Wednesday, August 20, 2008

Gas Prices Down for 42nd Straight Day and Financials Can't Find a Floor

Gas prices continue to follow larger trend in oil and fell in California for the 42nd straight day. According to a San Diego newspaper a gallon of gas has finally broken through the $4 level. The fact that oil has fallen so sharply, so quickly in the face of hurricane season and the Russian/Georgia conflict speaks to the power of the demand destruction that occurred as a result of $4.50/gallon gas. Demand destruction and traders bailing out of the oil trade are the primary drivers of this move, but I sense that most of the global oil producers think that we have acquired a taste for $95 oil (roughly $3.30/gallon gas). I think that if the trend continues when oil breaks $100 you'll hear more talk of OPEC cutting production.

Ultimately, cheaper gas does nothing to break our addiction to oil and in fact it will reduce the incentives to find fossil fuel alternatives, but I can't change the market, I can only observe the trends.

Just when you thought the worst was over for financials.........The get whacked again. I was right on the direction of this trade (financials going lower) but I missed the timing. I thought it would be best to wait until Labor Day weekend to go short financials and I thought you'd get a chance to buy puts at more attractive prices. We might still get a bounce or two from here, but some of the big names have a lot of life sucked out of them already.

In my new role as a futurist I offer the following big picture global view of the events of the past 3 mths. Just as our economy falters, China puts on a surprisingly successful Olympic games and exits the games positioned to be a global leader for the 21st century. This is a very important time in our history and as I've said before, I think that when the history of this century is written we will look back and note this moment as a literal and figurative passing of the economic torch. I hope that I am wrong, but for most of the 21st century the US has looked and felt like the UK at the beginning of the 20th Century - an aging superpower that is slowly losing it's grasp on the world's economy. I don't foresee a complete collapse of the US economy but rather a slow fade from power much like the British experienced 100 years ago. We have a very small window of opportunity to fix this and here's my plan:

- 75% of the world's best and brightest still want to come to the US, let's welcome them with open arms.

- Clean electricity generation, non-fossil fuel based personal transportation and delivering access to clean fresh water are going to be the greatest vehicles of economic growth in the next 50 years. China has powered their growth by making junk for Walmart. They have no specific lead in these Super-Industries yet, but time is short. One major windmill manufacturer in Germany mentioned last week that in 2007 not one new competitor emerged from the US, but 35 companies were started in China.

- Clean up our act. Our Federal Gov't spends like a drunken crab fisherman right now and that has to change. We have to slash healthcare costs, slash defense spending (yes, I said it cut defense spending - any country that spends more on defense than the next 45 countries in the world COMBINED has some serious issues), increase education spending (the right kind of education spending), etc. These are political footballs that no one wants to touch but if we don't we'll find ourselves mortgaging the farm 10 acres at a time to pay for another night out a Red Lobster.


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