Cashin: “Oil Contagion Might Bleed into the Financial System”

I’ve been saying this for month. Now it’s becoming main stream thinking. By my count, there is around $300 billion in distressed basic resource debt, encompassing all commodities, not just oil. Of that, PBR, SDRL, PAGP, SID, LINE, MTL, CRC and BTU have the most debt.

Click here for Cashin clip.

These companies are toast, done. Since 2009, investment banks have been peddling this shit to people, as a way to replace all of the mortgage crap they made a killing on before the housing collapse, with reckless abandon. Ten percent oil and gas trusts, MLPs, limited partnerships, preferred offerings and of course your regular run of the mill bonds were all part of the ‘for sale’ items to every client at every investment bank, for more than half a decade.

We haven’t seen the fall out yet. Right now we’re just getting the shock. Later on we’ll get to see the aftermath.

Broader markets are down upwards of 6%, making this the single worst start to a new year ever. But beneath the veneer of a pleasant 6% drubbing lies an ugliness only dreamt about in the distorted machinations of Tyler from Zerohedge.

Notable median returns by industry, ytd

Aluminum -26%
Shipping -24%
Tankers -23%
Oil and Gas Exploration -20%
Auto dealerships -19%
Independent oil -18%
Biotech -17%
Copper -17%
Steel and Iron -15%
Solar -14%

The list goes on and on. As a point in fact, zero sectors are up this year, not even gold. Food Major-diversified is the best performing sector, down 0.09%, with leadership in PF and LANC. GLD is up 2.4% and TLT is up 2.35%. Other than that, you’d need to be short or long inverse ETFs to make money this year.

Inside Exodus, since 2014, I kept an index of bubble stocks, that traded at a premium to the rest of the market. The idea was to assess risk, in order to help with my timing.

Year to date, its been hammered into fucking sea shells, down 12%. For the day, it’s still up around 0.4%, despite broader market weakness.

Today’s reversal is nothing less than apocalyptic. This is it, the very end of days. Soon I will be entering your town with my militia to seize dry goods and declare myself Lord of your bullshit community. These losses that you’re enduring are evil, from a demonic like possessed market.

I’m not regretting my leveraged SPY position. It’s part of the plan. Get super tits aggressive when everyone is crying like infants in their cubicals, then blow out when traders are talking about new sports cars.

Or, I could just collect assets like a moron and be down 12% for the year.

Bear in mind, 25% of my assets have been in TLT from the end of 2015.

So, what have we learned?

Board the ark; the end is now. But, bubble stocks are hanging in there today. Maybe we recover and rally into the bell. For the love of God, we’re gonna have to rally at some point.

No? Maybe?

Yesterday Macquarie downgraded the stock and caused a 20% rout. Today Jefferies jumped onboard to kick FCX in the teeth and the stocks fell by only 9%. Clearly no one gives a shit what the Jefferies analyst thinks.

Here are some snippets from the report.

This is a major bellweather in the commodity space. To see FCX getting smoked like this has to be cause for concern, which is probably why markets are selling off early gains now.

Again, for markets to rally, we’re gonna need a respite from the fanatical selling in commodities and commodity stocks. We’re not there yet.

This is very reminiscent of Henry Blodget’s crazy faced call on Amazon, back in the dot com days. An analyst at Standard Chartered has gone full zerohedge and declared oil was completely fucked, without soles on its shows, heading for 10 bucks.

Standard Chartered said there would be no bottom in sight, until prices fall to $10 and “money managers in the market conceded that matters had gone too far”.

“Given that no fundamental relationship is currently driving the oil market towards any equilibrium, prices are being moved almost entirely by financial flows caused by fluctuations in other asset prices, including the dollar and equity markets,” said Standard Chartered.

I remember when crude last fell to $10; it ushered in the dot com bubble and people got rich as fuck. Truth be told, had you started to leg into oil stocks when it hit $10, slowly but surely, you made a fortune over the coming years. I did a study on this last year and learned that oil and tech were mirror opposites back then and the right play was to fade tech in 2000 in exchange for crude stocks.

If my memory is correct, oil stocks weren’t too popular and trading was thin, almost by appointment. No one knows where oil will bottom; but $10 seems a bit extreme, even for me.

I added to my SPY position, making me 166% long into the teeth of cataclysm. As a point in fact, Le Fly gives zero fucks about your cataclysm. I will see your apocalypse and raise you with MOAR purchases of SPY.

My basis has been reduced to $195.57. I’m wholly looking for a rally of monumental, yet distinguished, proportions.

Yes, we all know the markets will decline by 30% in 2016. We’re well aware of the fact that stocks are meaningless rabble, scribbles of gibberish on little pieces of crumpled up paper.

BUT, before all of that happens, by the laws dictated by mathematics, we shall rise from the ashes and strike down those around us who attempt to get in our way of egregious displays of greatness.

What the fuck is wrong with these people? This analyst seems like a perfectly normal person, no grotesque abnormalities or disfigurements about her person. Yet, like a monster, she comes onto my teevee to say that growth has sucked and she’s downgrading her GDP projections to 1.8%, yet she still believes the Fed will hikes rates 3 times in 2016, all at the back-ass end of the year.

How?

She then delved into the absurd by discussing the Chinese yuan crisis and how it might check the Fed from going all hog wild and fucking crazy. Meanwhile, back at the ranch, she’s one of my more hawkish analysts on Wall Street, with more idiots only gearing up for two hikes.

In summary, the U.S. economy sucks and the China yuan story might derail us, cartoon style. She doesn’t think the Fed will move in March–because that’d be messenger in Sparta asking for earth and water madness. Yet, at the same notion, the Fed will green light itself to ravage the economy later on with three hikes.

Fuck out of here.

I’ve always felt bad for Harold Hamm. First his wife divorced him and won a billion dollar settlement. Then the oil markets imploded, at a time when he had no hedges. The result has been devastating to CLR, as lower prices ravaged a once proud and powerful oil company.

In a CNBC interview today, Harold Hamm discussed the state of the oil markets and how the Saudi’s made a ‘monumental mistake’, a ‘trillion dollar mistake’, by flooding the market with oil. He thinks, ultimately, oil trades back into the $50’s, once supply and demand set the market straight.

Click here to see interview.

Futures are sharply higher, after markets took an absolute drubbing to start 2016. In order for this rally to stick, we’ll need to see oil, copper and Apple trade higher.

As of yesterday’s close, I was 133% long, with approximately a 4:1 blend of SPY and TLT.

This is hugely important, not for the level of indebtedness for The House of Saud, but for how accessible credit markets are for Saudi Arabia.

With $600 in fx reserves and hardly any debt, one would surmise the amount to insure against Saudi debt would be substantionally less than the bankrupt loafers in Lisbon.

The cost of insuring the kingdom’s debt more than doubled in the past 12 months to 190 basis points on Thursday, the highest since April 2009, according to CMA prices compiled by Bloomberg. That’s six basis points more than contracts linked to debt from Portugal, whose rating is seven levels below Saudi Arabia’s Aa3 investment grade at Moody’s Investors Service. The Arab nation’s credit-default swaps traded at 185 basis points on Monday.

The sole problem is that 80% of Saudi Arabia’s revenues comes from oil. They’ve dug themselves a nice grave by refusing to cut production. As such, they’re scheduled to burn through $200 mill in reserves this year, at a time when credit markets are telling them to buzz off.

This likely explains the reasons why they’re exploring options to IPO Aramco.

Dark days are ahead for the Kingdom.