Don Coxe on the theory of the Shared Mistake, Oil Prices and other things
[Mish note: I highly recommend reading the entire article, a long one.]
This is another example of Shared Mistake—the basic theme
of my book. When all the prominent people agree on some
important economic or financial forecast, and they are all
wrong, the consequences are enormous—and enormously
painful.
Mish comments....
The article uses oil as an example.
Virtually everone thought oil was headed back into the 20's and they were all wrong.
Now what is the universal agreement?
1) Interest rates are headed up next year
55 out of 55 economists polled all agreed
First unanimous vote ever
2) Treasury yields will rise
3) The US economy is strong
Another snip from the article:
XOM and its oil brethren are the biggest reason why the p/e multiple on the total S&P looks reassuringly modest these days. The high multiple on the rest of the market is no aphrodisiac to arouse hot-weather capitalist lusts.
Look at Exxon Mobil's Q2 earnings per share, up 42% this
year and 59% last year. However, the seers forecast a 22.7%
decline next year.
Imagine what would be happening to the
prices of tech stocks if the prices of their products were
climbing by 35%, rather than falling at double-digit rates.
[Question of the day from the article....mish]
II. Capital Spending Peak?
The temporary 50% boost in capital spending depreciation
allowances expires, by remarkable coincidence, 59 days after
the election.Will capex remain robust when Washington isn't
picking up so much of the tab?
Coxe comments on GM supply of SUVs
To the extent they have had profitable private passenger
vehicle operations in North America in recent years, they have been confined to SUVs, the vehicles with the most to lose from $40 oil. When last heard, there were somewhere north of 110 days' supply of those thirsty gas-guzzlers on hand. Meanwhile, Toyota's Prius, which sips gas as if it were Chardonnay, is back-ordered through 2005.
On Oil
We think investors should assume that the Fed and other
central bankers will look at $42 oil as a deflationary—not
inflationary—force. It not only depresses consumer spending,
it sucks billions of dollars out of the closely-measured and
integrated OECD economies into the void where Angola,
Nigeria, Venezuela, and Saudi Arabia lurk.
We were as surprised as anyone by the sudden slowdown, but
we doubt oil prices are headed for $50.
[I have been wondering about this. There seems to be a concensus for $50 oil. Is it too one sided or not? - mish]
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