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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club -- Ignore unavailable to you. Want to Upgrade?

To: MrGreenJeans who wrote (14418)	6/13/2000 9:45:00 PM
From: Justa Werkenstiff	Read Replies (3) \| Respond to of 15132

MGJ: I suspect you know the answers to your own questions. And if you want to share them, great. True oil has become less of a factor in the economy. U.S. oil expenditures have fallen to an estimated 3% of gross domestic product from a high of 8.5% in 1981, according to the U.S. Energy Information Administration. Suggesting that the growth of the Internet and the service sector has produced lasting changes in the economy, the U.S. in 1997 and 1998 posted its sharpest energy-efficiency gains in a decade, according to an analysis by the nonprofit Center for Energy and Climate Solutions. In both years, energy consumed per dollar of GDP fell by 4%, compared with the previous decade's average decline of less than 1% a year. But oil and gas shocks are unpredictable in duration and scope. Greenspan has said as much. And there is the possibility here of a bad scenario developing and this is an undiscounted risk in the equity market. One should pay attention. If one thinks that OPEC cheating will eventually bring down the price of oil and thus gas, then everything will be fine. But ask yourself: if some OPEC members have been cheating (and they have), then why is the price of oil steady to rising? Could it be that they are capacity constrained? Well, some countries are just that and that is why they will balk at production increases. It means no money in the pocket for them because they are running at full tilt as it is now. OPEC has the vision of power now and with that power in their minds they could do something stupid. Greed is beginning to ramp. Did you notice how they had a price band at which they said they would increase production and then conveniently ignored it once it exceeded the band? Do you think the rig workers in Norway would have gone on strike with oil at $10? What happens if Iran decides it is pay back time and reduces output? All it takes is one major producer to muck up the works. Then there is the EPA and its new reformulated gasoline. And what about inflationary expectations as driven by the price at the pump. I know some folks are thinking back to the 70s every day they go to the pump. And I am not talking about "stagflation" in the classical sense as defined by the 1970's and early 1980s which was characterized by high unempolyment (say ranging from 6% to less than 10%) and high inflation (say 6% to 14%) which is the classic defintion of "stagflation." Nobody is talking about it in that manner. I am talking about a period where growth slows but where inflation continues above the trend line established by the Fed. at 2.5%. Call it what you want but it is not a Goldilocks economy. Paul McCulley of PIMCO refers to "stagflation" in this sense and I hope you had a chance to review that article.