The movement in the price of West Texas Intermediate Oil yesterday was truly incredible and tells a story of how careful we should all be about making bets in an environment of a global shutdown.  Clearly, there was some factors that we don’t understand driving oil down into negative territory but ultimately the global economy is shut down, and that crushes demand.  If there is almost no demand and you keep producing the commodity, you end up running out of places to store it.  It is fantastic the news on Covid-19 appears to be getting better and there is a plan to open the economy back up, but Oil prices are clearly not looking past the shutdown.

As you know, we expect the market to pullback toward the lows because credit and the market leadership are not suggesting the recession is anywhere near over despite the historic relief rally off the 03/23 low.  Many wonder if the huge rally suggests a “V” economic recovery but the action in the U.S. Treasury Yield Curve, Bank Lending, and Bank Lending Standards indicate an economic recovery once the economy re-opens should be much slower than the market hopes for.  That opens the door for increased market risk during the “frustration” phase of the long-term bottoming process.

Past performance is not a guarantee of future results. Index returns are unmanaged and do not reflect the deduction of any fees or expenses.

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