Negative Oil Prices

What exciting times we live in... I was on the car when I saw oil prices going to -$37 and thinking to myself what on earth is going on?

In a nutshell, the market has determined that the output cuts by OPEC could not make up for the detrimental loss of demand which by the way was quite a record in its own right- cutting daily output by 9.7 million barrels. Unfortunately, this unprecedented record cuts were soon accompanied by the unprecedented price drop, plunging more than 100% yesterday.

Personally, I don't invest in oil and don't really want the roller coaster ride given that its volatility is very very extreme. But I think the lessons can be carried forward to my areas of interest in the stock market.

Recently, the oil price drops might have found its victims in the oil business- one of which was Hin Leong holdings which were reported to have suffered financial losses due huge drops in oil prices. This in turn led to a flurry of action as banks who have lent $$ to Hin Leong were at risk of losing money. I think what is worrying here is the vicious cycle that is currently happening, where oil prices drop -> lead to oil companies suffering -> banks might then suffer losses if they can't recover the debt.

Secondly, this detrimental loss of demand that the oil market is showing us can be extended to the general market, so I think stocks in general will have some pretty red going forward as less demand should mean less profits and thus lower prices.

Actually I think equity markets are still ok, but I was expecting them to crash every more. But we will see again.

STI 2560.98

(-36.87/-1.42%)

P.S. A nice picture of an oil pump to soothe my nerves haha..

Circuit Breaker Musings

Hope everybody is doing well amidst some turbulent times we are seeing now.

I was personally quite taken by this scene near my office yesterday night to see so many taxis queuing up the whole night and little customers in sight. I guess everybody is all working from home or driving (if possible) so the lack of supply of customers.

Economy is definitely taking a toll locally in a shutdown as all business are very affected and our government piling in money which is a very nice albeit small comfort in such troubling times.

Yay for this! 

I guess it is a good boost to my war chest now and nice perk to everybody now, press on!

More to the markets: as of now I have been really influenced by this take here, when will we see aggregate demand return to pre-virus levels? I think this is really the fundamental reason coupled with unemployment is why I believe we will see more red in the short term.

But most importantly, let's stay safe!

Thoughts about REITs

I read the article recently about commercial tenants and restaurants being able to hold off paying rent for 6 months if they are unable to do so. So the proposed piece of legislation means that tenants can defer their payments after 6 months. Although I am fairly confident of a good recovery then, I think it will be bad in the short term. In this outbreak, it is pretty likely that most tenants are unable to meet their rental obligations and they will use this to better manage their cashflow.

Therefore, unless the government comes in to fill this gap by supporting REITs, if REITs are forced to swallow this bitter pill, I think the hit in the short term would be pretty bad.

So far the movement of REITs is quite close to STI but it might deviate towards lower grounds. I am guessing REITs might start to raise cash through new debt or new issuance of units. Either way, not gonna be good in the interim, but nevertheless a good long term bet.