Friday at last… I think. I find it hard to tell these days. All this staying at home has made the days a blur, I wouldn’t have been able to say it was Friday without checking. I often work on the weekends which doesn’t help me differentiate the days so much.
What a wild week it’s been – so much has happened, and so fast. And yet now at the end of it, the stockmarket, the financial system’s vanity asset, is ending the week frustrated. At the time of writing, the US, central European, and emerging markets are on track to end the week flat. The FTSE is looking up a little however, currently up 3% from the open on Monday. I think we’re just pausing before we retest the lows and go lower, but this is mere speculation on my part.
The action this week was of course all in the realm of black gold. As I mentioned in a previous letter, the launch of our couldn’t have come at a better time, now that the price of oil – in the US at least – has crossed the Rubicon into negative territory. This marks a point of departure from which the beginning of the 2020s will be remembered – what comes next? My colleague Kit Winder has been grilling some of the biggest names in the energy market to find out – .
The day before West Texas Intermediate went negative, market commentators were joking that the price of oil would encounter serious resistance at zero. “Resistance” used in market parlance means that a certain asset will find it hard to move past a certain price due to lots of buying or selling pressure; for example, one might say that gold will encounter resistance at $1,900, for that was its last all-time high in dollars and plenty of market participants will sell at that point, hesitant that it won’t be able to exceed its high-water mark.
Saying oil would encounter strong resistance at zero was a jest, as it was assumed that nobody would ever sell oil for nothing. But of course, now it appears that folks will sell oil for less than nothing in the right conditions.
Such a perverse situation is causing all manner of havoc. We haven’t seen the flames yet, but it’s very likely at least one and possibly more hedge funds were destroyed by this move into a reality previously thought impossible.
It now appears that Donald Trump has taken it upon himself to goose the oil price back to normality from the helm of a missile cruiser to keep the dream of American Energy Dominance alive, taking to Twitter to announce that he’s told the US Navy to sink Iranian vessels should it be required. A rise in the oil price can come as a byproduct of geopolitical tension, but it now appears The Donald has taken the entrepreneurial step of raising geopolitical tensions simply to pump the oil price.
Such innovation – and at the highest levels of public office! It would certainly make me proud to be an American, were I one. This was no doubt what Ben Bernanke was referring to when he spoke of “The Courage to Act.” Inspired, I shall listen to “The Star-Spangled Banner” with reverence and a cigar once I’ve finished writing this.
If I may be so bold, should any of the President’s Men be reading this note, I would suggest the president enlist the services of Stephen Perkins in his valiant efforts, a hero in his own right with a proven track record in increasing the price of oil. From the Wikipedia entry detailing his valour:
The oil futures drunk-trading incident was an incident in which Stephen Perkins, an employee of London-based PVM Oil Futures, traded 7 million barrels (1.1 million cubic metres) of oil, worth approximately US$520 million (£340 million) in a two-and-half-hour period in the early morning of 30 June 2009 while drunk. These unauthorised trades caused the price of Brent Crude oil to rise by over $1.50 a barrel (equivalent to $1.79 in 2019) within a short period of time, a trend generally associated with major geopolitical events, before dropping rapidly. As a result of the trading, PVM Oil Futures suffered losses of almost $10 million and Perkins was dismissed, later being banned from trading by the Financial Services Authority (FSA)…. When delivering the report, a regulator for the FSA said that “Mr. Perkins poses an extreme risk to the market when drunk”.
Unicorns and assassins
The chaos of course is not limited just to oil – one of the frothiest areas of the market pre-WuFlu, the unicorn sector, has gone flat and stale.
Unicorns, the tech startups which grow rapidly to attain a billion-dollar valuation – a situation once so rare that it gained the label of the mythical creature – have come under immense pressure due to their high levels of debt and the need to constantly grow their operations, both extremely hard to maintain when the economy has been locked down. Their meteoric rise is currently staring at a fall of the same velocity.
One such unicorn called Bird, a company which made electric scooters for urban commuters, has exemplified the fast and loose rules of Silicon Valley applied to the hard times. Over 400 of its employees were laid off at once, informed through a one-way conference call hosted on Zoom which lasted two minutes.
To make matters even worse, plenty of the employees fired couldn’t even make it on to the conference call as the company hadn’t paid for the full version of the software, and the free version limited the numbers who could join. Those who couldn’t, had to learn second-hand.
Somebody in charge thought it would be a bright idea to instantly delete the company email accounts of all those laid off as soon as the call ended. To turn the situation into an abject farce, the fella in IT who wrote the code to allow this to happen didn’t realise that he was amongst those being fired, which short-circuited the whole process until the remaining IT staff could figure it out. Management foolishly killed their assassin first before his work was done.
What strikes me most about this story is that CEO of Bird, one Travis VanderZanden, didn’t even have the bottle to read the script out himself. He got a lady from the “communications” department to do it for him, who you can hear choking back tears as she reads it out.
We can all see and accept that these are hard times, when hard decisions must be made. Hard decisions. Like whether or not to retire staff to ensure the survival of an enterprise. It’s at times like this that call for strong leadership – strength of character, responsibility, duty to employees and the firm. These are times that can truly prove the measure of a man or woman in charge.
The vast quantities of investment cash thrown at venture capital in the last decade to find sufficient returns in a low-interest-rate world have led to the likes of Bird, where this test of leadership is clearly being failed. There will be many more Bird’s out there, and I expect that as the wave of credit that has supported them in the boom times dries up in the WuFlu environment, we’ll see much more poor leadership revealed.
I am incredibly fortunate to have the job that I have, where I can send you these letters every day from anywhere with internet. I hope this finds you in good health – both physical and financial – and that you are not subject to the careless whims of some spineless VanderZanden.
Wishing you a good weekend,
Boaz Shoshan
Editor, Capital & Conflict
For charts and other financial/geopolitical content, follow me on Twitter: @FederalExcess.
Category: Market updates