Should we call this the great Goldman Sachs (GS) oil rally? I think it's a reasonable call. That's because this morning when Goldman took the low end of its predictive range for oil from $20 to $25, it signaled to me that the credit crunch for oil may have abated.
And why not? If any oil company can access the equity markets for cash and if demand has picked up for gasoline -- as appears to be the case -- and we know that so many projects have been canceled that oil is beginning to reflect 2017 realities, then the call has real gravitas.
I know there are plenty of companies that will not do as well with oil in the $40s -- namely the airlines, if you want a front-and-center group -- but the simple truth is that Bank of America (BAC), JPMorgan (JPM) and Wells Fargo (WFC) became the targets of short-sellers when they revealed their considerable exposure to the oil patch, and the financials and the oils can bring down any market with their weakness. (Bank of America and Wells Fargo are part of TheStreet's Action Alerts PLUS portfolio.)
In other words, no matter how well a Darden (DRI) or a Six Flags (SIX) or a Dollar General (DG) or a McDonald's (MCD) might do from lower oil, the idea of a big increase in bad loans from the big three banks at the same time that the Fed can't raise rates because of a prospective credit crunch from low oil was too much for this market to overcome.
That's why this rally, as opposed to a phony one based on a carryover from Europe, has a little more staying power.
Now, of course, if you are James Bullard, a Fed voting member who has said that as long as oil goes lower, then inflation is tame, you are going to have to rethink your dovish analysis. That's the price the stock market is going to have to pay for the end of thoughts about a credit crunch.
But the rock of a Fed rate hike is better than the hard place of hundreds of billions of dollars in credit losses, including at least $150 billion from the big banks. Consider a rate hike a necessary evil for the moment.
We have been buying Schlumberger (SLB) and Occidental (OXY) for Action Alerts PLUS, the former because it was already doing well despite the decline in price, and the latter because the dividend will be more likely assured in this new environment.
Speculators might want to gravitate to those oils that have said they don't need financing, namely Anadarko (APC), or those that are so beaten-down that maybe they can spring back even if they have to raise cash, and here I am thinking of a Whiting (WLL) or a WPX Energy (WPX, but those are only for real risk takers.
Suffice it to say, though, that when the biggest -- and most correct -- bear says that perhaps the bottom has been put in, that's good enough to spark a rally that makes it so the largest real worry on the table is off the table, and that's good enough to take us much higher ... until oil's so high that we have to start cutting the numbers of those who use too much of it.