Options Trader: Friday Outlook

What an exciting week this has been.

I’m very bullish today after hearing Obama’s speech last night (and here’s a cool view of it) as it’s very exciting to have the prospect of a leader who can actually inspire people.  Whether you agree with the guy or not, he’s a great orator and we could really use a President who can rally people to a cause and make this country great again.  I’ve said for a long time that what we mainly have wrong with this economy is a crisis of leadership, as it would not take much action to fix housing and energy issues - just the conviction to do something about it.

Without leadership, fear drives the markets and the hyenas use fear to manipulate stocks because it’s easy to stampede a populace that is treated like sheep by their leaders.  Yesterday the sheep were herded out of Apple (AAPL) as Bloomberg "accidentally" published Steve Jobs’ obituary.  You would think this sort of nonsense would prompt a very serious SEC investigation but apparently Bloomberg gets to say "oops" and no one even asks who published the story, who edited the story, who OK’d the story (or do things in Bloomberg just randomly get published all the time?) and who those people are getting checks or gifts from.  Despite being obviously false, this allows the hyenas to churn rumors through their usual outlets regarding Steve Jobs’ health, which is now an issue again because he isn’t dead.

Speaking of hyenas, we’re still on hurricane watch as Tropical Storm Gustav is keeping hope alive in the oil patch.  I will again remind people that two consecutive hurricanes - Katrina and Rita, just one month apart - only spiked oil to $80 and then it fell back to the $50s and that was when the US consumed 5% more oil per day (1Mb).  This concept of hurricanes affecting the price of oil is another example of the crisis of leadership in this country.  Price gouging is clearly illegal during disasters yet not one investigation was conducted by this administration into the behavior of the US oil cartel during the storms that set this country on a path to $100 oil, which has cost US consumers alone an additional $1.4Tn (how much we’ve paid over $60 a barrel) over the past 3 years in addition to another $1Tn in ancillary inflation DESPITE THE FACT THAT WE USE LESS OIL NOW THAN IN 2005!

Since 1980 we’ve had major Gulf hurricanes: Allan, Elana, Gilbert, Roxanne, Allison, Isidore, Lili, Ivan (Labor Day 2004) - all of which had virtually no effect on the price of oil.  Speculators were able to turn storms into market moving events in 2005 and, ever since then, have played the annual "hurricane card" whenever they need a boost in the fall.  The US consumes 140M barrels of oil per week, the entire Gulf produces less than 2Mb per day of crude, we have 1,700 Million barrels of petroleum in storage as of last week - this is completely ridiculous and, beyond ridiculous, it’s criminal and only under this administration have speculators been allowed to get away with the single largest gouging of the American consumer in history.

Asia ignored the nonsense in the oil patch this morning as the Hang Send rose 289 points and the Nikkei added 304, pushing above the critical 13,000 line on a very strong day.  Housing Starts (up 19% in July) and Industrial Production numbers in Japan were better than expected, sending steel and real estate shares climbing as the government unveiled a stimulus package.   "A series of domestic positive cues helped the Nikkei today, but the next Wall Street session will determine the path for the Nikkei next week," said Kenichi Hirano, operating officer at Tachibana Securities.  The Shanghai Composite held flat but still under the critical 250 mark.  The Chinese market is anticipating government action to support the markets - it will be very bad if this doesn’t happen soon. 

China did get some good news as they reached a $3Bn deal to develop oil fields in Iraq so, once again, mission accomplished boneheads!  This is a revival of a deal that was struck between Beijing and Saddam Hussein as deals with western companies, that were originally supposed to be completed in June, have fallen apart over political bickering and infighting with contractors that has sent Iraq’s oil into the arms of the Chinese right under the nose of the Bush administration. China is also being courted by Russia’s Medvedev for support for their political position in Georgia.   This will indeed be a great accomplishment for Bush’s foreign policy if he can get Russia and China, historic enemies, to unite against us.

Europe is up about 1.5% ahead of our open, having liked what they saw in our markets yesterday.  Rising oil prices are keeping a lid on a big move but generally, things look well over there.  Russian Lukoil had a 64% rise in Q2 income as rising prices met with expanded output - a recipe that eludes the US oil cartel, who have cut production in order to cause those rising price and are being played for suckers as Russia and China continue to ramp up production at record paces. 

All these companies have access to the same global reserves; the big difference is that Exxon (XOM), for example, spends 4 times more money on stock buybacks and dividends than they do on exploration and production versus NO money spent by Lukoil (LUKOF), CNOOC (CEO), PetroChina (PTR) and others on stock buybacks or dividends.  There is global demand for oil so they follow the sensible business practice of producing more oil.  The only logical reason not to produce more oil is to create an artificial shortage and increase prices, the kind of criminal activity that can only be gotten away with in 21st century America.

We’re off in the pre-markets as personal consumption dropped by 0.2% in July, much worse than the +0.2% expected.  Personal income dropped 0.7%, also worse than expected and this was the biggest drop since August 2005, a year we plunged in October (but then had a 2-year rally).  Of course we’re coming off a 0.6% rise in consumption boosted by the stimulus checks so I don’t think you can read too much into the consumption number but income is a big concern - but that’s exactly what Obama was talking about last night, it’s been going on for 8 years!  The PCE was also unpleasant at 4.5%, up from 4% in June (annualized).  Even excluding energy, the PCE is up 0.3%. 

I’m not too worried about that data unless we get confirmation next week, it’s still all about the price of oil and any kind of positive day today would be a very good thing.

Comments

[curious cat:]

i would ratrher have someone who makes good decisions in the white house. mccain has selected the governor of alaska as his running mate. obama has run over the women in his party. democrats talk a good story, but they fall short when it comes to standing for what is right.

you may not like the fact that people are poor. teach them to fish. don't take my fish and feed them. redistribution of wealth is an obama nation!

2008 Aug 29 11:48 AM

[junkyarddog:]

Phil, I know you are a hard-core democrat, but to think Obama will inspire and bring change is nothing but betting on an unknown horse.

Plus, get used to it: McCain will win the election and the democrats better start writing an infamous book titled "How To Lose An Election It Was Ours To Take". You could write the foreword.

Note: I don't support McSame. I just think he'll win because the democrats simply blew it.

About oil: yes, we Americans consume less. But Asiam, notably China consumes more. Doesn't that make up the difference? So, in terms of global supply and demand we're still worse off than 2005. Aren't the oil producing contries the ones witholding supply?

2008 Aug 29 12:56 PM

[Itsonlymoney:]

I saw Obama's speech last night and liked what I saw and heard. He plans to mend fences with former allies, will end arrogant overreaching in our foreign affairs, plans to rebuild our army so we can actually stand behind our statements, aims to reduce our debts to China and others(can you believe that we did not even issue 30 year notes at the end if Clinton's term), will take steps to reduce dependency on foreign oil, and will attempt to sort out the health care mess. And he can speak in sentences longer than 4 words.

McCain is an admirable person and I don't even resent his owning 7 houses. But he has moved from the center to garner votes from the party's Right Wing and has taken stands on issues he never would have taken were he not running for President. His maverick image takes a beating when you consider that he has voted with the Bush White House 95% of the time.

The Republicans have always served this country best as the party in opposition. When they get control of The Presidency their unwavering party loyalty turns them all into lemmings. How odd that fiscal prudence, restraining foreign adventurism, and domestic energy independence are now Democratic issues after this administration has undermined them all.

2008 Aug 29 02:15 PM

[User 143167:]

US reduces dependence on foreign goods = hyperinflation
China buys less of US debt = recession
So Obama roots for stagflation for sure.

2008 Aug 30 06:13 AM

[JOETRADER:]

patroit is a rasist. he tries to equate obama to saddam hussein. HUSSEIN IS DEAD! LET HIM LAY IN PEACE. OBAMA WILL GIVE US HOPE AND PROSPERITY.

2008 Aug 30 01:14 PM

[kkin365:]

I enjoy Phil's comments. Indeed, it is important to know what the market reacts if Mc or O wins the election. For clarity, I suggest that Phil discloses his party affiliation in discussion of this nature. From time to time, WSJ has comments on their relative position on various aspects on finance and social issues.

2008 Aug 30 05:48 PM

[basehitz:]

Barack was impressive. As he was rattling off all the things the govt will give us, I thought wouldn't that be nice. Next I thought, who's gonna pay for all this? IBD and others have analyzed estimated costs and the savings he claims will pay for this, well no one else (who is credible) thinks it's even close. He is a great speaker. A little more reality mixed in would also be nice.

Phil, do you ever post without political spin?

2008 Aug 30 06:46 PM

[insideoil:]

Phil - you are always good for a read, but the anti-IOC rhetoric is getting to be a bit much. You have relentlessy failed to get it that more product is heading East - because they are prepared to pay more. No amount of US based BS is going to change that oil product flows to those who are willing to pay, and pay more to protect their future. If the US investment strategy in energy remains none at all, you can hardly blame the big oil boys for doing what they have to do for their own interests. Your country is bankrupt, both morally and financially, but again the Oil Co's did not do that, your own country men did that to themselves. Admittedly as things get tough, higher oil prices are to no one's advantage, but please try to get an egg in front of this chicken. Opec is next week, and one wonders how the investment portfolio is looking for some of the sovereign funds long on US and EU assets. Shutting back oil supply again to prop up pricing would be such a shot in the foot on losing capital, so here is hoping that the desire for a return to global prosperity keeps the pumps running and the market well supplied in spite of the possibility of lower short term revenues.
As for the Chinese operating in Iraq - supported by Russians, well perhaps someone else should share the load in getting shot at. I am pretty sure its no fun, no matter where you come from. If they manage to improve the flows from Iraq, it will just make the overall balance that much more manageable for everyone. Why the great bias that it has to be done by the USA if you feel so badly about these US based IOC's?
As for the politics - as an outsider it does seem important, but as smart people recently pointed out , like drunks on a booze binge, it only matters if someone can get folk to dry out a little, and manage the realities of living within their means.

2008 Aug 31 04:50 AM