Oil Producing Sovereign Wealth Funds (Source: Wikipedia)
The oil bust has stranded high yield debt, slashed capex budgets and will cause major layoffs. One third of all capex in the S&P 500 over the last 5 years has come from the energy shale boom. The negative multiplier effects in our economy will be many.
In addition to economic headwinds we also have financial flow headwinds. Food for thought: The oil producing countries which were running a surplus and buying our financial assets and recycling their petro-dollars will likely be running deficits. At $40-50 oil they will be net sellers of financial assets. What was once a tailwind for the bull market is now a head wind. These countries have a combined asset value of $4.2 Trillion. After Dodd-Frank the ability of Wall Street to handle size like this is greatly impaired. Clearly not all $4.2 trillion will be for sale but it is about the flow and direction. I expect increased volatility over the next several years as a result.
Technical and fundamental analyses are increasingly lining up to generate a significant swoon in financial markets. Negative Reflexivity is on the cusp of taking hold of the situation.
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