Oilmageddon Trips the Circuit Breaker 🎛

Oilmageddon Trips the Circuit Breaker

Pre-market is eerily quiet. Hot takes on the economy are fewer. Stock market chatter has allayed. Investors are sat forlorn, serious, contemplative, and nobody wants to break this calm before the storm. Another historically noisy day of trading is about to commence. 

Yesterday was… rough. US markets were suspended within four minutes of opening, investors aggressively selling the weekend’s news. 7% losses saw a circuit breaker triggered, fifteen-minutes of rest bite given to investors; time to think.

Circuit breaker reference sheet:

7% Loss

15-minute suspension

15% Loss

1-hour suspension

20% Loss

1-day suspension

30% Loss

To the nearest open window!

The market’s totalled. That’s the point.Brent Crude suffered its worst day since 1991, and bond yields hit their lowest levels in American history as investors darted for fixed income safe havens.

Oh, and you remember Robinhood, that popular zero-commission broker? It crashed again.The app locked out nine million investors from the action, so, all in all, expect to see lots of new faces attending church this Sunday!

To recap why markets fell so hard, slowing the spread of the coronavirus has slowed the growth of the world economy. Consumers are self-isolating, businesses are hosing down assets, and many see bubbles ready to burst.

The demand for various commodities, including oil, is obviously abating. However, Russia intends only to increase its production efforts. It has the upper hand over peers in OPEC, and especially the United States where a virus test costs three thousand dollars.

With the potential for that to hurt America’s virus and recession containment efforts, now may be the perfect time for Putin to launch an offence on American shale.

A global oversupply of Russian and Saudi Arabian Brent Crude has smashed oil prices and created a harsh environment for weak energy companies to survive. Both countries are out to win market share, and we’re all along for the ride, like it or not.

Stocks are eleven years without a severe downturn, remember. They’re likely to be oversensitive to this one-two punch; Putin and the Pathogen (new band name?). However, it would be wrong to extrapolate linearly from a fearful market emotion.There is still a wide range of possible outcomes that could flow from here.

President Trump’s already been briefed on his economic options (take that as you will), Secretary Mnunchin is on the phone to the Kremlin as we speak (probably talking tariffs), and the coronavirus does not spread based on an exponential function (otherwise we’d all be dead).

Some oversold stocks are bound to make great buying opportunities, and many market desperados are already picking through the rubble. 

The key questions now are, is this ‘Putin and the Pathogen’ episode a big deal? Will the stocks we like go down? And will the actual value of those businesses go down nearly as far? Don’t forget to short-sell, and don’t look down!

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