Today I’m sharing a guest post for the first time. A good friend who’s been reading the blog and encouraging me with the website offered to pen a post. Who am I to refuse an offer from someone who is so supportive!
I’ll introduce our guest today as Mr. G. Mr. G has worked in the systems side of the financial industry for most of his career. While I readily admit that I’m not disciplined enough to trade individual stocks (I learned my lesson nearly 30 years ago with two stupid purchases), Mr. G has actively traded in the past. That experience provides him a different perspective on what’s going on in the markets recently.
Mr. G passed this post along to me earlier in the week (Monday April 20) when things got kind of crazy in the oil markets. It’s taken me a bit to get it posted (Apologies Mr. G!).
While I don’t share Mr. G’s less than optimistic outlook, I value his point of view. I think it’s important to be open to listen to other’s opinions rather than just focusing on only those that we already agree with. Listening to others with different perspectives helps us grow.
So, without further delays… I’m proud to share Mr. G’s post:
I’ve never seen this before…
If you asked any trader on Wall Street, they would probably tell you that a price on a stock or future could never go negative. But today, that happened. It is a sign of the times, and the previous month has been a precursor. We got a $2.3 trillion stimulus package, and it didn’t even buy us a few weeks. Judging by todays oil action, I have to believe that one or more banks or hedge funds are in a dire straits.
These banks received most of the stimulus package, and the Fed won’t let any of their member banks fail or the whole thing falls apart. Someone applied pressure on this bank and the price of the May oil contract slipped to down 40 percent in the late morning.
RING THE DAMN BELL!
That was unheard of, but what happened in the following hour was something even crazier. It dropped 75 percent, the worst day ever. Right then I’m sure some commodity trader was screaming “Ring the bell! RING THE DAMN BELL!”. A phrase that hadn’t been heard since 2008.
Some unlucky entity probably was sold a bunch of these May contracts, thinking they could only lose a couple of dollars as the price hovered under 2 bucks, they soon had to read up on delivery rules as each contract represented 1,000 barrels of oil. And what everyone learned today was that not only did the long position of the contract would have to deliver the oil but also pay $35k per contract.
Oil has been trading in the low twenties like they did in 2008. Back then, the oil traders or banks took delivery of the oil until they could bid the price back up. These traders loaded up every tanker they could find and they sailed the oceans until the price climbed back into the $50s. Traders had done that last week, but now there aren’t any more storage facilities to take the oil.
Maybe this why you actually now have to pay someone to take the oil off of their hands. More likely, it was a trading algorithm that could not be stopped, ending with the price of oil into the negative range of 35 dollars. It is also good news that the May contract ends today.
What tomorrow brings…
What tomorrow brings doesn’t interest me as much as the upcoming week. I can see another larger stimulus package in the works so that this large entity does not have to unwind all of their derivative contracts. Counterparties would get crushed, and the whole financial system would come tumbling down. It could be the event that leads to a debt jubilee where all debt is forgiven. Everything gets wiped out clean. The Fed knows this, and so do the CEOs of all the major banks. The banks were in trouble in 2008 and they were bailed out. Now instead of the banks being in jeopardy of default, it’s the country’s currency at risk. Maybe this is why WTI (West Texas Intermediate) is negative while Brent oil is still in the mid $20s.
What a strange market indeed. Is this the canary in the coal mine? If anyone told you that watching the markets trade up or down thousands of points in eight out of 10 trading days would be the second strangest story of the year, you would think that was crazy. May oil contracts going negative is a big story exposing the financial markets as a big sham.
Day of reckoning?
I just have a sick feeling that this still won’t be the biggest story of the year. We still have 8 months to go, and a really unpopular election coming in November. It usually takes three generations before a person trusts the bankers. We are at that point now. There is a reason why your grandparents used to bury their money before they would put money into a bank. When the day of reckoning comes, there might not be one bank left standing.
Wow! Mr. P2F here again. Like I said, I don’t share Mr. G’s less than optimistic outlook, but I’m so glad he shared his thoughts! If you have any thoughts or questions for Mr. G, please be sure to use the comments section below. Mr. G would be pleased to respond.
Thanks for stopping by.
Note: Cover Photo by Erik Mclean on Unsplash