Jeff Gundlach: "If Oil Drops To $40 The Geopolitical Consequences Could Be Terrifying"

Tyler Durden's picture

In a recent interview with FuW, DoubleLine's Jeff Gundlach explained his concerns about the oil market not being "unequivocally good" for everyone...

Question: The crash in the oil market is already causing jitters in the financial markets around the globe. What is your take on that?

 

Gundlach: Oil is incredibly important right now. If oil falls to around $40 a barrel then I think the yield on ten year treasury note is going to 1%. I hope it does not go to $40 because then something is very, very wrong with the world, not just the economy. The geopolitical consequences could be – to put it bluntly – terrifying.

What would that mean for stocks?

Gundlach is right historically...

Large and rapid rises and falls in the price of crude oil have correlated oddly strongly with major geopolitical and economic crisis across the globe. Whether driven by problems for oil exporters or oil importers, the 'difference this time' is that, thanks to central bank largesse, money flows faster than ever and everything is more tightly coupled with that flow.

 

 

So is the 45% YoY drop in oil prices about to 'cause' contagion risk concerns for the world?

*  * *

Of course Gundlach is not alone in this rational concern...

"In its November 14, 2014 Daily Observations ("The Implications of $75 Oil for the US Economy"), the highly respected hedge fund Bridgewater Associates, LP confirmed that lower oil prices will have a negative impact on the economy.

 

After an initial transitory positive impact on GDP, Bridgewater explains that lower oil investment and production will lead to a drag on real growth of 0.5% of GDP.

 

The firm noted that over the past few years, oil production and investment have been adding about 0.5% to nominal GDP growth but that if oil

levels out at $75 per barrel, this would shift to something like -0.7% over the next year, creating a material hit to income growth of 1-1.5%."

 

-- Mike Lewitt, The Credit Strategist

Source: Bloomberg

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alexmark2013's picture
"We're in a major economic collapse on a global scale. Most people do not understand that this is the real threat we face." --M. Armstrong   http://investmentwatchblog.com/were-in-a-major-economic-collapse-on-a-global-scale-most-people-do-not-understand-that-this-is-the-real-threat-we-face-m-armstrong/
clooney_art's picture

Terrifying to all dictatorships and fantastic for all other countries.

cossack55's picture

I don't think Kim and Fidel are all that worried.  Obozo and the Frau on the other hand....

Buckaroo Banzai's picture

Seems to me the Castros just won big.

Rubbish's picture

Bought plenty of soap over the weekend.

 

Gold Bitchez....Take that to the BOAT.

0b1knob's picture

Isn't this whole "broke ($40) oil price" argument just a slight variation of the broke window fallacy?   I mean the investment that formerly went to oil will now just migrate to some other area.

The Juggernaut's picture

Are the Saudi's going to have USA invade all the oil rich countries and protect their oil... I mean freedom and democracy?

 

This price war reminds me of Walmart.

Patriot Eke's picture

No, they'll just stop selling it in US Dollars.

The Juggernaut's picture

@Patriot Eke:  I don't know how that makes sense (cents).

MalteseFalcon's picture

The world could not continue the way it was going.

The world needed a shake-up.

Gutting the oil patch is the optimal strategy and may work.

If I were in the oil patch, I wouldn't worry about getting gutted so much as there being only positive consequences after it happens.

Oil below $40.  Soon.

KnuckleDragger-X's picture

This isn't going to be a shake up. Reality is about to drag the world outside and beat the stupid out of it.....

cifo's picture

Terrifying consequences like gold going to $10k/oz?

 

Son of Loki's picture

I hope Putin is learning a good lesson from this, not to mess with Barry ... or we'll force oil down to $20 and really teach him!

When he sees how many merikan companies go bankrupt and peeples get laid off, he'll reel from the pain we're causing him.

 

 

The9thDoctor's picture

Oil was less than $40 a barrel throughout the 1990s, and went over $40 a barrel in 2004.

This oil price drop is a correction.

OceanX's picture

"This oil price drop is a correction."

No, it is not correction, it is something else...  The cost of extraction/production has gone up a lot since 94 (in real terms EROEI) and quality?

g speed's picture

oops--factor in the new price of oil and refigure your cost of extraction /production---duh??

cnmcdee's picture

Oil will drop to $35 BANK ON IT. It won't go much lower than that but it *will* goto $35.

Remember it costs much less to send a 100,000 GI Joes with all their toys and tanks over to bomb Iran if Oil is at $35 versus $135..

Problem is it is also cheaper for Putin to send over his Ruskies too.

This will not end well.

Farqued Up's picture

Omar deflation being baked in. The Ponzi is hurting. So are the over drafted producers trying to pay back loans with stronger $$.

Jeff the Terrible's picture

I have a feeling the country with the reserve currency and a printing press will prevail in this predicament. 

 

https://www.youtube.com/watch?v=VI6tBwVjyOY

angel_of_joy's picture

Every country (except for a few suckers in Europe) has a printing press. As for " reserve currency", it's all in the eye of the beholder...

willwork4food's picture

So again remind me. In 2008 when gas cost $4+ we had a horrible correction that lasted for years. But now that gas is $2  we are near apocalypse?

Keyser's picture

What does he mean "if oil drops to $40"... That's a foregone conclusion... Meh, make some fiat on the way down...

Ghordius's picture

"sucker" here agrees. printing does not solve problems, it just procrastinates them

TheRideNeverEnds's picture

Don't know about 35 but it will definately go down to at least 40 in the next two months, I know this because I am short a mess of /CLH5 puts on the 45 line.

winchester's picture

already 48$ the 06/01/15.. you wont have to wait february to  see  it loose 8 box....

 

i expect 39$ end of month.

tjeffersonsghost's picture

Yup, and a correction that was long over due.  The world didn't end in the 90s when gas/oil was reasonably priced. Anyone with common sense knows that lower prices is a good thing, not sure when zero hedge became Keynesian hedge with everyone clamoring for higher oil prices. That is unless the people commenting have some sort of interest in higher oil prices. Fuck that, I'm gonna enjoy my savings at the gas pump while I can. If you're a one trick country whose only source of income is oil, then I would start diversifying. You know who you are out there...

SeattleBruce's picture

I think many of us are just surprised by the speed and pace of decline - which brings it's own adjustment problems.  But yes, it's reality hitting hard ultimately, in many of these areas we've been following.  It's going to be shocking to see other areas succumb to it.

smlbizman's picture

i think the most surpsing thing is the prica at the pump falling so fast......costco has been 25- 40 cents a gallon cheaper in maryland than regular stations. in maryland dealers are not allowed to sell fuel under cost. the great schaffer did that to protect ma and pop stations which didnt exist...long story..but my point is, i use costco as a accurate street price and it is falling daily....prices used to fall like a feather and rise like a rocket..not this time...

Antifaschistische's picture

if you believe that money get spent/or saved (and I do) and that money not spent on oil (and associated extractions) will be spent somewhere else (and I do) I just don't see how it leads to a collapse in the economy.   

I do see how it can be a byproduct of collapsed economic activity.

Sure....if we don't invest in more fracking, why doesn't that just free up investment opportunities elsewhere.   Or is the fake FED induced economy so artificial to begin with, rationale no longer applies anyway?

odatruf's picture

I think you answered your own question.

buyingsterling's picture

I think the ZH take is basically twofold:

1 - from the Keynesian's perspective, this won't help since it will mostly extinguish debt and lead to less borrowing from oil interests, and

2 - it happened very quickly and will have effects throughout the already fragile system.

disabledvet's picture

Working against treasuries is the dollar which is debt.  Why hold ANY debt when simple FRN's will do?

 

Also since when is free energy an encumbrance to a recovery?  Only if you're larded up on debt and overhead and even that can be fixed since there is no liquidity crisis.

So go long the chemical business as they have had free energy for some time now.  That says to me if I want to launch a rocket it could be really inexpensive to do that here.  I've got an entire war effort as a backstop....what's the problem?

 

A thousand bucks for an ounce of gold...why not grab ten tons from outer space?

 

Has the US stopped minting silver dollars?  Nope.

 

Have refining costs collapsed? Yep....

Auric Goldfinger's picture

I wish I could up-arrow this 1209...1210...1211x.

 

 

MASTER OF UNIVERSE's picture

By definition, the next crash will be horrific beyond the scope of our understanding of the concept of what 'horror' really is. To be frank,

genocide seems to be the end result rather than a mere beating which might leave society still intact. If the nxt crash is ten times what 08 was the consequences will be dire on the level of civilization itself. The next crash will not be absorbed like previous crashes IMO. This time things are a bit different and much more frightening to think about as CANADAs dollar drops 15% in just over one year. I have lost much

over the last four quarters and the fear level is too much for moi of late.

cnmcdee's picture

Remember this - the prophecies of old refereneced that after this <yet> event there will be much talk about the market coming back.  It will start to come up - and people will start to invest thinking it was a really good buy! Don't be fooled! It will then crash down to nothing and be gone - forever.

 

willwork4food's picture

yea, yea 1934 bubble. You really must be a scream at a party right?

 

winchester's picture

the 08 crash HAS NOT BEEN ABSORBED....

 

only financial fancy gfx to display dreamy days, the reality is unemployment explode all around the world, ppl got less and less to live, the populations are self tightening more and more every day.

average of 20.000 per month ppl losing job in france,when frog president say stop bashing, we are winner country, ie : stop panic, trust us.

 

remember  2012 ? " when they say to not panic, generally, it is time to panic "

 

this decade is prolly the last before physical change on the globe surface occurs.

froze25's picture

Good video,rehashes most of what I already know but explains it better than I can.  Thank you.

Escrava Isaura's picture

 

 

The best explanation of Petrodollar is below. And it’s a ‘Quick’ reading.

http://ftmdaily.com/preparing-for-the-collapse-of-the-petrodollar-system/

 

The best explanation of Central-Banks (bubble for the rich and bogus jobs for the elites and their cronies) is below.

https://www.youtube.com/watch?v=p5Ac7ap_MAY

 

I highly recommend both!

 

seek's picture

If you watch the news closely, it looks far more likely the US is prepping to invade the Saudi's.

14 years afer 9/11 and suddenly in the past six months they're pushing to get a suppressed part of the report out that blames... guess who?

froze25's picture

Well when we had the majority of the Hijackers that were Saudi's.  Some of them are still alive today, but we won't hear a peep about that on the news.  I still don't understand how that their passports survived the building collapse and were found... The whole thing stinks but that would be a conspiracy theory now.

Kobe Beef's picture

Ask a ten-year-old: Could a paper booklet survive an explosion that obliterated two 100+ story steel and concrete buildings?

They will tell you 'no'.

And now you understand that the average American TV viewer (and un-clearanced policy maker) is dumber and more gulliable than a ten-year-old. 

The USSA: an Empire too stupid to survive.

thestarl's picture

To me it was always how on earth could two guys who could'nt even fly pilot a 767 with pinpoint precision into the ground floor of the Pentagon,no ground scar no photo evidence just not possible.

August's picture

The only credible evidence that jetliner hit the Pentagram, er Pentagon, is that a friend of Fred Reed says he actually saw a passenger jet hit the building.

messymerry's picture

Yes, and let me add that the Pentagram, errr, Pentagon has absolutely no security cameras surveying the perphery of their building.  Where is the footage?  .gov wouldn't recognize the truth if it bit them on the proverbial ass.  ;-D

g speed's picture

Seek

I will toot my horn here and say I told you so a year ago when every one was speculating on the origin and purpose of ISIS.  

breadonwaters's picture

As seen on Greg Hunter's .....Rob Kirby talks about the impact on 500 Billion in Oil bonds defaulting.

 

http://usawatchdog.com/oil-derivatives-explode-in-early-2015-rob-kirby/

Bangin7GramRocks's picture

I can think of a buyer for all that garbage. It will be bought and laundered by the fed just like the rest of the shit piles from the banks.