Will $60 Oil Be The Black Swan?

If it is, I don’t know of anyone who saw that coming.   I have been asserting over the past month or so that the plunge in the price of oil is the best indicator that the global economy – including and especially the U.S. economy – is collapsing.

There had been a bubble of sorts blown up in the shale oil industry.   Billions in junk bonds have been issued against what is turning out to be the latest of Wall Street’s financial engineering Ponzi schemes.   But what everyone seems to be overlooking is that the banks and private equity firms themselves are going choke on the billions in bank debt issued by the collapsing shale oil industry.

This is a must-read commentary posted The Automatic Earth Blog:  The True State Of The Economy.

It is highly probable, in my opinion, that the crash in the price of oil not only is a signal that the U.S. economy is in trouble, it could well be the unforeseen “Black Swan” that pulls the rug out from under Wall Street and the financial markets.

I would suggest that this is why the Fed and the U.S. Treasury’s Working Group on Financial Markets – aka the plunge protection team – has been waging a relentless war on gold and silver and has been working overtime to keep the stock market from crashing.

A plunging oil price is not hurting Russia at all.  In fact, if you read this article –  Grand Master Putin’s Golden Trap – you see why the crashing oil price is likely the end of the petrodollar and U.S. global economic hegemony.

Ask not for whom the bell tolls, America, for it tolls for thee…

25 thoughts on “Will $60 Oil Be The Black Swan?

  1. Hi Dave, Long time reader of your blog and first time
    on your new blog. The current situation seems like what
    David Wiedemer wrote about in his best seller “Aftershock”.
    He used the analogy of a tsunami. First the water pulls all
    the way back into the ocean then, you get the giant wave
    that comes back and wipes everything out. Seems to me
    like the wave going out is deflation and the wave coming
    back is major inflation. I think it’s time to run and find
    higher ground.

  2. SHOCKING!!
    the phony paper prices of the only 2 forms of real money collapse in London trading while the US markets r closed for a holiday, and again on a half day of trading in London and New York…

    and b4 a referendum in Switzerland on the reinstatement of Gold Standard…

    SHOCKING.

    easy Dave.

  3. I had the same thought yesterday too. The oil price falling since June/July went mostly unnoticed. And then the Saudis were asking just before the OPEC meeting why the US is not cutting as they demanded from them. Then we had no cutting and crude oil plunged like hell. This wasn’t expected by the markets at all and what is more important: it can’t be manipulated by the central banksters. So now on top of currency wars we have commodity wars. Nothing to paper over for the banksters. Times are getting even more interesting.

  4. Yup, it very much looks like game, set and match. The days
    of kicking the can down the road are ending and I’m fearful
    what comes next is not going to be good in any way. I expect
    the scramble to acquire physical precious metals should start
    soon and price will launch into orbit. I wonder how Yellen
    and her cohorts responsible for this mess sleep at night. I
    expect not well.

    1. The famous japanese film director Akira Kurosawa made a movie with a title that, sadly, is the answer to your question. It was called The Bad Sleep Well.

  5. The 800 pound gorilla hanging around is the amount of derivatives that have been created and traded on oil futures! No one knows, except that it must be over $1 trillion!

    The BDI and the DBC have both continued down today, especially the DBC which has tanked hard. Yet the charter market for VLCC’s is on fire! These super sized tankers are mostly on their way to Asian ports, at a reduced cruise speed of 4 to 6 knots.

    So China, India and the most of East Asia, are not only buying up all the physical gold and silver they can lay their hands on, but the western/mid-east financial games have handed them an early Christmas present of cheap oil! Being sold in return for, soon to be worthless paper fiat!

    You could see the cracks forming before, but now you can hear them! Coming closer.

  6. If you feed a dog endlessly it will eat itself to death. have you ever watched a mosquito start feeding on your arm and let them get hooked in deep and then squeezed around them, forcing the blood into them until they explode. That is what is being done to the red shield cartel.

  7. there are several possibilities for the drop in the price of oil. they might be trying to hide the fact that the shale oil industry is a sham. they may be trying to pressure the BRICS

  8. “I wonder how Yellen and her cohorts responsible for this mess sleep at night.”
    Probably the same way the citizens of Rome slept the night before it was sacked, they went to bed thinking Rome would never fall and all would be well in the morning, but boy did they wake up to a rude awakening.
    If you prefer a more recent scenario, consider the passengers aboard the Titanic who went to sleep hours before the iceberg hit. Yellen and her lackeys will find out the hard way what happens when money dies, and what happens when the common folk look for a scapegoat. Won’t be pretty…

  9. Did you guys notice how GDXJ was hammered by 12% and GDX almost 9%? And on half a trading day? I am seriously angry at this joke of a world …………. FXXK those evil money masters at the FED

  10. Hey notice that the US Government gets alot of tax revenue from gasoline sales and from oil companies …now that is not available!

    Same Canada, and their Banks may see many a default from numerous leveraged oil plays.

    Come on yanks, canucks, it is staring you in the face.

    1. It is not just the US Federal govt, but also many states. Here in Colorado these taxes are very important to the budget. So people may be glad for the cheaper gasoline, but not when they lose their job because of it.

  11. best way to see the swiss conundrum, & just how TF they can hope to back out of this without blowing it all up, is this chart:
    goldonomic.com/news/item/news-dec-2014-public

    remember in sept/2011 the swiss pegged their franc to the euro at a fixed rate, claiming the franc was rising too much then, & then claimed to “buy up”= create euro demand & drive its value up and paying for them by emitting fiat francs created out of thin air!
    like that’s a plan that can’t go wrong.
    a nation of 7 mm (0.1% of world) is going to singlehandedly determine the value of a major currency?

    http://goldonomic.com/images/Swiss%20gold-fx%20reserves-2014.png

  12. That Automatic Earth article makes no sense. They argue that oil is plunging because suddenly the whole world’s economy has tanked and people can’t afford oil anymore so demand has dropped. Yet in the same article they say that no country is cutting production?!?!?!? That makes even less sense. Since the oil market is so razor thin with very little above ground storage capacity, where are the reports of overflowing oil tanks the world over?

  13. Our newly crowned emporer will just make the owing “hoarding” of precious metals illegal for the benefit of the collective, the 98+% who own nothing but a mailbox to receive their monthly food allotments, free healthcare and other govt. benefits.
    “He can’t do that, we have Rights, we have a Constitution”, are you so sure about that?
    The sheeple scream; “Those “evil rich” should not be allowed to keep and hoard all of that metal to themselves. Give it back for the benefit of us all. It’s not fair.”
    I bought my metals one here and one there and went without other things while the sheeple partied on with the credit cards and lived it up. Now they will demand the produce from my humble field since they have spent up their digital allowance and have nothing to show for it.

  14. The taxes will not decrease, but probably increase as they tax at a fixed rate per gallon. If the gasoline was free the government would still collect their taxes.

  15. This is a very good observation. I was reading somewhere yesterday – can’t remember where, sorry – that the price off oil was declining in the months before the 08/09 Crash as well. There is a lot of money invested in the North American oil industry. Living here in Western Canada, I’ve been familiar with the industry both through investing and also living and working in the oil producing areas – although not for a decade or so now. It has seemed to me that for all the increase in productivity, I would have expected more gangbuster results. When I lived in Ft. McMurray, AB (aka oil sands central) around 2000 the place was going gangbusters at $20/barrel oil. All you had to do to get a new job was hang out at the pub, someone would hire you to push a broom for $20/hr. $40-$50 if you had a ticket. Double time overtime, as much as you can handle.

    But, the money in the stock move that correspended seemed to happen mostly between the early 2000’s to around 2006/07. There was some good performance in there – PetroCanada for example, was trading at $20.00 in 2000, it split twice after that before being bought out/merged for something like $38.00 – I remember because I owned it, and didn’t sell that stock out during the 08/09 Crash, because the merger deal had already taken place with the guaranteed share price in tact. It didn’t drop like everything else. So, that was some screaming performance from a major large-cap oil producer in the space of 7 to 8 years, and it corresponded well to the rise in oil price… right up until the drop of ’08/09. I lost some precious capital when high-flying mid-caps like Oilexco got their financing pulled from beneath their feet during the crisis, essentially turning them bankrupt in an instant.

    The Canadian Banks as well are very cocky. All of Canada is cocky and smirky about our wonderful banks – as if we are the new bloody Swiss or something. I take care of some of my elderly mother’s retirement portfolio, and we had a look a year or two ago and sure enough, in one institution she had over $600,000 all in one related account, while our Canadian CDIC Deposit insurance only covers her for $100,000. Well, I looked into it, and she could simply move the money around to different institutions (it works this way in Canada – checked into it quite extensively, even with the banks), she could have most of it covered at absolutely no expense to her, except for some time spent at the bank doing transfers and stuff. (Many banks have four institutions within themselves, and thus can cover you better without even losing your overall business). But, they still thought I was nuts. Like I was a prepper gone mad or something. The Canadian banks are Soooooooooooo secure they assured me. Whatever. It’s six times the insurance for free, so we’re going to take it, thanks very much.

    The thing is, the Canadian banking system never got a good washing out during the 08/09 Crisis. We made it through pretty unscathed. We didn’t even do ridiculous amounts of stimulus (Harper shut down the parliament to prevent it). Our dollar has been printed though, but that is because we have an unnofficial peg to the US Dollar. If we let our dollar get too out of whack to our largest trading partner, it would kill our manufacturing industries in the largest populated areas of the countyr – Ontario & Quebec. So, we’ve been monkeying with our currency as you guys print, to keep our manufacturing alive. There is funny business going on somewhere to do this.

    When I asked at the bank, where they derive their income from to pay my mother’s term deposit the exhorbitant 2.8% from, which is over prime, thus meaning you are taking on additional risk to create the higher return, they told me most of it came from government infrastructure financing (ie. Public/Private) and their own mortgage securities – ie. the real estate market which has more than doubled since the year 2000, lock step with dropping interest rates (The mortgage PAYMENTS on these once $150k now $300k homes have essentially stayed the same for 15yrs).

    There is a great deal of risk I think. I can see it that Western Canada could get a strong kick in the groin that might leave it writhing on the ground for a while. We might be about to get a double good cleansing here, since we didn’t get one in ’08/09.

    Lol! If you want to know the ultra contrarian viewpoint, mention shorting the sacred Canadian Banks in this country and see how quick you’d be strung from the nearest tree… but then again, Bank of Montreal DID lose 60% of its market cap during the crash because of its exposure to the US banks… so, it’s not an impossibility. (BOM recovered and went into new high territory after the crisis). Even our pristine Canadaian banks are leveraged beyond what they should be, even if they are more prudent… if interest rates went back to 7%, where they were before the housing bubble, all those mortgage backed securities could topple pretty badly.

    Pride goeth before the fall.

  16. Hi Dave,
    A question very related to all this: We hear so much about all these PHYSICAL gold buyers, whether it’s China or India, or many others. Question: Where is all this supply coming from? WHO IS/ARE the SELLERS? Where is this physical gold supposedly coming from?

    As for the Grandmaster article, I can certainly see the process posited there being an ideal and obvious strategy, but I wonder how much of Russia’s income from energy sales is actually able to be ‘set aside’ and go into what is, essentially, an asset accumulation strategy, and not have to be immediately turned around in the market and used to pay Russia’s current obligations.

  17. COMEX open and gold, silver and crude oil are in freefall! From here I don’t know what the endgame could be. One has the feeling everything begins to break apart. First slowly and then accelerating very fast. I think we can call $60 the black swan. Hat tip to Dave Krenzler. Your tip could be regarded in hindsight as one of the best in the whole financial area.

  18. The Swiss have overwhelmingly (78%) rejected the gold referendum question.

    At market openings (late Sunday evening in the west) the commodity sector has had the rug pulled out from beneath it! Oil, gold, silver, copper, etc. etc.

    At the close of markets on Friday, both the DBC and the BDI tanked.

    But, the VLCC (very large crude carriers) leasing sector is on fire! Why? Cheap, bargain basement oil. These ships are mostly all heading east to Asian ports, under reduced cruising speed orders.

    Not only are the Asian’s snapping up cheap physical gold and silver but oil too! Watch the BDI pick up in the weeks to come as they buy cheap copper and anything else the west puts on the bargain list. This is too stupid to be stupid.

  19. There is an article about being the crude oil price a possible blach swan. So others are joining you, Dave Krenzler. But we won’t forget you were the first!

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