Just What We Needed: Another Challenge
by Eric Nager on Mar 12, 2020
On top of having to deal with Covid-19, we are now confronted with an oil-price war between Russia and Saudi Arabia. Normally, a sharp drop in oil prices is celebrated as a great thing. However, these are not normal times and since the US is the world’s largest energy producer, there are concerns about the health of the oil shale industry. There are many jobs in this sector which is a major concern. This helps to explain the highly volatile market today. Nevertheless, a drop in oil and gasoline prices will be a big benefit to lower end consumers which is good for the economy.
It is unlikely that this price war will be long-lived because both the Russian and Saudi Arabian economies are extremely dependent on the price of oil. Therefore, we suggest that you enjoy the low gas prices, they probably will not be here for the long-term.
Regarding Covid-18, they are starting to roll out the test kits (about 1 million with millions more on the way). All of these tests will undoubtedly uncover more cases but will also help to remove some of the uncertainty which is what the stock market hates.
The FED is expected to reduce interest rates by .75% or 1.00%. Also, it was reported that they have added between $100 billion to $150 billion of liquidity (stealth QE?). So, the FED is doing its part and the Trump administration is expected to announce some targeted liquidity injections to offset the impacts of the Covid-19 crisis.
Please feel free to contact us with any questions.