Tuesday, November 04, 2008

Like My Friend Often Says - "I've Got Nothing"

There seems to be something dominating the news cycle tonight - apparently there was an election of some sort today - so there is little new economic news out there. A couple of quick observations......

1) We're still rallying on credit thawing and the influx of money on the certainty that the election will be behind us. We're nearing a 20% bounce off our lows and that is the target that many people have set as their peak for the bear market bounce. I'll remind everyone that we had a 50% rally after the '29 crash before blowing through those lows in the '30's.

2) Corporate news remains pretty ugly - Dell is still cutting back, Boeing is delaying the dreamliner again, etc., etc.

3) Another plus of falling oil prices - The Ethanol Industry is imploding upon itself.

"Last week, VeraSun, one of the nation’s largest ethanol producers, announced that it had filed for bankruptcy protection after its bets on the price of corn turned out to be wrong — and costly.

Several other small producers have filed for bankruptcy this year, and construction plans for several Midwestern ethanol plants have been postponed or shelved. Shares in the handful of publicly owned ethanol companies have mostly been slumping all year. Aventine Renewable Energy and Pacific Ethanol, for instance, have both lost more than 80 percent of their value since the beginning of the year."

We need to find alternative methods for transportation, but corn-based ethanol is an expensive joke. Thankfully this might go the way of "New Coke".

4) It's a little early to talk about future currency swings, but I'll note that the falling US dollar contributed to a 10% jump in oil prices today back over $70/barrel. Demand in falling sharply for oil, but we shouldn't discount the fact that much of the fall in oil prices has been directly tied to the strength of the US dollar. If people sudden unwind this trade and sell US dollars, then Oil could reverse it's current trend. My long-term expectation is that in 2-4 years, the dollar will be much lower and the oil, unfortunately, will be much higher as a result.

The market's interpretation of the results of the election should be interesting tomorrow.



Anonymous said...

Your financial blog is pretty darn good for the north country :) That being said, the dollar falling/ oil rising is a hard bet to make because for all the talk about our economy being de-coupled to the world econ, the fact is, it's still the driver. As such, I think our dollar is going to trend pretty evenly with most 1st world currencies, unless we do something really stupid, which of course we could.

The blog thing is interesting as a concept overall. You hate to predict things in such a manner that have people lose money because they put too much stock in your opinions, but I can tell you that I'm 80% cash, 5% long, and 15%Russell/doubled (etf) short. It's going to get very ugly for at least a year, and maybe 2 or 3.

that being said, look for a lot of road work coming our way.

The Artful Blogger said...

It's an interesting point on the the double etf's. I saw an nice article yesterday that indicated they are getting ready to launch triple levered etf's. Traders love the volatility.

Re: the dollar/oil call - My long-term assumption on the US dollar is based less on economic assumptions than on the following -The painful US trade and budget deficits which can't improve when we produce so little, our shrinking GDP which will encourage investors to invest more money in other countries first and our low interest rates policy ( money tends to flow to higher-interest currencies).

I'd be happy to be wrong on this one, but I think the current crisis has artificially inflated the value of the dollar (pushing down oil) and I think that trade will reverse after the crisis passes.

Good comment. Keep 'em coming.