This week's Alpha Trader podcast features hosts Aaron Task and Stephen Alpher talking about the market panic from COVID-19, and chatting with The Schork Report's Stephen Schork about the crash in crude oil.
Editor's note: This podcast was recorded late last week - prior to the market's 10% gain on Friday, 12% loss on Monday, and 100 basis point Fed rate cut in-between.
The speed of the market decline has shaken everybody up, but Task and Alpher figure there are a couple of things we can count on. One is that the Fed will somehow stumble its way into making sure that the liquidity is there for the financial system to continue operating. The other is that instead of trading or rushing to pick a bottom, those who spend their time researching and putting together a solid buy list of names will be rewarded.
Be greedy when others are fearful is the Warren Buffett maxim, and while The Oracle may not yet have hit the "buy" button, it's a near-certainty his next move(s) will be the purchase of sizable chunks of good businesses selling at discount prices.
Spying a drop in demand prior to the coronavirus, and then the growing pandemic compounding those issues, Stephen Schork had already been bearish on oil prices, and fully expected OPEC to reach an agreement on a production cut at that fateful meeting about 10 days ago. That didn't happen thanks to Russian intransigence, and the Saudis responded hours later by launching an all-out price war, sending crude crashing well below where Schork's bearish models had forecast.
So why would Russia not go along with production cuts? The answer may lie in Russia's (not to mention Saudi Arabia's) desire to take American shale producers down a notch or three. Schork notes U.S. oil production is up 10% Y/Y, making the U.S. the globe's largest producer, not to mention a sizable net exporter of black gold. The battle for market share is on.
As for American shale producers, many of them are over-leveraged, and won't survive this shake-out. Some will go bankrupt, some will get taken over, but major consolidation is on the way. That's good news for big players like BP (BP), Shell ([[RDS.A]], [[RDS.B]]), and Exxon (XOM) who are going to be able to pick up great acreage at fire-sale prices.
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