In these days of market panic (and I say that with a smile), all one has to do to get a grip, if one needs to get a grip, is think back to the fall of 2010, no wait, not that far. Try 2011. Sorry, that too is a bit far for me even if it is applicable. How about 2012, then, Dang, let’s just take a look at 2013.
On September 10th, the Dow stood at 1466. It had had a good year up to then, moving up in a steady fashion, responding well to earnings that, once again, beat expectations. On November 12th, the market finished a two-month slide that took the Dow to 1360, just a bit more than a 1,000 point drop in a little over two months.
Pretty scary, huh? Consider this, then. On December 31st, the Dow stood at 1466, right where it left off back in early September, which brings us to the following scary headlines, headlines you should completely ignore, if you want to get a grip, that is.
- Nightmare on Wall St.: Will the bloodbath continue?
- Think it’s bad now? Why it could get a lot worse.
As of yesterday’s close, the Dow has dropped 958 points since September 19th, not even a month ago. Perhaps this means the market has another six weeks to drop further. Then again …
- U.S. stocks opened higher on Tuesday after its worst three-day drop since November 2011 as investors turned their focus away from global growth concerns and towards corporate earnings.
Could the market really be turning its attention to earnings? Has it had its fill of fear? Does it feel as if it has shred the excess points, the ones that made fitting into the pretty valuation difficult? Has it found its place of balance?
Lest I forget, as it seems the breathless media has, the Fed ends its massive bond-buying program at the end of this month. Caput! Finito! All we have left for the market to ponder is when interest rates will rise and by how much. My guess is some of the recent carnage is because that reality is lurking underneath the churning water.
Has the market hit bottom? I don’t know. What I do know is that in the most recent reporting, Johnson and Johnson came in above expectations on its earnings, as has JP Morgan, Citibank, Wells Fargo, and Dominoes.
Of the above, the financials say something about the economic health of the US economy. Johnson and Johnson says something about the health of the US citizen (not so good), and Dominoes says something about the health of the US consumers’ appetites. All, though, say something about the near-term future of the market – if it falls further, it has something to do with something other than earnings.
I have spent some writing space recently on the price of oil. I have for some months written about the oil glut in the world. Yesterday, I wrote about OPEC and the Saudis saying they will not cut production. I suggested that oil prices would drop further because of a price war, thus bringing down gasoline prices, thus spurring more consumption from the US consumer.
- Saudi Arabia is not trying to push oil prices down, an oil source said, but is prepared to let the market find its floor and tolerate lower prices until others in OPEC commit to action. It has already cut selling prices to retain Asian customers.
I wrote yesterday, this current glut derives from the increased production from US oil producers. I also wrote that no one is prepared to cut production because the OPEC members (other than the Saudis) cannot afford to cut production and Russia can’t cut production because it could face another revolution, which means the same thing – it cannot afford to do it.
Now, add to the above, the Iranians (one of the biggy oil producers), are now saying a deal with the world about its nuclear program is “certain.” What we have here is a country dependent on oil revenues decimated by sanctions on its oil trade. Imagine what the Iranian leaders are now seeing – oil prices dropping and them losing market share because they can’t get their oil out. Iran needs to get back into shipping oil and it needs to do it fast. So, once they sign on about their nuclear program, the following becomes even more real and even more positive for the global economy.
- An oil market potentially facing years worth of oversupply.
Earlier, I had trouble going back to the fall of 2010, but now I am forcing myself to go all the way back to the oil glut of the 1980s. Yow! It is difficult, but what I see is oil and gas prices dropping so fast it made your head spin. Back then, the Saudis cut oil production and it accomplished nothing. The price dropped precipitously because no one else cut production, for the same reason no one else will cut production today – they can’t.
So, this time, the Saudis are trying something else – cutting prices to maintain and capture market share. Folks, if this continues, and I see no reason it won’t, the catalyst for a booming global economy, that thing that has not shown up in this economic recovery, will soon appear in the form of cheap gas prices.
Some analysts are now talking about gasoline prices in the mid to low $2 range on average. In some areas of the US, they could get below $2, well below $2. Personally, I would be happy if they dropped below $3 here in California, but, that’s just me.
Finally, here is a thought to ponder.
- When the UN was created in 1945, world GDP was $7 trillion, and there were 2.5 billion people alive. Today, world GDP is $71 trillion.
Here is the kicker about the above. Today, there are 6.25 billion people in the world. That is a 250% increase (more or less). The jump in GDP, however, is a 1000% increase. This means there a whole lot more folks making more money and if just a fraction of those get to keep more to spend on things they want because gas is cheaper, well, then, get ready.
Trade in the day; invest in your life …
