Running_Man
Thinks s/he gets paid by the post
- Joined
- Sep 25, 2006
- Messages
- 2,844
The lessons to be learned from this adventure are not being made. There is talk of efficient markets, there is almost no larger market than the oil market, weeks ago I saw analysts discussing how the lack of storage space would lead to negative oil prices as there was more in oil to be delivered by May contract than there was storage space so prices would have to go negative. Despite this for weeks after the MAY contract traded over $20 until it came time for deliveries and ETF's that held the contracts but no possible method of storing the oil realized they were stuck and some had to sell at minus $57 per barrel. This was a known problem by some of the richest and smartest individuals in world and still in one day commodity fell over 100% It was not until the actual paper flowed that prices moved to realize the actual demand/supply.
Now today people holding June July August paper on oil futures suddenly realize they have a huge problem and today those contracts are down 35%. Which would have been an all time record for a one time decline in the price of oil, excepting for what happened yesterday.
The same issue is poised to happen to all of the holders of stock market certificates. There is no money nor is it any longer socially acceptable for corporations to use their funds to buy stock back, states are not having funds paid to them so they will certainly defer funding public pensions. Individuals are increasingly not working and will be accessing their 401K funds to maintain their lifestyle, indeed the IRS has changed the rules to eliminate the penalty on doing so.
Contributions to 401K will drop precipitously. The result is as the months pass without a full return to normalcy there is going to be a increased supply of stock for sale with a very diminished long term storage capacity. In the aftermath, this will be clear to everyone that prices on the way down are not set by active managers, they just sell and no longer have influence, but when passive investors sell there is no one with the storage capacity to sell to and there will be days with air pockets in the market. By the time this becomes obvious there will be a collective, "should have seen that coming it was an obvious known problem just like the oil issue but too late now".
The oil market is just the canary in the coal mine. I wonder who the individuals sitting with these 100% losses are....
Now today people holding June July August paper on oil futures suddenly realize they have a huge problem and today those contracts are down 35%. Which would have been an all time record for a one time decline in the price of oil, excepting for what happened yesterday.
The same issue is poised to happen to all of the holders of stock market certificates. There is no money nor is it any longer socially acceptable for corporations to use their funds to buy stock back, states are not having funds paid to them so they will certainly defer funding public pensions. Individuals are increasingly not working and will be accessing their 401K funds to maintain their lifestyle, indeed the IRS has changed the rules to eliminate the penalty on doing so.
Contributions to 401K will drop precipitously. The result is as the months pass without a full return to normalcy there is going to be a increased supply of stock for sale with a very diminished long term storage capacity. In the aftermath, this will be clear to everyone that prices on the way down are not set by active managers, they just sell and no longer have influence, but when passive investors sell there is no one with the storage capacity to sell to and there will be days with air pockets in the market. By the time this becomes obvious there will be a collective, "should have seen that coming it was an obvious known problem just like the oil issue but too late now".
The oil market is just the canary in the coal mine. I wonder who the individuals sitting with these 100% losses are....