World Wide Stock Market Meltdown Causes Intermarket Margin Call

Posted by Josef Schachter

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Screen Shot 2016-01-22 at 6.13.11 AM

 

Screen Shot 2016-01-22 at 6.13.11 AMOil Price Final Plunge Nearly Over 

Our forecast of WTI crude falling to US$30/b has been realized. With Iran last weekend having sanctions removed excluding the US, the fight for market share in Europe is well underway. Many refineries in Europe used to take Iranian/Persian crude regularly (especially BP whose historical background included being founded as Anglo-Persian Oil Company in 1908) and so Iran is providing significant discounts to regain access. As a result of the new competitive pressure, prices for WTI and Brent have retreated this week to close today at US$28.36, another new low for the cycle.

There is now a window for crude prices to capitulate to even lower lows as fears of economic slowdown, risk off trading and margin calls across various asset classes have negatively impacted high yield bond, stock and commodity markets in the first two weeks of 2016. The Dow Industrials has fallen over 7%, the TSX by over 8%, and the Shanghai Stock Exchange by a staggering 18% in just the first two weeks. One measure of this developing fear is that the VIX volatility index has risen in the US from the 18 level at the end of December 2015 to as high as 30.95 last week (now 25.88). 

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