Jun

21

During the past week the public has been hit by bad news about the economy and the geopolitical situation. I could not find a single positive event in the news. Even potentially good things have been presented from the negative side. Some examples: 1) The Saudis announced an increase in oil production; 2) US considers starting to exploit their resources more fully (apart from environmental considerations); 3) China increased the price of gasoline. Eventually they were presented as bad news: 1) The Saudis have declared this many times and moreover we really do not know how much oil they have left in their reserves. 2) Oil from Alaska could contribute very little to reduce US import dependence. I even heard that 3) in China this measure could increase demand; and in any case Chinese consumer behavior takes a long time to adapt to new situations. On the other hand other, potentially more negative,  news had an impact on oil prices. Israelis a month ago exercised to bomb Iran facilities. The problems in Nigeria could disrupt extraction. Alternative energies are still a long way ahead. Then we are hit by news about the credit crisis, mortgages, frauds, a plunging housing market, growing deficits.  Skyrocketing inflation is putting at risk emerging markets growth. Food prices and climate change are going to bring instability and famine in many areas of the world. The free trade era may be nearing an end amid food and growth concerns.

The stock market is going to retest last January lows. Earnings forecasts are negative. Recession is behind the corner. Consumer sentiment is at its lows. Terrorism is a threat and the situation in Afghanistan can only get worse and at best it will take a decade to be solved. Similar comments for the operations in Iraq. I find all this quite discomforting. In this climate, it is impossible for the public to build their own map of opportunities and risks if news is so unbalanced to the negative side.

Sometimes I really wonder if it is possible for someone or a group of people/interests to design and implement these information campaigns. Military info ops are nothing compared to what we see on TV and read on newspaper and the internet these days!

I have seen more than one recession in my life. It is always the same pattern.

On the other hand, I remember during the dot.com bubble, every company announcement was the demonstration that a new era had begun. Every bad news was interpreted as uninfluential in the powerful flow of innovation and creativity of the internet revolution. Of course it was not like this.

Now we confront our decision making process with the oil bubble, the weak dollar, the unsold inventory of houses, inflation and so on. I do not want to be positive at all costs. The long process of growth started after WWII brought improvements in many parts of the world. I understand that new elements could arise at a certain point to undermine what for us is now given for granted: a continuous seamless improvement of our conditions. But I really do not think this is the case now.

Between the lines we need to able and read the key drivers for continued growth and development in the next years. "They" are simply making it difficult for the public to see them and make sound investment decisions.

Vince Fulco reviews the events of Friday:

The bears could not have scripted a better one for quad witching if they had hired Hollywood writers for the purpose.  It all revolved around six negative words in the headlines, though the reality was more nuanced:

1) DOWNGRADE- of the monolines the prior night which has been discussed ad nauseam by fixed income and equity analysts alike for months (whoops 5 notches). What happened to efficient markets and discounting of information?

2) WAR- Israeli war games over 3 weeks old, in plain view of most neighboring countries. Comes on the heels two weeks ago of politically motivated utterances by a minister re: war's inevitability which caused selloff and recovery in numerous instruments.

3) PRE-RELEASE- Newswire "reports" unsubstantiated rumours that Mother MER will pre-release. This is after days of repeated number trims and caution by early/late street analysts to the bulge brackets' plight.

4) CREDIT WATCH NEGATIVE- Rating agencies NOW waking up to the reality of >$4 gas and fleets that are inefficient and unsound. Not to mention finance arms run amuck.

5) QUAD WITCH- Primary TV program reporting OT1H "look out for increased vol today" and OTOH "the day isn't as important as years past due to traders spacing out their portfolio changes".

6) OFFERINGS- After weeks of endless capital raises among the big boys, the regionals start to hit the accelerator shortly after being "outed" or "goaded" by GS and (in repeated attempts) by Fed and Treasury.

Tailor made IMHO and a sight to behold given SPUs were only down 4-5 points at 5:00 am. Although it involved numerous random events, sure has a deus ex machina feel to it.

James Lackey writes:

1. Keep in mind it is an election year. 91 saw similar doom and gloom. After the fact Clinton inherited a booming economy and could raise taxes.

2. Dem Sweet is a lock. Taxes are going up without a vote. Best way to have taxes lowered on the rich would be a wicked recession.

3. Global warming green meme is a rise in taxes, a whole new regime of taxes and carbon credits. The quick way around this is to Jam up all energy prices as high as they can get them. No politician can raise energy taxes when even electricity bills go limit up.

The counter argument is now being formed. At the barber shop this am Newsweek or one of the rags had "Global warming is a Hoax". Yet on Fox News on the TV next to the news rack they had Dow at 3 month lows, Energy at highs, stagflation. Ill be looking for a new barber shop without the TV.


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