Angell's 60% probability of a Fed 1/2 point rate cut next week turned the market around today in spite of the continuing bad news. The Fed is behind the curve on this one. Inflation is showing up in the CRB and the latest inflation stats. Rate changes up or down take about 6 months to a year to impact. The flurry of big rate cuts IMO is going to guarantee significant inflation problems because the money supply was growing much too fast before the cutting began. Sharp, your comment on Telecom debt is very well taken. As you pointed out, this huge burden is going to cause bankruptcies and dry up spending. The result will be a stalling of a prime driver of the economy and stock market - the internet boom. Stagflation appears to be peeking over the horizon.
While it is true that a slowing economy will reduce oil and gas demand, my belief is that the oilpatch boom cycle is still alive and well and has some more years to run. The article I posted earlier detailed the reduction in gas production year over year in spite of record numbers of rigs working. Low storage levels, rapidly increasing gas demand for electric generation, and high depletion rates are keeping the pendulum on the side of shortages and high gas prices (albeit not anywhere near $10/mmbtu, but more than enough to keep gas producers fat and happy). I don't believe that the recession will be deep, but it will last quite a bit longer than the first half of this year. If this is the case, demand will not fall enough to cause oil prices to tank and a very skittish OPEC will continue to cut quickly and significantly to assure that prices stay around $25 to $30/bbl. Any turmoil in the Mideast can cause these prices to soar.
With these thoughts in mind, my focus is still, and right now totally, in the oil and gas arena. If my hypothesis is correct on oil and gas prices long term, then there is still a lot of money to be made in laggards - and there are a lot of good laggards out there. Of course if the markets plunge and throw my babies (e.g., SBLU, MXWL) out with the bathwater, then I'll invest accordingly. |
