its time to start getting serious/protective

  1. dub
    33,892 Posts.
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    Just another article suggesting things are drawing closer to a major disruption. Seems to me the few writers pointing out the problem are not "doomsayers" - they are the realists. For mine those who believe the markets are going to continue going up (or at least holding up) are living in Mr. Magoo's fantasy land.

    In a major worldwide recession, I understand all stocks will go down, but some will go down a lot, lot less. Perhaps those are the ones to be checking out now.

    Either which way, seems to me that, if investing in the market favourites now, the risk of suffering a very significant loss far outweighs the chance of making a small gain.



    November 24, 2003

    All that lovely employment data? The quarter million jobs created between September and October? Hogwash. Unless you consider increasing numbers of hamburger-flippers and local government employees to be some major sign of cyclical economic growth. (The bulk of the new "job creation" was in food service, government and temporary work.)

    One could make a case that more burger flippers and pencil pushers are good for the economy, unless you decide to peruse the details of the matter and note, like David Rosenberg of Merrill Lynch has, that the index of aggregate hours worked was down 0.1% in construction and 0.2% in manufacturing.

    In other words while the financial engineers are patting themselves on the back for getting 250,000 Americans quality "careers" slapping processed "cheese food" and crinkle cut pickles onto microwaved beef patties, skilled workers in construction and manufacturing are going home sooner and with smaller paychecks.

    Yeah baby! Now there’s a recipe for sustained economic growth. Do you want fries with your recovery?

    So here we are with stocks hovering beneath 1-1/2 year highs, increasing hamburger-flipper rolls by the hundreds of thousands, two years into the recovery and according to Stephen Roach, we’re still about 7 million jobs short of how many we should have at this point in the game. Makes that "7.2% GDP growth" figure look a little less than the spin doctors made it out to be, no?

    Meanwhile commodity prices continue to rise while the Fed mutters on about "the risks of dangerously low inflation." Platinum near $750/oz. Copper approaching a dollar a pound. Live cattle coming off of lifetime highs. Gold at 7-1/2 year highs. Soybeans near $8 a bushel. And crude oil holding steadily well above $30 a barrel, having consistently defied "expert forecasts" for sub-$25 levels after the Iraq invasion.

    Rising commodity prices are not the best thing for an economy trying to find its footing and grow again. Particularly not oil prices. According to Peter Beutel of

    Cameron Hanover, over the past 30 years every move in crude oil above $30 per barrel has been followed by a recession in 15-18 months. By his estimation, higher crude prices have cost our economy in excess of $300 billion since 9/11.

    That ain’t chump change folks. Putting a few hundred bucks worth of tax dollars back into the pockets of Americans doesn’t offset consistently higher prices at the gas pump. Just about everything we purchase, use, rely upon, etc. has its foundations in crude oil. Nothing you buy gets to the store without crude oil. And newsflash: most companies don’t eat the higher costs of energy. They pass it on to consumers.

    That’s why Peter Beutel can say that crude over $30 per barrel consistently results in recessions in 15-18 months. Because high oil prices can’t be ignored nor dismissed. Crude oil prices are "foundational", if you will. Large changes in the price of crude oil get fed right into the economy and the repercussions are inevitable.

    So here we are with job creation far, far below where it should be at this stage of the "recovery" with crude oil at price levels that have resulted in recessions for the past 30 years. Sound like a normal recovery? Sound like a recovery with some legs? Or just another blip in a post-bubble economy that is likely to start and sputter and slip back again and again until the excess capacity of the 90s is finally washed out?

    You do the math.

    (Copyright 2003 by Mark M. Rostenko and The Sovereign Strategist)



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