Oil Getting Obliterated

The indices are going nuts, but one thing is definitively moving lower.

No more free money means rough times ahead for oil bulls. Crude is already off 4% as I type this, plunging deep into the $70-80 range.

I don’t know if we’re heading into another recession or not. But I do know this: cheaper oil is something to celebrate when you’re the largest economy on Earth and everyone who holds sizable oil reserves wants you dead.

Get your party hats on. Can I get a “Crude to $60!”?

It would be most unbecoming of you if you take this breather to try and be a hero.

In real life, Achilles does not ride to the gates of Troy and, after challenging the city’s favored son to a death bout, ride away victorious with his dead quarry dragging behind him.

He gets a volley of arrows into his chest and dies looking like an idiot.

This is a most opportune moment; one which you could be using to correct the errors which were made into lessons over the last three days of trading. If we continue to sell off from this feeble bounce tomorrow, will you be more resilient and defended than you were before?

Or will you be one and a half times more levered because you tried to catch a two thousand point sell-off/locomotive with your teeth?

I have already increased my UCO short further. Continued weakness or disappointing comments from the Fed this afternoon will result in an immediate death sentence for equities and commodities alike.

Let me also bring it to your attention that we have no idea what is causing this selloff. Is it just ruined expectations? Or is there possibly some massive form of exposure across the system that is sending it spiraling into the ground (repurchase agreements, anyone)?

In real life, you never have some narrator telling you how the MBS contracts are blowing up and that’s what’s causing the crash. It is never that easy.

Those stories are written in hindsight, after more information is known. If you treat every sell off like a standard correction, and ignore the possibilities of more dire variables dragging things down farther than you ever imagined, you will lose your shirt many, many times before you die.

Frankly, I doubt we are seeing the worst selloff in years simply because quantitative easing is temporarily off the table. There is too much room for more extreme causes driving current events.

If you question that statement, please review a graph of the last three days. That sort of gargantuan movement does not occur from a mere sour outlook on the state of affairs. It does not come from short selling either. It comes from forced selling.

So what is causing the forced selling?

~Jim “Jimmy” Cramer

It was obviously a great trade to sell industrials and oils. I did not participate in that. I just felt that the other sectors were very vulnerable and that oil could go down to the mid-$80s if the margin buying — not demand destruction but margin buying — got crushed.

Investors who think it is demand destruction do not understand that unless the world stands still, you can’t have oil go down from $96 to $75 in a couple of days, especially when Chinese inflation is heating up, as we learned last night, perhaps the worst new bit of data out there.

Doesn’t matter. Some moron will espouse it Tuesday. We will have to listen.

So be it; my response will be swift and brutal.

Remind me, again, who is the world’s largest economy? Oh right, the United States. And we’re slowing down a bit.

And what’s bigger? China, or all of Europe? And yeah, it looks like Europe is slowing down a bit too. Hell, the U.K, not to be out down, is straight up burning its economy. Mothballing is apparently not in style in London nowadays. They will torch their fucking idle factories and businesses, and even some of the non-idle ones.

And finally, isn’t China’s most recent inflation statistics coming in around 6.5%, well inside the 10% clusterfuck they were experiencing earlier this year, and a mere and rather insignificant .1% higher than expectations? I wouldn’t call that, “heating up.” I’d call that, “slowing down.”

So it looks increasingly like:

a) The world is standing still. Very small growth, which was one of the key premises to higher oil prices to begin with.
b) Less oil consumption from slowing industry. That means plenty of unused oil running through the system.
c) Little room for decreased production of oil suppliers. You cannot tell me that Saudi Arabia can afford to cut back on production. They are giving each of their citizens cash deposits to calm down and stop rioting. Iran and Venezuela have absurd spending plans, which can only be made up for with volume, should the price of oil continue to slide. Russia has never been keen on slowing their own production; they just insight others to do so.

It does not take massive oil gluts to crush prices. It only takes a decent unused margin and few prospects for increased consumption going forward. That’s where we are.

Without cheap Fed money spurring the market on another coke run, oil goes lower. And Jim Cramer will eat his words.

Now pray with me for peace in Libya.

ERX was obviously the trade to be in. I was short it from the high $60’s mixed into the low $80’s. I held it for literally months, despite having massive pressure being applied in the way of potential losses.

So I grab a quick (and huge) 26% gain, and I decide “surely, the Europeans will do something about this this weekend, and I’ll watch as all my effort goes bye bye.”

Yet here we are, with the damn thing down another 25%.

I mean, I’m still having a grand time. UCO is down 15% itself and is keeping my long positions pretty well in check. I’m still outperforming the market.

But I can’t help but think that if I had been more patient and less concerned about a Euro championed short squeeze, I could very well be looking at 0% losses for this walk through Hell.

Just regrets that need to be voiced…

And also despite being cash’s biggest cheerleader for months, I find myself too short on it. That’s mostly because I repurchased ERX and have been dip buying. Up until now, I had just bundles of the stuff; now I’ve got barely a position’s worth.

So today I sold out of all MGM shares; that had about 4% remaining of my 5% allocation (nasty, I know, thank God I cut out the rest when I did).

Really though, where’s a good Fed pump when you need one? Maybe they want to see commodities get crushed a little more before they act?

I added to AEC for $16, heavily by about 4% of my total portfolio. That stock, like CLP, is going to absolutely rocket once the world gets its head back on its shoulders.

My cash position and short in UCO together remain above net 20% of my core holdings. If I cover UCO though, I would be inside a 10% cash position. I have been grabbing greedily, snatching up names I feel are being liquidated in spite of value, because moronic fund managers don’t know how to show restraint with borrowed money.

You could say I regret covering ERX last Friday, seeing it’s down another 10% today. I really figured an EU deal was imminent. It seems I overestimated the willingness of Euro jackasses to save their own skin.

Honestly, those people beckon death upon themselves regularly as if by culture or habit.

Yet, ERX’s lows from last Friday’s capitulation have not been matched (Pre-Release Edit: They have been matched). The indices are showing an aptness to spring. And despite the graveness of what has happened in the last week, I think the move is a little overdone.

There are two great paths we as a country might ultimately take. We either get nailed by the losses and everyone grinds to zero, or the Fed opens the flood gates and we still lose out, only much slower and without old ladies starving in the street.

Only a few weeks ago, I thought more stimulus was out of the question. But, more than that, I knew that Bernanke would want to observe what happened in the economy.

The recent observations trump my preference of no intervention. Ben Bernanke & Co. will continue the path of currency destruction, and soon. Perhaps before their August 27 meeting, if this continues.

They will most likely announce cooperation with bailing out Europe, by committing bonds or reserves to the ECB. This will enable the EU to assist Italy and Spain without the Euro going to par with the dollar and crushing our own economy.

Asia will have to assist the intervention as well. But it will happen; it must, if the establishment is to survive.

Don’t bet on them just giving up and throwing in the towel. The losses to the system cannot be erased. But they can be selectively distributed. The people who rely on money circulating will ensure that it does, and that means devaluation.

Until then, keep your hedges on and some cash reserves or a buying game plan.

So it looks like now there is no emergency bailout of Italy or Spain. So be it, it’s not like they could have come up with the money in one lump sum anyway.

However, I hope that this does not interfere with the ECB purchasing Italian and Spanish debt on the open markets. It is that sort of action which is critical to the survival of the EU.

Of course, if I were Germany I’d be contemplating leaving the EU; what have they received from this deal?

Lots of other countries received access to Germany’s AAA credit rating while Germany got to provide those countries with cheap goods and has simultaneously been “blessed” with their liabilities and paper promises.

If I were German, I’d be contemplating WWIII, from the anger that must be building.

This isn’t an ideal venue to take out their frustrations though. If Italian and Spanish debt freeze up, then there could be some large problems. Everyone is going to suffer for this.

I may regret gambling on a European debt deal. It seems Europe is as heterogeneous as ever.