” … , I have it from a reliable source that the sky is falling — SELL!”

Of course, Henderson, the broker at the other end of the line, unaware of the severe consequences of passing inside information, passed this invective from Chicken Little along to ten of his best clients. Before you know it, you have real panic going. Last week’s best frightful and misleading commentary comes to us from the mainstream media … CBS Sunday Morning.

It was a report, anchored by Martha Teichner, covering the good news and bad news in falling crude oil prices. The beginning 30 seconds had to do with all the happy motorists (all of us) who are saving a bundle at the pump ($150 billion in 2015), the balance (about 5 minutes) had to do with hard times in the oil patch, in particular, Midland, Texas.

Now, I am sympathetic to all of those who have lost their jobs in that industry over the past tw0 years (according to the report, some 275,000). However the oil and gas industry has been a boom/bust industry through all of recorded history. Importantly, the main subject of this report admitted he’d been through four of these cycles in his career. Having said this, when things are good in the oil business, they are very, very good. The gentleman interviewed was an oilfield consultant. During the boom, he was making $1700 to $1800 a week. He is now unemployed. There are obviously many like him.

The flip side of this story is the vast majority of Americans who make nowhere near $1700 per week, people who have suffered for years with high oil prices. The negative story on the oil man reinforces the constant negative media drumbeat of decline and economic stagnation, while the majority of Americans are seeing a real benefit.

Teichner pointed out the causes: US production doubling since 2008 (the shale revolution), Saudi over production to retain market share and, get this, CHINA! Yup, she said Chinese demand had decreased. Not only does she blame China, but she insinuates that demand has declined around the globe (indicating a global economic slowdown) before zeroing in on China. This is incorrect. According to oil industry source, Platts Report, Chinese oil demand (and worldwide demand for oil) continues to grow at a healthy pace…more media malpractice. This  scares Henderson’s clients. It primes them for hitting the exits.

One More Time On The Bullish Virtues Of  Thirty-Dollar Crude

(You are excused if you are on the same page with me. If not read on)

“If oil prices stay between $75 and $95 a barrel, we would see the kind of stimulus package that the Federal Reserve or Congress could never do,” said Douglas R. Oberhelman, the chief executive of Caterpillar, the multinational maker of heavy construction equipment. This quote comes from a NYTimes article dated, November 14, 2014. Obviously, the price on WTI closed Friday 2/5/16 at $31. The stimulus we are now looking at is much larger. This piece from The Hill, dated October 2014, “Lower gas prices will save us all,” posits that every penny off a gallon of gas would equal a $1.4 billion benefit to the economy if maintained over a year. With regular, lead-free gasoline at less than $1.50 per gallon in my market, we are talking about a $2.00 difference vs. two years ago. According to the formula, if held, it would be a $280 billion stimulus. And that’s just in the US. Yet, all is gloom and doom in the media … not one mention of the OIL STIMULUS.

I do hear the critique to this argument: ‘why hasn’t it kicked in?’ That was the same critique the stimulus of 2009 was given. It will, as people begin to accept that this is not a flash in the pan. In the meantime, we will get these runs of panicky selling as the market tries to make a bottom and certain people, Henderson’s clients, hit the exits.

What is your take?

The information presented in kortsessions.com represents my own opinions and does not contain recommendations for any particular investment or securities.  I may, from time to time, mention certain securities for illustrative purpose, names where I personally hold positions.  These are not meant to be construed as recommendations to BUY or SELL.  All investments and strategies should be undertaken only after careful consideration of suitability based on the risks, tolerance for risk and personal financial situation.