Thursday, November 06, 2008

Oil, Jobs, and Markets, Oh My...

Oil continues it's steady mid-year collapse. The dramatic Bank of England rate cuts caused more panicked flow into the US dollars which dramatically impacted oil prices. We're down around $60 again which is probably a natural, currency neutral price for oil. Unfortunately, most markets tend to overshoot there natural fundamental levels in this environment, so expect oil to breakdown a little further.

Jobs - Tomorrow's action will be driven by the 8:30am jobs report. A new consensus seems to be building around -250k to -300k jobs. This would be a stunning drop, but the ability of people to forecast this number has been unbelievably bad this year. Financial services, real estate, and construction losses should be offset by government and healthcare hiring. I'll follow-up tomorrow.

Markets - This has been a particularly rough stretch over the past couple of days. We're back around 900 on the S&P where we've been oscillating for the past couple of weeks. I'm concerned with the level of buy and hold sentiment put forth by the bear turned bull crowd. With just two months left in the trading year we're going to start hearing about tax loss selling and traders locking in gains (read: more selling at inopportune times).

Automakers are back with their hat in hand. The rapid collapse of the auto industry is simply stunning. The Big 3 are going to be shopping a report that shows if one of them goes bankrupt it will cost at least 2.5 million jobs in the US. That's probably an overstatement, but it's going to get the lawmakers attention.

"The heads of the three leading U.S. automakers met with the congressional leaders Thursday to discuss a possible bailout - one day before General Motors and Ford Motor are expected to report sizable quarterly losses and reveal painful cost-cutting measures.

Executives with knowledge of the meetings said they focused on preliminary discussions about what was at stake if one or more automakers fail. The meetings also included Ron Gettelfinger, president of the United Auto Workers union.

"The industry needs time and it needs money and it has neither at this point. That's the purpose of meeting," said one executive.

Among the topics discussed were a $25 billion loan to fund union-controlled trust funds that would be set up in the coming year to cover the health care costs of retirees and their family members. Shifting about $100 billion of those costs from the automakers' balance sheet to the trust funds was a key concession the companies won from the UAW in the 2007 labor deals."

Can we stop throwing money away? Please? There's a piece circulating today that argues that if we continue down this path our debtors are going to start requiring payment in some currency other than us dollars. Now that's a scary scenario.

The last two bubbles have showed that the shown that our economy struggles to create long term, value creating jobs. Manufacturing is never coming back to the US, Financial Services is never going to be the same, so the only growth industries are government, restaurant/retail, and healthcare. My question to you is simple - what growth industries can resurrect our national economy for the next 50 years? I have a series of ideas that I'll offer for critique in the coming weeks.

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