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  • harehau harehau Apr 5, 2008 10:40 AM Flag

    Energy innovation

    Read the Journal early this am and connecting the dots. The way the brain works, at least mine, is to notice facts(maybe used loosely) that support my feelings. According to the EIA, oil consumption fell by 445k barrels in Jan., more than the expected uptick in consumption by China. What happens if there is a global softening in demand. The conventional wisdom refutes that position. Also, the column by Herb Greenberg (much more journalist than analyst) that says home equity borrowing peaked at $144 billion in 2Q 06, down to $54 b at the end of last year. And Harley sales are off 14% in last quarter. A Harley, the pinnacle of discretionary spending. Losing jobs and wealth can't be good for consumer sentiment. On the other hand, short positions are at record level, probably bullish. And with the dollar falling further because of the jobs report, more Fed cuts point to lower $ value. Oil prices should be falling because of the demand factors but probably won't because of the dollar weakness. One analyst see $115 soon. Another statement that the average bear market retracement is 32% in the ten instances since WW2, we have only been down 19% in this one. Bottom line guess, the immediate future rests with how bad the financials do in this quarter, my guess is that the bad is already discounted and their will be relief. The US muddles along but the fiscal plan works and liquity returns, the dollar strengthens which depresses oil temporarily but the world continues to push the price up. So I sell a little energy and buy a few financials next week. This and $1.50 won't buy you a cup of coffee at Starbucks. Cheers.

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    • Harehau,

      Those are all eminently intelligent questions to ask and very useful observations. The NYTimes ran a thinnish article this AM which relates:

      http://www.nytimes.com/2008/04/05/business/worldbusiness/05nocera.html?_r=1&ref=business&oref=slogin

      Completely anecdotal, of course, but the fact of the 4% increase in the RMB against the dollar is something to keep in mind. The average non-oriental simply cannot comprehend how efficient the Chinese can get when they produce large quantities of something and how incredibly thin they will allow their margins to get in high volume businesses. I've already been to my Super 88 chinese supermarket this AM and done a week's shopping for the sorts of things that I buy there. At this market not everything is inexpensive. All of the meats, for example are grown and cut to the chinese taste and any local supermarket will be cheaper than Super 88.

      Consider the following commodities, however:

      1 medium Cantaloupe (Honduran but not from the contaminated farm) $1.50
      6, 3" x 3" x 4" pieces of firm tofu in water $3.29
      1#. loose carrots $.45 per #
      2 bunches of nice big scallions 6 per bunch $1
      1/2 # bean sprouts (that's about 1.5 pints $.89
      2 loose bartlett pears $1
      2 # frozen pork and leek dumplings $3.29

      The scallions, tofu, bean sprouts and dumplings are all from local Massachusetts Chinese producers whose trucks you see in the Super 88's parking lot if you get there early on Saturday morning as I customarily do. You have to be extraordinarily efficient and competitive to deliver pricing like that and you have to have very high volumes to make a nickel doing it.

      The Chinese and Indian economies are things to worry about and things to watch as you point out. My honest belief is that we have one very good indicator which I often post which will provide us with a gross answer as to activity levels--The BDI:

      http://investmenttools.com/futures/bdi_baltic_dry_index.htm

      Much of the big decline you see on the chart had to do with Chinese New Year when much of the country simply shuts down for two weeks. And the recovery has something to do, I think, with the re-commencement of activity post New Year. But which trend line does it follow from here?

      Regards,

      Peter

      • 1 Reply to pddane_01929
      • Peter, thanks for the link. In Barron's today, Dry Ships is featured. Scott Black feels it is a good value at 3 PE. There also is an article, A Gasoline Conundrum. Refiners have restricted output to 82% of capacity in the face of plenty of crude supply and flattening demand. This summer could be a significant test. Also, on one of the charts on the site you linked, it showed that unemployment typically pops up 2%+ points in a recession and Epstein in his article confirmed that based on the last one, we could see 6.8% unemployment. We still have a ways to go with jobs but if the market is looking out 6 months, we may already be on the upswing.

 
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