Written by LST

I’m writing this so I can look back and understand what was happening at this period in time. The markets humble all. The markets humble me. Some of my best trades have gone meaningfully against me before paying off handsomely. Other times trades have gone against me…and they just continued to go against me.

I don’t think anyone fully knows what is driving the (statistically significant) decline in risk asset prices world-wide. Some blame the Federal Reserve’s ‘raise’ (despite the fact that rates have actually only declined since). Others blame oil/commodities. Others blame the Sovereign Wealth Funds of these commodities-dependent countries. Yet others blame China currency, and China “macro”. Some have pointed out the European bail-ins. And then there are those who simply attribute it to “cycles”. (even wilder, are the Saudis want it, conspiracy theories).

I don’t know the answer. I do know, however, that the following is a FACT (not opinion): the current decline in oil prices (crude oil spot,as of intraday low for today), from peak to trough, is around -75%…that is the worst decline in history. The other comparable declines (both in the -70% territory) occurred in the 1980s and 2008-2009 respectively. This decline has exceeded both of those prior declines. We are in unchartered territory.

Here’s another fact: the decline in overall risk asset prices since January 1, 2016, has coincided with the accelerated decline of oil prices.

Now, I am not smart nor informed enough to understand nor articulate causation: why are oil prices down? why are they down so much? Some say it’s all supply, specifically pointing to the US shale boom (energy independence!). Or Iran supply. Others point to demand weakening, or anticipated demand weakening, e.g. China (China constructed more blah blah blah than the world has ever seen). Then there’s the credit element to all this. And the strong USD. Again, I don’t know. All I know is whatever serious (or not so serious) supply/demand problems exist, the market is very LOUDLY – in the form of the -75% decline – reflecting that yes, there are some serious problems. Serious problems lead to historical price declines.