Search results matching tag 'Gasoline'

The Truth Behind High Gasoline Prices

GaryHalbert — Tue, 06 Mar 2012 22:34:21 GMT

IN THIS ISSUE:

1. 4Q GDP Came in Better Than Expected

2. Bernanke Defends Quantitative Easing

3. The Truth Behind High Gas Prices

4. How US Could Become World’s Largest Energy Producer

Introduction

Being in the business I am, people frequently ask me why gasoline prices are so high. Of late, people have also been asking me if President Obama has any idea whatsoever about how the energy markets work. As it turns out, the Heritage Foundation just released an excellent report that addresses both questions. It also lists five specific actions that Congress and the Obama administration should undertake to increase energy production in this country.

But before we get to that, I will summarize the latest economic reports which continue to give mixed signals. While the latest report on 4Q GDP came in a bit better than expected, most economists agree that growth in 2012 will not be as good as the 4Q of last year. Following that, we look at some remarks from Fed Chairman Ben Bernanke in his recent Senate testimony. While he defended quantitative easing, it doesn’t sound like the Fed is going to do QE3 anytime soon.

4Q GDP Came in Better Than Expected

Last Wednesday the Commerce Department released its second estimate of 4Q GDP. The number was a bit better than expected 3.0% (annual rate), up from 2.8% in the advance estimate. The report once again confirmed that the biggest driver by far in the economy in the 4Q was inventory rebuilding, typically a temporary phenomenon, followed by growth in consumer spending. It was the strongest growth in a year and a half.

Most economists agree that growth in 2012 will not be as good as the 4Q of last year. The consensus among the 50 economists surveyed by Blue Chip Economic Indicators (BCEI) is that the economy will grow by only 2.3% in 2012. Specifically, the consensus predicts growth of 2.1% in the 1Q, 2.2% in the 2Q, 2.4% in the 3Q and 2.6% in the 4Q. For 2013, the consensus predicts growth of only 2.6%.

Other groups individually think the BCEI consensus is too optimistic. Wells Fargo economists expect GDP growth of only 1.5% in the 1Q and 1.9% for all of 2012. Goldman Sachs revised its estimate of 1Q GDP for the second time last week to below 2%.

The BCEI consensus on the unemployment rate for all of 2012 is 8.3%, followed by 7.9% in 2013. The official unemployment rate for February will be released this Friday, and the pre-report consensus is 8.3%. As explained by Abbott & Costello in last week’s E-Letter, the real unemployment rate is around 16% if we include those who have stopped looking for work.

The number of people filing for new unemployment benefits fell fairly significantly over the last month with initial claims of 351,000 in the week ended Feb. 25 and 353,000 the week before. If indeed the economy is growing slower than in the 4Q the recent dip in initial claims may be bottoming at these levels.

On the bright side, the Consumer Confidence Index rose to a much better than expected 70.8 in February, up from 61.5 in January, the highest reading in a year. The University of Michigan Consumer Sentiment Index also rose to 75.3 in February, up from 72.5 earlier in the month. The Conference Board’s CEO Confidence Index rose by 7.0 points in the 4Q, from 42 to 49 (a reading of more than 50 points reflects more positive than negative responses).

In other economic reports of late, perhaps the biggest surprise was in new orders for durable goods which plunged 4.0% in January. That’s a very big swing following the increase of 3.2% in December. The number was expected to fall by around 1.3% due to the expiration of a tax credit for businesses at the end of December, but 4% was quite a surprise.

Retail sales and personal spending were both modestly higher in January, but both were below the pre-report consensus. On the manufacturing front, the ISM Index for February, which was expected to rise, actually fell to 52.4, down from 54.1 in January.

On the housing front, US home prices fell in December from a month earlier, ending 2011 at the lowest levels since the housing crisis began in mid-2006, according to the Case-Shiller home-price indexes. During the 4Q, home prices reached new lows, falling 3.8% sequentially and 4% year-to-year. Prices are down 33.8% nationally from their peak in the 2Q of 2006.

The BCEI consensus for inflation this year is 2.1%. I find that number to be optimistic, especially since the CPI was up 2.9% for the 12 months ended January. If oil prices remain above $100 per barrel, I don’t see inflation averaging only 2.1% this year. As this is written, crude oil is near $105.

Gary D. Halbert, ProFutures, Inc. and Halbert Wealth Management, Inc.
are not affiliated with nor do they endorse, sponsor or recommend the following product or service.

Bernanke Defends Quantitative Easing

In testimony before the Senate Banking Committee last week, Fed Chairman Ben Bernanke predicted that the US economy will see “modest growth” this year. Many interpreted this as a signal that there will not be another round of quantitative easing, or QE3. When questioned about the positive effect of QE2 which began in late 2010, Bernanke noted:

"But since November 2010, we have had… the QE2 and the so-called Operation Twist, we have had about 2-1/2 million jobs created, we have seen big gains in stock prices, we have seen big improvements in credit markets, the dollar is about flat, commodity prices excluding oil are not much changed, inflation is doing well in the sense that we are looking for about a 2 percent inflation rate this year.”

As noted above, I think 2% inflation this year is quite optimistic, especially if oil prices remain above $100 per barrel. Bernanke also noted that the Fed is no longer worried about deflation as it was in 2010 and said that the economy is: “back to a more stable inflation environment.”

Perhaps the only surprise in Bernanke’s testimony was when he warned that the US recovery could come off the rails in late 2012 if Congress fails to take action to address a “massive fiscal cliff” of tax increases and mandatory spending cuts due to kick in in 2013. He noted: “I hope that Congress will look at that and figure out ways to achieve the same long-run fiscal improvement without having it all happen at one date.”

As always, Bernanke warned the Senators that the US is on an “unsustainable fiscal path” and if it continues, we will face a “fiscal and financial crisis.” As for European risks, Bernanke said that most large US banks have exposure to European sovereign debt, but that most of that debt is “well hedged” (we’ll see). All in all, not much new from the Fed Chairman.

Heritage Foundation: The Truth Behind High Gas Prices

As noted earlier, being in the business I am people frequently ask me why gasoline prices are so high. More recently, people have also been asking me if President Obama has any idea whatsoever about how the energy markets work. As it turns out, the Heritage Foundation just released an excellent report that addresses both questions. It also lists five specific actions that Congress and the Obama administration should undertake to increase energy production in this country. Enjoy.

QUOTE: The national average for gas prices is almost $3.60 per gallon, increasing 40 cents from a year ago and jumping 20 cents from just one month ago. Prices are already surpassing $4 per gallon in some states and could threaten the country’s economic recovery. Higher gas prices drive up production costs for goods reliant on transportation, and more money spent at the pump means less money spent at restaurants and movie theaters. Buying fewer goods and services tightens the economic vice and holds back job creation.

Almost 70 percent of the price of gasoline comes from the price of crude oil, with excise taxes, refining costs, and retail/distribution making up the other 30 percent. Exporting refined petroleum products comprises a small percentage of total domestic gas production and marginally impacts prices. Despite demand for oil falling in the United States as a result of a weaker economy and a warm winter curbing the use of heating oil, the industrial rise of China and India continue to put upward pressure on the price of oil. The threat of Iran restricting oil exports to Europe is also driving up the global price, impacting gas prices in the U.S.

President Obama addressed these issues Thursday, February 23, in a speech on gas prices in which he continued to take many facts out of context. While the President said that there is no quick fix to high gas prices and the nation cannot drill its way out of the problem, he creates a false dichotomy that suggests that micromanaging the solution from Washington by subsidizing uneconomical technologies and sources of energy would work. This approach would do little to provide America with new, reliable, and economical sources of energy and in fact would cause more harm than good to the consumer and taxpayer.

America knows what works to effectively combat high gas prices: allowing the market to work by opening access to the country’s own oil and gas reserves, reducing onerous regulations, and allowing producers and consumers to respond to energy prices without Washington’s interference. Here are five half-truths that one continually hears about gas prices and five actions that Congress and the Administration can take to effectively combat high gas prices.

Half-truth #1: Oil production is the highest it has been in eight years.

Increased oil and gas production in the U.S. is a great development, but this is a result of increased production on private lands in North Dakota, Texas, and Alaska. On federal lands and offshore, the story is much grimmer. Production on federal lands and offshore could have yielded more output, increasing supply and therefore putting downward pressure on oil prices. Poor administrative decisions—such as refusing to open areas to exploration and production, cancelling or delaying lease sales, and the offshore drilling moratorium and subsequent “permitorium”—significantly reduced oil production, destroying jobs and reducing economic activity in the process.

If there is an economic interest to produce this oil, Washington should allow companies to do so. In North Dakota, oil production is booming and unemployment is low. There should be more stories like this.

Half-truth #2: Increasing oil production takes too long and would not impact the market for at least a decade.

This has been the mantra of the anti-drilling crowd for years, and the longer politicians listen to the message, the longer the nation’s oil resources will remain undeveloped. If access to areas that are currently off limits is increased, it will take time to explore and extract that oil. But that does not change the fact that the nation needs it today and also in the future. Furthermore, some of this oil can reach the market in much less than a decade if the permitting process is streamlined and the Keystone XL pipeline—which could bring up to 830,000 barrels of oil per day from Canada to the Gulf Coast refineries—is built.

Half-truth #3: Oil is not enough. America has only 2 percent of the world’s oil reserves.

President Obama frequently uses this number to push federal investments in alternative sources of energy that cannot stand the test of the market. The reality is that he uses this number deceptively. According to the Institute for Energy Research:

Although the U.S. is said to have only 20 billion barrels of oil in reserves, the amount of oil that is technically recoverable in the U.S. is more than 1.4 trillion barrels, with the largest deposits located offshore, in portions of Alaska, and in shale in the Rocky Mountain West. When combined with resources from Canada and Mexico, total recoverable oil in North America exceeds 1.7 trillion barrels, or more than the world has used since the first oil well was drilled over 150 years ago in Titusville, Pennsylvania. To put this in context, Saudi Arabia has about 260 billion barrels of oil in proved reserves.

One reason to view “reserves” estimates with caution is the fact that they are constantly in flux. In 1980, the U.S. had oil reserves of roughly 30 billion barrels. Yet from 1980 through 2010, it produced over 77 billion barrels of oil. In other words, over the last 30 years, the U.S. produced over 150 percent of the proved reserves that it had in 1980. If the massive quantities of U.S. oil are made available to explore and produce, the current estimated reserves of 20 billion barrels would certainly increase, providing much more production over decades to come. In other words, reserves are not a stagnant number.

Half-truth #4: Oil is not enough. The country needs an “all-of-the-above” approach to reduce its dependence on oil.

President Obama mentioned this approach in his 2012 State of the Union address, saying, “This country needs an all-out, all-of-the-above strategy that develops every available source of American energy.” But a market-based strategy is the only all-of-the-above approach. It allows all energy sources to compete, drives innovation, and results in the best possible supply and pricing. Sadly, all-of-the-above is often just an excuse to subsidize uneconomical and politically preferred technologies and energy sources, which leads to a “pigs-at-the-trough” strategy.

Whether they are for biofuels, electric vehicles, or natural gas vehicles, subsidies for alternative fuel and vehicle technologies waste taxpayer dollars, misallocate labor and capital, and create a dependence on government that promotes crony capitalism. The world petroleum market is a multi-trillion-dollar one; whatever technology can capture a portion of that market will not need help from taxpayers.

Half-truth #5: Speculators are driving up the price of gas, and they need to be reined in.

Finger-pointing at speculators and investigating prices at the pump ignore the real cause of rising gas prices: supply and demand. Oil futures markets can affect prices at the pump by changing the amount of gasoline delivered to gas stations. If producers anticipate higher prices in the future, they might take some oil off the market today and wait to sell it later. This may be happening to some degree (although there has been little historical evidence of this), especially given Iranian threats to cut off supply to European markets, but it would cause only a marginal short-run increase in prices, because at some point businesses have to unload the inventories they accumulate.

Five Actions for Congress and the Administration

Congress and the Administration should:

Get moving on permits. As the only country in the world that places a majority of its territorial waters off-limits to oil and gas exploration, the U.S. should at the very least be drilling in the areas where access is permitted. Removing the de facto moratorium on drilling would immediately increase supply, create jobs, and bring in royalty revenue to federal and state governments.
Require lease sales when ready. Congress should open areas that are off-limits: the eastern Gulf of Mexico, the Atlantic and Pacific coasts, Alaska’s offshore, the Alaska National Wildlife Refuge, and lands out West. Congress should require the Secretary of the Interior to conduct lease sales if a commercial interest exists to explore and drill. Congress should also provide the funding necessary to lease new onshore and offshore areas to oil and gas companies. Although it would take time for the federal government to lease these areas and for the energy companies to develop them, at least the process could begin.
Create a sensible review processes. Placing a 270-day time limit on environmental reviews would ensure a quick review process for energy projects on federal lands. Construction projects on federal lands take an average of 4.4 years. The 270 days would allow for a thorough environmental review process but would not prevent investments from moving forward.
Remove regulatory delays and limit litigation. Environmental activists delay new energy projects by filing endless administrative appeals and lawsuits. Creating a manageable time frame for permitting and for groups or individuals to contest energy plans would keep potentially cost-effective ventures from being tied up for years in litigation while allowing the public and interested parties to voice opposition or support for these projects.
Approve the Keystone XL Pipeline. Congress should use its authority to regulate commerce with foreign nations to accept the State Department’s conclusion that construction of the pipeline would pose minimal environmental risk. Approving the pipeline would create jobs and increase energy production—both of which the nation desperately needs—from a friendly supplier and ally.

Let the Market Work

The market would respond if Congress and the Obama Administration allowed it to work. Oil companies would respond by increasing their production, and consumers would switch to more fuel-efficient cars without any need to mandate more fuel-efficient trucks and cars. If the price of gasoline continues to rise, it will make alternative technologies all the more economically competitive. But policies that restrict oil exploration, refining, and production should not artificially drive that price higher. END QUOTE

How US Could Become World’s Largest Energy Producer

Along the same line, I read another excellent report from Mark Kiesel at PIMCO last week. It’s a very good read and includes a number of interesting graphics. Here’s just one quote from the article to whet your appetite:

“In combination, we believe increasing natural gas and onshore oil production could potentially see the U.S. overtake Russia as the world’s largest energy producer in the next ten years, and over time America should make great progress in becoming more energy self-sufficient as a nation.”

CLICK HERE to read the full article.

Best personal regards,

Gary D. Halbert

Oil Rally Likely Says Elliott Wave Theory

RichardSchwartz — Wed, 05 Nov 2008 14:18:00 GMT

COMMODITY VIEW. Oil Rally Begins. Elliott Wave theory, originally produced by R. N. Elliott in the early 1900s, and now carried forward by Bob Prechter, past #1 market guru, basically says Elliott waves or complete market movements come in threes. Well, to more accurate, Elliott says movements really come in fives, three in the prevailing direction, and two counterswings in the other direction. Right now I see three distinct and obvious movements downward in oil and other commodities. Meaning I see a complete movement just finished. So now I have to expect a move in the other direction, a rally upward in oil. For chart lover’s edification, and to see what I see, the three legs down are as follows.

Complete Elliott Wave Movement. The 1^st leg lower off the July 3^rd, 2008 crude oil top ended roughly August 12^th. After a minor sideways counterswing upward until August 29^th, oil, and commodities in general, began their 2^nd legs down with a gap lower the next day and continued downward to September 16^th, where the second counterswing rally upward began. This lasted for only a few days, until September 22^nd before the 3^rd leg down began. Starting September 22^nd, oil, and commodities in general, fell along with most everything else financial in the rare forced panic right through to the bottom on October 27^th. So we now have a complete three legged or Elliott Wave decline in place.

Schwartz View: At this point then I expect some type of oil and general commodity rally, which has already begun, beginning six days back. Maybe going hand in hand with a general stock market rally. But remember, there’s no saying oil can’t just keep on falling after this pause or rally attempt ends. We could easily soon start another whole new movement down in oil. But, bottom line important, this is the price and time point where it’s logical to play for a rally if one’s so inclined. I am so I took a small position in oil on Monday on the dip which took oil back down but not down below its October 27^th lows. Then yesterday we had a big up day in oil after which we were left posted a higher high. Add that to a higher low the day before and over the last week we’ve quickly met the definition on an uptrend, a series of higher lows and higher highs. Thus traders might want to take note and mirror me, using the next decline, oil’s down as I write this morning, to do so as long as we don’t break the old crude price lows. As for additional reasons oil why oil may have finally found its leveling off price, crude at its recent low was down a Fibonacci number, down very close to 61.8%. Normally a great point to expect a bounce. Plus hedge fund commodity deleveraging might just be ending along with the thawing and maybe long awaited ending to the horrific credit crisis. Finally, just use some common sense. No matter how poor the US and global economy gets, a certain amount of business is still going to need to be done.. And with no progress made in freeing ourselves from oil over the last 30 years, no matter what I want and believe will is on the way to happening, it’s not going to occur overnight. Oil is still going to have to be utilized for years to come; why not a rally to some leveling off point, say maybe at about 50% off its highs or in the low $70s?

Disclaimer! I own a little oil with small positions in Rydex Oil & Gas Ultra (RYEIX) and in ProFunds Energy (ENPIX).

Where Now Inflation?

RichardSchwartz — Fri, 12 Sep 2008 13:39:00 GMT

THE FIRST INFLATION SURGE IN 25 YEARS IS OVER. So, what now?

First, let me give credit when credit is due. Federal Reserve Chairman Ben Bernanke and the Fed finally got one right. They’ve been promising us moderating inflation for a year or more and now with -30% lower crude oil prices and a big general commodity collapse we’re finally we’re seeing it happen. Or, at least, starting to (most things economic happen with a lag). And with the US dollar now surging, that’s going to reverse/diminish rising, problematic imported inflation as well. So now the deflationists out there, those who say deflation is our real problem facing us for some time – Gary Shilling, Robert Prechter, Ron Insana to name just three -- can really have their time in the sun.

Still, there remains some debate whether problematic rising inflation is going quiescent. Mac Courtenay of Seeking Alpha, I guess a boutique research firm, offers up seven reasons why inflation isn’t going away:

1. Inflation is already firmly entrenched. Schwartz View: I agree. I’ve been observing the Fed’s incessant jawboning that inflation expectations remain low is wrong and we all know that the government’s inflation data is terrible skewed to the downside from what inflation really is.

2. Inflation is already here. Schwartz View: The Producer Price Index (PPI) is up +9.8% over last year, and that’s only what the government grudgingly admits to.

3. Inflation is now moving its way through the “food chain” showing up in consumer prices as well. After some hope that because of global competition (globalization) producers would eat the higher inflation. Schwartz View: This rippling through is evidenced by the Consumer Price Index (CPI) rising too, again up the fastest in 17 years.

4. Average weekly earnings fell in July the largest since 1990. Schwartz View: I’d guess Mr. Courtenay’s point is that when earnings drop, we can’t buy as much. ???

5. More and more Federal Reserve governors are talking about raising interest rates next, not lowering them. Especially if we see energy prices stabilize above $100 and bounce. Schwartz View: Of course, these Fed officials, meeting again next Tuesday, can change their views.

6. Global (food?) consumption patterns are heading higher. Schwartz View: I don’t know if author Courtenay is talking about food, metals or just what. But I agree with him on food. As people get a little money, one of the first things they spend it on is more and better food. Thus global food consumption patterns should keep heading higher even if the global economy recesses.

7. The markets will take charge. If the Fed doesn’t raise rates, the marketplace will raise them. Schwartz View: Not sure about this reason he positing for inflation staying problematic. Right now the markets, the long US Treasury market, is still forecasting a slowdown by yields going lower and lower, which to me means more disinflation ahead, not rising inflation.

Schwartz View: He goes on to say part of oil’s recent comeuppance, coming down, is forced hedge fund liquidation because of Congressional pressure (I agree). And that it’s a great time to buy TIPs (Treasury Inflation Protected Securities) and the easiest way is to buy the symbol TIP. And to buy commodities on this correction, recommending also symbols DBC (a basket of commodities) and GDX (gold). Myself, while I believe this commodity pullback is indeed a correction, I think it’s too early to buy them back.

Schwartz BIG PICTURE Inflation View. My belief, garnered from studying stock market history and looking at thousands of charts over the last 20+ years, is that when any new trend begins, many times it begin with a surge in the new direction, then a pullback or at least a pause, sort of to regroup, consolidate gains, make believers out of disbelievers, open the eyes of others who are slow to see and just basically kill enough time to see if the new trend has legs. Then after this pullback correction, which more often than not can be large and long lasting, runs its course, the new trend reasserts itself.

Basically that’s where I see us today with rising inflation, in a pause to refresh. I’ve theorized over the last year than oil and other commodities would stay stronger, longer than most thought this year. I’d say that proved correct with oil going up all the way to about $147 and related sectors like natural gas, energy services, solar, wind and other alternative clean green leading the stock market for the whole first half of 2008. Similar to what happened during the first year of the last severe Papa Bear stock market back in 1973-1874 (oil stayed high the first year). But now, with commodities reversing downward and in major correction, it’s obvious change has occurred, that a pause to refresh is underway. And we can expect this new trend to last longer and correct deeper than many would think I’d venture. Sure, first because commodities are inherently extremely volatile, much more so than stocks and bonds. But also because of the emerging new, macroeconomic backdrop. We seem to be in line for a major, global economic slowdown which will throw a big detour on the road to a new long term trend to rising global inflation. If the global economy really goes blah for the next few years, commodities will take a longer than expected breather. Schwartz View: Still I’m in agreement with former Federal Reserve Chairman Alan Greenspan who predicted in his 2007 book The Age of Turbulence that we live in an inflationary world and that the disinflation trend dominating all during his tenure as Fed chief is coming to an end. And I’m in agreement also with famed, global investor Jim Rogers who says commodities normally correct 50% or more and that’s what we’re seeing now, a correction not the end, to this so far about 9-year commodity bull market.

Reasons For a Summer Rally

RichardSchwartz — Wed, 30 Jul 2008 13:22:00 GMT

UPDATE ON THE STOCK MARKET. Written Wednesday, July 30th, 2008: 6:30 am EST.

Another ‘flashy-splashy’ rally yesterday So typical of bear markets, especially those with much further in time and points to go. Grizzly bear markets thrive on investors’ hope and adamant investor reluctance to believe things can get worse. Bear markets end when that hope is gone. Anyway, everyone jumped on board the stock market yesterday, figuring that, once again, the credit crunch is over or at least winding down. I doubt that and really doubt that the nine month bear market is over but one never knows the future for sure so we always have to keep an open mind.

A SCHWARTZ RECAP. Bulls, still fighting this bear market, did a great job of spinning (it’s always easier to spin when there is a germ of truth) that Merrill Lynch’s capital raising move yesterday and more billions in write offs showed we’re in the “end game” of this crisis. That Merrill selling some distressed assets, doing what no one has wanted to do, selling out and thus setting a low market price, about 20 cents on the dollar, for some of their CDO’s, means that everyone else may be forced to follow suit and thus that will call an end to the prevailing uncertainty. But this game doesn’t end with Merrill alone, this may just be the beginning of the end, which, as we all know, can go on seemingly interminably. And subprime write downs are now just one piece of the now larger and still spreading problem, although a big part I admit. And subprime sell offs at whatever price would have been better if done many months ago, following the old Wall Street rule which Wall Street, when pressed, totally disregarded: “The first loss is the best loss.” Not many are noting the awful details either, that Merrill is paying Temasek Holdings, a Singapore-owned SWF (no, not meaning Single White Female!), a sovereign wealth fund to buy more stock. Previously Temasek bought Merrill stock and lost a bundle. Thus in this deal Merrill is now paying Temasek a cool $2.5 billion to offset some of Temasek’s losses on that first buy. Plus Merrill is financing the deal for Temasek and this deal will increase and dilute Merrill’s outstanding shares by 36%. And, ironically, the sale of these CDO’s are at a price lower than Merrill’s just announced mark-to-market quarterly earnings report and stated value. Finally, this whole new deal flies in the face of what John Thain, Merrill’s relatively new boss, has said previously, that Mother Merrill wouldn’t need or be raising any new capital. Schwartz View: Net, net, some say Merrill is a goner, that it will have to be taken over down the road some. I don’t know any details but agree with the concept, that brokers will have to merge.

TECHNICAL VIEW. IBD PUTS THE BULL BACK IN THE BOX!

Yep, yesterday was a bullish “follow-through” day according to Investor’s Business Daily (IBD). On the 11^th day, pretty late, after the recent July 14^th bottom, a number of key market indices followed through yesterday, that is rallied more than +1.7% and on heavier trading volume than the day before. Obviously lower oil has been the underlying linchpin to this rally; oil down stocks up and vice versa. Schwartz View: My stated view is that this drop in oil will help stocks for a time, for the time it takes investors to realize that lower oil isn’t going to be the panacea for this bearish stock market. That at some point lower oil will scare the pants off investors (so to speak) because they will see lower oil as confirmation that a recession is here and spreading globally. But we’ll have to wait on this theory of mine as for now lower oil does means higher stock prices.

IBD goes on to remind us that: “Every bull market in Wall street history started with a follow-through. But not every follow-through launches a new bull market.” I believe their stats but also know IBD has put the bull back in the box and then had to take it out a few days or a week or so later a couple times during the last few months. So, remember, nothing, no particular indicator, is perfect, by any means.

More Reasons For a Rally. But I’ve also been writing that the market is oversold, that the US government has come up with a boat load of temporary fixes and props to support the stock market including the stimulus plan, unprecedented lending to non-banks and barring short selling or at least making it extremely difficult to short the financials (the SEC extended this one week ban to August 12^th yesterday). And that a historical study of the pace of declines during extended bear markets show the market is now ahead of itself on the downside. Plus I must say I am impressed by many European stock markets posting a sequence of five straight up days after an extended, inexorable, grinding-lower decline, i.e. a bullish Trader Vic 4-Day Rule and change of intermediate trend. So we could certainly have a summer rally now.

Schwartz View: Myself I’d like to see and have written that a Dow Industrials and S&P 500 close above last Wednesday’s highs would give us a series of higher highs and higher lows, the definition of an uptrend. Well, we didn’t get quite that high a close yesterday another good day or two could do it. As for “Trader Vic’s” as easy as 1-2-3 change of trend, we have condition #1, a broken downtrend line and condition #2, a market which has stopped going down in place. We don’t have, as of yet, condition #3, that’s the higher high I’m watching for. Still, Trader Vic Sperandeo in his two excellent books from the early 1990s, get them, writes we don’t need all three, we can turn bullish with just one or two conditions met. Just be more cautious in proceeding and realize there’s always the chance for a whipsaw and have a backup plan for what you’ll do if that happens, how fast you’ll backtrack. With those caveats in mind, I put on some longs yesterday, not a lot and not terribly risky ones. Basically my theme is that as crude and other commodities correct, pressure should come off the food companies, off their raw material and input and power costs. And that at the same time these pressures diminish, food companies are successfully pushing through price increases such as mentioned by Kraft yesterday. If this summer rally holds together, say we get a new higher high by the Dow and S&P, I’ll push the envelope for short term trading purposes further.

We Need To Move Past Oil!

RichardSchwartz — Fri, 25 Jul 2008 13:49:00 GMT

YOUR ALTERNATE CLEAN, GREEN ENERGY WEEKEND UPDATE

With not much stock market stuff to write about since I don’t want to recommend buying or selling this morning as we all should have our portfolios hunkered down and pretty much in place for a rocky and rough summer by now. Sure, stock market aficionados can always fine tune their portfolios and do some long and short trading, trying to scalp some profits here and there while long term investors stand pat, but with not that much going on, please let me rant and rave a little about those people out there who are slow in moving forward on American’s vital energy issue. And, don’t get me wrong, we all have to change our mindsets about energy and life in America and it will take everyone their own period of time since we’re all coming from different lifestyles, histories, jobs and places. Still, change is a coming now – I agree with George Soros who writes he sees America and the world moving from an established order and certainty to great change and thus greater uncertainty -- and we’ll all have to adapt. No problem for us Americans as that’s what we’ve always done; we’ve always adapted to change well.

“Drill, drill, drill!” I almost can’t believe Larry Kudlow on CNBC this morning. That’s his mantra: Drill, drill, drill. OMG (Oh my gosh!) I have to believe Larry, “a great American” no doubt and always bullish, is living on another planet or is somewhere back decades in time. He just doesn’t get it! But then I shouldn’t be so harsh on Larry. Millions of American’s still don’t get it as well. Though I’m delighted to see T. Boone Pickens gets it as he is now paying millions for TV ads publicizing The Pickens Plan, his idea to harness America’s wind corridor running north to south from Canada to West Texas, replacing natural gas as an energy source for cities and use that natural gas to power America’s vehicles.

Anyway, Larry just will have to realize that economic growth isn’t the be all and end all. Near term growth is just near term growth. We really need long term, sustainable economic progress to make the US and world a more prosperous place. And that switching from oil today, while a big burden now, is the best thing for us and for future generations to come. Thus we shouldn’t be doing anything to drive down oil and thus gas prices today. We need to leave them be because high and higher gas prices now will help drive America in getting off oil by creating profit in developing alternative power sources. That more and more Americans see this already and those that don’t will soon wake up to this fact going forward, and are or will be willing to sacrifice for the good of the country. And that this major change over – like moving to indoor plumbing, to railroads, to cars, to electricity in generations past – can be and should be done.

So my major #1 point is that we don’t want to drill for oil any more! Certainly not lift the moratorium on offshore drilling like President Bush has just proposed and Larry got all excited about. Or go up to Alaska and ruin one of the last remaining unspoiled parts of our planet and home. For what? Temporary relief and to lower by a dollar or so gas prices now? And then a few decades from now, when we use up that offshore and Alaskan oil, we’ll just have to address the same issue once again?

You’re not convinced? You still want to know more reasoning why we shouldn’t drill for oil any longer? Well, because we have to move beyond using oil as a power source. That’s the bottom line. We immediately have to start putting any and all plans in place now, today, to stop using oil and dirty coal as well. Now, I know what some of you are thinking: “Richard, get realistic! That’s impossible.” Maybe Larry Kudlow and George Bush 2 are thinking that too, that there’s no way to get off oil and coal. But someone has to give them a (loving) slap across their cheeks and wake them up to coming change. It is a total change of mindset but it’s happening here and all over the world. It’s happening here with movies such as Wall E. Lucy saw that movie with her granddaughter Elizabeth and says it make her more into a green believer. And the influence that movies have is great, thus every kid who sees the movie will be left with the unconscious thought that they’d better live a green, clean, low carbon footprint life.

And, as I’ve consistently written since December 2006, I’ve noted a critical mass already built up supporting a change in how we live on this planet. From scientists, to governments to large and small business alike, to venture capitalists, to individuals. Supported by logic, the reasoning that using a cleaner energy source will: (1) be a major, maybe knock out blow to global terrorism, (2) create millions of new jobs in the US and globally and thus spur the whole world into a new more prosperous phase and of course, be a big step forward in leaving Mother Earth at least as clean and healthy as we found it, just the right way to live. Back in December 2006 as a result, I took my own advice to you all and started using 95% of my IRA account to just buy small allotments of any and all companies involved in inventing, using, working on alternative, clean renewable energy sources. I’ve posited here time after time that fortunes will be made by those companies and individuals pursuing this same course. Thus I’ve listed many times in this space as many companies involved in alternative power as I could find. Solar companies, wind companies, battery technology, hydrogen tech, geothermal, thin film solar technology, energy savers, and on and on and on. And I must say this strategy has worked. My Ira has risen while the stock market has been on a slide for the last year now.

SCHWARTZ SUMMING UP. Sure we still need oil and coal today and let’s find more where we can, where we’re already drilling. But we need a new mindset in America and I see it as already occurring, already in place and inevitable that it’s going to change America and the world as we know now it. Better to ride this incoming tide, open up our minds to new thinking by ourselves rather than have it forced down our throats. Some will not see this major change coming or resist it, not being able to adapt to a new world ahead, but not so my readers, I hope. There’s so much support already that there’s no going back so the sooner we all cross over to the other side of this vital energy issue the better.

Yay for the Pickens Plan!

RichardSchwartz — Wed, 09 Jul 2008 14:19:00 GMT

YOUR ALTERNATE CLEAN GREEN ENERGY UPDATE

Finally! A Plan! The Pickens Plan. Kudos to Mr. Boone Pickens!

Yep, it finally came down to a long time oil man to propose a way out of our energy bind. Obviously, it’s only a first step and it has a lot of hurdles and a long way to go before implementation, but Boone Pickens’ proposal is a great first step. We have to get the ball rolling and the country pulling together again. Plan on seeing advertisements about Pickens’ plan because he plans on publicizing it & has the money to do so.

The Pickens Plan:: To dramatically reduce on dependence on foreign oil.

As Boone Pickens unveiled yesterday, he wants to have private industry fund and build thousands of wind turbines in the middle part of America, in what he calls a wind corridor, running north to south from the Canadian border to West Texas. Which can generate about 20% of our electricity needs! Then transport this wind energy to the Midwest, South and Western metropolitan areas by private industry building electric power transmission lines. This will free up the natural gas now used to fuel these Midwestern, Southern and Western regional power plants. We can then redirect this natural gas to replace imported oil as a fuel for transportation vehicles (cars, etc.). Yay!

Schwartz View: Mr. Pickens goes on to request a monthly report on the reduction in foreign oil imports and the progress of development and implementation of natural gas fired vehicles. I’m 100% for this plan and all others of similar ilk. We do have a serious crisis on our hands and we need to get started now in addressing it. Again, I believe there is already critical mass built toward solving the increasingly critical issues of terrorism, global warming or global pollution, a new impetus to growth and our own national security. And all can be resolved by getting off the use of the dirty power source of oil. Go Pickens Go!

* Finally, many boos for the Group of Eight (G-8) leaders who couldn’t agree on anything about energy in their just finishing up three-day meeting in Japan. They all know something needs to be done but they can’t agree on anything. And our President Bush is one of the worst offenders. I like the man but am anxious to see someone replace him because he just doesn’t get it. America is ready to sacrifice for the worthwhile goals of national security, job growth, fighting terrorism and respecting and cleaning up our planet, but he’s locked into a very bad and losing position and to top it off, is stubborn. Hey, being stubborn when wrong is a big no-no-in investing in the stock market, why not in politics too?

The G-8 statement? They will cut greenhouse gas emissions by at least 50% by 2050. Regular readers know when any proposal goes out more than 10 years or so it’s just a sop. And this statement has no plan, no measurements, no starting point, just about nothing. We truly need new global leadership!

San Jose to Lake Tahoe

RichardSchwartz — Tue, 08 Jul 2008 13:42:00 GMT

Just got back from vacation and before jumping back headlong into the stock market again, thought I'd relive and relate the highlights of my trip. My best, Richard

A RECAP OF LAKE TAHOE & SAN JOSE

Before my memory fades, let me recap Lucy and my just completed vacation to California and Nevada, to San Jose and Lake Tahoe. This retelling may help others who have similar interests and/or vacation plans.

No big problem with Continental Air out Newark airport. Lucy and I have been going there recently instead of LaGuardia or Kennedy, whenever we can. Just an easier drive in and out starting 90 miles up the Hudson River from NYC. I would recommend using the Park ‘N Go’s surrounding Newark airport on the perimeter road. Worked well for us three times now. Our flight was late taking off, nothing new, but we made up the time with a tailwind. The highlight was upon landing. When the tech gadgets went on in the still darkened cabin. All the cell phones glittering colorfully in the dark made me want to get one, to move into the modern world. “Whoa Richard, just another bill!”

Our good friends, whom we went to visit, drove us to Lake Tahoe from San Jose in their SUV. The drive was edifying, eye-opening and awe-inspiring. Driving south past Sacramento on the highway, there were miles and miles of gorgeous white and pink bushes. I didn’t get their names but they were ubiquitous near the capital and I saw them elsewhere too. Past Sacramento and beautiful but bankrupt Vallejo we got into farm country. Fields and fields of foodstuff growing in a massive flat valley or basin between mountain ranges. It looked like wheat as I saw big combines working. When we got out of the car for a pit stop, it actually spelled like farm country. I remember that smell as I used to visit my grandmother’s big farm for a week in the summer in Canandaigua, NY, just south of my hometown of Rochester. Then we started driving up into the mountains. Funny how we couldn’t really see them coming or going; maybe it was because of the lingering smoke from all those California brush fires in the air. We did see firemen putting out a fire on the way back to San Jose, actually no fire but charred bushes. Happily we didn’t run into any big fires anywhere while driving although even 6252 feet up in Lake Tahoe the air had a tint of smoke to it.

The drive through the Sierra Nevada’s, a small part of it anyway, not part of the Rockies I understand, was a big highlight of the trip for me. All the magnificent views and vistas as we saw signs saying 4000, 5000, 6000, 7000 feet. Holding on tight with the back seat of the SUV swinging slightly and looking out of (just) the side windows was awesome. I saw giant mountain ranges up really close, ranges which went up and up and up, finally kinking my neck. I saw valleys which were gigantic and if the car had driven off the road, we would have floated seemingly for miles before we hit. Trees looking like they went up forever actually growing well on steep ridges making the view even more awe-inspiring. The huge, straight up tree trunks looked black when in the shadows but many were reddish brown close up; I’d guess redwoods. These trees grew straight up forever and the boulder-filled trout streams looked like Lake Placid’s famous and powerful West Branch of the Ausable but were much wider, larger, longer, steeper and all encompassing. Wow! They must be something to fish. Maybe in my later years but then I’ll be too old.

Lake Tahoe itself, again, looked like a Lake Placid, NY, just much larger all round. One afternoon we went to the beach and I went swimming twice. The water was cool but not anywhere near as cold as when the outdoor pools first opened up here around New Paltz. Then there was a gondola a block from Harvey’s, one of the four major casino/hotel resorts all together lying just over the Nevada stateline which runs straight through Lake Tahoe, the town and lake. So the winter, if one can get to Lake Tahoe, must be great for skiers. Myself, I loved swimming laps in Harvey’s heated outdoor pool in the early morning (before the kids took over) while seeing snow on the surrounding mountains and western blue jays (darker coloration than our powder blue jays) before sharing a light breakfast with Luce and getting ready for the opening of Belmont at the Sports Book. A Sports Book is just a big room with TV’s everywhere showing horse race tracks everywhere and legalized gambling. There was a cavernous Sports Book in Las Vegas last year but I liked the one at Harvey’s after finding the golden mean chair to sit in. Pretty waitresses served us whatever we wanted, complimentary as long as we kept betting. I found I really liked betting in the morning while my mind was still fresh, just like writing this column in the early mornings. Reading the racing form is a commitment best done fresh. I held my own, cashing a few tickets including a $100 exacta with two horses laid off for six months, topped by Missinglisalewis now trained by Lisa Lewis. Wonder what the story behind the story behind the story behind the story is about that one. I also played golf although not at the expensive course near Harvey’s being used for this week’s 19^th Annual American Century Championship (think it’s on TV this Saturday at 4 pm EST). The ball did seem to fly further while it also seemed easier to swim, easier to lift my arms out of the water, with much less gravity pressing down up that high in the mountains. We were as much as 4000 feet higher than Lake Placid here in New York.

Too soon we had to leave Tahoe but again the drive -- thanks so much Leslie for driving! -- was awesome. I was still into the grander of the massive trees and am still thinking about them days later. But Leslie then showed us San Jose. What an up and coming technology city, actually already the 3^rd largest metro area in California. Modern, multicultural, uplifting and the home of San Jose State, a 30,000 plus school with a gorgeous campus. One day we stumbled on a Hawaiian Fest with great music and vendors on campus. Other times we just sat on a bench and read since the weather was so good, and again no humidity at all. Bob and Leslie said it hasn’t rained for months. After eating chicken and sushi (not me) at great places, we even topped it off with refreshing drinks at a Japanese place which didn’t have or know about Pepsi. Then 4^th of July fireworks! And finally we topped the whole great trip off downtown at the San Jose Technology Museum. Hey, San Jose being the heart of Silicon Valley, we couldn’t miss seeing the history of the semiconductor chip, etc., now could we? All in all, a great trip! Thanks to our very hospitable friends and Lucy’s sounding board, confident and best friend!

Have a wonderful day!

Ho Hum, Another Bear Market Summer Day

RichardSchwartz — Fri, 20 Jun 2008 14:08:00 GMT

UPDATE ON THE STOCK MARKET. Witten Friday, June 20th, 2008: 6:30 a.m.

Looked to me like yesterday’s stock market rally was a knee-jerk reaction to China announcing it was going to raise oil prices by 17%. Crude dove on the news while stocks jumped. But if one thinks it through, is China raising oil prices really such good news? The bullish knee-jerk was that higher prices for gasoline in China will mean lower overall oil demand from China and that will reduce oil prices globally. As we’ve been hearing a lot lately that it’s government subsidized gas prices in China, India and many other developing countries that isn’t allowing crude demand destruction to occur and thus lower global crude prices. I mean Americans drove 30 billion fewer miles from November through April and that hasn’t lowered prices. The bullish train of thought continues that if the world gets lower oil prices, everything will improve. But, with further thought, if gasoline prices go up in China, won’t that cause demands from Chinese workers for higher wages? I mean the very last thing that the current communist Chinese leadership wants is any revolution from the Chinese people. Already, super big picture investor and Chinese advocate Jim Rogers says its inevitable that China’s government will go capitalistic over time, what with the Chinese people getting a taste of free markets for the last decade or so and realizing that free markets are the pathway to future wealth. Remember: “To be rich is glorious,” is the Chinese people’s new mantra. Hm? … and won’t higher Chinese wages mean higher Chinese export prices, thus higher import prices for us here in the US since we import tons and tons of stuff from China? And thus higher consumer goods prices intensifying the already ongoing and tightening squeeze on US consumers? We’ve had stagnant wages for many, many years with no light at the end of that tunnel and now we’re seeing higher prices for just about everything; food, fuel, health care, taxes, etc. Guess the still entrenched bulls figure lower crude will lead to lower gasoline, diesel, heating oil, and food too, eventually. And since the trend is the thing in the stock market, meaning the markets start discounting immediately upon seeing a new trend emerge, stocks rose yesterday. Still, is a gas hike in China really going to bring down global energy prices? I mean China already raised gas prices late last year and that didn’t bring prices lower. And we now live in a very globally competitive world as all countries and regions want to secure their energy and other needed mineral futures. And food futures too now after the recent global rice shortage has exposed the fallacy that it’s ok to depend on other countries for food staples. Anyway, the first thought was that lower oil is good for stocks and thus the stock market got stronger as the afternoon proceeded, led by lower energy beneficiaries such as the Dow Transports. But while I turned bullish on the Transports back in late March, after technically it broke three fan lines and formed a Head & Shoulders Bottom, I’m now bearish on the group after the two-month dead cat rally ended and the transports formed a bearish, rarely seen Broadening Top, an indication of loss of intelligent sponsorship and leadership. Thus I would certainly use yesterday’s nice bounce back in the trannies to get out if you haven’t already. And, for aggressive traders, if you can find a way to short the transports, I’d do so in a small way now. Schwartz View: Again, yesterday seems like just another bounce in a larger bear market environment, caused by entrenched bulls who refuse to admit the primary trend has now changed and is now pointed downward. The problem with this bullishness -- investors refusing to admit they are wrong, a terrible habit in the stock market! -- is that it indicates we’re still in the early stages of this bear market. Again, safely position yourselves and, unless you’re a trader, take the summer off. Of course, keep reading my letters. Why? Well, let’s see, to improve your knowledge base of how the stock market works and to make sure you don’t miss the opportunity to get back in. Bear markets do have endings. The last Mama Bear market, 2000-2002, ran for slightly less than two years with the most damage coming in the 2^nd year. The last Papa Bear market, in 1973-1974 ran for two years. And that very famous big bad Papa Bear market, which this one is looking more & more like, ran from 1929-1932, or just under three years. So all bad times do pass.

Energy Savers New Theme: More Buys

RichardSchwartz — Wed, 18 Jun 2008 13:51:00 GMT

MORE ON MY NEW Energy Savings Theme. To review, just last Friday I introduced my latest theme. An investment theme is more than recommending you buy this stock or that. It’s about finding a trend, generally an economic trend based on changing economic fundamentals, which should support business for some time in a whole industry sector, whereby most all companies doing business in that sector are buoyed and pushed forward by some bullish tide. Like today’s increase in wealth in many developing countries translating into a larger global middle class and thus increased demand for energy, metals, foodstuffs and most all commodities. Thus leading to a long term commodity bull market whereby most any commodity and companies involved rises over time.

Well, my newest theme is that the recent high and higher costs of energy, metals and other industrial manufacturing inputs is going to drive businesses into finding and employing most any/all energy savings devices, products and services. Since most companies are becoming believers that energy is going to stay high priced for a long, long time to come. Thus last Friday’s recommendation of those five stocks from the Energy Controls sub-category of my Alternative, Clean Green shopping list. Again, those symbols are CPST, BCON, WGOV, MXWL and CHP. And again, please check into these carefully before you buy. Three are low priced stocks and normally I don’t even track stocks that low priced but in this case of looking for new breakthroughs to come in clean energy, I’m looking for and buying possible up and comers. Disclaimer! I own tiny amounts of two of these five and am interested in buying the others.

Today, let me add to my recommended list of Energy Savers. First off, these energy saving stocks can come from far and wide places, sectors and industries. Since the common thread is that they all have some product, service, etc. which can save businesses energy & thus big money in today’s new high energy cost world. Down the line I plan on applying the same concept to the public as well. Also finding companies that offer products and/or services which can save us as individuals energy and thus money but for now with businesses flush and consumers squeezed, I’ll concentrate on energy savers for business. So, again, below are four more companies going on my Energy Savers shopping list today for you all to consider.

ENERGY SAVERS

Price Mkt Cap Business Line

COMV Comverge Inc. $12.73 278m Environmentally responsible peak electric demand reduction

ENOC EnerNOC, Inc. $15.65 309m Manages electricity consumption across networks

ITRI Itron, Inc. $94.75 3191m Computerized electric, gas & water meter reading

BMI Badger Meter $50.04 730m Measures & controls flow of liquid & gas, like water meters

Disclaimer! I own a tiny amount of COMV and may buy some of the other two as well.

Chart Views: Comverge & EnerNOC are basically in the same industry niche, energy management, and have similar histories. Both were new IPOs last spring, Comverge in April 2007 at $18 and EnerNOC in May 2007 at $26. Both rose nicely until late last year, COMV hitting $38.78 and ENOC hitting $50.50, both peaking on October 18^th. Then late last year, early this year, while the general market sank, both companies experienced lots of insider selling, possibly after lock-up periods ended, which knocked them both down. Then on February 27^th EnerNOC plunged on worse than expected earnings and COMV fell in sympathy, both falling on analysts’ realizations that there were no real metrics on how to value them. After falling further, both have been building bases every since. You can see their current prices above. So neither are in uptrends but patient investors start nibbling on both now, buying them on weakness.

Schwartz View: Itron & Badger Meter are both meter readers but have different charts. BMI is in an uptrend like my first five recommendations from last Friday and is a recent entrant on the IBD 100 list of leading companies so you know the fundamentals are good. ITRI in trading in a sideways pattern. Net, net, I would buy small amounts of all four stocks above and add them to the five buys from last Friday in a new Energy Savers portfolio. Buying small portions of a lot of stocks is like building your own little mutual fund. In this case a sector specific mutual fund so don’t go overboard, especially right now while the stock market is still in bear market mode.

Once a Century Day of Reckoning Starting?

RichardSchwartz — Mon, 09 Jun 2008 13:44:00 GMT

THE BIG PICTURE

Ok, here’s a Big Picture of where America and we Americans stand today. A fairly downbeat Big Picture so buckle your seatbelts. America has been on the verge of a major comeuppance for many, many years. But its been postponed and postponed. Because the US dollar is the world’s reserve currency we’ve been able to play by different rules than the rest of the world but now we’ve pushed that special benefit to the limit and beyond. But each time we’ve come close to going into a major economic recession, which almost by definition means a near term cleansing out and thus longer term strengthening of the economy, we get “bailed out,” so to speak, by the Federal Reserve or by our much deteriorated if not totally corrupted political system, i.e., by the sitting president and his staff or by Congress. Our economic problems which terribly need to be resolved, just get more and more money thrown at them (which just makes them worse and more deeply entrenched) say by President Bush’s multiple tax cuts upon taking office in 2000 or by the Fed dropping interest rates rapidly or through the floor or both. For example, former Fed Chairman Alan Greenspan numerous, back to back to back interest rate cuts in 2001 and 2002 and current Fed Chairman Ben Bernanke’s dramatic rate cuts since September. So our economy has been artificially pumped up and stimulated by what I call, financial “steroids.” time and time again for many years now. But now this use of steroids just isn’t working. Now all the money the Fed is pumping into the system to mitigate the credit crunch and crisis is just causing a big bubble in gasoline (and heating fuel prices) in America which at $4.00+ a gallon is now being felt widely. I say $4.00 is the tipping point and things are going to get worse quickly now because of the four following examples over the past weekend. First, Lucy let her Honda get down to a quarter of a tank for the first time in a long time. She called the dollar cost to fill it up

“eye-opening” numerous times as we drove off and away. I could hear the wheels turning in her head. Second, a real estate owner told me he was feeling this recession with a massive increase in real estate taxes, etc. and that he never felt any previous economic downturns in his life. Knowing me I probably blurted out it was just beginning, but I hope not. Third, awhile after my Sunday early morning bird walk, while reading the paper and drinking my coffee I heard the morning manager of Stewart’s, the local all purpose convenience store, tell another customer, a bit desperately, she couldn’t afford to drive to work now. And lastly, when I called to wish my brother-in-law Happy Birthday, my sister, retired but who was a bank trust officer in Buffalo for many years, says she’s never seen anything like this looming downturn. All in all, I expect $4 gas or out of control oil prices in general, is what the stock market discounted roughly six months back, it’s normal advance foresight time frame, when it really collapsed back in January, it’s first leg down in this bear market.

Now, Price Inflation. This commodity inflation, this cost of living inflation or price inflation, is starting to work its way through the economy in food prices as well. Watching the free marketplace work, in effect dramatically weeding out, killing off cattle herds because it costs too much to feed the cattle, that’s going to reverberate into higher hamburger and steak prices down the road. Plus Chinese wage demands will now work their way into much US clothing prices as well during this cycle. And if the US dollar keeps dropping, as it will because the US balance sheet is in such terrible shape, all prices will rise even faster. I’d go so far as to say commodity guru Jim Rogers’ and Peter Schiff’s predictions of hyperinflation are becoming a distinct possibility. All this rising inflation as the economy sinks and US wages stagnate or go lower and jobs shrink. So it’s not a pretty picture. And it’s possibly worse than a normal recession because we’ve put off this day of reckoning for so, so long. For example, in Trader Vic Sperandeo’s two early 1990s books, Trader Vic – Methods of a Wall Street Trader and Trader Vic II – Principles of Professional Speculation, he predicted a day of reckoning right then or very soon. And related to us a little history of how the US government operates, trying to paper over our problems by lowering rates, cutting taxes and whatever else they can think up to throw more money at our problems. This works and works and works … until it doesn’t work anymore. So far no one really has been able to predict when the day of reckoning will arrive. In the late 1980s/early 1990s was a flash point for trouble but we muddled through. Then another flash point around the dot.com bust from 2000 to 2002. But lower taxes and lower interest rates got us through. But now, 2008 -- 10 is the next flash point. Who knows? This time may indeed by the real thing. It sure looks it. Why? Obviously because the extremely important financial sector, the very area which has been driving the stock market higher by soaking up all the Fed and other government liquidity and manipulating it to make things look better and better on paper, has now imploded and gone bust. As Peter Schiff writes in his 2007 book, Crash Proof and Robert Prechter Jr. wrote in his 2002 book Conquer The Crash manipulating financial paper/assets/capital around to make it seem like we’re getting wealthier is a lot different than when America did grow wealthy by actual manufacturing, producing things people need and thus were willing to pay for. In the 1950s and 1960s we were the manufacturing colossus we lived on some of our profit and saved the rest. That’s how you build wealth. This disparity is one of Mr. Schiff’s key theses. Also one of Mr. Prechter’s major theses as well, just illustrated differently. Mr. Prechter, a chartist, says the US economy performed its best in the 2^nd leg up of this long term business cycle, say from the 1950s through the 1970s which shows this 3^rd leg up is nearing a major top. Schwartz View: So it’s all coming together now, seemingly. All the wrong paths we’ve followed for years coming home to roost now. That’s my guesstimate anyway. So, is this latest market decline really the beginning of America’s day of reckoning whereby the rest of the world finally loses confidence in America, waking up to the deception of the dollar as the world’s reserve currency, as Mr. Schiff describes it? Does the US dollar really head down as the world unloads our Treasury bonds, thus forcing up long term interest rates, which in turn ratchets up the already gigundo squeeze on America and us individual Americans and make the situation even worse? No one really knows for sure as Mr. Prechter reports these true economic disasters only occur about once a century! Like in the 1930s in the just departed 20^th century and once in the 19^th century as well. Why would this once in a century event be beginning now? As bad as things now look, maybe somehow we’ll get bailed out and the day of reckoning postponed once again. But since I began this stock market letter, 18 years ago in September 1990, I’ve watched things get worse and worse, not on the surface where we had a great stock market run in the 1990s, but under the surface, as democracy got pushed back and back, as labor unions lost power, as corporate statesmen became extinct, as much needed government regulation somehow morphed into a swear word and became despised, as liberalism or helping the unfortunate became obsolete behavior and as capitalism ran away unchecked, benefiting from fiscal and monetary stimulus over and over again whenever the economy lapsed into the normal down wave of a business cycle leaving us today with just a shell of the old wealth producing US economy. Yep, all looming economic crises and recessions have been pushed to the back burner by our dysfunctional political system which now listens only to corporations through their lobbying efforts. A system which even business if fed up with. Social Security, Medicare & Medicaid, pensions, health care, energy, the environment, a big wow! when I write them all down, all these long term vital issues have been avoided because of capitalism gone wild, because doing anything about them would “… hurt the economy and be bad for business … .” The same mantra Congress just used as its reason last week to kill a critical climate bill! Just awful action. Politicians should know there’s more to the economy than keeping the steroid sham going year after year, there’s more than keeping the business lobbyists happy near term and there’s more than their next election result. The US economy needs to be cleansed out from time to time and thus made fundamentally stronger for the longer term and more competitive in today’s new global economy. We still have the strongest, most fundamentally sound economic, financial and social system going from all I can tell. And the country has more than just our economy to worry about and strengthen for the longer run. We also need to re-strengthen our democracy once again after the loss of common man representation that’s taken place over the last 30 to 40 years. Actually, it’s no one’s fault, this push into Supercapitalism as Robert Reich terms it in his latest book of the same name, what has happened in America over the last few decades. But now it’s time to look at and push the flip side of the coin, to reawake democracy which is vital to American life as well. We need to regain representation for little towns and smaller groups, non-profits, etc., etc., all those groups who can’t get their sides of the story heard any more today as corporate lobbyists dominate. Again, I don’t blame anyone for what’s evolved. That’s capitalism, if left “unfettered” as even Republican presumptive presidential nominee Senator John McCain has described today’s economy, it will go to an extreme … as it now has. * For the record, one can get all five books I’ve just mentioned above from www.Amazon.com or elsewhere. And I recommend them all.