(Shreveport, LA) For the past 3-4 months, I have been telling Peoplenomics subscribers to be very wary of the doom-porn promoters who have been trying to make the case that the world is going to end any old minute, now.
We don’t really need to worry until the presidential contest is “in the bag” and even then, it doesn’t look like the bottom falls out until Q1-2017.
The bad news is that once it gets rolling, the downside is not likely to be reached until we are down into the 1,500 Dow range (no, that is not a typo, but around here it is good practice to ask!).
In fact, it could be lower. When we get to the all-time highs for the market – that I still expect in last 2016, there will still be the doom-porn types who are basing their hysteria on little actual research.
Now that the Fed decision is in, here is what I still believe will be the “real deal.”
The U.S. economy should zoom up like crazy. A Dow over 30,000 is possible in the next 12-months. No one else is saying this. Instead, everyone has “football economics” disease going. One wanker comes out with a forecast and everyone else “piles-on.”
Not around here, though.
Let me give you an example:
A number of readers have sent me “Sky is falling” notes because the Baltic Dry Index was down at 471. This is an all-time low.
But at a little broader level, the HARPEX is not there yet – this is the container cargo index from Harper-Peterson.
Right now, it is at 366. The low during the 2009 collapse was what?
The problem many business reporters have is they have never had actual P&L experience for managing a business unit. If they had, they would understand what I am going to tell you right now: In transportation companies, particularly ocean freight and airlines, the cost of fuel is usually the BIGGEST SINGLE COST ITEM.
So, what was the cost of jet fuel in 2009 when the economy was bottoming? Here’s the answer:
Well, now the cat’s out of the bag. The economy is down to 5% unemployment – whether we drink that Kool-Aid totally, or not. And the price of jet fuel is down to 2009 levels.
So when the stories pop about airlines printing money hand-over-fist, how do the know-nothings explain it? They don’t – they can’t – because they don’t understand that it’s the portion of fuel cost in the P&L.
Now, let’s play the same game with ocean freight fuel costs, shall we? Only we will simply use West Texas Intermediate as our proxy because the data is easy to find:
What is going on right now is pretty obvious, isn’t it? In the 2009 collapse, the price of crude was down for maybe 5-months under $60. But now look at the prices most recently: We have been under $60 for over a year! Of course prices of the Baltic will come down and hit lower lows…
If you have a P&L where fuel costs are 5% of your expenses, like running a sales force to sell this, or that, it’s one thing.
But when you have 50% of your P&L devoted to fuel and related, this is what happens.
Having been sr. VP of an airline, was I surprised when this story came out this week? Lower fuel costs send airline profits soaring…
Of course not.
Anyone who who fancies themselves a “student or disciple of management” (or a reporter) and doesn’t have a very good financial model in Excel to help them make intelligent predictions about operating profits and what not should really find a new line of work. (That’s why I belong to the Society of American Business Editors and Writers…pro’s do this kind of basic blocking and tackling).
Yes, the price of oil may drop down to 33, or so. But in 2016, we are wildly optimistic about the effects of persistently low oil prices, modest inflation in the 2-3% range, and with that should come a screaming Dow.
And at least until the presidential election next year, I don’t see gold really taking off.
You don’t want be to be one of the POP (pile-on-press) do you?
As much money as I have made on the bearish side of things, a conservative levered upside position in 2016 may be a good thing. I’m thinking the Double Dow or something like that.
There – consider that your Christmas present and no warranty is stated or implied. You are a grown-up (supposedly) and left-field events can come any time. But as we have been telling Peoplenomics readers for months,. this will be the “Roaring” analog to the Roaring Twenties.
But it you really want some doom-porn, if you’d like to talk about my tax bracket this year, then maybe I can rustle something up for you.
The Fed increase will – as I have been yelling (to no effect) force dead money back into active investing and that will drive up stocks. Watch and learn.
No, it won’t happen overnight. We still have potholes like the Phillie Fed outlook to wade through:
The diffusion index for current activity returned to negative territory this month, decreasing from 1.9 to -5.9. This is the third negative reading in the past four months (see Chart 1).
Dow futures are up only 48, but that’s because we are in a bottoming period. Crude touches $32-33, then off we go to the races. By the end of April, you could be hating me, is you believe the Disaster Choir…
Another Hillary-like Email Story
So I’m trying to figure this story out: Maybe you can help.
OK, what is the message here? A) Ash is no brighter than Hillary when comes to personal email and government work? B) If someone like Ash can do it, why pick on poor little Hil? Or C) Government is infested with idiots who don’t follow their own rules because they have made up so many of them that no one can possibly keep track.
The correct answer I’m going with is D) All of the above.
Who Does Putin Fear?
You know, when comes to dividing up the world into influence spheres, I think you could do a lot worse than Donald Trump and Carl Icahn. But, that’s just me.
Now that Putin is tossing around political comment, I have to wonder if he’s endorse whe-of-whom-we-don’t like to write?
I guess that would all depend on how Putin feels about the lobbyistas which are kind of a runaway October Revolution in and of themselves, wouldn’t it?
Speaking of the Nation’s Money Pit…
The Demos and the Ryan Wing of the Obama GOP have hammered out a new budget plan which gives money for things like NASCAR Race Tracks, horse racing, and oh, yeah, student loans.
Not everyone is pleased, says this report. But you know? Sometimes this “deal-making” seems more like a good cop/bad cop play and a not very well-acted one, at that.
Besides: Deals with the devil always sound good…at first.
Still a couple of major OCare taxes have been pushed back.
Know why? Because which party doesn’t want a turd-in-the-punch bowl going into elections, is why. It would kill the dems and they know it.
My, ain’t expediency a wonderful thing?
I figure if dems were really sincere they would have gone with their freaking tax hike and the Ryan wing of the GOP would have had the goanies to force them to eat their own tax legislation. But no…we don’t get that from the Obama wing of the GOP, do we?
Tell the fairytale again about the two party system?
That’s why I am running for office in Texas as the founder of the Porcupine Party – “Get the pricks out of government.,”
Not exactly a groundswell of support, yet. Sometimes, though, good medicine taste bad.
Or, they taste like the puns around here.