You already know this but I thought it important to discuss it once
more. The market is careening lower because Oil is falling into the abyss. Oil
is falling into the abyss because the Arab nations are attempting to bankrupt
our energy industry and fight off opportunistic Russia. When Iran can produce a
barrel of oil for $5.00 and Saudi Arabia for $10.00 they can hit us where it
hurts.
"But aren't the lower gas prices enough to help the US economy?" I
hear this often and it makes perfect sense. Unfortunately, the answer is no.
Currently there is approximately $300B in debt flowing through the financial
system tied to companies that are exploring, extracting and delivering oil. If
they can't make money on oil, they stop drilling; which means no revenue, which
means no profits and means no payment of loans. These loans are scattered
through the system on bank balance sheets, pension funds, mutual funds etc.
While it's nice to fill up for $1.80, the potential for mass layoffs and
corporate defaults are overwhelming the system.
It's really quite simple; if oil continues to fall, so will the
market.
My belief is that this isn't 2008 all over again. Corporate balance
sheets, sans energy, are awash in cash. Consumers are healthy and the US economy
has slowly been regaining its footing. I also believe that oil will not stay
this low and therefore the discussion surrounding massive defaults will soon
wane.
It's scary and the market is ugly, but I view the worst start in
market's history as an opportunity not as a dire warning. We came into this year
with extreme cash levels and have slowly started to nibble at new names. We're
long overdue for a bounce and it will be a big one.
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