
Wherever oil goes, the stock market goes - jseliger
http://www.bloomberg.com/news/articles/2016-02-11/oil-is-the-cheap-date-from-hell
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setra
Can anyone explain how exactly cheap oil makes the stock market crash? Gas
companies do not make up most of the stock market. Cheap energy means cheap
everything else. Sense when does cheap energy cause everything else to crash?

~~~
ktRolster
Alan S Blinder recently pointed out that cheap oil is mostly good for the
economy (except in North Dakota and Iran). He also pointed out that markets
can stay irrational for a long time.

I don't think oil is the cause of the market drop: stocks had been overbought
for a while (if you look at historic P/E ratios), so it is natural for it to
return to normal.

Also, the increasing interest rate is going to put downward pressure on the
stock market, even if the economy does well. Right now that is what I consider
to be the main cause of the drop. What I mean is:

In the market, there are day-traders, and long-term traders. The day traders
are mostly responsible for the day-to-day gyrations of the market, and they've
been looking at the price of oil as something to follow. Underneath that,
though, the long-term traders have been removing money from the market
(leaving it in cash, or switching to bonds), so even after the day traders get
done, there is still a net negative.

Of course, that's a simplification for explanation purposes because I don't
want to write a book here.

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seletz
> ... (except North Dakota and Iran) ...

And Norway, and Russia, and probably others.

The economy in Norway looks pretty bad right now. And Russia is having very
bad times right now I believe.

At least in Norway it's because the oil price is way to low for them -- I
heard that they break-even at $60 or $70 per barrel. That's pretty bad if
practically the whole economy is based on oil.

~~~
effie
Not whole economy is based on oil. It makes 30% of revenue and 50% of exports.

[https://www.regjeringen.no/no/aktuelt/the-norwegian-
experien...](https://www.regjeringen.no/no/aktuelt/the-norwegian-experience-
in-the-oil-and-/id726975/)

~~~
dforrestwilson1
50% of exports is pretty bad in a world where you need/want things like
iPhones and don't make them yourself. We're all very connected at this point.

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adventured
This article is entirely wrong.

Wherever the dollar goes, stocks and oil go (in the opposite direction).
They're both priced in dollars fundamentally.

The Fed ending QE mostly put a stop to the stock market moving higher,
dramatically strengthened the dollar, and decimated the commodities market,
devaluing the price of nearly all commodities including oil.

If the dollar goes up a lot, it becomes extremely difficult for the stock
market to do anything but fall. Earnings growth has to outrun the gain in the
dollar. During especially fast climbs in the dollar that becomes essentially
impossible. To make things even worse, the S&P 500 companies are highly
dependent on exports, they get to show off artificially high earnings courtesy
of a too-cheap dollar; when that condition turns, the artificially high
earnings go with it, which is exactly what we're witnessing now. Then doubling
down on that effect, the stronger dollar is pulling trillions in capital back
out of emerging markets, which has thrown most of them into recessions or
worse, leaving the export heavy companies in an even worse bind.

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nfriedly
Cheap gas + cheap stocks. Sounds like this is a good thing unless you're
either a) a full-time investor, or b) retired or planning to retire very soon.

If you're working a job and putting money into an index fund for retirement,
then news like this should make you smile and maybe put a little extra into
your IRA/401k/etc. next paycheck.

~~~
opmac
Ideally, if you're getting ready to retire, most of you assets should not be
in the volatile stock market, so it should not affect you terribly.

~~~
kbutler
If you intend to live for 30 years in retirement, shouldn't you still have a
good chunk of your assets in stocks?

~~~
robotresearcher
Many people use much of their retirement savings at the moment of retirement
to buy a special retirement-income product. This can have tax benefits over
normal investments. So you try to maximize the probability of having a large
fund at that moment.

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andrewjl
A regrettable consequence of cheap oil is that clean energy technologies
become harder to deploy because they're competing against a lower cost
alternative. The best thing EVs and solar had going for them was $100+ dollar
per barrel oil in prior years.

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allma
I'm a complete layman in this field - but looking at the oil price charts it
seems that its never been lower. Even from production/export cost from various
countries - it doesn't seem like this price can go on for prolonged periods.
I.e. it seems to me that it has to go up...

Any experts here - would this be a sound assessment?

Also (again as a layman) - what would be a good way to bet on this? I.e. can I
buy crude oil options virtually, hold them for 1-3 years and sell them as
easily as I could stock online? What would be the best way to do this + any
lowdowns (except that my bet might be wrong)?

~~~
TheLogothete
Many people believe that the prices will stay the same for at least the next 2
to 3 years. Some of those people think they will go down to about $20 for a
while.

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tosseraccount
Oil and stock market correlate? Nope ...

 _" It is popular to correlate changes in major factor prices, such as oil,
and the performance of major stock market indexes ... Andrea Pescatori, an
economist at the International Monetary Fund (IMF), attempted to test this
theory ... his variables only occasionally moved in the same direction at the
same time, but even then, the relationship was weak. His sample revealed that
no correlation exists with a confidence level of 95%."_

[http://www.investopedia.com/ask/answers/030415/how-does-
pric...](http://www.investopedia.com/ask/answers/030415/how-does-price-oil-
affect-stock-market.asp)

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lowpro
This is simply a badly written article. In 2008 oil was very high, the market
was not. Now in 2016, oil is very low, and the market is heading down. There's
little correlation, and the market conditions today could be argued to be a
result of bad regulation and poor government interference in the private
sector (conservative view anyway), and now people want even more government
influence when it's in $19 trillion in debt and the Federal Reserve mark to
market is insolvent.

~~~
steego
> In 2008 oil was very high, the market was not.

In 2008 oil and the market was very high and they both crashed toward the end
of they year and into 2009.

[https://en.wikipedia.org/wiki/World_oil_market_chronology_fr...](https://en.wikipedia.org/wiki/World_oil_market_chronology_from_2003)

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anu7df
There is pressure on both sides of the equation. The supply is high because of
shale oil and Iran. On the other hand the growth projections for economies,
demand side, has not materialized. So yes. Oil price is low AND the economy is
tanking. The simple narrative of wherever oil goes etc does not really work
any ways, mostly because oil industry and associated industries is a big part
of the economy.

~~~
spangry
Not to mention the fact that its production is, at various times:

a) The result of cartel manipulation (OPEC)

b) A tool of economic warfare (ISIS), and punishment (Russia)

Unfortunately both of those are happing at the same time as well.

