Our research team’s mantra has been “expect the unexpected” since the market sell off began in earnest in early March. That is because this downcycle has begun with an unprecedented collapse in a wide range of business activities at a time when the world has never been awash in more debt, at least during peace time. In our view even, prior to the onset of the Coronavirus pandemic the economic and financial environment was regularly delivering the unexpected. Negative interest rates, US Federal Reserve support required for the repo market amidst a supposedly booming economy, multi-billion-dollar valuations for companies that appear to have little prospect of making money for many years into the future, just to name a few.
Now, perhaps the biggest shocker of all, so far, was this week’s move to negative crude oil prices in the U.S. The April benchmark CME West Texas Intermediate Crude Oil contract (WTI) expired at a price of -37.63 dollars per barrel. No, the minus sign is not a misprint. The seller of the oil had to pay $37.63 to the buyer in order to satisfy the contract. I’m not sure which is stranger, that or negative interest rates but I do know both appear to be indicative of a bizarre financial environment.