Monday Blues
A predictable day in the market after last week's euphoria and this weekend's middle east news as well as some disappointing earnings reports. In the market's defense, the decline was mild and on very low volume. The big story is still the decline in yields. Is it due to inflation concerns abating? Or confidence in the soft landing? (Referenced this point here Friday and the WSJ ran a full article on it today - nice to be a day ahead!) Or maybe, just maybe, yields are falling due to concerns about the economy? If the latter is the case, then earnings concerns won't be far behind. Then we would see what the market is made of. Stay tuned.
Excellent piece on oil prices in the weekend's Barron's editorials. In a nutshell, the world's drillable oil supply has likely peaked BUT there are reserves in Canada, under the oceans, in the US, etc, that are huge but costly to get to due to the unorthodox nature of the supply. At $70 oil, they are no longer unprofitable business ventures. In fact, this price will start to bring some of those regions into production. The result will be an oversupply of oil that will cause a "bust" cycle. Their prediction of $20 is likely irrelevent however, the idea that current prices will cause overproduction is relevent. $70 oil will also ensure development of alternative fuels. So, it's not that we should short oil and all related investments. But we should realize that this is all about economics 101 and bust follows boom as readily as boom follow bust. Similarly, in the housing market there was no supply to speak of and rising prices for years, now, 6 months later, there's supply galore and prices are off. The major homebuilders have all identified inventories and slow sales as major reasons for their earnings declines. As one client told me today, "it happened so quickly!"
Even during quiet August, there's lots to ponder and prepare for!
Please visit our site for more complete information: www.gellercapital.com
Excellent piece on oil prices in the weekend's Barron's editorials. In a nutshell, the world's drillable oil supply has likely peaked BUT there are reserves in Canada, under the oceans, in the US, etc, that are huge but costly to get to due to the unorthodox nature of the supply. At $70 oil, they are no longer unprofitable business ventures. In fact, this price will start to bring some of those regions into production. The result will be an oversupply of oil that will cause a "bust" cycle. Their prediction of $20 is likely irrelevent however, the idea that current prices will cause overproduction is relevent. $70 oil will also ensure development of alternative fuels. So, it's not that we should short oil and all related investments. But we should realize that this is all about economics 101 and bust follows boom as readily as boom follow bust. Similarly, in the housing market there was no supply to speak of and rising prices for years, now, 6 months later, there's supply galore and prices are off. The major homebuilders have all identified inventories and slow sales as major reasons for their earnings declines. As one client told me today, "it happened so quickly!"
Even during quiet August, there's lots to ponder and prepare for!
Please visit our site for more complete information: www.gellercapital.com
posted by David Geller at 5:44 PM
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