The Inevitable 10% Correction

[Fermion]

An Ebola outbreak in 5 or 6 states by non healthcare workers might trigger a more than 10% correction.

[2B]

Quote:

Originally Posted by audreyh1 It's like they just woke up and realized that the US was seriously gaining energy independence and decided they had better do something to shut down our new drilling industry.

Many of the shale oil operators are small and highly leveraged. It won't take much to kill off a bunch of them. The oil will still be there and just as readily available. Better capitalized companies not expecting as large of a return will take over. This will take a little while which may be all the Saudis are after.

My company depends heavily on the oil industry so the price of oil gets people talking in the halls. The falling oil prices have killed off most of the deep water platforms under evaluation. Some that had started have been put on hold. There is starting to be talk in the Upstream group about RIFs. It's actually looking pretty likely.

Not that I really care at this point other than making it to January, I am in the Downstream group (refinery, chemicals) which would typically get busier with cheaper feed stocks but the reduced demand makes project work in these areas less plentiful. I may not have a OMY opportunity even if I wanted it. I would certainly volunteer to be sent off so I could get unemployment for as long as I could milk it.

[easysurfer]

I am stubbornly sticking to my plan of rebalancing only once a year.

Thus, I don't plan on making any moves until 1/2/2015.

Gotta practice what I preach (I hope ).

[brewer12345]

The laughable thing is that even as everyone is selling and running around with their hair on fire, unemployment claims just came in at a 14 year low, industrial production spiked, and capacity utilization is now at 79.3% - just a hair shy of the 80% and up level that typically starts sparking heavy capex spending. Sounds terrible, doesn't it?

[REWahoo]

Quote:

Originally Posted by brewer12345 Sounds terrible, doesn't it?

Yep, we're doomed!

[brewer12345]

Quote:

Originally Posted by 2B Many of the shale oil operators are small and highly leveraged. It won't take much to kill off a bunch of them. The oil will still be there and just as readily available. Better capitalized companies not expecting as large of a return will take over. This will take a little while which may be all the Saudis are after.

A possibility. The question mark for me is how long the Saudis can withstand lower prices before it starts to undermine their ability to keep their oppressed population sweet with lots of domestic spending. I have a funny feeling that within 6 months we will see oil prices back over $90/bbl. If ISIS gets completely out of hand, the Saudi border is pretty close to where they are now. Oil prices could become sensitized to political events again.

In the meantime, lower oil prices are a stimulant to the US economy and poison to Putin's ambitions. If he thought the sanctions would not matter, taking away the oil earnings that Russia was counting on will put paid to that.

[audreyh1]

Quote:

Originally Posted by Fermion An Ebola outbreak in 5 or 6 states by non healthcare workers might trigger a more than 10% correction.

For sure. You could wait for that.

[audreyh1]

Quote:

Originally Posted by 2B Many of the shale oil operators are small and highly leveraged. It won't take much to kill off a bunch of them. The oil will still be there and just as readily available. Better capitalized companies not expecting as large of a return will take over. This will take a little while which may be all the Saudis are after. My company depends heavily on the oil industry so the price of oil gets people talking in the halls. The falling oil prices have killed off most of the deep water platforms under evaluation. Some that had started have been put on hold. There is starting to be talk in the Upstream group about RIFs. It's actually looking pretty likely. Not that I really care at this point other than making it to January, I am in the Downstream group (refinery, chemicals) which would typically get busier with cheaper feed stocks but the reduced demand makes project work in these areas less plentiful. I may not have a OMY opportunity even if I wanted it. I would certainly volunteer to be sent off so I could get unemployment for as long as I could milk it.

I never understood how oil was managing to stay so high during the first half of the year.

[2B]

Quote:

Originally Posted by audreyh1 I never understood how oil was managing to stay so high during the first half of the year.

My guess (and that's all it is) is that speculators were hedging against a major geopolitical event. It turns out a sagging economy in Europe and a continuing less than robust one in the US trumps that.

[project2501]

S&P not quite 10%(1817) but close enough for me. Been waiting for this over 6mo

Either making changes end of today for tomorrows opening or maybe Friday since it may just end in the red for the week. Good prices out there, buy what you can while it's cheap.

I bought some additional shares of stocks already in the portfolio on the way down last week, but wasn't sure it would head to correction territory. Whoot!

[tuixiu]

We went back under a nice milestone we achieved during the summer, that is great news since when we achieve it again another night of cocktails to celebrate.

[eta2020]

Quote:

Originally Posted by project2501 S&P not quite 10%(1817) but close enough for me. Been waiting for this over 6mo

What did you wait for?

It is still higher than it was 6 months ago plus missing dividend. We need to go below 1800.

And we may or may not.

[2B]

Quote:

Originally Posted by eta2020 What did you wait for? It is still higher than it was 6 months ago plus missing dividend. We need to below 1800. And we may or may not.

+1

I think we're about where the S&P was in April but I didn't verify this. I'm still up for the year a little bit.

[explanade]

Quote:

Originally Posted by brewer12345 A possibility. The question mark for me is how long the Saudis can withstand lower prices before it starts to undermine their ability to keep their oppressed population sweet with lots of domestic spending. I have a funny feeling that within 6 months we will see oil prices back over $90/bbl. If ISIS gets completely out of hand, the Saudi border is pretty close to where they are now. Oil prices could become sensitized to political events again. In the meantime, lower oil prices are a stimulant to the US economy and poison to Putin's ambitions. If he thought the sanctions would not matter, taking away the oil earnings that Russia was counting on will put paid to that.

CNBC said the Saudis may be willing to let prices fall or stay low to hurt other producers. For instance, Venezuela badly needs higher prices while Saudis have wells that cost as little as $5-10 per barrel of oil.

OHTH, oil sands in Canada may cost more like $100 per barrel of oil while the Bakken may be more in the range of $50-80 per barrel.

[Lsbcal]

Quote:

Originally Posted by audreyh1 A 10% or more correction can happen at any time for no reason at all, other than it was maybe "due" or whatever. A 20% sell off is not a correction, but a bear market and usually doesn't happen unless there is an economic contraction/recession. You are best off setting up an averaging in program to reach your desired AA.

Audrey, you are a sharp cookie!

After you mentioned something back in a post a few months ago I researched how bad corrections have been. Particularly I was looking for corrections (or bear markets) that were not Fed yield curve related i.e. the yield curve was reasonably sloped as it is now. Three corrections stand out since the 1950's that did not result in a US recession:

1962 down -26%
Reason: Don't really understand this one but a young Warren Buffet gives his explanation in this 2 minute video:

https://www.youtube.com/watch?v=REhg_bv7srM

1998 down -16%
Reason: Asian financial crisis, Russia devalues ruble and defaults, LTCM goes bust

2011 down -17%
Reason: European debt crisis

Finally, I looked at drawdowns over a 200 day back looking window. This chart shows them from 1951 with the SP500 on the (logarithmic) right scale and the declines on the left scale. You can see the 1962, 1998, and 2011 declines.

I don't think this comes as a surprise to anyone here but it's interesting history to me. I have to keep holding my emotions in check.

[haha]

Quote:

Originally Posted by eta2020 It is still higher than it was 6 months ago plus missing dividend. We need to go below 1800. And we may or may not.

Some time ago I read a great book premised on the idea that pronouns are the window onto someone's unconscious framing. For example, who is this "we" used by the above poster and many other posters, pundits, writers, etc?

It is almost as if the S&P or some other index is given humanity, or at least agency. I wonder if this is an aid to optimal decision making?

Ha

[brewer12345]

Quote:

Originally Posted by explanade CNBC said the Saudis may be willing to let prices fall or stay low to hurt other producers. For instance, Venezuela badly needs higher prices while Saudis have wells that cost as little as $5-10 per barrel of oil. OHTH, oil sands in Canada may cost more like $100 per barrel of oil while the Bakken may be more in the range of $50-80 per barrel.

What I was hinting at is there is effectively a huge embedded cost to oil production in Saudi in the form of necessary high social spending to keep the populace quiet. Over the medium to long term, if the Saudis do not make enough from oil earnings they are in deep trouble because they will not be able to nip unrest in the bud by basically bribe the populace.

[mrfeh]

Quote:

Originally Posted by easysurfer I am stubbornly sticking to my plan of rebalancing only once a year.

Good for you!

I'm somewhat shocked at all the market timers.

[Brat]

Quote:

Originally Posted by brewer12345 What I was hinting at is there is effectively a huge embedded cost to oil production in Saudi in the form of necessary high social spending to keep the populace quiet. Over the medium to long term, if the Saudis do not make enough from oil earnings they are in deep trouble because they will not be able to nip unrest in the bud by basically bribe the populace.

The Saudis have been worrying about that for some time but I suspect that they were concerned about exhausting their oil reserves and having little baksheesh to offer.

The external fighting between the various Muslim sects as they wage war against others within and without their faith is a huge danger to their core business and the stability of the monarchy.

[project2501]

Quote:

Originally Posted by eta2020 What did you wait for? It is still higher than it was 6 months ago plus missing dividend. We need to go below 1800. And we may or may not.

Could obviously tell the correction had to happen soon enough. Took longer than I expected. Could be bad data and ebola scares, at this point don't care just glad it happened. I've been holding fast since last years re-balance waiting for the correction of at least 10% before making more moves. Just shifted a few things around before close today and already looking better to be ahead if levels go back up.
Sure it's timing, and looked at as a no no. I'm the type that can't just sit on the sidelines when I see buying opportunities this good. The what if's.
Guess I like some additional risk when things look dull just plotting typical advancement.

I wouldn't be here at all if wasn't for 2008. No mercy.