The Trouble with Oil

In an earlier post, we talked about market volatility when new risks move to center stage. Well, crude oil is center stage, to say the least.  Why?  Oil at $30 per barrel for a few years would lead to (literally) a world of hurt:  widespread bankruptcies in the oil patch, massive write-downs in bank loans and high yield debt, plummeting capital expenditures and further job losses.  Some emerging market nations would default.  This satisfies the “big downside” criterion. In late 2014, pundits generally thought the decline was a good thing:  every dollar lost by an oil company was a gift …

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An Excerpt from the Mid-Month Update

Given the market volatility, we provided a mid-month update to our investors.  The following is a brief commentary on the markets: For purposes of this update, we’ll highlight some ways in which the situation today is very different from 2008: On the positive side, while the Great Financial Crisis nearly pulled down the US financial system, which choked off the real economy, today US banks are less leveraged and have double ($1 trillion) the capital base relative to 2007.  US household leverage is lower as well. Likewise, there likely isn’t systemic risk from trouble in the high yield market, where …

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Market Psychology and the Investor Narrative

History doesn’t repeat itself, but it often rhymes. So said Mark Twain, or possibly someone else, depending on whom you believe. You might say the same thing about market drawdowns.  While next year’s crisis won’t look quite like last year’s, they’ll share some common traits.  Hence the rhyming. Let’s start with the average investor’s “narrative.”  In order to make sense of a world that is mind-numbingly complex, we make simplifying assumptions.  There are simply too many variables to process at one time.  A technology stock analyst, for instance, is unlikely to be an expert in commodities, macroeconomic trends, central bank …

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