Art Cashin: This Is "What You Get Before You Slip Into A Crisis"

Tyler Durden's picture

Via Christoph Gisiger of Finanz Und Wirtschaft,

Wall Street veteran Art Cashin warns that bankruptcies in the US oil industry could cause severe stress in the financial system. He believes the rate hike of the Federal Reserve was a mistake.

Around the globe financial markets are in turmoil. Alarming news out of China and the crash in the oil market is causing angst among investors everywhere. In the United States, the S&P 500 is down more than 8% since the beginning of the year. Art Cashin, director of floor operations for UBS at the New York Stock Exchange, thinks that the rate hike of the Federal Reserve is one of the main reasons for the sell-off in the stock market. The highly respected Wall Street veteran fears that America will fall into a recession if the Fed doesn’t change its course and lowers interest rates back to zero.

Mr. Cashin, the pressure on the financial markets is rising. How’s the mood on the trading floor of the New York Stock Exchange?

The mood is both concerning and frustrated. On Friday, we traded temporarily lower than we got during the August spike down. That is never a good indication and it is troublesome. Here in the US, there was some concern that the markets will be closed for a holiday on Monday whereas the exchanges in Europe and in Asia are going to be open. So a lot of investors were worried about the exposure they will have for this extra day.

You’re working on the floor of the stock exchange for almost six decades. During that time you have seen many difficult moments. How severe is the situation right now?

It is very similar to what you get before you slip into a crisis. Also, it’s earnings season and because of that many corporate buybacks have to be paused during this period. That removes an important potential support for the market. Over the last year, companies buying back their own stock have put more money into the market than all of the public has. The cessation of those buybacks is probably a reason why we’re seeing the rather sharp selling that has occurred.

A main source of concern is the sharp drop in oil prices. Both, WTI and Brent, closed below $30 on Friday. Why is this causing so much havoc on Wall Street?

Investors are concerned that many of the small and domestic producers here in the United States have money owned in the high yield market. So if oil prices continue to go lower they’re afraid that up to two thirds of those fracking companies may go into bankruptcy. They fear that through financial contagion those bankruptcies would then begin to spread into other areas of the financial markets.

Are there already signs of contagion?

Several market participants have been asked to put up more collateral to prepare for bad loans. Also, on Wednesday there were both rumors and indications that there was a good deal of forced selling going on. There were rumors that it could have been either a hedge fund or a sovereign wealth fund, maybe investors who are exposed to the oil prices. It could have been Saudi  Arabia or Norway. Forced selling and margin calls are very hard to deal with because such an investor basically has no latitude. Positions must be sold at any price and that’s very difficult for the market.

Also, there is  alarming news coming out of China. What’s the problem here?

On Friday, before trading started in New York, Chinese equity markets were down another 3,5% already overnight –  and that is despite the best efforts of the Chinese government and the central bank to keep prices from destabilizing.

Then again, the US economy seems hardly to be related to China.

China is the second biggest economy in the world. The US may not sell much to China. But many of our economic partners like the countries in Europe do have big markets with China. There are other aspects to the China problem, too: The Chinese currency is relatively pegged to the US dollar.

What’s the problem with that?

When the Fed began raising interest rates and the dollar strengthened it made the Chinese currency go higher which put China at a disadvantage. So the Chinese began to try to find ways to slightly weaken their currency and that is disruptive throughout all the other currencies in the emerging markets and the small Asian economies. Back in 1997 when Thai baht broke everybody thought that won’t mean too much since the US doesn’t deal too much with Thailand. But in fact what happened was it rapidly spread through the financial industry and a great deal of money was lost. So investors are worried of seeing something like that happening again.

So you think the rate hike of the Federal Reserve is one of the main sources for all the turmoil?

The Chinese currency isn’t the only one that is under some stress. For instance, the Saudi Arabian currency is also partially pegged to the dollar. So you’re seeing many other nations beginning to suffer somewhat in reaction to the Fed move to begin raising rates.

The appreciation of the dollar is also putting pressure on the export sector in the United States. Manufacturing has slowed down significantly over the last months.

In its hundred year history the Fed had never before raised rates with the ISM index for the manufacturing sector below fifty which is showing that the manufacturing sector is in somewhat of a recession. I think the Fed basically painted itself into a corner. In September, because of the turmoil in the international markets, they were afraid to raise rates and they said:  »We didn’t want to move with the markets destabilized.» Because of that they found some critics here in the US who said: »Hey, you’re the central bank of the United States and not the central bank of the world. Therefore, do worry about us and do what you think our economy requires. Don’t pay attention to other economies.» So when the December meeting came the Fed talked itself into a corner with no chance to change.

On the other hand, many economists are seeing encouraging signs in the US labor market. In December payroll employment rose by over 290’000 and beat expectations handily.

When you look closer into the numbers you see that 280’000 of those jobs were seasonal adjustments. In other words it wasn’t physical people standing there, it was an assumption by the Bureau of Labor Statistics. They said it was December and the weather normally is cold so they had to add on some people. And If you went over to the household survey you saw that 35% of the new jobs were people under the age of nineteen. In fact, only 3% of the jobs went to people in the prime category between the ages of 25 and 55. So the vast majority of the new jobs went to people under 24 and over 55. To me, that looked liked holiday hiring: people who make deliveries, wrap packages etc. These are not long lasting jobs. That’s why I think the next couple of payroll numbers will not show that kind of strength.

So was it a policy mistake to raise rates?

Yes, I thinks so. I believe we may be back at zero percent interest rates before we see one percent interest rates. I think the Fed will wind up having to do that to try to avoid a recession. Before they moved Christine Lagarde, the head of the IMF, told them they shouldn’t move. Larry Summers, the former secretary of the Treasury, told them they shouldn’t move. The Bank of International Settlements told them they shouldn’t move. But they insisted upon it and I think part of the turmoil that we are seeing now is indirectly connected with the Fed’s decision to go ahead.

But on the day the Fed raised rates for the first time since the financial crisis many investors applauded and stock prices rallied. Why has the mood soured?

The rate hike had to work its way through the system. Investors had to see what would happen to the Chinese currency and how the Chinese central bank and the Chinese government respond to what happened to their currency. Not a lot of people guessed that immediately when they saw that the Fed raised the rate. It’s now working through the system and it’s contributing to the turmoil that we’re experiencing.

Looking ahead, what’s going to happen next?

The bumpy ride is probably not over yet. I would remain very careful. I think efforts have to be made to stabilize the oil price. Investors have to review their risk exposure. So make sure you’re on guard.

 

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BullyBearish's picture

All ol' Art had to do was read "The Creature from Jekyll Island" to know this is exactly the time that the fed would "insert pin into bubble"...

Winston Churchill's picture

Remove pin from grenade, and make sure its the pin between your teeth.

Thought Processor's picture

 

 

I'm gonna need more monitors so that I can watch all of this unfold in HD realtime.  3 just ain't enough.

 

And something to replace popcorn, I'm getting sick of popcorn.

KesselRunin12Parsecs's picture

Art [Rudolph the Red Nosed Reindeer] Cashin, has, undoubtedly, 'SIPped' his way into a few crisises in his day. (But haven't we all)?

jcaz's picture

....And laughing all the way.   The more clueless posters on this board fail to realize that Cashin can be on either side of the action and make money.   As a result, his opinion carries weight.

Art's stuff is the least-biased stuff we'll ever see on CNBC-  amazes me that the overlords haven't snuffed him out yet.

Silky Johnson's picture

Fucking guy's name is Art CASHIN! And you're damn right, he cuts both ways.

Four chan's picture

art knows what time it is unlike most traders today who have never been involved in scary shit markets.

3.7.77's picture

All this drama over a quarter percent, doubtful.

chinoslims's picture

Ironically, the dipshit Steve LIESMAN lives up to his namesake.

Lets Buy The Dip's picture

yes, he has had a few bad calls lately. 

 its been a stock market bloodbath recently. But these guys, i listen to in Australia, and very accurate with their calls are saying there could be a bounce before more selling. => http://www.bit.ly/1RQbm6G

 

The major averages kicked off the year deep in the red and broke key psychological levels as concerns about global economic slowdown mounted. Corporate results, on lowered expectations, could shift investor focus back to signs of a more encouraging U.S. business environment. 

"Next week earnings should be the dominant theme. What companies are saying in terms of their guidances, that should be something more than just sentiment pulling the market one way or another. Look out! BIg moves are coming. 

Bay of Pigs's picture

Least biased? On the BlowHorn? You actually watch that dogshit?

Yeah, gook ole Art from UBS no doubt, has been sounding the alarm for the last few years on the fraud ridden energy sector, HFT/algo fraud, student loan bubble, auto loan bubble, etc...? The only place I get honest information on these subjects is right here on ZH, not from anyone on CNBC.

KesselRunin12Parsecs's picture

Pretending to be Louis Rukeyser only gets you dead in the end (same as everyone else).

 

So the main question is:

 

- Do you want to be remembered as an idiot?

- Or, do you even want to be remembered at all?

 

 

Bay of Pigs's picture

I'm sured Art's a nice guy but where was he when FASB 157 was suspended and effectively stopped the real classification of assets? That's the only reason the stock market ever came back (mark to unicorn). Now we're seeing the same thing with the FED telling the banks to hide all the energy losses. In fact, it's worse. So where is the BlowHorn on the story?

<crickets>

junction's picture

A 25 basis point Fed hike could not do all this damage.  The damage was done way before, as the rotting global financial structures are run by looters, crooks and degenerate jailers like Obummer.  The same degenerates in power in the West who created first, al-Qaeda, then ISIS, are good only at destroying civilization.  The repeal of the Glass-Steagall Act in 1999, the dot.com crash of 2000 and the removal of the uptick rule in 2005 are all examples of the New World Order destroying Western civilization by vaporizing the world's capitalistic economies.  We are well past the point of no return.  The only question is, will these madmen and women who are the secret rulers of the world take that final insane step, to initiate a nuclear war?  Apparently so, to judge how Obummer and his cabal of pedophile murderers is cleansing the military of anyone opposing the NWO doctrine of a first strike nuclear attack on Russia. 

http://www.whatdoesitmean.com/index1849.htm    

JRobby's picture

The FED made its decision over 7 years ago. They could have done something decisive and historic but the "owners" would never do something like that.

The decision was made to destroy the banking system a while ago. We are watching the later stages now after incredible profits have been reaped at the highest levels at the expense of the rest of the world.

Stuck on Zero's picture

The only way to keep the system going would have been for the Fed to lower interest rates 1/4 point every quarter forever.

Bobbyrib's picture

I agree with the first part, but nuking Russia? Yeah, I'm sure China would be OK with us nuking their ally who stands against us with them. Not to mention how much environmental damage it would do to the planet. It would make Fukushima look like a glass of spilled milk.

JoeSoMD's picture

Agree with you wrt the rate increase.  No way .25BPS could do this.  So why would Cashin say this?

jaxville's picture

   The Fed's first priority is to preserve the system that creates credit based currency through fractional reserve banking. Interest rates (or any other Fed action) will be based on that criteria.  The effect on the economy is of far less consequence to the financial authorities.  Also consider that the dollar is now merely a product of that system.  Products can change.

 

 

SuperRay's picture

Hitlery took a poison pill last night when she aligned herself with Obozo while Bernie attacked the big banks.  As the sell-off continues, she'll be totally fucked by this wall street connection and Bernie will be able to say it's all due to the big banks (finally, a hint of reality in this shitshow)

JRobby's picture

Hillary is already fucked. The decision to let her burn on the emails has already been made.

KesselRunin12Parsecs's picture

"Hillary is already fucked."

 

Ewww... Thanks for ruining my day with a gory image!

JRobby's picture

gory images  Sep/Oct / Nov 2016

It has been announced that the long awaited Presidential Debates between Donald Trump and Bernie Sanders will air live on ABC, CBS, FOX, NBC............

Laugh Track at 220 decibles, ear drums punctured, writhing in pain.............

Voter turn out was extremely low as the areas surrounding polling places were bombarded by ultra low frequency sonic blasts from orbiting satellites and mobile military equipment.........

Emergency Rooms were flooded to capacity, many "citizens" lying in the parking lots of hospitals and in the surrounding streets, clutching their abdomens, moaning "I just want to vote".........

The remainder stared at the TV in horror as it was announced that the entire primary, convention and election process was a ruse designed to keep people glued to their TV's while the banks emptied what was left of their investment, checking and savings accounts............

The back of one reporter's head blew out as a hollow point fragmenting bullet ripped through his head immediately after he had reported: "the Clinton's don't own a bank or have access to the really big money so they were forced to resort to this foundation - money laundering caper to finance Hillary's campaign"...........

 

When you are living through a progression of insane events, after enough time goes by insanity and the conditions it creates appear to have become "normal". This is well known to the controllers that manage the process and the feedback loops. Nothing occurring in contemporary society today is anything that has a chance of returning to a healthy normative range.

Yes We Can. But Lets Not.'s picture

I had a rueful laugh this morn when I caught the execrable Hillary Clinton propagandizing to the effect that she supported Obama in his having 'taken on Wall Street'!  Bitch is twisted sick.

TVP's picture

Don't forget Rick Santelli.  He also criticizes central banks all day - he yells at them on live national TV.  What an awesome job.  

markpower49's picture

Art Cashin is a politically-correct Keynsian. He is a drunken fool.

DownWithYogaPants's picture

Interest rates had to go up to stop the misallocation of capital.  Letting it go on longer is insane.  I tell you INSANE.

The problem only festers. Even now rates are too low to provent some really stupid decisions

FreedomGuy's picture

I agree, but the question is when and how. I think of it as a drug addiction. There is no pleasant way out. Markets build themselves around these factors the same way that sugar in Florida is completely priced and dependent upon continued protection.

I disagree with Art on his oil support ideas for the same reason. If oil is crashing it is because the demand was and is not there. It needs to rebalance.

bigkahuna's picture

I am all for the required rebalance to get started. I used to enjoy investing but have been unable to do anything for years now due to dubious accounting and fraudulent fed intervention.

The DOW market index beeds to hit 5k in free fall for me to get curious again. S and P index to 3-4 hundred. Outside of that, real assets are all I am interested in.

Not very exciting. 

Mr. Schmilkies's picture

Some wanted rates to rise, some wanted rates to stay at zero (maybe forever?)  If there were no Fed, where would interest rates be?  Really no way to know but surely at a more "natural" level.  It's time for the fed to go.

By the way, I like yoga pants (of course, it depends on who's wearing them).

FreeNewEnergy's picture

The neatural level is generaly defined by the ten-year note, and it's heading lower, so what does that tell you about the power of the Fed?

Bobbyrib's picture

They couldn't have planned this. They couldn't have raised rates in the face of a declining economy knowing that interest rates on debt for a country $20 trillion in debt would not increase with their interest rate increase. Not to mention that when the economy shits the bed, they could cut rates to "stimulate the economy." No way they planned this. /sarcasm.

Jack Burton's picture

A blizzard of Coke and whores by the boatload! Wall-Street 1980's!

Slowdrip's picture

May I recommend chille spiced, fresh pistachios from the famed valleys of Rio Doso, NM.... Unbelievable....

Winston Churchill's picture

You will soon be able to taste the best pistaccios and caviar in the world.

Both come from Iran, and only Iran..

Trucker Glock's picture

Opening up the caviar market to U.S. may ensure the extinction of the Beluga Sturgeon.  Maybe, mayve not.

tarabel's picture

 

 

Ruidoso, New Mexico, maybe?

City_Of_Champyinz's picture

I recommend Bourbon, the brownest of the brown liquors...

JRobby's picture

3 good computers with 2 - 4 monitor cards each should provide the show you wish to see. You can watch movies on monitor 24!

MrNosey's picture

This is what you get......

There will be no real recovery what so ever!

The elite will soon run and hide in the bunkers paid for with citizens taxes, after engineering a full economic collapse as well as starting WW3, plus they will make sure that there are enough Jihadi's in the West to start a race war.

That should be enough to cover up the failed fiat ponzi scheme and take care of the 'excessive' population......

http://beforeitsnews.com/global-unrest/2016/01/the-lion-is-it-time-to-fi...

Osmium's picture

Mr. Cashin, the pressure on the financial markets is rising. How’s the mood on the trading floor of the New York Stock Exchange?

The mood is both concerning and frustrated. Markets are supposed to go up every day, and never down.

CheapBastard's picture

Luckily, "house prices never drop...."

 

Houston’s Real Estate Market Feeling The Effects Of Oil’s Price Drop

 

 

http://www.texasmonthly.com/the-daily-post/oils-price-drop-is-spreading-...

 

 

...except when they do!

LoneStarHog's picture

Does A Bear Shit In The Woods?...Dunno, but it does shit all over the floor of the NYSE.

bigkahuna's picture

its been spraying the floor since new years - it must have eaten something wrong