E vents are moving faster than brains now. Isn’t it marvelous that gasoline at the pump is a buck cheaper than it was a year ago? A lot of short-sighted idiots are celebrating, unaware that the low oil price is destroying the capacity to deliver future oil at any price. The shale oil wells in North Dakota and Texas, the Tar Sand operations of Alberta, and the deep-water rigs here and abroad just don’t pencil-out economically at $45-a-barrel. So the shale oil wells that are up-and-running will produce for a year and there will be no new ones drilled when they peter out — which is at least 50 percent the first year and all gone after four years.
Last week I wrote about how big federal deficits are good for the stock market. They are bad for total indebtedness that we are leaving for our grandchildren to deal with, but they are great for stock market investors. In a similar way, when there is a very small deficit or even a surplus, it tends to be a big negative factor for stock prices.
There is a lot happening across global financial markets. We go in depth into US stocks, review global stocks, make sharp points about commodities, cover macro indicators in depth and get very detailed on the precious metals. A relatively easy reading 38 pages (lots of graphics) and a clear focus.
What, Us Worry? Economists Stay Upbeat as Markets See Trouble–Bloomberg[biiwii comment: look, things may indeed be fine for now; the forward data will tell the story. but how many mainstream economists saw the bubble top in 2000, the credit bubble, housing bubble and the coming liquidations of all manner of leveraged excess in 2008? answer… see no evil, hear no evil, speak no evil…]
Well actually, one Hommie is getting hammered and the index is getting dinged. We have been following this chart of the Homebuilders Index for probably a year or so now. It has been moving along in a large, bullish Cup & Handle.
Today KB Home grossed out the market (thanks for the heads up, Hammer) with talk about stuff that you would not expect to see in a low energy and (some) materials and low interest rate environment.
“We are projecting our first quarter 2015 gross margin will drop significantly from the first quarter of 2014 hitting the low point for the year before improving sequentially for the remaining three quarters of 2014,” Chief Executive Jeffrey Mezger said on a conference call after the company released quarterly financial results. He said there was a “softening in demand” in some markets during the fourth quarter, more sales incentives, and pressures from construction, labor and material costs.
We began 2014 with the perspective that the economy was limping along, barely surviving. A recession looked possible simply because the expansion was long in the tooth, but there weren’t any signs of it yet. Equity markets were priced for robust growth, which was clearly not likely to happen, but commodities and fixed-income markets were priced for disaster which was also not likely to happen. The investing risks were clearly tilted against stocks and bonds, given starting valuations, but although the economic landscape appeared weak it was not horrible.
Beginning 2015, the economic news is much better – at least, domestically. Unemployment is back to near levels associated with mid-cycle expansions, although there are still far too many people not in the workforce and a still-disturbing number of people who say they “want a job now” and would take one if offered (see chart, source Bloomberg).
A new Congress has been seated, and it brings the prospect of perhaps maybe potentially in a possible way doing something about the runaway federal deficits. And in other news, several New York area bridges are for sale, which you can acquire at a bargain price.
Let us suppose, just for the sake of inquiry, that Congress ever actually did something to reduce the federal deficit, which would arguably be good for taxpayers (and for the grandchildren of taxpayers). The question is: would that be a good development for current investors?