The Absurdity of It All

It is about 2:00. The market may end down, I don't know but looking at the markets it is just absurd. It just shows how much liquidity can make fools out of fundamentals in the market in the short term. China is typically the liquidity canary in the mine and its massive drop in a month should be a warning for the more mature markets who experience a lag.

Anyway back to the absurdity of today. China gets pummeled overnight. Down another 5%. Europe is down and the U.S. markets open down 100 points. A few minutes after the open the oil inventory number comes up. Shocks traders as U.S. inventories decline the most in more than a year. Oil reverses and screams higher. With it the dollar starts falling (why would oil impact the dollar? It is usually the other way around) and the stock market starts screaming.

What in the inventory drop data reverses a huge equity decline in China, which should be a warning sign. I don't trade oil, very rarely even invest in oil stocks but I wanted to understand. From Bloomberg:

Crude oil rose after a government report showed that U.S. inventories declined the most in more than a year as imports tumbled and refineries increased operating rates.

This first sentence almost tells it all. Imports tumbled. Not demand surged, imports tumbled. Maybe this is good for oil prices but how is that any indication on making the dollar move lower and the equity markets move higher?

Let's keep reading:

“Refiners were probably nervous about rising stockpiles and the outlook for lower gasoline demand in the months ahead, so they reduced purchases,” said Rick Mueller, a director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. “You can’t help but pay attention to the massive drop in imports.”

Once again, demand going forward is lower. That should indicate weak economic activity.

The drop left inventories at 343.6 million barrels a day in the week ended Aug. 14, or 15 percent higher than the department’s revised figures for the year-ago period.

Wow, now I wonder about the oil move (once again, not an oil trader so the move $3 higher may be justified). Either way, no wonder imports are dropping. The U.S. has tons of supply. This is echoed by Mueller:

We are still looking at more than 340 million barrels of oil, which is still a pretty good number,” Mueller said. “This is by no stretch of the imagination a low inventory number.”

Anyway, the whole chain reaction just seems absurd on a day we should be down 100 points. We have gotten to the point where China going down 5% can be brushed off by oil moving up $3 because imports were lower because demand was lower causing companies to curtail their oil imports.

The absurdity of it all.