Investing General Discussion

This isnt a good sign. It looks like they are building a quarantine around USO so it doesn't bring down the entire oil world.

Sanrith Descartes said:

There isn't a way out. As I said they closed the fund to new issues. Its a closed end fund now. Barring a virus that eats crude oil magically appearing, USO is in a death spiral.

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The only thing buying USO time is they have a huge pile of govies. They aren't dead yet, but barring some fairytail ending that pile of cash is going to blow the fuck up over the next two months and this whole mess will probably end up very red. It's not legal to pass that on to ETF holders, is it?

With the number of creation baskets being made, it implies that there was a pretty massive inflow of cash the last few weeks of people thinking this was a good time to buy into USO, to the tune of a couple billion or so, can't be bothered to go past paper napkin "it's a lot" math. That bid/nav disconnect implies people are still buying in even after they shut down creation. LOL I just don't even.

If true this is the death knell. They are quarantining it to prevent spread...

Seems like a good time to go down memory lane and revisit XIV.

Blazin I was thinking about something you said with Put options on SPY. So let's use SPYG instead of SPY since the numbers are a lot smaller. I own it and will buy more at the right price. Its now at $38. A 6% drop puts it at 35 and i am comfortable buying more at 35. So instead of waiting, I sell a Put at $35 strike, say May 15 expiry. I get 0.75 for the Put. If it doesn't drop I make 75$. If it does I get exercised and buy at $35 but in reality at $34.25 because of the Put money (a 2% discount). Now the downside is I buy it and it keeps dropping. But if I am OK owning at $35 no matter what then it doesn't really hurt me in the long run.

Do I have this right?

So whats the fundamental problem here? Oil producers not wanting to cut supply as demand has dropped off a cliff?

Big Phoenix said:

So whats the fundamental problem here? Oil producers not wanting to cut supply as demand has dropped off a cliff?

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It's kinda a few things coming to play once. There's a lot of crude companies that don't want to blink, because shutting down production costs a lot of money. In a way they are obligated to some degree not to shut it down, because people gobbled up futures thinking it was an easy and safe investment. Normally when internet investors buy crude, theres a storage facility that it can get dumped into until it gets sold to a real industry, but that storage facility will be full sometime this coming month.

Basically, negative oil prices are "Oh shit! This contract says I have to pay Z money for this oil and deal with it by X date or I'm gonna pay Z+fees, and I don't have a freighter or building to store it in. I gotta get this shit off my hands and I'm willing to pay less than Z dollars for someone to do it."

Big Phoenix said:

So whats the fundamental problem here? Oil producers not wanting to cut supply as demand has dropped off a cliff?

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Long story short. About a month ago OPEC+ met to discuss cutting production. Russia said fuck no. Some thought it was about sticking it to US shale and others thought it had to do with the politics of the Mideast (Russia back Shia countries Iran and Syria). Either way, KSA decided to stick it to Russia and slashed their oil price thinking they could survive the lower price better than Russia could. All of this is really KSA teaching Russia not to fuck with OPEC decisions and become a team player.

I think the credit system being fuckered is still the biggest contagion in the market, with REITs being in the eye of that storm.

People should be scared of S&P or Moodys doing credit downgrades in the coming weeks. The fed decided it's okay to slather up junk bonds with it's cash tsunami, but the big banks aren't going to be as kind when it comes to margin calls on accounts backed with them. There's a lot of bonds at risk of going junk, but illinois in particular is a spitball away from it. They are already one step from junk, and Moody's turned their outlook negative today. It's a shot across the bow that tells illinois that they don't got long to do something impressive.