Wednesday, May 03, 2006

Random collection of thoughts...

It's been a busy week - sorry for the light posting. Here's a random collection of thoughts........

1) Oil/Gas - Oil's bouncing around (down over $2 today on news that inventories are up and demand remains unchanged despite $3/gal gas), but it's still trading above $70. This is clearly going to become a more substantial drag on the economy as 2006 progresses. I'm still a believer that we're going to see $2 gas before $4 gas because the contraction of the global economy that I foresee in 2007 will dramatically reduce demand for crude.

The major wild card here is the US vs. Iran. Two weeks ago, I shrugged off all the Iran talk as blustery PR, but it appears that there is some real meat to US preliminary planning. If this talk is true, the possibility of our attacking Iran goes from my forecast of 0% to 30% or 40% and that risk premium probably justifies the current price. For the record, if we attack Iran we all should start buying stock in Schwinn/Trek/Cannondale, etc because you'll be driving around the North Country begging to find $5 gas.

Here's the best gas mapping site I've seen......... Type in your zip code and get updated prices using daily price data. Pretty cool.


2) 10yr and Real Estate - A number of astute market watchers pointed out that the 10yr bond crossed an important threshold today rising above 5.13%. I'm not a technician/chart guy, but one of the best pointed out today that the 10yr is above a trend line that goes back 20 yrs. This is a really important reversal. I'm of the mind that the 10yr bond is racing back to 6% and anything above that is anyone's guess. As consistent readers will remember, the 10yr bond dictates interest rates on your mortgage. Rising 10yr rates = Rising mortgage rates = falling home prices. Couple this with exploding inventory, a buyer's strike in many markets and developments popping up on every inch of available land and this has the makings of being a very bad time to be a new home buyer.

4) Dollar - I won't bother you with a ton of statistics here, but note that the US dollar fell to a 20 yr low vs the Canadian dollar recently (BTW - Did anyone here the Calgary fans booing during our National Anthem tonight?). Oddly enough, that should be good news for our local economy as Canadians will have more incentive to travel south and spend their appreciating currency in our rundown taverns.

5) Markets - Here's the $64k question - where do the markets go from here? I'm still of the opinion that the Fed will raise rates at their next meeting before taking a break on rate hikes. This probably causes one last 200pt day on the dow. I'd sell into the teeth of that rally, because the back half of 2006 and beyond looks ugly. If I have to put a number on the Dow, I'll say we peak within 50 pts of 11,700 then we're heading back to the mid-8k range by 2008. It's Japan circa 1993...

Thoughts, comments, questions???

Any subjects you'd like clarified or covered???

Shoot me an e-mail.

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