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Dallas, TX
February 2, 2010, 08:00 EST |
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Dr. Joe Duarte's Market I.Q. |
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The Internet's Intelligence Digest
Intelligence, Market Timing, And Trading Strategy For Traders and Investors
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Is The U.S. Finally Out Of Options?
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What's Hot Today: |
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U.S. stock index futures were predicting a higher opening
on Tuesday. The budget is likely to provide all kinds of political fodder,
but Friday's employment report looms as the big news for the week and the
month.
Also remember that the action in the first day or two this week is also heavily
dependent on pension funds putting new month money to work. Once that dries up,
we'll know what the real underlying trend is for this market.
Today's Economic Calendar:
- Motor Vehicle Sales
- ICSC-Goldman Store Sales 7:45 AM ET
- Redbook 8:55 AM ET
- Pending Home Sales Index 10:00 AM ET
- 4-Week Bill Auction 11:30 AM ET
News For Thought
Exxon becomes more aggressive in exploration strategy. According to The
Wall Street Journal: "Hardly known as a wildcatter, Exxon Mobil Corp. is searching
for oil in most of the world's regions where high-risk exploration is under way,
even as other big oil companies are being more selective and cutting capital
spending. So far, though, Exxon has little to show from its exploration campaign
and needs to make large discoveries soon to justify the increased spending."
According to the report: "Exxon is exploring in eight of the "hot," high-risk
exploration regions around the world identified by Sanford C. Bernstein and is
attempting to invest in a ninth. Aside from Royal Dutch Shell PLC, which is nearly
as active, most other oil companies have interests in only half as many such
areas, at most. And Exxon is looking to expand its reach to a tenth hot spot.
The company is in talks with Transocean Ltd. to sign a lease for a new drilling
rig capable of operating in the harsh Arctic climate, people familiar with the
negotiations said."
Shell goes big into ethanol. According to The Wall Street Journal: "Royal
Dutch Shell PLC on Monday announced the biggest foreign investment in Brazil's
ethanol industry to date, saying it plans to create a multibillion-dollar joint
venture with Cosan SA to produce and sell ethanol made from sugar cane." This
is an important development as "The deal is a big breakthrough for Shell, which
would contribute $1.63 billion in cash to the venture over two years. It would
be the Anglo-Dutch major's first significant foray into biofuels and the largest
move by a Western energy company so far into ethanol production and distribution,
trumping BP PLC's acquisition of a stake in Tropical Bioenergia SA in 2008."
Oil stockpiles on supertankers are shrinking. The amount of oil floating
on the world's oceans is shrinking. The Wall Street Journal reports that "The
volume being stored at sea has nearly halved from a peak of about 90 million
barrels in April last year, according to ship broker ICAP, and are expected to
fall even further."
It's been a long time since we've done any real in depth work on oil. Yet, this
morning's news is interesting as it shows that the industry is not standing still.
And even though the energy stocks are not particularly attractive at the moment,
the actions by companies suggests that they are putting significant amounts of
efforts into their strategic planning for the future.
Here's a thought to ponder. The amount of oil floating around is shrinking. Exxon
is aggressively looking for oil in very difficult spots around the world. And
Shell is investing in ethanol. You don't hear about Peak Oil much any more. Yet,
signs point to the potential for some sort of supply squeeze at some point in
the future. That's not what the global economy needs right now. And it's not
something that President Obama's budget does a whole lot about either.
Just trying to find where the next nasty surprise will appear. That's our job.
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Is The U.S. Finally Out Of Options?
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New Concept: Is The U.S. Finally Handcuffed By Its Spenthrift Ways?
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The U.S. may be so far in debt that it could be in danger of
losing its status as world leader.
We've heard it before, but for some reason, this time it sounds plausible. According
to The New York Times: "By President Obama’s own optimistic projections, American
deficits will not return to what are widely considered sustainable levels over
the next 10 years. In fact, in 2019 and 2020 — years after Mr. Obama has left
the political scene, even if he serves two terms — they start rising again sharply,
to more than 5 percent of gross domestic product. His budget draws a picture
of a nation that like many American homeowners simply cannot get above water."
And here is the upshot: "Unless miraculous growth, or miraculous political compromises,
creates some unforeseen change over the next decade, there is virtually no room
for new domestic initiatives for Mr. Obama or his successors. Beyond that lies
the possibility that the United States could begin to suffer the same disease
that has afflicted Japan over the past decade. As debt grew more rapidly than
income, that country’s influence around the world eroded."
The Times gives Obama points for his budget's "candor," which we guess is o.k.
since at least we can see it coming. But beyond that The Times notes that the
budget seems to "make the point that the political gridlock of the past few years,
in which most Republicans refuse to talk about tax increases and Democrats refuse
to talk about cutting entitlement programs, is unsustainable. His prescription
is that the problem has to be made worse, with intense deficit spending to lower
the unemployment rate, before the deficits can come down."
We just have to wonder why? The L.A. Times offers an interesting analysis, noting: "The
budget plan invites Republicans to join him on a bipartisan commission to cut
the deficit -- a concept that the GOP has backed in prior years. It includes
tax cuts for small businesses long-championed by the GOP. It proposes a domestic
spending freeze that infuriates many liberal Democrats." More important, the
Times suggests that the budget is a political ploy as: "Those olive branches
were offered just days after Obama invited GOP cooperation in his State of the
Union address and a televised give-and-take with House Republicans at a policy
conference -- a remarkable shift in approach after a year of intense partisanship
and the bruising loss of the Democratic-held Senate seat in Massachusetts. But
those seemingly conciliatory gestures lay the ground work for Obama to thrust
his party back onto the political offense: Democrats are gearing up to campaign
against the GOP as the root of the budget problem and an obstacle to its solution."
In other words, Obama has given the Republicans a few things, and has taken something
away from his own party that it holds dear. When the Republicans balk at the
overall budget, the White House can say that the Republicans are still the party
that offers no solutions.
On the other side: "Republicans remain confident that Obama's budget proposal
is their best argument against his party's dominance in Washington, knowing that
it will be difficult for Democrats to pass off responsibility for the record
federal debt when voters seem poised to turn against incumbents with a vengeance."
Australia Softens Economic Outlook
Australia's central bank left interest rates unchanged overnight, surprising
markets. This would have been the fourth rate hike in a row.
What's important here is that the reason they left rates unchanged was due to
concern over the current economic recovery. According to The Wall Street Journal: "The
on-hold decision comes amid fresh jitters in global markets about the sustainability
of the global recovery and growing sovereign risk in parts of Europe."
U.S. data, earlier in the day was mixed, with personal income down, personal
consumption up, and the ISM's Purchasing Manager's report showing a robust reading
of 58. Buried deep within that report, though, was a significant decline in construction
spending.
Conclusion
The U.S. has put forth a controversial budget, while Australia, a country that
had rebounded in better fashion from the global recession is concerned about
the future.
The U.S. continues to spend relentlessly when the world may be starting to buckle
under the potential for a double dip.
And the New York Times, as well as the L.A. Times are starting to question the
motives and the tactics of the White House and Predisent Obama, the guy they
both helped to elect.
If that doesn't turn your world upside down, nothing can. To us, it's just more
evidence that we are in for a very wild ride.
Furthermore, we're not sure Monday's rally is sustainable. Let's see what happens
in the next couple of days.
Know when to sell and how to make money when the market falls. Get a detailed
trading plan in your pocket. Read Dr. Duarte's All NEW Books "Market Timing For Dummies." and "Trading Futures For Dummies." The Trading Manuals for
All Seasons. Also Available As Kindle Books. |
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Market Moves - Stock Of The Day
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Oil Service HOLDRS Trust (NYSE: OIH) Remains In Trading Range
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The Oil Service HOLDRS Trust (NYSE: OIH) is still range
bound, suggesting uncertainty about the balance between
supplies and the economy.
Chart Courtesy of StockCharts.com
It used to be that supply was the prime mover in the
oil markets. Lately, though, it's been about demand,
as the global economy has cooled.
China's demand has been steady to rising, compared to the U.S. demand that has
been lagging. But if you put that into context, China's economy is essentially
the size of California's, which is signifcant, but still less than the U.S.
More interesting is the notion that Brazil, a rising economy on its own right,
is not as dependent on gasoline as the U.S. or China. Brazil's cars are 50% dependent
on ethanol, and that trend is not likely to change.
Which brings us back to OIH's chart message. The ETF has been trading between
110 and 135 since October, and closed at 122, just about in the middle of the
range on 2-1. It's below its 20 and 50 day moving averages, which means that
it's trying to make a decision about what's next.
We think that OIH may hold a key to what's next, both for the markets and the
economy. If this ETF starts to show strength, it would suggest that smart money
is nibbling at the energy sector, in expectations of a continuation of the recovery.
And that means that Friday's employment report, if it's an up side suprise, could
be what triggers more strength in energy.
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