Why the Continued Market Insanity?

Yesterday’s bounce was certainly short lived.  Today the market continues what one pundit called a “death spiral.”  As always this is just a gross over-reaction to gain some face time with the crowd over at CNBC.  At times like this it’s easy to jump on the bandwagon and push the panic button. Unfortunately, that’s exactly what many people are doing.

As I discussed in my last update, three things are driving this sell-off:

  1.  The mess in China and associated hysteria about what happens if China’s economy collapses.
  2.  Falling oil prices.
  3.  Worries about the US economy

Click here for the Thought for the Week from Global’s Chief Strategist, Mike Sorrentino.  His views, while slightly different than mine, reach the same conclusion.  A meltdown in the Chinese economy should have little impact on the US economy.

Now for the latter 2…

The market is driven by sanity in the long run and insanity in the short run.  We’re in a period of insanity.  Like just about everything in life, the market is cyclical.  As much as we may want it to, it cannot go up forever.  Market cycles are as natural as the tides.  When the herd mentality takes over (as we are seeing) this is when the insanity comes in.

Plummeting oil prices are seen as the reason for much of this selloff.  In fact, oil which trades around-the-clock, has been leading the US market since this downturn began.  Lower oil = lower stocks.  Many pundits have been trying to make sense of this but instead they are just fanning the flames of insanity.  One recent, before-the-open report stated “lower oil prices point to bad day on Wall St.” Sure enough out came the sellers.

Here’s the problem with this logic and why these pundits should be flogged and CNBC taken off the air.  Lower oil prices are a GOOD thing for the US economy.  We use A LOT of oil.

Lower oil is NOT a bad thing

Lower oil = lower gas prices = more money in your pocket = you may spend more money = more sales

The oil complex is used extensively in manufacturing as both a raw material and for energy.  Lower oil costs = lower manufacturing costs. Combine that with potentially higher sales and you get MORE PROFITS.

The only real losers in this game are the oil drillers and oil service companies that cannot survive with oil at these levels.  Bad time for them.

Somebody please explain how lowering the cost of something that powers our economy is a bad thing.

Remember when oil prices were topping $100/barrel and that was the reason for the poor market?

This should be a great time for the airlines

Fuel is the single largest cost for the airline industry.  Fuel costs are down by over 48% from the beginning of 2015.

In addition, October 2015 (the last data reported) was the eighth straight month U.S. airlines reported seasonally-adjusted all-time monthly highs in passenger enplanements and Revenue Passenger-Miles.

The airlines are flying full planes with cheap fuel.  That certainly seems like a good thing to me.  What a great time to be an airline.  Yet the geniuses on Wall St. are selling the airlines at a greater clip than the broad market.

What we are experiencing is the normal ebb and flow of the markets exacerbated by insanity and not much more.

The financial media loves to sensationalize.  Times of market extremes are great for their ratings. Boring markets are bad for their business.  They make money by fanning the flames and we’re left picking up the pieces.  They cover themselves by flashing a disclaimer on the screen once an hour when they come back from commercial that tells you that these are just opinions…  Blah, blah, blah.

Perhaps we need to put the financial media in the same category as the WWE (that’s pro wrestling).  It’s not real. it’s just entertainment.

To sum it up:

  • The world is not ending.
  • This is not 2008
  • Lower oil is a good thing and will not last forever
  • The economy is doing ok
  • China will not hurt us

Remember our mantra:

None of us can predict the movement of the markets – although the media is full of those that think they can.  This is why we focus on the long term and on financial plans.  That’s what separates us from the herd.

 

David J. Seibel is founder and Managing Partner of AGS Aurora Financial Services LLC (www.agsaurora.com), an independent financial advisory firm in Matawan, New Jersey. You may contact him by email at david.seibel@agsaurora.com.

Investment Advisory Services offered through Global Financial Private Capital, LLC a SEC Registered Investment Advisor