January 20, 2016
With the Dow plunging more than 500 points, today legend Art Cashin warned a Hong Kong derivative nightmare may lead to global panic.
Eric King: “Art, you warned KWN readers that this carnage in the market was coming. We’re now 2,500+ points off the highs in the Dow. People are starting to get worried here but there is no sign of panic yet.”
Art Cashin: “It’s not full capitulation. The volume is higher — that’s good to see. And the lopsidedness declines to advances is very heavy. But you don’t have that sense of throwing the baby out with the bath water quite yet.
They have been going down in lockstep, led by crude oil. Crude oil continues to be under pressure today. The near-term contract is about to expire, so I think we’ll get some additional pressure in the afternoon.
The key area that I will be watching is if we take out last week’s intraday lows in the S&P. I will be watching the area around 1,820 on the S&P. That was the low we made during the ebola scare. So if we take that out we will look to see if there is any trapdoor follow-through or do they try to circle the wagons.
It (the selling) is not only here in New York at the New York Stock Exchange — virtually every equity market around the globe is under pressure. People are now looking to see if we get some bankruptcies in the high-yield area and what transpires next.”
Eric King: “Art, you had previously warned KWN readers to watch the $33 area in crude oil. That level broke to the downside and then you put out a major warning:
Market Carnage Intensifies As Gold/Oil Ratio Hits New 70-Year High
Eric King: “Art, this carnage has played out exactly the way that you said it was going to. It seem the lower the oil price goes, the more the global markets selloff.
We spoke last time about the Gold-Oil ratio. It’s now trading at a new 70-year high — at a jaw-dropping 40:1. I know that you have never seen that in your career because I have the chart in front of me.”
(Cold) War Between Saudi Arabia And Iran
Art Cashin: “Right. Well, I think that has to do with fears over whether or not we are going to see the equivalent of a Cold War between Saudi Arabia and Iran.
Satellite photos indicate that there are several tankers deep in the water — meaning they are loaded and ready to move. There are estimates as high as 50 million barrels getting ready to be shipped. If that hits the market with so little storage capacity that could break the price of oil even further.
And then you have the conspiracy theorists seeing how desperate all this is that talk about the temptation to a place like Russia to start perhaps not a Cold War but a shooting war in the Middle East. This would then raise the price of oil and allow Russia to sell more of their key commodity at a higher price.
So the global markets and people are very, very nervous here and I have the sense that oil wants to go and test the $25 area.”
Eric King: “Art, you and I had spoken about the Fed and the rate hike. You put out a major warning at that time, and then you were really stunned that the Fed went ahead with the rate hike. You brought up the fact that Jeff Gundlach and Christine Lagarde had also warned the Fed not to raise rates.”
Ray Dalio’s Ominous Warning
Art Cashin: “That’s right, and so did the Bank for International Settlements. A lot of people warned them. Just today Ray Dalio said that the Fed should go back to quantitive easing — that the markets are wasting away and this could have drastic consequences.”
Eric King: “What does the Fed do at this point, Art, because you warned KWN readers about the great danger of the Fed losing credibility. You brought up the worry about the Fed’s credibility if they are forced to raise rates. You warned that what’s left of the Fed’s credibility may come undone.”
Art Cashin: “Yes, that’s going to be a major problem. On the one hand the Fed may have to move to prevent the markets from becoming unhinged. But then the difficulty is when they moved, despite being asked by some very bright and high-powered people not to, then their whole credibility gets called into question if they have to reverse policy and people are going to say:
Eric King: “How bad could the carnage in global markets become?”
Hong Kong Derivative Nightmare May Increase Global Panic
Art Cashin: “I would keep my eye on Hong Kong. There are concerns growing that there are a variety of derivatives in Hong Kong that are priced at current levels and that a lower move would move to some forced selling — the equivalent of margin calls. So the place I’ll be watching for the next week is Hong Kong to see how its market acts.”