Tags: el-erian | oil | crude | global economy

El-Erian: Oil Market Has Become 'Unhinged'

El-Erian: Oil Market Has Become 'Unhinged'
(Dollar Photo Club)

By    |   Tuesday, 01 September 2015 09:35 AM

Melissa Lee asked Mohamed El-Erian, Chief Economic Advisor to Allianz, what the 27% three-day spike in oil prices means for stocks and the economy.

El-Erian replied bluntly that “it tells you nothing about the global economy.”

However, it says two things: “One, that this is an unhinged market, having lost its demand anchor, its supply anchor, and its swing producer, so any small bit of news will move it enormously."

Second, he said "it tells you that the market technically was very offside — lots and lots of shorts all over the place.”

He said the result is it doesn’t take much to move the market, “and we will get more and more volatility up and down.”

El-Erian attributes this volatility to a “new paradigm” in oil and currency markets. He warned further that, “Institutional investors haven’t yet adjusted their portfolios to higher volatility.”

Oil soared on Monday for a third consecutive day, with Brent crude rising more than 8 percent, as a downward revision of U.S. output data and OPEC's readiness to talk with other producers helped extend the biggest price surge in 25 years.

Brent October futures rose $4.10, or 8.2 percent, to settle at $54.15 a barrel, with volumes relatively muted by a UK public holiday.

U.S. crude gained $3.98, or 8.8 percent, to settle at $49.20 a barrel, taking three-day gains to 27.5 percent, the most over three days since August 1990. In dollar terms, it is the biggest three-day gain since February 2011.

Elsewhere on CNBC, Sandy Lincoln, Chief Market Strategist at BMO Asset Management, is encouraged by a revised GDP of 3.7% versus 2.3% for the second quarter, certainly a high number, as well as by employment and consumption indicators, earnings, and valuations.

He is further buoyed by the remarks of Fed Vice Chair Stanley Fischer that the Fed wouldn’t necessarily wait for inflation to hit the 2% target before raising rates, and Lincoln thinks markets would find such an action reassuring.

He further thinks that data from China should affect stock selection but not whether the Fed should raise interest rates in keeping with the Fed’s Dual Mandate.

The biggest news of the day was a big spike in oil prices, but Andy Lipow, President of Lipow Oil Associates, is “very skeptical” that it will last, because he doubts that the OPEC members can convince the non-OPEC countries to cut production “because they all need the money.”

Lipow expects that refinery maintenance, the advent of Iranian oil, and more efficient use of rigs will lead to a retest of $40 for WTI and $44 for Brent crude oil. He joined the commentators who think that Warren Buffett’s investment in ConocoPhillips (COP) reflects a strong outlook.

Victor Anthony, of Axiom Capital Management, looks at antitrust actions brought against Google (GOOGL) by the EU and concludes that since Google has roughly a 90% share in search in the EU, a case can be made, but Google is defending itself vigorously on the ground that search and its Android OS are competitive businesses, and the action can take five years. However, Google is performing so well that ultimately its business model can proceed as usual.

CNBC’s Eunice Yoon reports from Beijing on the crackdown by Chinese authorities on alleged market irregularities such as rumor mongering and destabilizing the market that has yielded 200 arrests, including those of a hedge fund manager, a financial journalist, and a regulatory officer.

David Magee, of Suntrust, reports that an ongoing study of a basket of 50 items finds “pricing parity throughout the store” between Best Buy (BBY) and Amazon (AMZN) for the first time.

He told Melissa Lee Best Buy “is gaining share from somebody” and is “a very compelling competitor in consumer electronics.” Tim Seymour said the company “has turned itself around,” but this doesn’t mean investors need to buy it.

Mike Khouw just bought a $2000 camera at Best Buy but from the action in options he “does not think there is much more room to the upside.”

In a very sobering presentation, Carter Braxton Worth uses charts to illustrate the effect ETFs have had in magnifying downward moves in stocks, and he also thinks stocks will revisit lows.

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Robert-Feinberg
Melissa Lee asked Mohamed El-Erian, Chief Economic Advisor to Allianz, what the 27% three-day spike in oil prices means for stocks and the economy.
el-erian, oil, crude, global economy
701
2015-35-01
Tuesday, 01 September 2015 09:35 AM
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