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Jeff Gundlach: "If Oil Drops To $40 The Geopolitical Consequences Could Be Terrifying"

OWoN: Interesting view, but misses the big one; it is called Deflation. Once in play, it is terribly difficult to root out and will likely serve to break up the EU. With high youth unemployment already and collapsing economies, this further drag on trade activity will slow the velocity of all currencies, causing a global stress on values in all class of investment producing even greater unemployment.

Do not think that collapsing North Sea oil is limited to the oil industry without secondary impacts. In another 2-3 months the Shale oil industry in America will be toast. Just watch the idling rigs to realize what is happening.

When both nations and companies start to waver the Bond markets will start to implode with a vengeance. And those parties thought to fit, maybe not so fit after all. Nations will be powerless to raise rates as it will serve to only accelerate deflation. As it stands, one might consider a 10-15% value on any asset class being looked at, especially real estate. And really question the reaction in countries like Venezuela where even soap is a luxury and what related impact is caused in a daisy chain of events. If Venezuela goes, what do Cuba and other countries like Jamaica do who have relied on both credit and oil? There will be forced change and a price will be paid.

Jeff Gundlach: "If Oil Drops To $40 The Geopolitical Consequences Could Be Terrifying"

Zero Hedge
By Tyler Durden
5 January 2015

In a recent interview with FuW, DoubleLine's Jeff Gundlach explained his concerns about the oil market not being "unequivocally good" for everyone...

Question: The crash in the oil market is already causing jitters in the financial markets around the globe. What is your take on that?

Gundlach: Oil is incredibly important right now. If oil falls to around $40 a barrel then I think the yield on ten year treasury note is going to 1%. I hope it does not go to $40 because then something is very, very wrong with the world, not just the economy. The geopolitical consequences could be – to put it bluntly – terrifying.

What would that mean for stocks?

Gundlach is right historically...

Large and rapid rises and falls in the price of crude oil have correlated oddly strongly with major geopolitical and economic crisis across the globe. Whether driven by problems for oil exporters or oil importers, the 'difference this time' is that, thanks to central bank largesse, money flows faster than ever and everything is more tightly coupled with that flow.

So is the 45% YoY drop in oil prices about to 'cause' contagion risk concerns for the world?

* * *

Of course Gundlach is not alone in this rational concern...

"In its November 14, 2014 Daily Observations ("The Implications of $75 Oil for the US Economy"), the highly respected hedge fund Bridgewater Associates, LP confirmed that lower oil prices will have a negative impact on the economy.

After an initial transitory positive impact on GDP, Bridgewater explains that lower oil investment and production will lead to a drag on real growth of 0.5% of GDP.

The firm noted that over the past few years, oil production and investment have been adding about 0.5% to nominal GDP growth but that if oil

levels out at $75 per barrel, this would shift to something like -0.7% over the next year, creating a material hit to income growth of 1-1.5%."

-- Mike Lewitt, The Credit Strategist

Source: Bloomberg



  1. Goldman Sachs chief Lloyd Blankfein, told CNBC on Wednesday that the drop in oil prices may indicate deflationary pressures, not just an abundance of supply.

    "The market is suggesting a protracted deflationary period," he said. "I don't think it, but that's the sensible way of interpreting what's going on."

  2. Putin’s Opportunity to Bust the US Petro Dollar

    Posted by Preston James, Ph.D on January 7, 2015

    Has a remarkable opportunity arisen for President Putin to Bust the US Petro Dollar and collapse the Criminal Banking System behind it?

    In Ju-Jitsu, the goal is to wait for your opponent that is attacking you to commit to a line of action and then to harness his power and use his own attack against him.

    Vladimir_Putin_-_20062President Putin is known to be a master at Martial Arts and appears to be using the principles of Ju-Jitsu to topple the Western Banks, especially in regard to his support of the BRICS Development Bank.

    The new BRICS Development Bank is now up and running now, is part of his master chess strategy, and is known to be seriously stressing the US Petro Dollar.

    The BRICS Banking System is known to be based on Gold, Silver and real commodities unlike the Rothschild’s largest Franchisee the Federal Reserve System.

    The private Federal Reserve System, which is neither a Bank nor a Reserve, is based on Fiat private money, best considered counterfeit money. These Federal Reserve System Fiat Dollars (aka the US Petro Dollar) have been forced to be accepted inside America as legal tender by illegal, Unconstitutional Congressional action back in 1913 which had no proper quorum.

    The US Petro Dollar is now the World’s Reserve Currency but is not backed by Gold or Silver as is required by the U.S. Constitution.

    Has the Organized Crime Cabal that owns these criminal banks, the folks that started ISIS/ISIL/Daish aka Al CIA Duh version 2, actually set its own final financial trap by selling oil stolen from Iraq and Syria on the World market for $20 USD a barrel?

    How come some major oil distributors are showing up with new quantities of oil that show no clear trail from the field of production? Could it be this crude oil ISIS has been “confiscated” and is selling at such a deep discount has actually itself suggested an appropriate response for President Putin?

  3. You Are Being Lied To – The West Is In Bad Shape, Particularly The United States

    As the great propaganda machine that is the Western mainstream media continues to tell the public there is a tremendous economic recovery, it turns out the West is in bad shape, particularly the United States. Below a 50-year veteran sets the record straight and also issues a major warning for the people of the United States.

    John Embry: “I think the drop in oil is getting overdone on the downside, but it’s going to create major problems in the derivatives world. There are an awful lot of derivatives written against oil and there’s a lot of junk paper written against oil. There will be serious ramifications to all of this….

    Continue reading the John Embry interview ...

    Now the European economy is in desperate straits. The Germans remain reluctant to endorse QE of any significance. Deflation has intensified. The two largest European economies after Germany, Italy and France, continue to deteriorate. And now the ugly subject of ‘Grexit,’ the departure of Greece from the Union is back on the front-burner.

    The dollar is strong vis-a-vis other currencies because the U.S. dollar remains the world’s reserve currency, at least for the time being. This allows the U.S. to misrepresent its true economic condition.

    The U.S. economy is nowhere near as strong as the government’s falsified macro-numbers and the extremely bogus Jobs numbers would suggest.

    This inevitability will lead to gains in gold and silver prices that are inconceivable to most observers today. Currently gold and silver are severely underpriced, dramatically under-owned in the West, and quite frankly not understood by most observers in the West.

    This is not the case in the East, where most significant entities such as China, India, Russia, etc, continue to accumulate massive amounts of physical gold. They keep buying all they can get their hands on. When you put this in context with the oil price being dramatically lower, I think that people who don’t have representation in gold and silver, and most particularly the shares, are making a serious mistake. The day is coming when the world will be shocked by the breathtaking upside moves in gold, silver, and the shares.”

  4. The First Shale Casualty: WBH Energy Files For Bankruptcy; Many More Coming

    "There are too many ugly balance sheets," warns one energy industry analyst, adding simply that "the group is not positioned for this downturn." While the mainstream media continues to chant the happy-clappy side of lower oil prices, spewing various 'statistics' about how the down-side of low oil prices is 'contained' and the huge colossal massive tax cut means 'everything is awesome' for America, the data - and now actions - do not bear this out. Macro data has done nothing but disappoint and now, we have the first casualty of the shale oil leverage debacle as WSJ reports, on Sunday, a private company that drills in Texas, WBH Energy LP, and its partners, filed for bankruptcy protection, saying a lender refused to advance more money. There are many more to come...

    And now, as The Wall Street Journal reports, the bankruptcies have begun as financing costs are not just prohibitive, there is no liquiidty available at any price for many...

    And here is the bankruptcy filing in question in all its glory:

  5. Devastating Worldwide Derivatives Implosion Imminent

    Globally there are over $9 trillion worth of borrowed US Dollars in the financial system. When you borrow in US Dollars, you are effectively SHORTING the US Dollar, reports Pheonix Capital on ZeroHedge.

    Which means that when the US Dollar rallies, your returns implode regardless of where you invested the borrowed money (another currency, stocks, oil, infrastructure projects, derivatives).

    Take a look at commodities. Globally, there are over $22 TRILLION worth of derivatives trades involving commodities. ALL of these were at risk of blowing up if the US Dollar rallied.

    The 4 Banks with the Biggest Derivatives Exposure
    These are the most dangerous banks that will be the first to fall, and the first to claim their depositors' money:

    JP Morgan Chase Bank
    Citibank National
    Goldman Sachs Bank USA
    Bank of America


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