Let’s start the day with an interesting fact from yesterday, one that tells me more about the market’s attitude than just about anything else.
S&P 500 Climbs to Two-Month High
Stocks finished with modest gains despite this morning’s disappointing economic data and slew of earnings reports that saw bottom line beats accompanied by top line misses.
Somebody is buying in the face of rather depressing headlines about the global economy and the US economy. Fact: The market is not tanking (even though it is down today), despite the opportunity to do so. I will get back to that at the end of this piece …
In early to mid-1800s America, whale oil as a primary energy source began losing market share to kerosene. In 1859, Edwin Drake, the original Beverly Hillbilly, struck oil in Titusville Pa. In 1861, the Civil War began and the South captured or sunk most of the New England whaling fleet, which effectively ended whaling oil as a primary energy source. Kerosene, although widely used, simply could not keep up with demand. Necessity is the mother of invention, truly, so with the help of the government through land grants, subsidies, and tax breaks, the oil industry arose to meet the rising energy demand as America became less rural and more urban. Today, we are seeing another shift, from oil to natural gas (which was used in the 1860s mind you), which is leading to a petrochemical resurgence.
The biggest beneficiaries of the fiber-optic boom a decade ago were not the sellers of cheap bandwidth, but its users. In the same way, the biggest impact of the shale-gas boom will be felt downstream. It is a primary feedstock for ethylene, the building block of countless other products, such as plastics and tires.
Opportunity knocks here for those who wish to do some research. Not only will the big boys, such as Dow and Archer, provide opportunity, but look to the downstream producers as well.
Dow recently announced that it would build a brand-new ethylene cracker in Freeport, Texas, one of several dozen expansions or new facilities along the Gulf coast. Most of the new output will be turned into more refined products at other Dow plants in North America and, eventually, Latin America as well … Petrochemicals are only the start. Industries as diverse as glass, fertilizer and plastic bags could all benefit from cheap, plentiful natural gas.
Ironically, in America’s quest to end its dependence on foreign oil, it is actually increasing its share of the global market from domestic sources, and this is coming about because of the technological revolution happening today and the emergence of the global middle class.
Emerging markets have also revived America’s role as a big commodity producer. Soaring grain exports have raised farmers’ incomes to record levels. At the same time, surging oil prices have triggered a gusher of new output. In 2011, US crude-oil production reached its highest level since 2003, of 5.7m barrels a day. Last year, for the first time in decades, America became a net exporter of refined products such as petroleum.
And let us not forget that the seemingly unwanted step child of oil is the clean burning favorite of environmentalists, at least those who do not oppose “fracking” as a way to get the gas.
Many countries have shale gas, but, as it did with the internet revolution, America leads in exploiting it. Federal money helped finance development of the “fracking” technology that makes shale gas accessible, just as it paid for the internet’s precursors. However its use was commercialized by a Texas wildcatter called George Mitchell, the sort of risk-taker America has in abundance. Not so long ago, terminals were still being built in America to import liquefied natural gas (LNG). Now the country is enjoying a bonanza of domestic gas. Americans pay less than $3 for 1m British thermal units, where Europeans and Asians often pay more than $10. Accordingly, America is now planning to send the stuff abroad. In the future, it will spur the domestic manufacture of anything needing large amounts of energy.
The above, as well as the other information I presented this week, is but a sampling of what is going on in the USA. The transformation is in full swing, and the market opportunities are both here and coming. But for those who are all caught up in the present “bad news of the world” environment, read the following and consider an alternative mindset about the US economy, and, by extension, the global economy, since the US is the biggest boy on the global block by far.
Union Pacific was able to post the record earnings, the CEO said, because the “good news was able to offset the bad news.” He also noted the railroad was increasing its shipments of other products that reflect an economic upturn. “If you look at our lumber business, our rock business, our stone business, cement, all of those kinds of things are improving,” he said. There’s also been a pickup in the automotive business. It tells you that the economy is continuing on a slow growth trajectory, and that’s what we really see for the balance of the year,” he said.
Trade in the day; Invest in your life …
