The Contrarian

“In the investment markets, what everyone knows is usually not worth knowing.”
Nigeria in crisis

Nigeria—Africa’s Largest Economy—In Crisis

Nigeria just asked the World Bank and African Development Bank for $3.5 billion in emergency loans. It has run out of dollars. The currency has collapsed.

JP Morgan removed Nigeria from its influential Emerging Markets Bond Index last week. If the policy now is to remove all troubled countries from the indices, there will never be a recognized bear market in these indices. They will become worthless. In the end, there will be nothing left in the indices.

Nigerian central bank Governor, Godwin Emefiele, said what every central bank says just before the crisis turns into a collapse: “There is no shortage of liquidity. I do not think there is any need for anybody to panic.”

Overnight interbank lending rates in Nigeria spiked to 200%. The CDS (credit default swap) has soared by about 50% over the past month. These are bought as insurance against a credit default, or as a speculative vehicle. Such events usually indicate an extreme crisis.

Yes, the oil price plunge is causing major repercussions world-wide, not just in energy, but in the credit markets. And that is one reason why were expect much worse ahead. The last crisis was primarily a subprime mortgage crisis in the US. The oil crisis is world-wide, and is enveloping many nations whose chief export is oil. This is VERY BIG.

And if you wonder if the US will be affected, here is some news:

Kern County, which includes the city of Bakersfield, is considered the oil capital of California. The County Board of Supervisors just declared a state of fiscal emergency.

The effects of the oil price plunge is causing a plunge in all types of businesses, including retail sales, sales tax revenues, housing, property taxes, etc..

Imagine the other very large oil regions of the US and how that is affecting their economies. One recent estimate is that it has already caused about 270,000 lost jobs. But Washington tells us that employment in the US is in great shape. Who do you believe? It’s not brain surgery.