ASPO: Peak Oil Conference

I spent yesterday at the Association of the Study of Peak
Oil (ASPO) conference in
Washington
D.C. As you may know,
Energy Workd
Profits
economist
Gregor
Macdonald
was speaking as part of a panel on how to
invest in the peak oil age.

Gregor’s talk was about the renewed adoption of coal as the
primary energy source for the global economy. Oil first surpassed coal in
1965. And now, 45 years later, coal use is about to move ahead of oil
again.

Chinese Officials Discontinue Monetary Tightening

China’s monetary tightening campaign to prevent inflation and asset bubbles has
lowered inflation to an annualized 2.9%. Investors should prepare now for a
rebound in commodity prices as fears of Chinese demand ease.

“There’s no more tightening happening in China…” head of China research for
Standard Chartered Bank in Shanghai Stephen Green told Bloomberg today.

The Third Depression







I’ve discussed the potential for the coming 2Q earnings
season to disappoint as a primary reason for the recent weakness we’ve seen
in the stock market. The Wall Street Journal reported yesterday that
analysts have indeed been ratcheting down their earnings estimates for the
Second Quarter. Six of the top 10 sectors of the S&P 500 have had
earnings estimates lowered.

Basic materials companies have been hardest hit, with
current estimates now 13 percentage points below estimates from the
beginning of the month. Financial companies have seen the second biggest
fall in estimates, down more than 5 percentage points.

Overall, the companies of the S&P 500 are expected
to report $19.65 in per share earnings. S&P 500 earnings are expected
to peak in 4Q at $22 a share. Interestingly, 4Q estimates have not been
revised lower.


If A Tree Falls in the Forest…

British and Danish
researchers recently published a study in the Journal of Current Biology that
is of interest to investors.

They asked 28 people to
submit a list of songs they’d like to buy online. Then, they had to select
which of the songs they liked most. Then, their selections were rated by two
music experts.

The test group was hooked up
to an
MRI to measure their brain’s response to the music
experts opinion of their selections.

Oil Will Rally

Just about every
question I can come up with right now can be answered by the
statement “Oil is going to rally.”

If the euro strengthens, it
means that investors see progress on the debt issues and there. And
it will indicate that the European Union will not be dismantled
anytime soon. Any gains in the euro will come at the expense of the
U.S. dollar. So based on stability in Europe, or the relative value
of the U.S. dollar, oil will rally.

China just surprised economists
with a stronger than expected export data for May. The implication
is that global demand isn’t as weak as expected. And demand
in China is probably stronger than expected. That means oil will
rally.

The Truth About Employment?

One headline reads
“Jobs news even worse than it appears”. In it, the
writer points out that virtually all of the jobs growth for May was
for the Census, and that’s temporary. And the incremental
fall in the unemployment rate – from 9.8% to 9.7% — was the
result of 1.5 million people simply dropping out of the pool of
available workers.

Also, earnings are down compared
to output.

So in sum, the employment
picture is bleak.

But that’s only one side
of the story. The very next headline reads “Job openings rise
to highest level in 16 months”.

Employment Picture Darkens: What Next?

Investors are apparently not real happy
that payrolls grew by only 431,000 in May. Nor are they pleased
that the unemployment rate dropped to 9.7%. 

Are investors being unfair? Are they
seeing a glass that’s half empty? 

No, not really. Nearly all of the new
hiring in May was for census workers. In fact, 411,000 of the
431,000 jobs were essentially government handouts. The private
sector only created 41,000 jobs in May, which was less than
expected. 

How to Invest in Volatile Markets

There’s no getting around the volatility in the stock market these days.
It’s seems good news one day is offset by bad news the next.

It’s maddening for investors to watch their investments yo-yo back and
forth. Even the best, most stable stocks in the market are not immune
from the volatility.

At times like these, it’s often a good idea for individual investors to
step back from the day-to-day swings of the stock market, and identify
long-term trends that are not likely to change, no matter what happens.

Biotech Buyouts

They say March comes in like a lion and goes out like a lamb. We’ll see about that. March started with a strong rally that’s added +50 points, or 4.4% to the S&P 500. That’s as good a monthly performance as you’ll find. Perhaps too good…   

 

Stocks have come so far, some are now wondering, what’s left? And after today’s ADP Employer Services employment report showed that private companies cut payrolls by 23,000 in March. That’s a far cry from the gain of 40,000 economists were expecting from this report. And it raises the fear that Friday’s release of the Labor Department’s Nonfarm Payroll report will come in far short of the expected 190,000 jobs growth.  

 

Of course, the government’s report will include census workers, so it’s likely to better than the ADP report. But still, the market is left waiting for jobs growth. 

Unemployent falls and so do stocks

Yesterday’s decline reversed the rally we enjoyed to start the week. The S&P 500 is now below support at 1071. Is that a death knell? No. But it’s not good, either.

Mounting debt problems in Greece, Spain and Portugal are spooking investors. Oil prices are lower as investors worry the global recovery isn’t gaining momentum.

The Labor Department reported that companies cut 20,000 in January. New unemployment claims also rose. But somehow, the unemployment rate fell to 9.7%. I’m not going to call that a “damn lie”, but statistics don’t always tell the whole truth.

We’ve noted frequently in Daily Profit that we can expect to see some pretty wild swings in the data as the housing market and unemployment rate bottom. One month’s positive data gets revised lower, and then the next month’s negative data gets revised higher.

There’s no doubt the economy is improving, but is it happening fast enough? And perhaps more importantly, where will the base-line be?

An unemployment rate around 4%-5% used to be the norm. We’re certainly looking at a higher base for unemployment over the next few years. GDP growth will be lower. Investors will probably support lower P/E ratios and levels for the major indices.

That’s not a disaster, but it does mean you’ll need to be focused on value and not afraid to take profits when you have them.