The Start of ‘The Great American Oil Bust’ As Saudis Drown Shale Boom

oil-pump-300x200Market Watch

By Shawn Langlois

If the terror attacks and the arm-in-arm march in the streets of Paris were enough to steal the attention away from the oil collapse, Saudi Prince Alwaleed and his bold words were enough to thrust it right back in the spotlight. That, and the fact that crude just broke below $45 a barrel.

Now, as the price continues to plunge to levels not seen in almost six years, pundits are still trying to make sense of it all. And they’re mostly failing. Investors, for whatever reason, seem to be confident that a bottom is forming, as they pour cash into oil-related funds.

But those hoping for a V-shaped rebound might be disappointed, warns Wolf Richter in his post, “This Is Just the Beginning of the Great American Oil Bust” (more from him below).

Speaking of the big “V,” we’ve grown quite accustomed to that shape when it comes to equities. No selloff too big to reverse. Over the past year, a V-shaped recovery has saved every pullback. It’s getting to the point where it feels like a gift-wrapped play for dip-buyers.

But Charlie Bilello of Pension Partners is wary about it this time around. He says defensive behavior is taking over, as seen by widening credit spreads, lower inflation expectations, dropping Treasury yields and defensive sectors leading the way.

“Collectively, this behavior suggests that the risk/reward is changing, and not for the better,” he said. “After six consecutive years of gains, this subtle shift in environment is undoubtedly going unnoticed by most investors. What would get their attention? You guessed it: only a failed V.”

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