Dave Ramsey Reacts To Potential Stock Market Crash!
for those of you that are as old as me
you remember this when we were kids we
used to have these things called service
stations they’re different than gas
stations because someone would actually
come out to your car and pump your gas
for you and I distinctly remember on
Nolensville Road the main drag right
down from our home that there was a
service station on three different
corners of a possible four corner
intersection three of them competing
with each other occasionally a sign
would go up that would say gas war if
you’re old you remember gas Wars your
local gas stations would compete with
each other and one of them would drop
the price and all that everybody would
go over there the other one will drop
the price more and everybody would go
over there and the other one drop the
price more and they’d all go over there
and these is competition in the
marketplace without government
intervention drove the prices down until
the guys got tired of it and then they
just kind of raised all the prices back
up but we’d go through a period of time
that this head-to-head competition
caused a gas war and it was competition
and it was turned out to be good for us
because we didn’t have a lot of money
and we could put gas in our tank because
it was cheaper well guess what Russia
and the Middle East have decided to have
an oil war not a war where they’re
shooting each other but where they’re
driving the price of oil down
dramatically it’s dropped 33% over the
weekend now you know those gas stations
I was talking about when they dropped
their prices everybody help me with this
do they make more money or less money
with lower prices they made less money
okay everybody knows this right their
profits went down didn’t it but they got
customers and they got to stay in
business by competing so guess what
happens when the price of oil goes down
two guys like Chevron and Exxon people
like that their profits go down because
the price of their barrel of oil went
down that they’re sucking out of the
you know that means you’re about to get
some cheap gas in the coming weeks for
your car right people if oil drops 33%
do you know I think it’s going to affect
your dadgum get price at the pump yes it
will okay because the gas war will are
the oil war which gas has made out of
oil will turn into a gas war at the pump
around here it won’t have a little sign
up that says gas war it’s probably
politically incorrect you probably get
put in jail but end of the day is you
guys are gonna get some cheap gas
because this is driven down now it’s is
it you think it’s gonna stay down no no
more than the gas war between the gas
stations continued forever it’s not
going to stay down and so Exxon is going
to survive and Chevron is going to
survive and BP is going to survive and
Halliburton is going to survive
everybody that all these oil stocks that
are driven by profit in the oil business
but guess what they’re part of the Dow
Jones Industrial Average and when their
profits go away to the tune of 33% over
the weekend guess what their stock price
does it goes down oh let’s mix that with
all of you people have completely lost
over the coronavirus and everybody’s
scared out of their brains and can’t
even think clearly now oh and now we
have a wonderful buying opportunity on
the stock market today the stock market
is tanked based on this oil war and the
coronavirus now let me help you with
this my friend art Laffer who is one of
the leading economists in the world
without a doubt has a great saying he
says people don’t make good decisions
when they’re drunk and they don’t make
good decisions when they’re panicked if
you’re thinking about pulling your money
on the stock market because you think
the coronavirus is going to destroy the
US economy you are a panicked fool
you’re a fool Southwest airs stock
prices down 30% do you think Southwest
air has lost 30% of its value because of
the coronavirus in reality I mean learn
to do a little basic math here that
means that throughout the next five
on their planes would have to be down
30% for them to have permanently lost
30% of their value that’s asinine you’re
panicked or you’re drunk I don’t know
which it is or both
that’s ridiculous and so the stock
market going down is as artificial as it
can be it is based on drunk people panic
people in an oil war and that’s what
it’s based on this is the best buying
opportunity in 10 or 15 years on the
stock market today because these numbers
are down artificially these companies
have not lost all of this money they’ve
not lost all of this value do you think
Cruise Lines dropped 40% in value over
the last 16 days come on I’m dumb are
you okay listen here’s the deal
40,000 people will die of car wrecks
this year in the u.s. 14,000 people have
died of the flu so far in the US and
around 40,000 will die of the flu this
year in the US 22 people have died of
the corona virus and yet you cannot find
a bottle of that hand-washing stuff
anywhere in any store in America today
you would think the stuff was gold if
you got a case of it you ought to put it
on eBay overnight because some panicked
fool will pay you $8,000 an ounce for
that stuff in it people have lost their
minds if you lost their minds and I
don’t want the corona virus and I don’t
want you to die the corona virus and I
don’t want you to die the flu I don’t
want you to die in a car wreck I don’t
want anybody die I want everybody to
live have a good life I’m here for you
but you’re sacrificing your entire
freaking retirement because you’re
panicked because you watch too much news
you need to turn off the news you need
turn off let me tell you the level of
anxiety you have is directly tied to the
number of hours a day you spend watching
news if you just turn it off and open up
your Bible my friend Zig Ziglar
say I read the newspaper every morning
and I read the Bible every morning so I
can tell what both sides are doing and
you know I tell you what you’re just
gonna have to think people when you’re
drunk and when you’re panicked you don’t
make good decisions usually as soon as I
get really really scared right after
that I get really really desperate and I
get riot right after that really really
stupid and cashing out your retirement
account or stopping your investing or
bailing on your 401k because you’ve
watched too much news is absolutely
asinine do not do that as a matter of
fact if you’ve got some extra money it’s
a good week to put some money in I don’t
believe in market timing I don’t have a
single dollar allocated in my personal
budget for timing the market so all of
my purchases of mutual funds are on
autopilot they just go when they go but
I’m kind of regretting that right this
second because man I could turn a
million dollars into two million so fast
right now thank you to Russia and thank
you to the Middle East for driving the
oil prices down because I’m gonna get a
cheap tank of gas from my big butt
Raptor pretty soon out of you people and
I’m gonna grin all the way to the bank
when this stock market comes right
straight back up and the rest of your
standing on the sidelines going I lost
half my retirement because you panicked
Add together some of the biggest challenges U.S. banks weathered in the dozen years since the financial crisis, and you get an idea of how bad the coronavirus epidemic could be for them.
A decade ago, banks persevered through a recession and widespread loan defaults. Until 2015, they endured years of ultralow interest rates and slow loan growth that pressured their profitability. In 2015 and 2018, banks survived selloffs in the stock market. In 2016, the industry came through a collapse in energy prices with a few bruises, but no big busts.
Now, banks face all those threats simultaneously. Many of their businesses mirror economic activity, so falling growth and rising unemployment can dent their profits. Sharp drops in asset prices can sap their investment-banking and trading revenues as deal activity and investors pause.
Banks entered the year better capitalized and less reliant on flighty, short-term funding than they were on the eve of the financial crisis. But their earnings likely will suffer.
Fears of the impact of the coronavirus have erased all of the “Trump Bump” gains that the KBW Nasdaq Bank Index and four of the six largest U.S. banks had notched since the 2016 presidential election. The KBW index fell more than 10% Thursday morning as investors bet that new travel restrictions and the possibility of more rate cuts from the Federal Reserve will continue to hammer the financial sector.
Here is a look at how banks could fare in a coronavirus-related slowdown:
Lower Lending Revenue
Around two-thirds of banks’ revenue last year came from interest earned on loans and securities, according to data from the Federal Deposit Insurance Corp. The rates banks charge on some large categories of loans, including commercial and industrial lending and credit-card balances, are tied to benchmarks that have fallen in recent weeks. That threatens to crimp banks’ net interest income.
For instance, a reduction of 1 percentage point in both short- and long-term interest rates translates to $6.54 billion in lost interest income in 2020 for Bank of America Corp., BAC -9.53% or roughly 7% of its annual revenue, according to estimates from Credit Suisse Group AG. Bank of America is an outlier, but the average big U.S. bank will face a 2% hit to revenue from a drop in interest rates of that magnitude, according to Credit Suisse.
Falling Loan Growth
Banks might also struggle to make up on loan volume what they are giving up in terms of loan yields. Throughout 2019, businesses and consumers showed a willingness to borrow, and loan balances at all U.S. banks at the end of the year were up 3.6% from their levels at the end of 2018, according to FDIC data.
More recently, fears of the coronavirus weighed on businesses’ decisions to invest and expand, especially in sectors such as travel and hospitality and in industries that depend on global supply chains. Commercial and industrial loans increased by less than 1.5% each week in February compared with the same period last year, according to data from the Fed. In February 2019, commercial and industrial growth exceeded 10% each week.
Consumers have borrowed from banks at a higher pace than corporations have since the start of the year, but have started to flag in recent weeks. Since late January, banks’ consumer-loan growth has plateaued at just under 6%, according to Fed data.
The prospect of scores of consumers missing work and forfeiting paychecks also bodes poorly for many of the loans banks already have on their books. Delinquencies and defaults on mortgages, auto loans, credit cards and other forms of consumer borrowing tend to rise and fall with the unemployment rate, and any prolonged period of joblessness likely will mean that borrowers fall behind on their loan payments.
Banks have been more conservative in extending credit to consumers since the financial crisis, and the industrywide loan-loss rate is well below its long-term averages and just 0.18 percentage point above its record low in 2006, according to analysts at Barclays BCS -14.82% PLC. But things can worsen quickly: Banks have been reducing the reserves they have set aside to cover potential defaults in recent quarters, even as defaults on certain loan categories have been rising, according to FDIC data.
Even if consumers keep paying back their loans, their spending on luxuries such as dining out and vacations is likely to fall, decreasing revenue that banks earn on those kinds of credit- and debit-card transactions.
Not Out of Energy
Many of banks’ corporate borrowers will also face difficulties making loan payments in a worsening economy, especially those in the energy sector. A steep decline in oil prices this week means oil and natural-gas companies will have less money coming in to meet existing debt payments and a less valuable asset in the form of energy reserves that they will be able to borrow against.
If energy prices stay at this level, loan losses in banks’ energy portfolios would notch a “notable uptick,” analysts at KBW wrote in a note on Monday. The four largest U.S. banks have $65.5 billion in exposure to U.S. oil-and-gas companies, and loans to such companies account for more than 10% of overall portfolios at several regional U.S. banks, according to KBW.
Revenue from Wall Street businesses such as investment banking and trading account for one of banks’ biggest sources of fee income, and both are sensitive to the impact of the coronavirus. Since the start of the year, reluctance from corporate chiefs to pursue deals has driven global mergers-and-acquisitions volume down 28% from this point in 2019, according to data from Dealogic. Citigroup Inc. C -14.83% is expecting investment-banking fees to fall in the first quarter, finance chief Mark Mason said at an investor conference Wednesday.
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Volatile markets and big swings in stocks, bonds and commodities kept banks’ trading desks busy during the first quarter, but fees from that business likely won’t be enough to offset weakness elsewhere. Banks employ fewer traders today than they did during the financial crisis, and with more trading moving to electronic venues, some fees have come down. Mr. Mason said Citigroup’s trading revenue was expected to increase “in the mid-single-digit range” in the first quarter, even though trading volumes rose by much more.
Not for the first time, let’s wonder how much Vladimir Putin and Crown Prince Mohammed bin Salman really know what they’re doing.
Oil has crashed to $35 a barrel thanks to a sudden feud between Russia and Saudi Arabia, which comes amid the Covid-19 shock to the global economy. The upshot could bankrupt a lot of U.S. shale companies, if that’s either man’s thinking. But their equipment would survive, the drilling rights would survive. Employees would retain their skills. All would end up in hands of lenders who have every incentive to preserve value and keep applying technology to lower the price at which operations become profitable again.
The U.S. has deep pools of entrepreneurial capital. It has highly sophisticated private equity that can scoop up bargains and bring assets back into play in a way that, as has been happening for a decade, tends to cap any cyclical rebound in oil prices that the Saudis and Russians may be hoping for.
More important, the U.S. may be the world’s biggest producer but oil is a tiny share of its economy. What America loses in terms of oil-industry wages and profits it gains in lower gas prices for consumers and energy costs for downstream industries. Plus our political system at all levels is geared to assuage unhappiness from dislocated industries. We have a national election coming up in which bums can be thrown out and new bums installed.
The strongmen’s desperation is understandable but nothing else about their feud is: Saudi Arabia and Russia have zilch to offer the world except oil and gas. Their political systems are poorly designed to handle the shocks coming their way. Russia needs an estimated price of $50 a barrel to keep its budget afloat given limited borrowing options under sanctions, and that $50 price hardly sustains the millions of Russians not directly on the government’s payroll.
MBS’s role at least can be explained: His legitimacy is obviously in question judging from this weekend’s arrests of members of the royal family amid accusations of a coup plot. To be seen surrendering the Saudis’ role as price leader to the Kremlin right now would hardly strengthen his claim to the throne he wants to inherit from his father.
Mr. Putin rode an oil boom to power 20 years ago but the degree to which he has mastered the energy politics of even his own country is debatable. He has often seemed at a loss and fearful of taking sides in oligarchic disputes, even when they threatened his carefully prepared come-hither to Western oil companies such as Shell and BP. His crushing of Yukos and its impresario in 2003 took care of a personal threat from a democracy promoter but also began the slow strangulation of ties with the West, which has been costly to him and his cronies. It took only a flick of Donald Trump’s finger recently to scuttle Mr. Putin’s precious Nord Stream 2 pipeline as it neared completion.
No part of Mr. Putin’s plan was provoking an oil price collapse on the eve of Tuesday’s carefully scripted parliamentary kabuki. Valentina Tereshkova, an 83-year-old lawmaker and throwback to the glory days of the Soviet Union as the country’s first female cosmonaut, proposed a constitutional change to let Mr. Putin serve in de facto perpetuity.
“The president is the guarantor of the constitution,” said Mr. Putin in a speech accepting the idea, his sentence structure apparently confusing subject and object.
These changes must pass a Russian court in a system where judges are beholden to Mr. Putin, and a plebiscite that may test even Mr. Putin’s highly accomplished election rigging. His popularity has been eroding in polls of voters who don’t kid themselves that their phone calls aren’t monitored. A heavy ding to oil revenues that account for 30% of gross domestic product will not improve his standing. Remind yourself what it was about the 2014 Ukrainian revolution that so threatened Mr. Putin: a post-Soviet public standing up against a corrupt and impoverishing dictatorship.
But, ironically, it’s the authoritarian states that are most hurt by the retreat. China is dependent on the world to absorb its superfluity of manufactured goods. Russia and Saudi Arabia are economic pygmies that need a fast-growing global economy to buy their oil. A retrenching world would be less prosperous and harmonious but in such a world you would also rather be the United States than anybody else.