October 23, 5:00 pm EST
As we discussed yesterday, despite all of the drama about China, Italy,
Brexit, rates and the elections, what seems more likely to have driven the recent correction in stocks is Saudi selling.
In fact, I think it’s clear that there has been a Saudi liquidation (of U.S. and global assets) which was the catalyst for the correction in stocks earlier this year, and this recent decline.
Remember, in November of last year, the Saudi Crown Prince Salam, successor to the King, ordered the arrest of many of the most powerful Saudi Princes, country ministers and business people in Saudi Arabia on corruption charges. Over $100 billion in assets were claimed to be under investigation (a third frozen) in what was called the “Saudi purge.”
These subjects were detained for nearly three months. The timing of their release and the market correction of early this year is where it all begins to align.
They were released on Saturday, January 27. S&P futures open for trading on Sunday night. Stocks topped that night and proceeded to drop 12% in six days. And rallies in stocks were sold aggressively for the better part of the next seven months.
Fast forward to this month, and we have the murder of the journalist that was a public critic of the Crown Prince Salam. As the details of story pointed back to Salam, on Oct 3, U.S. bond markets got hit (to the hour of news hitting the wires) and stocks topped that day, and have proceeded to drop by more than 8%.
Clearly, the destabilization in Saudi Arabia has put considerable assets in jeopardy. With that, those in control of those assets have likely been scrambling to protect them, as U.S. Congress pushes for sanctions, which could include freezing Saudi assets.