“We are witnessing the seizure of the oil market”
Today I’ll tell you about facts that destroy ordinary ideas about how the real economy, and in particular world trading exchanges.
Fact # 1. Below is a chart of the Dow Jones Index, which includes the 30 largest US companies.
On Monday, February 5, 2018, Donald Trump, speaking in Ohio, talked about the economic achievements of his administration: an increase in the number of jobs, economic growth, stock market growth, and the success of tax reform. At this time, American television channels broadcasting the president’s speech on the air interrupted the broadcast to report a record drop in the stock index. For this day, the decline amounted to 1252,7 points - the maximum for the entire history of the index, although in percentage terms this collapse takes 32nd place in size.
There are many versions of why the fall occurred, which after the fact can explain anything. But there is one funny idea that many market participants bought the American market for the prospect of tax reform. And when, the reform began to take effect, they, in accordance with their idea, decided to take profits by selling the American market, thereby causing it to fall. Thus, the implementation of a positive scenario or a positive decision can lead to negative consequences. In fact, there are a lot of examples of such market behavior; looking at it for logic and predictability is a very thankless task. It is a pity that this is not understood by those who are trying to analyze it or make decisions based on such analyzes.
Fact # 2. Most people know that oil from the Middle East is shipped to Western countries, including the United States. But, as you know, in recent years, the United States has significantly increased domestic oil production and reduced import supplies.
And as Bloomberg writes in an article on Oil World Turns Upside Down as US Sells Oil in Middle East, “American condensate, a type of very light oil, turned out to be preferable to regional varieties, because of its quality, which is better suited for processing plants in the UAE. The cargo sent from the terminal in Houston on the tanker Seoul Spirit arrived on January 31 at the port of Abu Dhabi. And by 2029, the United States could become a net exporter of oil. ”
For many, this fact will seem surprising, but if you recall the history of oil production, it turns out that at the end of the XNUMXth century the United States and Russia fought for a place in the international oil market, it was then that the oil companies of both countries started a global price war, and at the beginning of the XNUMXth century the USA was able to occupy first place in the world in oil production. So the story repeats itself.
This fact shows that linear thinking, which many economists abuse, extrapolating trends into the future, works only as long as this trend itself exists. And markets, as the main economic indicator, are cyclical in nature, and they are always united and opposed by two movements: a return to the average value and inertia, which in turn cannot be calculated for the entire market, but are only consequences of the totality of decisions of its participants.
And about whether it is worth trusting economic, including market analytics, I will tell in the next article.
Fact # 1. Below is a chart of the Dow Jones Index, which includes the 30 largest US companies.
On Monday, February 5, 2018, Donald Trump, speaking in Ohio, talked about the economic achievements of his administration: an increase in the number of jobs, economic growth, stock market growth, and the success of tax reform. At this time, American television channels broadcasting the president’s speech on the air interrupted the broadcast to report a record drop in the stock index. For this day, the decline amounted to 1252,7 points - the maximum for the entire history of the index, although in percentage terms this collapse takes 32nd place in size.
There are many versions of why the fall occurred, which after the fact can explain anything. But there is one funny idea that many market participants bought the American market for the prospect of tax reform. And when, the reform began to take effect, they, in accordance with their idea, decided to take profits by selling the American market, thereby causing it to fall. Thus, the implementation of a positive scenario or a positive decision can lead to negative consequences. In fact, there are a lot of examples of such market behavior; looking at it for logic and predictability is a very thankless task. It is a pity that this is not understood by those who are trying to analyze it or make decisions based on such analyzes.
Fact # 2. Most people know that oil from the Middle East is shipped to Western countries, including the United States. But, as you know, in recent years, the United States has significantly increased domestic oil production and reduced import supplies.
And as Bloomberg writes in an article on Oil World Turns Upside Down as US Sells Oil in Middle East, “American condensate, a type of very light oil, turned out to be preferable to regional varieties, because of its quality, which is better suited for processing plants in the UAE. The cargo sent from the terminal in Houston on the tanker Seoul Spirit arrived on January 31 at the port of Abu Dhabi. And by 2029, the United States could become a net exporter of oil. ”
For many, this fact will seem surprising, but if you recall the history of oil production, it turns out that at the end of the XNUMXth century the United States and Russia fought for a place in the international oil market, it was then that the oil companies of both countries started a global price war, and at the beginning of the XNUMXth century the USA was able to occupy first place in the world in oil production. So the story repeats itself.
This fact shows that linear thinking, which many economists abuse, extrapolating trends into the future, works only as long as this trend itself exists. And markets, as the main economic indicator, are cyclical in nature, and they are always united and opposed by two movements: a return to the average value and inertia, which in turn cannot be calculated for the entire market, but are only consequences of the totality of decisions of its participants.
And about whether it is worth trusting economic, including market analytics, I will tell in the next article.
Information