By Christian A. DeHaemer
You wouldn't know it listening to Main Street media, but the last year has produced a phenomenal amount of good news.
The S&P 500 is up 76.34% from its fear-induced lows of March 2009. Corporate bonds have been in an upswing all year. Commodities like oil have broken out of their trends and are headed higher. Cooper prices more than doubled last year. Lead was up 145%.
The U.S. dollar has been bullish for six months — it's up more than ten percent in the last quarter.
Even housing prices have stopped plummeting and have ticked up in recent data.
According to the Washington Post, "Home prices in 20 cities tracked by the Standard & Poor's/Case-Shiller home price index rose 0.3 percent on a seasonally adjusted basis in January compared with December."
Mortgage rates remain around 5% down from more than 8% in 2000. And the Federal Reserve has recently stated that it will hold the discount rate steady for the "foreseeable future."
Heck, the economy even added 162,000 jobs in March — the most in three years.
And it gets better...
- Google (GOOG) recently said they were hiring 500 people.
- UPS (UPS) said they were going to hire 25,000 new jobs over the next few years with salaries at $80,000 a pop.
- A CEO survey from Business Roundtable reports the number of CEOs who plan to add staff over the next six months jumped 50% in Q1 versus Q4 of last year.
- Twenty-nine percent of companies plan to add jobs over the next two quarters up from 19% in the previous quarter.
This is positive news that is largely ignored by the fear-focused media, who by and large print stories based on the age-old "if it bleeds, it leads" school of thought.
Oil Heads Higher
There is an economic revival in the traditional G8 to add to the 8% GDP growth in places like China and India. This begs the question when — not if — oil will eclipse $100 a barrel. In fact, it suggests oil will hit new highs over $147 if the trends continue.
The biggest surprise I've seen in the oil markets was the rebound in the price of oil last year from $33 to $85. One would suspect that, with the high oil prices of the last ten years' ramping up production, the largest recession in 80 years would absolutely crater the cost of a major industrial component.
If manufacturing is still running at 70% capacity, why wouldn't oil be at $12 a barrel?
After all, it wasn't so long ago (only 10 years, actually) that oil fell through the floor in the aftermath of the dot-com bust.
Demand
It's true that demand of the past few years did drop. The numbers I'm reading say that 6 million barrels a day was cut from Western demand. But emerging markets added 5 million barrels a day.
Now that global GDP growth for 2010 is estimated at over 4% by the IMF, (Goldman Sachs is estimating 4.5%), you'll see global oil demand back to where it was in 2007. This is a rate at which supply simply can't keep up.
Total oil production in non-OPEC countries has been flat for almost a decade. All the new finds are from smaller fields, and have just barely been able to hold on to the production from the declining wells.
In the most recent cycle, OPEC has been able to cut production and follow declining demand down. But there are many questions regarding how much OPEC can increase production to meet the growing demand from recovering economies.
By the second half of this year — if not already — oil production will be running full bore and I'm betting it will be swamped by demand.
There are no easy answers. Deep water drilling off Brazil is hugely expensive. Oil sands are the same. Alternative energies are likewise expensive and lack infrastructure. All of these oil alternatives will continue to progress but the world runs on oil and will continue to do so.
The short answer is this: Over the next few years, the price of crude oil will climb relentlessly on the back on increased demand.
Next Stop: $100
As you can see in the chart above, the price of crude futures broke out of its recent trend and is heading higher on all-time-high volume. The next resistance point is just below $100.
All of those companies that did well in the last energy bull run should continue to do well this cycle. These include nuclear power, uranium, select solar and wind, coal, explorers, oil service companies, natural gas technology, and even those with large hedges like Southwest Airlines (LUV).
