An article by the AP on newsmax.com stated “Oil consumption will this year fall at the sharpest pace since 1981 due to the crisis afflicting world economies, the International Energy Agency said Thursday as it made new cuts to its forecast for crude demand.”
My Comment: Thank You So Much Captain Obvious! Global GDP is rapidily contracting, for exmaple, GDP (Annualized Q1 GDP from Q4 2008) US -6.3, Germany -14.4, Japan -15.2, Mexico -21.5. With the major economies around the world contracting, demand for crude should be falling. Will it continue to fall? In my opinion no. The global economy will recover over the next 12-18 months and demand for crude should rise again. OPEC and other oil producers have been cutting supply and taking drilling units offline to stabilize the price of crude. This will result in reduced supply (for a while) and at some point increased demand when the global economy rebounds. The price should rise with less supply and more demand! I recommended on this blog to buy oil in the mid 50s and I continue to think that is the right trade.
“It isn’t the sum you get, it’s how much you can buy with it, that’s the important thing; and it’s that that tells whether your wages are high in fact or only high in name.”
“Government is not reason; it is not eloquent; it is force. Like fire, it is a dangerous servant and a fearful master.”
My Comment: As market observers we have to wonder how much of the jobless losses is factored into the economic data that is coming out. I saw a statistic that for every 6-10 jobs lost adds up to one more foreclosure. Also, the recently announced car dealership closings will have a serious negative impact on the jobs numbers. It feels like the “crisis” may be over, but the economic pain may have a ways to go. We may be in for a long recovery, if measured by jobs, home prices or wages.
Nobel laureate economist Paul Krugman says financial markets have overestimated economic strength in their recent rallies. Continue reading
The recent run-up in stocks have some investors wondering if municipal bond buyers rotate into stocks. On balance, I don’t think so. Granted, some investors used muni bonds as a “safe haven” while the stock markets declined, however, most muni bond buyers are long term buyers. Munis remain attractive for the following reasons:
Personal income tax rate outlook (Taxes are going up)
Perceived level of safety (Lower volatility than stocks)
Competitive tax equivalent yields
Not as interest rate sensitive as some other types of bonds
Historically low default rates
With a little more than 6 months left in the year, the Senate yesterday took a vote on permanently raising the FDIC limit to $250, 000. This piggybacks on a similar vote taken in the House doing the same. The measure will now be reconciled by committee and presented to President Obama for signature. Expectations are that this bill will be signed into law by the end of May. Investors have been looking for this clarity for some time and while we need to be cautious until this measure becomes law, it is close. There have been some questions raised related to a 2013 date – some are asking if this measure expires in 2013 and FDIC limits could go back to $100,000. The answer is “No”. The change is permanent. The 2013 date is referencing a 5 year date for the $250,000 limit to be reviewed for possible increase based on inflation. The 5 year period being referenced includes 2008 (original move to $250,000) through 2013.
We refused to touch credit default swaps. It would be like buying insurance on the Titanic from someone on the Titanic.