A Reminder That 'We the People' Actually Matter

Oil is cheaper than toilet paper... Contango in the oil market... The least-talked about, but most telling part of the crisis... A reminder that 'We the People' actually matter... Two must-see charts... It looks like the Great Depression...

A barrel of West Texas crude oil is cheaper than a package of toilet paper from Costco...

Should we just end today's Digest right there? Sometimes less is more... so long as the point is made.

And the point is, with oil demand smashed to pieces right now, a barrel of West Texas Intermediate ("WTI") crude, the U.S. benchmark, is dirt-cheap... because there's way, way more oil inventory in tankers and reserves around the country (and world) than demand for refined product sloshing around people's gas tanks and furnaces in Anytown, USA.

The largest storage hub for U.S. oil is in Cushing, Oklahoma, a tiny town of less than 10,000 people, where several major suppliers operate pipelines and facilities. The working capacity in Cushing totals 76 million barrels, and it was 70% full earlier this month.

Soon, there will be "no vacancy." As news service Reuters reported today...

"The terminals have already contracted their storage 100%," said Ernie Barsamian, chief executive officer of The Tank Tiger, a terminal storage clearinghouse in Princeton, New Jersey.

That realization among traders and funds managers sparked a panic on Monday that caused the expiring May oil contract to crash to minus-$37.63 a barrel, the first time U.S. crude ended in negative territory in history.

Before Monday, nobody on the planet had seen a crash like that. The oil market broke down because most people who wanted oil a month or two ago don't want it today.

It got to the point where speculative traders and asset managers trading oil futures contracts were worried about actually having to take on physical barrels of oil when WTI's May contract (one contract equals 1,000 barrels) expired yesterday.

That's because Cushing is usually the designated delivery point for traders holding WTI futures contracts. What's the alternative?

Could you imagine several thousand barrels of oil showing up at a Morgan Stanley office or any other trader's desk?

As Stansberry NewsWire editor C. Scott Garliss put it in his morning commentary today...

No one wants to be stuck taking physical delivery of oil without a place to store it.

In a multibillion-dollar game of "hot potato"... professional traders and speculators who held the May futures contracts – what's known as the "front month" contracts – wanted to dump that obligation ahead of expiration. They were willing to sell it at any price... But they couldn't find anyone to accept that burden.

Scott went on to detail all the nuances of this "contango" – when front-month contracts like the May WTI, for example, are cheaper than contracts that expire at a later date.

And he also described why record inflows into oil exchange-traded funds ("ETFs") like the United States Oil Fund (USO) are putting even more pressure on oil prices.

We'd argue if this was a 'panic,' though...

This is simply one part of the economy that hadn't been "saved" by the Federal Reserve and U.S. Treasury Department yet...

There was a situation... and the market reacted.

WTI crude is back up 20% today to around $14 per barrel, and longer-dated futures contracts for July and August are around $20 and $24, respectively. Brent crude, the international benchmark, is trading around $20.

We don't want anybody to lose their jobs in any industry. But with oil prices this low (between $40 and $50 per barrel is pushing it as a profitable model for a lot of companies), you can bet that hundreds of thousands of people will do just that in this volatile sector. Industry-wide bankruptcies are likely to pile up...

But it's almost perversely refreshing to see at least one sector actually react appropriately to a Great Depression-style recession... rather than being bailed out by the Fed.

If there was ever a time for oil to drop to less than $0 per barrel, now would be it. Of course, there's no demand for it today, but that won't be the case forever. As Scott put it this morning...

Right now, financial excess is being taken out of the system. Over-aggressive speculators are being wiped out. Hedge funds that levered up on oil are experiencing maximum pain. Don't be surprised when we hear in a couple of months that some of them have been shut down.

This must happen to make the path stronger going forward. It's another step in the bottoming process for the economy and the markets.

So, what's next for oil?

Well, until most of us start leaving our houses again, demand will remain at rock-bottom levels.

And we've already explained that major U.S. airlines have dramatically cut capacity – by 90% for the next two months in United Airlines' (UAL) case. In other words, the oil industry won't get any help from jet-fuel demand... And it's a similar story with the cruise lines.

Plus, the global oil supply remains absurdly high for what's needed today. As we've written many times since the start of the year, this was the case even before the coronavirus crisis hit.

And at the same time, don't forget the "price war" that is operating in the background of this discussion... between oil cartel OPEC kingpin Saudi Arabia and the thorn in its side, Russia, which is part of about two dozen OPEC+ nations.

Their testy negotiations in March over supply cuts initially sent oil prices tanking to less than $30 just as the coronavirus panic set in across the world. And though the oil powers reached a détente, the agreed-upon cuts haven't been enough to stabilize the market.

For these reasons and more, Commodity Supercycles editor Bill Shaw told us in a private e-mail today that "things will get worse before they get better" with oil. As Bill wrote...

Today's rebound is simply investors "buying the dip." With prices at historic lows, it seems like a reasonable bet. But I'm not as optimistic.

The OPEC+ production cuts of 9.7 million barrels per day (bpd) scheduled to start May 1 will not help the demand problem which has collapsed by 30 million bpd – 3 times the supply cuts. It's unclear when demand might return and storage tanks are filling up fast.

So, note to speculators... get a few empty oil drums or get out by this time next month.

For more, we suggest checking out what Bill wrote about the ongoing "price war" between the Saudis and Russians and the oil industry in general in the most recent issue of American Consequences magazine. You can read that article for free right here.

The least talked-about, but most telling part of this crisis...

The Digest is a space to share what our editors and analysts are talking about on a daily basis... and give you our best guidance forward for your investments.

But after writing about this entire episode since January – when we first described this unknown disease from China as the "Wuhan virus"... then, as we learned more, the novel coronavirus... which then turned into the cause of a pandemic... sank stocks and everything else... and entered "social distancing" into our vocabulary – I (Corey McLaughlin) can't stop thinking about what might be the least talked-about, but most telling part of this whole crisis.

Who are the people actually getting infected and dying from COVID-19?

Because, though there were plenty of underlying problems with our economy that have now been exposed for all to see, the fear of the virus itself is the most direct cause of the recession we're in today.

And while statistics provide data, they don't tell the whole story. Several weeks ago, I'd heard of a few cases of COVID-19 deaths firsthand here and there, mostly involving people with underlying conditions, from acquaintances I know who work in hospitals...

Then, something different happened last week...

One of my good friends is a nurse in New York – in a county that's in the top 5 nationally in COVID-19 deaths. It's the county I grew up in. She said she was watching about one person die each day in her department in the hospital alone... You could hear the pain in her voice.

It was a sobering reality.

My friend said most of the people who were being admitted to the hospital were from the Hispanic part of the town I grew up in and similar areas of surrounding towns. This started to confirm what I was already thinking...

First, a qualifier: Telling this story isn't intended to start a third-rail discussion about race in America... There are poor and rich people with every skin color and background...

But we'd be ignoring reality if we didn't acknowledge that where I grew up in New York, there are generally more poor Hispanics than white people... So that led me to seek out recent data from the area along income lines, and sure enough...

In New York City, there has been a significant correlation between the chances of dying from COVID-19 and income level. As the online news site The Intercept reported recently about the demographics of people in New York City who've been infected with the virus...

The five ZIP codes with the highest rates of positive tests for the coronavirus – in Corona, Cambria Heights, East Elmhurst, Queens Village, and Jackson Heights – have an average per capita income of $26,708...

While residents in the five with the lowest rates – in Lower Manhattan, Tribeca, Battery Park City, and the east side of Midtown – had an average income of $118,166...

Similar socioeconomic data exists in states like Louisiana (home of New Orleans), Illinois (Chicago), and Michigan (Detroit).

My point is... when enough folks in these communities either didn't heed the early warnings about COVID-19... or maybe felt like they had no choice but to keep working... that's when the outbreaks occur.

The same thing can be said at the Smithfield Foods pork processing plant in South Dakota, which we talked about last week.

Here in Maryland and in Baltimore – a city largely known nationally for its poverty, thanks to the accurate depiction in the HBO hit series The Wire – the ZIP code with the most cases of COVID-19 in the state is 21215, one of the city's lowest-income areas.

What the solution should be can be debated. As our founder Porter Stansberry said on Friday, a full-blown shutdown might not be the best answer to slowing the spread.

After all, the same people who are willing and capable enough to take "social distancing" measures are the same ones who are already staying at home in most cases. It's sort of like a teacher berating or complaining about low attendance to the kids who are actually present for class.

But a full-blown reopening might not be the best thing, either... since this virus has proven to be very contagious and threatens to overwhelm our already problematic medical systems.

Those folks who don't take proper precautions – and there would be a lot – screw things up for everyone else. It's sort of like the bad kid in class who gets everyone detention.

The point in all of this is, if it wasn't clear already, that this crisis is primarily a 'Main Street' one...

There's a reason 22 million more Americans are unemployed today than a month ago... and that many more folks are looking for jobs now than during the financial crisis.

The pandemic has touched literally every part of our economy. But at the same time, this should also serve as a fresh reminder that the everyday behaviors of "We the People" actually matter...

Be it binging on Netflix (NFLX), riding Peloton (PTON) bikes in our homes, or eating out at fast-food restaurants like McDonald's (MCD)... and not flying on airlines like Southwest Airlines (LUV) or United or doing anything else that requires burning oil. As we wrote in last Tuesday's Digest...

We can't imagine many people have bought more than a gallon of gas during this whole episode. And the numbers say so... Gasoline consumption in the U.S. has dropped nearly in half since March 13 – from 9.6 million barrels per day (bpd) to 5 million bpd by April 3, according to U.S. Energy Information Administration data.

When you add up all the incremental decisions we make every day, they turn into big results...

The same can be said about investing... Every decision matters. Our Stansberry Research editors say it frequently...

It's what Extreme Value editor Dan Ferris essentially preached in yesterday's Digest... Think for yourself. Nobody else is going to do it for you.

I'd argue this process starts with the mere fact of becoming financially literate and learning "The Things They Don't Teach You in School." (Coincidentally, the police officer I mentioned in that Digest – who wanted to start teaching finance to residents – actually patrols the 21215 zip code in Baltimore.)

With the basics down, then you can find guides and people you trust to do more research for you... like our editors do for our subscribers every day.

The idea behind this is, when financial crisis hits, it's easier to not panic... and you've hopefully prepared your portfolio the best you can to not lose money with proper asset allocation – maybe including a few hedges, like gold.

Of course, in the meantime, maybe the Fed and U.S. Treasury will team up and send you a $1,200 check... eventually. But isn't life better when you don't have to rely on that?

Speaking of being well-informed, if you think U.S. stocks are out of the woods already, beware...

We'll end today's Digest with a pair of charts from Ten Stock Trader editor Greg Diamond, a Chartered Market Technician.

Close readers of Greg's work will note that he has recently highlighted the trading idea of "the 90-year cycle"...

Along these lines, he shared these two must-see charts on Friday, showing similarities between today's market action and that of the Great Depression, 90 years ago...

April 17, 1930 – the Dow Jones Industrial Average topped after retracing 50% of the decline from the 1929 crash...

April 17, 2020, exactly 90 years later, the Dow Jones Industrial Average has now retraced 50% of the decline from the February high...

Sometimes a chart (or two) is worth a thousand words...

Greg told us today that he acknowledges the Fed, of course, can step in with more stimulus should things break down in Great Depression-style... but again we ask, to what end?

Sometimes, as we said at the beginning of today's Digest, less is more.

New 52-week highs (as of 4/21/20): Franco-Nevada (FNV) and Wheaton Precious Metals (WPM).

In today's mailbag, feedback on Dan Ferris' Digest from yesterday... and the comments continue to flow in about Porter's return last Friday. What's on your mind? As always, send your thoughts, comments, and observations to feedback@stansberryresearch.com.

"I'm a longtime subscriber to Dan's Extreme Value, so I've happily read and studied his writing for over a decade.

"His writing, as well as his investing, just keeps hitting new highs!

"His writing today on via negativa is another classic and is close to a saying I have long held, 'I get excited where I find I am wrong, not where I prove that I am right.'" – Paid-up subscriber John P.

"As much as I liked Porter's Digest on Covid-19, it was my favorite Digest until today. Dan nailed it.

"This was so chocked full of wisdom, that it is printed out along with some passages of my favorite passages of wisdom from Solomon, Marcus Aurelius and others... and saved on my hard drive.

"Cutting out that which we know to be untrue would save us as individuals and as a nation. Thank you so much." – Paid-up subscriber Josh B.

"You do so much more then investing. This one hit home for my personal life outside of finances.

"I need to start focusing more on 'what not to do' rather than 'what to do.'" – Paid-up subscriber Anthony H.

"Thank you for stepping up your game with the thought-provoking essays.

"Between Porter's Covid-19 essay on Friday and Dan's essay on the negative way, I feel very enriched by your viewpoints.

"Kudos to both of you for the lessons worth learning." – Paid-up subscriber Douglas P.

"Bravo Porter. I must admit that there are times when I open your emails with some trepidation because it may be the latest 'best investment opportunity of all time.' I will also admit that many of your recommendations have made me money.

"That said, this observation from you makes my lifetime subscription to this letter worth every penny spent so far. You are right on target, and our government needs to heed your advice. Thank you." – Stansberry Alliance member Robert C.

"Hindsight gets better day-by-day. Initially the virus' infectious rate was not known, nor is really known today but is becoming more apparent. So quarantining and sheltering seemed valid, especially since we did know that this virus was a killer (perhaps a designed killer).

"Admittedly some leaders have gone way overboard with their draconian rules. I think the Sweden model would have resulted in many more fatalities if applied in the USA.

"At least, our current approach is buying us time to improve the care protocols and perhaps to find a reasonable therapeutic drug." – Paid-up subscriber Frank A.

"Thank you! This is one of the best, most comprehensive assessments of the COVID-19 pandemic – and the insane, draconian responses that are financially destroying millions of businesses and lives AND shredding civil liberties.

"Lives versus money is a false narrative; the measures taken should be viewed through the prism of 3 Ls: lives, liberties, and livelihoods.

"'I believe every American should willingly risk death before surrendering an iota of his liberty.' Unfortunately, to an extent that endangers liberty, we have become a nation of sheeple and cowards. Nonetheless, I believe that there are millions of Americans for which you have brilliantly spoken, myself included." – Paid-up subscriber Steve S.

"I have tremendous respect for Porter's understanding of the financial markets and what the potential impacts of the Federal Reserve's actions during the COVID-19 crisis may be. Unfortunately, his assertions about the virus and the COVID-19 disease are just plain wrong.

"Looking at raw statistics is not sufficient to understand what the impact of this disease is and is going to be. Analogies to past influenza pandemics may be instructive, but there is no similarity with the current influenza experience with what we are seeing with COVID-19.

"I am the Chief Medical Officer at a hospital on Long Island and part of a multihospital system. Managing the patients coming to our hospitals with COVID-19 has become an all-consuming endeavor. Virtually all other healthcare activities have stopped as resources have been redeployed to care for coronavirus patients.

"This disease is deadly. If you believe, as Porter stated, that 'if you are under 60 and relatively healthy, it's no big deal,' you couldn't be more wrong. We are watching otherwise healthy 25, 35, 45, and 55-year-olds spend weeks on ventilators showing virtually no improvement and dying suddenly.

"We have yet to find a treatment that has a meaningful and reproducible impact on the course of the disease. We are watching our fellow healthcare workers getting profoundly ill doing everything to protect themselves and their families while they are caring for these patients.

"We are starting to see a decline in the numbers of patients being hospitalized, but not in the number of critically ill patients. This is most certainly due to the impact of social distancing.

"You may think it's overreach by the government to have imposed stay at home orders and forcing the closure of businesses and schools, but it was a necessary step to slow the spread of the disease.

"Flattening the curve is essential to have prevented completely overwhelming the healthcare system to the point where people could not get even routine care. More lives would be lost.

"It's premature to suggest that we are seeing the emergence of a herd immunity based upon a critical mass of asymptomatic or minimally symptomatic people. We don't have the data to make those assumptions. We need to test everyone who thinks they may be sick and to see who was sick before we really know where we stand.

"The government should not be faulted for stay at home orders and enforcing social distancing because they are the only tools we have at the moment that are actually working.

"You can fault the government and everyone else who looked at what was going on in China and Italy and thinking that American Exceptionalism would make them immune to the coronavirus.

"You can fault the government for not being prepared, for not acting earlier and more decisively, for not making enough personal protective equipment available, and for lying to the public about our capabilities.

"If there is a 'Big Lie,' it's that we have plenty of PPE and plenty of testing. We don't. We are using PPE on an 'extended use protocol' which means it is used for a whole day not for each individual patient. It's not ideal. If we used it the way it was intended we would exhaust our supplies in days. We still have no confidence that the supply chain can provide it in sufficient quantities.

"The same is true for testing equipment. We continue to be short of the re-agents that let us test for the virus even though we have machines that can do the testing. We are even running short on the swabs to obtain the specimens. We have also heard that the military may be commandeering testing supplies making them less available in the public sector.

"Yes, there are 'big lies.' The biggest lie is that this is not a big deal. Respectfully," – Paid-up subscriber Howard S.

All the best,

Corey McLaughlin
Not using any gas in Baltimore, Maryland
April 22, 2020