Dismal Outlook for Retail, and the Big Oil Rebound Myth

This is a thin week on many fronts due to the holidays and the new year, so it is wise not to read too much into any news. Stocks being down a smidge is an example. With trading volume low it does not take as much to swing things. January and February will be another tale. Despite the slim trading, the news remains dismal on the retail front, as Bloomberg reports. Not a surprise, just an affirmation.

Unintended Consequences by the 800 Pound Gorilla

The 800 pound gorilla here would be the U.S. and other developed countires. We are borrowing at an alarming rate. Still, people are flooding to Treasuries as a safe haven - for now, anyway. The question not asked much before is where would those dollars flow otherwise. After all, we are borrowing trillions of dollars, soaking up global capital like a desperate sponge, with little thought to the other players looking to secure some of those dollars. Well, it would seem that developing countries will once again take the brunt of our indiscretion. Their credit is drying up just as they need it most and in no small part to the larger players being on a borrowing spree. If this does not correct in time, more issues will face the global economy that will be hard to fix in short order.

And if you believe that, I have a bridge to sell you...

Apparently, you too can soon own a bridge, or highway, or lottery or other state assets, either full out or at least for a time. Yes, it is true, state governments are in desperate need for cash and desperate times require desperate measures. So states left and right are looking at some ways to sell, or at least lease, some of their crown jewels in terms of reveune generation in order to quickly raise some needed mula. Form your own opinion on this. To me, at least a limited term lease to make ends meet makes sense, but selling off long-term income generating assets - likely at fire sale prices - is a bit short-sighted. But then again, I am not facing a multi-billion dollar deficit, so what do I know.

Dow Down

For once I am not talking about the Dow Jones Industrial Average. This time it is about Dow Chemical (DOW). Its deal with Rohm and Haas (ROH) appears over as Kuwait is drawing in the purse strings. Let's speculate that Kuwait, like the rest of the Middle East, is feeling the pinch of low oil prices. Otherwise, it no longer saw the wisdom to the deal. Either way, Dow Chemical is being downgraded and the stock was down big time yesterday, as was Rohm and Haas. Will we need chemicals tomorrow? Sure, but not as much as we needed them a year ago. This demand will eventually return to some extent, but the question today is whether Dow Chemical will be here to enjoy the bounce.

The Big Oil Rebound

I have noted here repeatedly that I despise analysts predictions as most cannot tell their predictions from a hole in the ground. Yet I feel compelled to report on their latest prediction. They predict $60 a barrel oil by next year. While I have little doubt it might hit that mark, I must say I disagree with any prediction that keeps oil on average that high next year. Mind you, "that high" is very low by recent standards, but I still disagree with these predictions, at least for 2009. If I am correct in my anticipation that the global economy, and especially China, will suffer big time in 2009, I think the dampered demand will, on average, keep oil in the $50 a barrel range or lower. OR - I could be wrong!!

Disclosures: None.

Comments

[blu:]

I am in total agreement with your last statement.

<<I could be wrong!!>>

2008 Dec 30 10:44 AM

[Guero:]

What famous poet said "The first thing we do, let's kill all the analysts!"

2008 Dec 30 11:14 AM

[Fabien Hug:]

Your point regarding US borrowing drying up liquidity for other countries is very interesting. Does it mean other countries will have to rise int. rates to get some of the so needed cash? What are the implications of this.

2008 Dec 30 11:41 AM

[Urbane Gori...:]

The quote is from Shakespeare's Henry VIII : "The first thing we do, let's kill all the lawyers"..... However, it should probably apply to analysts, bankers, auto manufacturers, and even Republicans as each seems to have caused more than their share of pain this last year....

jegan ;-)

2008 Dec 30 01:28 PM

[henarl:]

Please jegan :-), don't scratch off lawyers from your list!

2008 Dec 30 03:16 PM