russian people’s attention outside the country — instead of within?.

RBS Advises Clients To Sell Everything’ And Brace For A ‘Cataclysmic Year’

Ambrose Evans-Pritchard, writing in the January 11, 2016 edition of London’s The Telegraph, says that the investment firm RBS “has advised clients to brace for a “cataclysmic year,” and a global deflationary crisis — which could lead to a 20 percent fall for major stock markets, and oil plunging to $16.” “The banks credit team said markets are flashing stress alerts akin to the turbulent months before the Lehman crisis in 2008,” Mr. Evans-Pritchard writes. “Sell everything except high quality bonds. This is about a return of capital, not return on capital. In a crowded hall, exit doors are small,“: the firm warned its clients.

Andrew Roberts, the bank’s Credit Chief, said that “global trade and loans are contracting, a nasty cocktail for corporate balance sheets and equity earnings. This is particularly ominous, given that global debt ratios have recorded record highs. China has set off a major correction and it is going to snowball. Equities and credit have become very dangerous, and we have hardly even begun to retrace the “Goldilocks love-in” of the last two years,” he added.

Mr. Roberts “expects Wall Street and European stocks to fall by 10-20 percent, with an even deeper slide for London’s FTSE 100 — given its weighting of energy and commodity companies,” Mr. Evans-Pritchard wrote. “London is vulnerable to a negative shock. All these people who are long oil,and mining companies thinking that they’re dividends are safe — are going to discover that they’re not at all safe,” Mr. Roberts warned. I wish I had better thoughts, but this could get ugly

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