The Phaserl


It Is About To Get Ugly: Oil Is Crashing And So Is Greece

by Michael Snyder, The Economic Collapse Blog:

The price of oil collapsed by more than 8 percent on Wednesday, and a decision by the European Central Bank has Greece at the precipice of a complete and total financial meltdown.  What a difference 24 hours can make.  On Tuesday, things really seemed like they were actually starting to get better.  The price of oil had rallied by more than 20 percent since last Thursday, things in Europe seemed like they were settling down, and there appeared to be a good deal of optimism about how global financial markets would perform this month.  But now fear is back in a big way.  Of course nobody should get too caught up in how the markets behave on any single day.  The key is to take a longer term point of view.  And the fact that the markets have been on such a roller coaster ride over the past few months is a really, really bad sign.  When things are calm, markets tend to steadily go up.  But when the waters start really getting choppy, that is usually a sign that a big move down in on the horizon.  So the huge ups and the huge downs that we have witnessed in recent days are likely an indicator that rough seas are ahead.

A stunning decision that the European Central Bank has just made has set the stage for a major showdown in Europe.  The ECB has decided that it will no longer accept Greek government bonds as collateral from Greek banks.  This gives the European Union a tremendous amount of leverage in negotiations with the new Greek government.  But in the short-term, this could mean some significant pain for the Greek financial system.  The following is how a CNBC article described what just happened…

“The European Central Bank is telling the Greek banking system that it will no longer accept Greek bonds as collateral for any repurchase agreement the Greek banks want to conduct,” said Peter Boockvar, chief market analyst at The Lindsey Group, said in a note.

“This is because the ECB only accepts investment grade paper and up until today gave Greece a waiver to this clause. That waiver has now been taken away and Greek banks now have to go to the Greek Central Bank and tap their Emergency Liquidity Assistance facility for funding,” he said.

And it certainly didn’t take long for global financial markets to respond to this news

The Greek stock market closed hours ago, but the exchange-traded fund that tracks Greek stocks, GREK, crashed during the final minutes of trading in the US markets.

The euro is also getting walloped, falling 1.3% against the US dollar.

The EUR/USD, which had recovered to almost 1.15, fell to nearly 1.13 on news of the action taken by the ECB.

But this is just the beginning.

In coming months, I fully expect the euro to head toward parity with the U.S. dollar.

And if the new Greek government will not submit to the demands of the EU, and Greece ultimately ends up leaving the common currency, it could potentially mean the end of the eurozone in the configuration that we see it today.

Meanwhile, the oil crash has taken a dangerous new turn.

Over the past week, we have seen the price of oil go from $43.58 to $54.24 to less than 48 dollars before rebounding just a bit at the end of the day on Wednesday.

This kind of erratic behavior is the exact opposite of what a healthy market would look like.

What we really need is a slow, steady climb which would take the price of oil back to at least the $80 level.  In the current range in which it has been fluctuating, the price of oil is going to be absolutely catastrophic for the global economy, and the longer it stays in this current range the more damage that it is going to do.

But of course the problems that we are facing are not just limited to the oil price crash and the crisis in Greece.  The truth is that there are birth pangs of the next great financial collapse all over the place.  We just have to be honest with ourselves and realize what all of these signs are telling us.

And it isn’t just in the western world where people are sounding the alarm.  All over the world, highly educated professionals are warning that a great storm is on the horizon.  The other day, I had an economist in Germany write to me with his concerns.  And in China, the head of the Dagong Rating Agency is declaring that we are going to have to face “a new world financial crisis in the next few years”

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12 comments to It Is About To Get Ugly: Oil Is Crashing And So Is Greece

  • Dan

    So I have to ask what’s the long term financial play here? All these big oil companies seem to be on sale but we still expect a crash. Buy now, or buy latter?

    • Eric

      With what’s going on in Greece, Saudi Arabia, Ukraine, Syria, Europe, I can only say that for me personally, about the only 2 things I would divert cash to are physical food, gold and silver coins in my own possession. I have very very very small positions in 2 oil investments and plan on cost averaging down if I can, assuming we see lower prices. Until that happens, I’ll take the dividends and let them compound. But this is less than 1% of my overall net worth and if it all goes bye bye tomorrow, c’est la vie.

      If Jim Willie is right and we are about to see an 80% devaluation of the dollar, the 3% dividend won’t matter much. This is not the time to take risk if you don’t need to.

      Why buy a “too big to fail” oil company when you can buy one of these?

    • lastmanstanding

      The chins are bringing all of their full value UST’s to the half off sale.

    • Ed_B

      Dan… choose the middle road, where you put some money into the better run oil companies now and then build your positions over the next 4-6 months. That makes for a better strategy most of the time. As with any investment, there are no guarantees. You can use stop loss orders to protect yourself from a sudden and substantial plunge in prices, however. Even if one does get caught in a price crash, you don’t HAVE to sell those shares at low prices IF you have other investments or cash on the sidelines to cover your expenses. If you have these, you can simply wait out most crashes by continuing to hold your crashed shares until better prices return. Oil companies that pay a decent dividend will have some built-in price support as well as those nice dividend checks, which can be spent or reinvested in acquiring more shares at low prices.

  • Eric

    Don’t be so sure the lows are in just yet…

    Still, any day you can trade paper for metal is a good day.

    • Ed_B

      Those highs and lows don’t really bother any of us who use dollar cost averaging to build our asset positions, including PMs. Just keep on keeping on. 🙂

      One of the worst things we can do is get frozen because we are waiting on specific price to buy or sell a desired asset that never comes.

  • Dan

    I have been stacking for many years now so I’m well invested in the shiny stuff. Just looking to see what others think here. Talking long term stuff here not day trade flipping. I picked up a small position in aBP so far.

  • andrew james

    Oil is crashing. Too bad so sad. Greece on the other hand is in a consolidation phase and the masters of their own destiny now.

    • Ed_B

      Oil is not going away as a primary energy source any time soon. The current contrived price drop is anything but permanent. In a year or so, anyone who bought oil company shares in early 2015 will be very happy that they did.

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