Have you ever sold cars for a living?
The iron rule of Car Sales 101 is to keep them on the lot until they buy because, if they leave, it’s very likely they are never coming back. There are certain lots that make you turn over your own keys when you go for a test spin in a new roadster. Legend has it that some of these places toss your keys on the roof so you can’t leave. I had all these things in mind the other day when it was announced the Russians and Saudis had a deal—that’s right, a deal to freeze production.
You know what happened; on Tuesday oil spiked straight up on the news they ALMOST had a deal. They didn’t have a deal, but everyone hoped they did. A funny thing happened on the way to a deal; oil topped the very next day. Then while I was snoozing with one eye open on the couch Sunday afternoon, watching the baseball game, I got an alert on my phone the Doha talks were falling through.
I suppose the ministers and/or the oil traders should’ve read The Art of the Deal. We weren’t in the room, so we don’t know what happened, but one of two things likely happened: they never really were that close, or the ministers don’t know how to close a deal. Of course, any time you have a deal dependent on the state of the Saudis and Iranians, caution should be prudent. There is a lot of carelessness and complacency going on these days.
The reality of the situation is we very likely witnessed a classic slope of hope situation that only financial markets can produce. Of course you know this is the seasonal sweet spot for oil, so it’s no wonder it has spiked approximately 64% this year. That doesn’t stop me from thinking there will come a day where oil does touch $10. We don’t know when that will be, but I do know classic bear market behavior when I see it.
I knew when the markets opened on Sunday night that oil would get crushed. I also knew that would present a problem to the equity markets, which are attached at the hip to oil. The week should start off slowly.