We are back to the "stupid is as stupid does" market. I am talking about a market that is totally hostage to oil, one that would be up because of earnings, and could be up because of taxes, but instead is going down because oil's being crushed.
If oil were a barometer of anything but huge inventories and failing OPEC curtailment, it would make sense. If oil were a commodity that indicated anything about the growth of the world's economies, then I could get it.
But let me tell you what a "false tell" it is. The weakest group today is the airlines. Why? Because of a sudden and surprise wage increase at American Air (AAL) at the same time as a rare miss in earnings for Southwest Airlines (LUV) and the $10,000-per-head reimbursement you might get if you are bumped by United Airlines (UAL) -- triggered by the most viral video I can recall, the passenger being dragged kicking and screaming off an overbooked flight. There's nothing like an executive talking on the Today show about taking actions that will make things less profitable for an airline and heralding them to drive a stock down. (Southwest Airlines is part of TheStreet's Action Alerts PLUS portfolio.)
Yet what's the biggest determinant of airline profitability? The cost of fuel. In the old days, a move down in oil would have been enough to spur a nice gain. Here it can even offset it!
Now, you want a tax cut? I listened and calculated and listened some more to the lawmakers on Squawk Box this morning and the executive-branch-speak about plans to cut corporate taxes, and I can tell you that while I am sure they will spur growth, the discourse was strictly on pay-to-play. If President Trump wants his corporate tax cut, he is going to have to raise taxes somehow or the people in his own party will stymie him as surely as repeal-and-replace was stymied. The Republicans in the House are in no mood for further deficit spending.
But you want a real tax cut? It is the one that is coming from oil and gas, which impacts every business. When you have the kind of declines we are getting, you are going to see businesses of all types doing better. Of course, that means nothing to the markets because all they care about is that each dollar down is a signal that commodity prices are going down, so therefore business activity must be slowing.
The machines that are in control of this market are as dumb as those who program them. We talk about machine learning and artificial intelligence, but the linkage just doesn't work.
The fact is, we are finding much more oil here than we thought, about 100,000 barrels more per month, at the same time that we are beginning to really see the oil wells drilled post-Macondo in the Gulf coming in.
Our oil companies are making a great deal of money here because our finding costs have gone down so much that it pays to ramp production. But there's no place to put it. Without OPEC cutting back, we are sowing the seeds of our own price destruction.
I have been saying that when oil was at $53, you had to sell it and trim the stock holdings because it is going back to $47, where I do expect to see the longs blow out at the same time that the Saudis will make their pronouncements of cuts. We will be oversold.
Still, it doesn't matter. The insanity continues and because of it we can't mount the rally that should be occurring if it weren't for the crude falling a buck and a quarter.