Dave Ramsey Reacts To Potential Stock Market Crash!
Transcript
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for those of you that are as old as me
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you remember this when we were kids we
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used to have these things called service
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stations they’re different than gas
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stations because someone would actually
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come out to your car and pump your gas
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for you and I distinctly remember on
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Nolensville Road the main drag right
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down from our home that there was a
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service station on three different
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corners of a possible four corner
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intersection three of them competing
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with each other occasionally a sign
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would go up that would say gas war if
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you’re old you remember gas Wars your
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local gas stations would compete with
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each other and one of them would drop
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the price and all that everybody would
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go over there the other one will drop
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the price more and everybody would go
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over there and the other one drop the
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price more and they’d all go over there
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and these is competition in the
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marketplace without government
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intervention drove the prices down until
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the guys got tired of it and then they
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just kind of raised all the prices back
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up but we’d go through a period of time
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that this head-to-head competition
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caused a gas war and it was competition
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and it was turned out to be good for us
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because we didn’t have a lot of money
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and we could put gas in our tank because
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it was cheaper well guess what Russia
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and the Middle East have decided to have
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an oil war not a war where they’re
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shooting each other but where they’re
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driving the price of oil down
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dramatically it’s dropped 33% over the
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weekend now you know those gas stations
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I was talking about when they dropped
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their prices everybody help me with this
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do they make more money or less money
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with lower prices they made less money
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okay everybody knows this right their
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profits went down didn’t it but they got
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customers and they got to stay in
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business by competing so guess what
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happens when the price of oil goes down
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two guys like Chevron and Exxon people
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like that their profits go down because
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the price of their barrel of oil went
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down that they’re sucking out of the
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ground
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you
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you know that means you’re about to get 02:14 some cheap gas in the coming weeks for
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your car right people if oil drops 33%
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do you know I think it’s going to affect
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your dadgum get price at the pump yes it
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will okay because the gas war will are
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the oil war which gas has made out of
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oil will turn into a gas war at the pump
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around here it won’t have a little sign
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up that says gas war it’s probably
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politically incorrect you probably get
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put in jail but end of the day is you
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guys are gonna get some cheap gas
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because this is driven down now it’s is
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it you think it’s gonna stay down no no
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more than the gas war between the gas
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stations continued forever it’s not
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going to stay down and so Exxon is going
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to survive and Chevron is going to
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survive and BP is going to survive and
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Halliburton is going to survive
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everybody that all these oil stocks that
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are driven by profit in the oil business
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but guess what they’re part of the Dow
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Jones Industrial Average and when their
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profits go away to the tune of 33% over
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the weekend guess what their stock price
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does it goes down oh let’s mix that with
03:14 all of you people have completely lost 03:16 your mind 03:17 over the coronavirus and everybody’s
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scared out of their brains and can’t
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even think clearly now oh and now we 03:25 have a wonderful buying opportunity on 03:28 the stock market today the stock market
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is tanked based on this oil war and the
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coronavirus now let me help you with
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this my friend art Laffer who is one of
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the leading economists in the world
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without a doubt has a great saying he
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says people don’t make good decisions
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when they’re drunk and they don’t make
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good decisions when they’re panicked if
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you’re thinking about pulling your money
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on the stock market because you think
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the coronavirus is going to destroy the
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US economy you are a panicked fool
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you’re a fool Southwest airs stock
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prices down 30% do you think Southwest
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air has lost 30% of its value because of
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the coronavirus in reality I mean learn
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to do a little basic math here that
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means that throughout the next five
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years there
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on their planes would have to be down
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30% for them to have permanently lost
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30% of their value that’s asinine you’re
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panicked or you’re drunk I don’t know
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which it is or both
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that’s ridiculous and so the stock
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market going down is as artificial as it
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can be it is based on drunk people panic
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people in an oil war and that’s what
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it’s based on this is the best buying
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opportunity in 10 or 15 years on the
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stock market today because these numbers
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are down artificially these companies
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have not lost all of this money they’ve
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not lost all of this value do you think
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Cruise Lines dropped 40% in value over
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the last 16 days come on I’m dumb are
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you okay listen here’s the deal
05:23 40,000 people will die of car wrecks 05:25 this year in the u.s. 14,000 people have 05:28 died of the flu so far in the US and 05:30 around 40,000 will die of the flu this 05:33 year in the US 22 people have died of 05:35 the corona virus and yet you cannot find
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a bottle of that hand-washing stuff
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anywhere in any store in America today
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you would think the stuff was gold if
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you got a case of it you ought to put it
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on eBay overnight because some panicked
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fool will pay you $8,000 an ounce for
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that stuff in it people have lost their
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minds if you lost their minds and I
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don’t want the corona virus and I don’t
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want you to die the corona virus and I
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don’t want you to die the flu I don’t
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want you to die in a car wreck I don’t
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want anybody die I want everybody to
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live have a good life I’m here for you
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but you’re sacrificing your entire
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freaking retirement because you’re
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panicked because you watch too much news
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you need to turn off the news you need
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turn off let me tell you the level of
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anxiety you have is directly tied to the
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number of hours a day you spend watching
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news if you just turn it off and open up
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your Bible my friend Zig Ziglar
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say I read the newspaper every morning
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and I read the Bible every morning so I
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can tell what both sides are doing and
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you know I tell you what you’re just
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gonna have to think people when you’re
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drunk and when you’re panicked you don’t
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make good decisions usually as soon as I
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get really really scared right after
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that I get really really desperate and I
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get riot right after that really really
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stupid and cashing out your retirement
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account or stopping your investing or
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bailing on your 401k because you’ve
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watched too much news is absolutely
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asinine do not do that as a matter of
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fact if you’ve got some extra money it’s 07:16 a good week to put some money in I don’t
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believe in market timing I don’t have a
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single dollar allocated in my personal
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budget for timing the market so all of
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my purchases of mutual funds are on
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autopilot they just go when they go but
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I’m kind of regretting that right this
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second because man I could turn a 07:32 million dollars into two million so fast 07:34 right now thank you to Russia and thank 07:37 you to the Middle East for driving the 07:38 oil prices down because I’m gonna get a 07:40 cheap tank of gas from my big butt
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Raptor pretty soon out of you people and
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I’m gonna grin all the way to the bank
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when this stock market comes right
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straight back up and the rest of your
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standing on the sidelines going I lost
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half my retirement because you panicked
Epidemic triggers risks from low interest rates, slow loan growth and sliding stock and energy prices
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.
Consumer Crunch
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 BarclaysBCS -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.
Markets
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.
The American shale industry will almost certainly outlive either man’s rule.
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.
Saudi Arabia is said to have the world’s lowest production costs—$3 a barrel—if costs are construed narrowly. But throw in the subsidies habitually required to keep restive princes and social classes in line and the Saudi government needs $90 to sustain the political model it has foisted on itself.
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.
Enthusiasts for free trade and free flow of people, whom Mr. Trump sometimes derides as globalists, cherished the idea of a planet growing richer and freer together. Some of us still do.
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.
Riyadh prepares emergency budget for $12-20 a barrel oil; “It’s all about egos now.”
Saudi Arabia and Russia intensified an escalating oil-market war on Tuesday, with Riyadh set to raise output to record levels and Moscow saying it was ready to pump more crude.
State-run Saudi Arabian Oil Co. said it would boost production to 12.3 million barrels a day in April, some 300,000 barrels a day over the company’s previous maximum sustained capacity.
Russian Energy Minister Alexander Novak, meanwhile, said his country could rapidly open its own taps.
Even as the price war escalated with fresh salvos from both sides, former Saudi energy minister Khalid al-Falih was in talks with Mr. Novak in an attempt to reverse the production hikes and revive the collective OPEC-Russia output curbs, according to Saudi-government advisers and officials.
Mr. Falih, who negotiated the initial production cuts in 2016, is now Saudi Arabia’s minister of investments. His outreach to Mr. Novak is done with the approval of Saudi authorities, the advisers said. If Mr. Falih’s mediation succeeds, the advisers and officials said, OPEC and its allies including Russia will convene an emergency meeting in April.
Mr. Novak said Moscow isn’t ruling out further cooperation with OPEC, adding that the next scheduled meeting is planned for May or June.
“The doors are not closed,” he said.
Amid the escalating fight, President Trump called Saudi Crown Prince Mohammad bin Salman on Monday to discuss global energy markets, the White House said Tuesday morning. The leaders also discussed “other critical regional and bilateral issues,” according to a statement.
Global GlutOil prices have fallen as demand from China has slowed and Saudi Arabia haspledged to pump more.
Saudi Arabia and Russia’s decisions to flood markets are surprising, as China—the world’s largest oil importer—has been hobbled by the deadly coronavirus, which has hurt its demand for oil after refineries and factories were forced to shut.
Saudi Arabia’s struggle for oil-market supremacy might earn it a sliver of market share at the expense of Russia and rival U.S. shale producers, but the cost of a price war might be too much for the kingdom to bear, analysts and oil officials say.
The combination of declining global consumption and rising supply pushed Brent crude, the benchmark for global prices, to its sharpest decline since the first Gulf War in 1991 on Monday. Some of these losses were recouped Tuesday as the Brent oil price gained 8% amid a broader revival in markets.
Saudi Arabia’s aggressive discounts are targeting some of Russia’s core markets in China and Northern Europe. The kingdom is also taking aim at U.S. oil producers, Saudi and OPEC officials said.
The Russian energy minister declined to comment and the Saudi energy minister didn’t respond to a request for comment.
Some oil officials say theystruggle to see the logic behind Saudi Arabia’s decisions. Others see the battle as tied to Prince Mohammed’s recent efforts to tighten his grip on power and raise his international clout, according to people involved in the OPEC talks.
Russia’s failure to find common ground with Saudi Arabia and OPEC on oil cuts was preceded by talks in early February between Riyadh and Moscow that focused on the possibility of forging a broader, long-term alliance. Under one scenario, Saudi Arabia would have sped up its investments inside sanctions-hit Russia and backed the Kremlin’s military efforts in Syria, according to people familiar with the matter.
Ultimately, the crown prince didn’t commit to a deal, say the people familiar with the matter, because he didn’t want to alienate the U.S. Weeks later, roughly at the same time that Russia was refusing to endorse the Saudi-backed plan to cut oil output, Mr. Putin was initiating a rapprochement with Turkey, a Saudi foe, the people said.
“It’s all about egos now, not about the oil market,” said a Saudi-government adviser.
Meanwhile, Prince Mohammed saw the OPEC debate as a way to assert his broad influence over the kingdom’s oil policies and to prove to his older brother, Saudi energy minister Prince Abdulaziz bin Salman, that he could force Russia’s hand, according to people familiar with his thinking.
In a terse phone call to Prince Abdulaziz late Thursday, the crown prince overruled his brother, who had agreed to a three-month production cut with OPEC, and extended the proposed cuts through the end of the year, these people said.
Prince Abdulaziz bin Salman, Saudi Arabia’s energy minister, on Thursday.
PHOTO: CHRISTIAN BRUNA/SHUTTERSTOCK
The crown prince ordered the minister to force OPEC to adopt the decision—even if that meant risking any hope that Russia would join in, they said.
Now the kingdom is pursuing a strategy of undercutting its rivals by drowning markets with cheaper oil—a move that has a tendency to backfire, say longtime market watchers.
On Saturday, the Saudi energy ministry told Aramco officials that instead of cutting production, they should pump more oil and lower the price. Saudi Arabia soon spread the word throughout the market. “It was the Saudi declaration of war against Putin,” said a senior Saudi official.
Within hours, officials at the finance ministry were tasked with preparing a budget scenario that envisions benchmark Brent crude prices dropping into a $12-$20 a barrel range. All Saudi ministries were also asked to cut their spending significantly to prepare for this scenario.
But the strategy has backfired before.
In 2014, then-Saudi oil minister Ali al-Naimi persuaded OPEC to pump at will to compete with U.S. shale producers. His rationale was that the cartel’s members had the ability to produce at extremely low costs. But after the price of Brent crude fell below $28 a barrel in early 2016, the Saudi royal family fired him. His successor, Mr. Falih, negotiated a pact between OPEC and Russia to cut production in the first OPEC+ deal. Within months, oil prices more than doubled.
The move to depress prices also missed its mark in the 1980s and led to a period known in oil circles as the “Lost Decade.”In 1986, OPEC faced competition from rising North Sea production. Saudi Arabia’s delegation was so upset about OPEC members flouting the group’s production agreements that it unleashed a flood of oil that sank prices for a prolonged period.
Eventually, Saudi Arabia backtracked and cut production, but the move wasn’t a complete failure, as it helped score a political victory against the Soviet Union. Riyadh had been backing insurgents battling Russia in Afghanistan—many of whom would later found al Qaeda. As the oil price fell to around $30 a barrel, Russia faced a budget crisis that contributed to food shortages and an end to its war in Afghanistan. Its then-leader Mikhail Gorbachev retreated from Kabul and launched the restructuring of Russia under his perestroika policy.
Russia is better prepared to weather low oil prices than in the past. Oil is now accounts for less than a third of budget revenue. The country has also accumulated massive reserves. The Russian finance ministry said Monday that it could withstand 10 years of prices at $25 to $30 a barrel.
Still, some Russian producers say the oil-market war is excessive.
“I’m in shock. This is a very unexpected, irrational decision to put it mildly,” Leonid Fedun, vice president of Russian private producer Lukoil was reported as telling Russian newspaper the Bell. Russian oil companies would like to increase production, he said, but that won’t make up for losses from falling prices.
The mood is more somber in Saudi Arabia, which needs oil prices over $60 a barrel to balance its budget, according to Saudi officials. The kingdom is now contending with its own coronavirus outbreak, moving Monday to suspend all air travel with many of its neighbors.
Saudi Arabia’s national oil company Aramco fell about 7% to 27.95 riyals ($7.45) a share on the Saudi domestic exchange Monday. The Saudi price decrease has “literally burned all global energy investors,” said a Saudi official. “[Saudi Aramco] Won’t sell a share to foreigners again,” he said, referring to the Crown Prince’s plan to list Aramco internationally.
