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Stock Ideas Investors Daily Edge Market Already Challenging New President-Elect’s Message of Hope
Stock Ideas Investors Daily Edge Market Already Challenging New President-Elect’s Message of Hope 
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By Chris Johnson Did the market get what it wanted on Tuesday? The FOMC dropped interest rates by 50 basis points, doubling most expectations. So will the double-down move by the FOMC spark a solid longer-term rally or will the market wake up with a hangover in a few days after the FOMC party? |
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| Market Already Challenging New President-Elect’s Message of Hope |
| Friday, 07 November 2008 | ||||||||
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If you can’t understand why the market fell by nearly 500 points yesterday, you should’ve heard the conversation I had with Cec – my wife – this morning at breakfast. “It feels different today, doesn’t it?” she asked (before I took my first sip of coffee). “No.” “I mean, aren’t you more hopeful?” “No.” “I am. I’m excited.” “I’m worried.” “Don’t you think Obama can make a difference?” “Not with the economy. Not right away.” “Is that all you ever think about?” “Yes.” Cec knows better than to call me a cynical bastard. And I know better than to give voice to what she’s thinking. So neither of us uttered those words. Not this morning, anyway. But how can you not be pessimistic about the market? It’s no knock on Obama. But what can Obama produce from his back pocket that is going to turn the economy around? Don’t think too long about it. Because the more you think, the more depressed you get. And I strongly suspect that this was the predominant feeling that Wall Street lugged to the office yesterday morning like an 800-pound gorilla. It showed, didn’t it?
This could be the shortest honeymoon in history. Obama is going to have to prove himself from the get-go. And this is the sad part. Even if he makes sound decisions, it won’t revive the economy right away. Okay, let me play devil’s advocate for just a minute here... The economy is a state of mind. If people feel good about the economy, they spend more. If they feel bad, they spend less. And Obama is very good at getting people to feel good about things. So there’s hope that he can raise consumer confidence and spending. There’s that word again – hope. One thing about hope. When it’s dashed, it leads directly to despair. Obama is wielding a two-edged sword. He needs to be careful. You gave me a lot of good feedback today. I’m going to have to give short shrift to some interesting stuff such as W. S. telling me you can’t consume energy because consuming is the same as destroying (according to the dictionary) and energy can’t be consumed. Hey, W.S., you also sent me a definition of “expend by use.” That’s what we do with energy. Got to leave it at that and move on... Jim W. wants to talk oil supply. Okay, Jim, shoot... Most large existing wells are very mature, in decline. Cantarell's production, for example, has been declining at double-digit rates since 2005. So absent new capacity coming on line, supply is and will be falling... This as you pointed out will be exacerbated as/if prices fall ... While some oil has a cost of production of less then $10/bbl (pump it out of the ground ... all done) Other oil like the Canadian sands probably has an incremental cost north of $55 / bbl . Jim, the International Energy Agency is coming out with a report on this subject very soon. It’s going to state that we need to spend $360 billion per year to keep existing production from declining more than 6.4 percent. Otherwise, the decline rate will climb to 9.1 percent. That’s not very encouraging, is it, Jim? He also asks, “On a worldwide aggregate basis - how much demand can/will be extinguished by tough economic conditions?” Well, a Wall Street firm is already proclaiming near-zero growth for China’s oil imports next year. That’s amazing. And U.S. consumption of oil (sorry, W) is already down two million barrels per day or 10 percent from the same time a year ago. That sounds like a lot. But, in 1985, our oil consumption had dipped 19 percent from its peak of a few years before. With all the SUVs still on the road, we could drop two million more barrels a day easy. And even with energy subsidized in many developing countries, their slowing economies should be paring back energy use quite dramatically. Global oil growth of about two percent a year should be cut back by at least one million barrels a day, which accounts for roughly half that growth. And I give the last word to John K. on how the end game for our economy may look... “Housing/builders/banks are in the tank until the economy improves or the economy is in the tank until the housing/builders/banks improve. Works for me either way.” The first half of what you say works better for me. Unemployed workers (or workers in fear of losing their job) aren’t going to be buying houses in great numbers even at irresistible levels. When people start getting excited over cheap housing prices – after so much asset deflation – it could mark a bottom. Does anybody think we’re close to those levels? Didn’t think so. P.S. To let me know what you thought of today's article, send an e-mail to: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
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