NYMEX crude oil drops below $92 as financial market meltdown intensifies

Crude oil tumbled, dipping below $92 per barrel in the biggest two-day drop in almost 4 years, on concern that turmoil on Wall Street may weaken the global economy and reduce demand. Oil fell as much as 4.3% today [16 Sep 2008] after Lehman Brothers sought bankruptcy protection, sending US stocks to their steepest drop since 9/11. NYMEX crude oil for Oct 2008 delivery fell below $92 to as low as $91.54. Oil has declined 4.4% this year and dropped 38% from the record $147.27 a barrel reached on July 11. Brent crude oil fell to $89.80 on London's ICE Futures Europe exchange. The plunge in oil, cotton and copper led to the CRB Index of 19 commodities erasing its gains for the year.

- So far Bernanke has been trying his very best not to live up to his "Helicopter Ben" moniker, instead resorting to "creative measures" such as swapping out half of the Fed's assets of Treasury bills for toxic waste paper - about $450 billion worth, give or take a few billion here or there. If the Fed has been reluctant to help out Lehman Brothers with say $600 billion or so, that's because they are rapidly running out of ammo to continue with their "creative measures" technique. In the final analysis it is back to the same old Fed dilemma - kill the dollar, or kill the economy. If they make the wrong moves, or execute them with the wrong timing, they could very well accomplish both - kill the economy, and *then* kill the dollar after that. That would be quite an accomplishment.

There is no longer any point in being long oil, wheat, or any other commodities if indeed this is a global economic collapse which will completely wipe out demand, shrink economies, and roll back human progress and advancement all the way to .... well, take your pick here : the 1970's, 1920's, or perhaps the Stone Age. Okay maybe not the Stone Age. But really. If the Fed manages to pull off the incredible feat of killing off the economy and *then* the dollar, then yes, there would still be some point to owning commodities. As you can tell my bet is on them to make exactly the wrong moves with exactly the wrong timing. They have lived up to these expectations so far. It should be pretty historical. We shall see.

S&P 500 sinks most since 9/11, Dow Jones drops 504.48 points on financial system meltdown

bloomberg.com :

US stocks tumbled, pushing the S&P 500 to the steepest drop since 9/11, as Lehman Brothers bankruptcy and declining commodities increased speculation that credit-market losses and the economic slowdown will worsen. Stocks erased more than $600 billion in value as AIG sank 61% and Washington Mutual decreased 27%. AIG may need to raise $20 billion to ease a cash crunch brought on by the collapse of US mortgage markets. Bank of America retreated 21% after agreeing to purchase Merrill Lynch for $50 billion. Lehman Brothers was forced into bankruptcy and sank 94% to 21 cents after Barclays and Bank of America abandoned takeover talks. Citigroup declined 15% to $15.24.

The S&P 500 declined 59 points, or 4.7%, to 1,192.70, the lowest level since October 2005. The Dow Jones Industrial Average tumbled 504.48, or 4.4%, to 10,917.51. The S&P 500 has fallen 23% since an October record as bank losses from the first nationwide decline in US home values since the Great Depression reached $514.6 billion. Concern the US is heading for a recession pushed oil lower, prompting a drop in energy stocks, and sent General Electric down 8%.

- This is no longer just a stock market meltdown, or a commodities correction. This is a financial system meltdown. A wholesale meltdown of the financial system is about the only thing that can propel gold higher while everything else is in freefall. This is the situation we are in right now. If the US government still continues to be reluctant to turn on the liquidity taps, they can watch the financial system collapse around them. One would suppose that it would not be a very good policy for an election year. Already, speculation is building for a Fed rate cut, but it would take much more than that to avert a total system collapse.

(2008-09-16 08:31:36 SGT) [Biz] Permalink

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