Options Trader: Friday Outlook

by: Philip Davis June 06, 2008    
Philip Davis

Philip Davis

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Yay, oil is back at $130!

If the market is determined to be happy about this, I guess I can be too.  No, who am I kidding - I can’t.  This is insane and it’s not going to last.  Oil costs money, people don’t have money and that’s why they ran in droves to Wal-mart (WMT) and other discounters last month.  What we are seeing here is the result of a very short-term boost to the economy as our government dumps another $160Bn that they had to borrow in order to shore up the economy for yet another quarter, refusing to take their medicine while the disease progresses further.

So happy Friday to ya!  I did try really hard to come up with a bullish premise based on no recession (likely) and better jobs growth (iffy) and controlled inflation [ROFL] but the dollar is a mess, we have no coherant policy on energy, housing or the broader economy and, with the election coming up and the track record of this administration, we are very unlikely to get one before next year.  How is this a recipe for success?

 No matter what BS numbers we get for the month, the reality of the situation, as Barry Ritholz points out, is that long-term jobs are being destroyed at an alarming pace and we were just speaking about looking for "W" or "M" formations in charts and what you can see on this one is a broken W, that didn’t make it back up to the high of the mid-point set in 2000 (Clinton) and we are now much more likely to complete the final leg of the M, that will take us back to the lows we hit in 1992 (Bush I).  The lower leg of this pattern is perhaps 61 (hopefully not 60!) and that is about a 3% rise in unemployment, possibly to 8 or 9%.

8:30 Update:  Ouch!  Jobs numbers were almost the exact opposite of the ADP numbers that gave us this rally, we could be looking at a very hard reversal of fortune here as 49,000 jobs were lost and unemployment shot up to 5.5% (up half a point), the biggest single-month jump since 1986 (Reagan).  That makes 5 straight declines in non-farm payrolls with about 250,000 jobs lost so far this year. 

Average hourly earnings increased $0.05, or 0.3%, to $17.94. That was up just 3.5% from a year earlier, suggesting wage costs remain under wraps. Fed officials are counting on the disinflationary slack that comes from a slowing economy to offset higher energy, food and commodity prices and the weak dollar and keep inflation in check.  In other words, the bad news is you’re not getting a raise but the good news is that it offsets the 11% inflation of food and energy prices to the government can continue to claim overall inflation is under control.

 The worst thing is this takes a Fed rate hike off the table and Trichet took the gloves off yesterday and indicated that the EU will break with the US and start tightening without them.  I had mentioned back at the last G7 that the administration would be given a small grace period to get their act together but I think Bernanke’s comments this week were the last straw for the ECB, who see no progress being made on our end to improve the dollar and Trichet is letting us know, in no uncertain terms, that Europe is not going to bail us out of this one.

Can Europe fight inflation without us?  Sure they can.  They don’t care what the price of oil is in dollars if it takes 3 of them to buy a euro and that’s where we’re heading if this administration doesn’t get real and do something to address the oil situation as well as the housing situation.  Why are we surprised that 50,000 people lost their jobs in a month where 210,000 people lost their homes? 

Asia was up this morning with the Hang Seng gaining 148 points and the Nikkei adding 146 points ,but they didn’t see this jobs report so the FXI should plunge this morning.  Asia also had a commodity rally and the Shanghai did not participate as rising oil prices are beginning to grind the Chinese consumers to a halt as well. 

The IEA released a study saying the world needs to invest $45Tn in energy in the next 30 years, including building 1,400 nuclear power plants and "vastly expanded wind energy" in order to halve greenhouse gas emissions by 2050.  "Meeting this target of 50% cut in emissions represents a formidable challenge, and we would require immediate policy action and technological transition on an unprecedented scale," IEA Executive Director Nobuo Tanaka said.  Global temperatures are expected to rise over 3.6 degrees Fahrenheit by then and UN scientists say temperature increases beyond that could trigger devastating effects, such as widespread loss of species, famines and droughts, and swamping of heavily populated coastal areas by rising oceans.  Oh yes, happy Friday!

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This article has 18 comments:

  •  
    Jun 06 10:06 AM
    No doubt about it, we need a tax cut. Bernanke's been trying to keep the economy afloat by himself, as the Congress continues to be AWOL. Instead the talk in Congress and the likely next President is about tax hikes. No wonder employment is hitting the skids.
    Reply | Link to Comment
  •  
    Jun 06 10:13 AM
    A tax cut, AlexS? With the deficit at $600b? Don't get me wrong, I'm short Treasuries so a tax cut would help me doubly, but I don't see anyone putting together the political capital for a spending cut and without one taxes simply must rise. As our author correctly points out, the government has shown no willingness or ability to do the things necessary to begin recovery.
    Reply | Link to Comment
  •  
    Jun 06 10:30 AM
    The market is anticipating the death of the current tax cuts.
    Those cuts need to be made permanent, and spending has got to be dramatically cut.
    McCain can get that done.
    I don't relish surrendering to Islamic terrorists and killing our capitalistic system with the socialism that the radical Democrats seem to want to pursue.
    Reply | Link to Comment
  •  
    Jun 06 10:47 AM
    A sane fiscal policy that taxes money away from people who would otherwise dump it into hedge funds will be instituted by the new Democratic administration/Congres... The dollar will firm, inflation will ease and the economy will improve. Putting these marginal dollars to work for public purposes rather than private market manipulation will have a great benefit for all.
    Reply | Link to Comment
  •  
    Jun 06 10:47 AM
    'Thanks a lot', mr. Dickout, for 6 years of.....'General Electric Canada'.
    windtech-international.../
    Reply | Link to Comment
  •  
    Jun 06 10:53 AM
    Republicans have always performed better as the party in opposition rather than as the party in power. Their party loyalty seems to get in the way of self appraisal. This is the good news of the regime change coming with this election. Since Republicans have only read one sentence from the constitution, "provide for the common defense", they never recognize the part about "promoting the general welfare". Defense spending is a tax as well oilseekr since it invests capital in the means of destruction rather than the means of production. We build weapons while the competition builds steel mills. This is doubly true with oil prices. Want a tax reduction? Promote alternative energy. Creates jobs at home and and frees us from the clutches of the oil sheiks.
    Reply | Link to Comment
  •  
    Jun 06 11:37 AM
    I went to a bioenergy conference a few years ago. The "alternative energy" research went as follows: University of State A grew some soybeans and made biodiesel. University of State B grew some pinto beans and made biodiesel. University of State C grew some mustard seed and made biodiesel. University of State D grew some rapeseed and made biodiesel.

    Just wanted to show you what "alternative energy" research means in the real world.
    Reply | Link to Comment
  •  
    Jun 06 02:06 PM
    Defense spending is the reason you are able to post as you do now.
    The Republican party represents the conservative approach of less government, lower taxes, and promotion of the capitalistic system.
    This is adjunctly opposed to the Democratic ideas that promote socialism, increase taxes, more and larger government.
    Freedom has never been free, itsonly.
    You live in an idealistic world. Yes, alternative energy has to be promoted and developed, but that is going to take years.
    In the meanwhile, we have to manage to exist on hydrocarbons.
    There is not enough to keep up with the demand that is currently causing the higher prices.
    Your view that defense spending invests capital in the means of destruction rather than the means of production is naive and short sighted.
    Iraq is a great example. Our efforts over there are freeing 30 million people from tyranny, restoring an antiquated oil system, and showing the world that democracy is a viable option to the oppressive political and religious extremism they have always known.
    As we progress successfully Iraq's oil production will be coming onstream in greater volumes which will help with the supply shortages.
    Get used to high energy costs. As you said, its like a tax. Taxes rarely get reduced without Republicans getting them reduced.
    Reply | Link to Comment
  •  
    Jun 07 05:31 AM
    greenchipstocks.com/ar...
    Reply | Link to Comment
  •  
    Jun 07 10:25 AM
    Nobuo Tanaka, along with the majority of dooms-day lemmings, will be paying higher heating bills after the year 2012. Hint- sunflare activity.
    Reply | Link to Comment
  •  
    Jun 07 11:37 AM
    It's a really simple choice. Had enough? Put the other party in power before the Repubs completely destroy the dollar and put us into a depression rather than a recession. With the decline in the strength of the dollar, the ever-increasing national debt (which results in more of our tax $$ being used to pay interest rather than used to improve our society), increased unemployment, more and more people without health insurance, and our loss of stature in a global economy, I continue to be amazed that people can continue to call for more tax cuts and praise the results of this administration. What is the overall goal? - to bankrupt the government? If we want an expanding economy, we must have a fiscally responsible form of government, and clearly that idea has been tossed out the window by all these conservatives who profess to love America while the administration continues to enact policies that undercut our strength. Being the world's largest provider of bombs and warfare will not strengthen our economy. We as a society are going to have to deal with these fiscal problems, and if we continue to stick our head in the sand and profess we are the greatest nation in the world while the other nations catch up and pass us on job growth and GDP, eventually we will in fact bankrupt our government and the result won't be positive. Regardless of party affiliation, all one has to do is look at the results the current administration has produced in 7 short years and it becomes inescapably obvious that we're headed off the cliff. My only hope is that too much damage won't be done b4 anothe administration comes to power and tries to restore some sense to our economic and foreign policies.
    Reply | Link to Comment
  •  
    Jun 07 12:16 PM
    Alternative Fuel(s) are the latest EXCUSE in the only real bi-partisan agreements. The agreements that are in the parties interest and in the interest of their pathetic party puppets (our ?,representatives/sena...
    They (ie. those persons identified by ?) cannot afford to go against the parties for fear of reprisal (look at the votes and how they align with the Ds and Rs) and they can't go against industry due to guess what ($$$,$$$,$$$). Then there is our lame media (sub-puppets(1) and the mindless citizens (sub-puppets(2)).
    Then there are the experts (I call them x-perps) you know political,economic etc. Well, the economic ones regularly cite that it is not possible to do anything until it becomes economically viable.
    Makes me wonder how we ever got to the moon.
    Reply | Link to Comment
  •  
    Jun 07 01:16 PM
    oilseekr, that is the same gibberish that I have heard for the last seven years. It is like a record playing over and over. Step down quietly and let someone else have a go at it. This Regime has seriously screwed the pooch. There is more to economics that Tax Cuts. Honest to God there is. Let it go.
    Reply | Link to Comment
  •  
    Jun 07 06:04 PM
    That's great! Let's put a rascia
    Reply | Link to Comment
  •  
    Jun 08 01:16 PM
    You guys really can't see the forest for the trees, can you.
    Look, the equation is really simple:
    People are generally stupid.
    Governments are composed of people.
    Therefore governments are generally stupid, no matter what the party name.

    The only solution is less stupid, less government. I prefer to make my own decisions, even if they are stupid, thank you very much.
    Reply | Link to Comment
  •  
    Jun 08 03:11 PM
    I have to agree with 300mph! As for gov't? The Dem's have been in power in the Congress for how long? They've done nothing to help this situation, but they did feel they deserved a pay raise! Bet the average joe's pay raise would make Congress cry if that's all they received! We need lower taxes, less gov't, and more people that are on the ranks of welfare off their proverbial dead asses and earning some of their own $$ and not living off mine! It's no wonder we have the illegal immigration problems we do, as well as foreigners coming here to take advantage of our superior University's. It's FREE to them and costs the taxpayer. It's hard enough to support a household/family without having to pay MORE taxes so others can live for basically nothing.......... Sorry, the Dem's are NOT the answser.
    Reply | Link to Comment
  •  
    Jun 08 08:11 PM
    small town, dems in power in congress 18 months. wake up! less gov't you say, why not start with a repeal of the 40 something billion welfare payment to your local "small town" farmers. the system operates on money, big money. take it out of the system and mabe people will begin to do whats best for everyone, not just the ones who finance incombents elections.
    Reply | Link to Comment
  •  
    Jun 09 12:06 PM
    TOR,
    Stepping down is not a Republican trait. We aren't quitters like Dems.
    I shouldn't be surprised that you would make such a comment, since that seems to be the Dems response to anything that becomes difficult (quit).

    Republicans won't forsake those heros that have given their all for our country, as the Dems want to do.

    If you like high oil and energy costs, just keep on voting for the idiotic green Dems.
    I predicted $4.50/gal gasoline six weeks ago when the Dems forced legislation through to increase taxes on the major oil companies.
    You see, corporations don't pay taxes. Only consumers pay taxes.
    But the Dems keep on that mantra of how bad big corporations are.
    They know their constituency is not educated enough to know that corporate taxes are nothing more than taxes on the consumers. That is how they get more and more tax from us all.

    The green Dems oppose drilling ANWAR, prohibited building new refineries, oppose drilling off California's coast, placed restrictive pollution requirements on all energy producing sources, oppose drilling off Florida, oppose building safe nuclear generating plants, oppose drilling off the East Coast.
    In other words, they just don't want us to produce any new energy from readily available sources. Thus, the current high price of energy will continue to go higher.
    Reply | Link to Comment
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