It's been a long while since my first post. I had intended to blog somewhat regularly, but didn't find the time to do so, since I think a blog must be intelligently written and thought-provoking. That, of course, takes time to do well.
Today, while watching the markets, I finally got to the point where I had to vent about the nonsense that surrounds them, even if I don't have the time to write eloquently. Here's what got me to that point: the DOW futures were down about 80 points in the pre-market. Of course, from long experience, I knew not to expect the markets to be in complete synch with the futures, but I thought it was a reasonable assumption that this would generally be a "down" day. The DOW took all of two minutes to get down to the level indicated by the futures, and then proceeded to rocket back up to almost neutral territory in the next half hour. What brought on this instant optimism, I have no idea. And, it seems, neither does anyone else at the "business networks" or the "business" wire networks.
Okay, so I can tolerate some irrational swings, and I waited for the "inevitable" downturn to the prevailing market sentiment. For a little while, it seemed like that might happen, as the DOW crept down 30 points in the next half hour. Then, at 10:30 AM, the DoE released the crude inventory data, which showed that inventories had dropped by 8.4 million barrels, the biggest drop since May of 2008. So what did that mean for the markets? Crude oil futures took off, and most stocks followed, whether they were in the energy sector or not. Well, they took off to low-orbit, and the DOW rose 30 points to it's previous intra-day high. And there it fishtailed for the next hour in a 20-point range. At this point, the DOW(as well as the other indexes) still hadn't gotten out of negative territory. That happened between 11:45 AM and 12:10 PM, when the DOW rocketed up 100 points into high orbit. Even Warren Buffett's cautionary piece about our mounting debt does not seem to have weighed on this enthusiastic ride up.
I looked for answers to this mystifying event, on CNBC, Bloomberg, CNN, Yahoo, anyplace that would give me a clue. But for a long time, this unusual move was simply not being addressed on the "business news you can use" channels. Finally, I found something on Bloomberg. But, as I read the article, it seemed to me that it still didn't explain the 100-point move on the DOW, since the crude oil inventory report had been available since 10:30 AM, and its effect should have been accounted for in market movements in the next half-hour. And even more baffling to me was why non-energy stocks should have risen on a crude oil price rise.
I took another look at the Bloomberg article. Whoa! Hold on there! Somethin' ain't right! Apparently, inventories did not decline as a result of increased demand(the alleged logic for the market upswing). Rather, it was a deliberate action of oil refiners, who were "nervous about rising stockpiles", and decreased their import of crude oil by 15%, or about 1.5 million barrels a day. That works out to 10.5 million barrels for the week, but some of that was compensated for by buying domestic West Texas Intermediate, which is also cheaper. So, that reduction by the refiners accounted for the drawdown in stockpiles, and not an increase in demand as the financial media would have us believe.
Let's look again at that: US refiners cut their imports of crude oil by 1.5 million barrels a day because of excessive inventories, and what does that do? It drives up the price of crude futures! But wait, there's more: according to John Kilduff, senior vice president of energy at MF Global in New York, “The Chinese news sent us lower early today, but we were able to shake it off. Expectations of a recovery of demand in China have been a rationale for oil moving higher.” Really? That's not what the media is telling us today, and perhaps oil traders didn't hear that the Shanghai Index is now in bear market territory?
Yesterday, August 18, the price of crude rose unexpectedly throughout the day. An "analyst" on CNBC said he spoke with oil traders, and they were "scratching their heads" in puzzlement. That remark made me scratch my head in puzzlement: oil futures markets are minute by minute auctions, and here we have the bidders tell us they have no clue why they are bidding up the contracts!
Maria Bartiromo, on CNBC, asked an "expert" guest for his opinion on the "depletion" of crude oil inventory. Don't these people have anybody to do some research for them? Jim Cramer, having been wrong time and again about market movements, seems to have prudently reduced his prognostications to the level of a joke, predicting a "pullback" of 1.5-3%, which is like a couple of down days in your average week.
The truth is that the markets are moved by forces not seen, even on the trading floor in the guise of traders or elsewhere masquerading as analysts or experts. How else can you explain why the "pullback" that has been the talk of everyone and his uncle hasn't occurred? How else can you explain the lockstep of the DOW index and the S&P index? How else can you explain the choreographed moves of the markets in precise increments? We are in the grip of the Masters of the Financial Universe, who dictate everything from the interest rate on your credit card to the price of gas at the pump to what your breakfast cereal will cost you in 2012. And what the financial markets will do tomorrow.
