As I picked up the morning paper, I chuckled as I read the front page headline in the business section. It read "Gasoline Prices Dropping". It痴 not like we didn't spot this train roaring down the tracks.
The even quoted a gasoline analyst from the Oil Price Information Service who said, "We'll be closer to $2 (a gallon rather) than $3 come Thanksgiving".
I've been telling you to watch out for the "magic", and magic is "the art of producing illusions as entertainment by the use of sleight of hand, deceptive devices." Hummm, I don't think the public looks at the manic price movements in gas as "entertainment", and no one likes to be deceived.
This "magic, deception, or sleight of hand", reminds of a quote from one of my favorite movies, "The Godfather".
While advising his son, Vito Corleone told his son Michael, " I work my whole life - I don't apologize - to take care of my family, and I refused to be a fool, dancing on the string held by all those big shots."
This just makes me wonder if we are just fools dancing on a string held by big shots. If you think about these topics, you might agree that we are;
1) Globalization and the outsourcing of American jobs.
2) NAFTA and CAFTA
3) Energy prices fall before an election, and rise after an election.
4) Political Correctness.
5) Illegal alien's crossing over the Mexican border, while two border agents face 20 years in prison for doing their duty and an illegal alien who committed felonies is free.
6) Politicians are negotiating with communist China to allow the Chinese to gain access to two major Texas ports at Corpus Christi and Houston on the Texas coast of the Gulf of Mexico.
I could go on and on, but I think you're beginning to get the idea.
So, what does all of this have to do with the stock market? I think it has everything to do with the stock market. We can no longer look the other way and think that geopolitical issues don't affect the economy and stock prices. Remember, we, the pubic, are the economy and the stock market. If we stop spending, borrowing, and make less money, all of these things will have a big impact on the capital markets.
Our job is to be alert to what is going on around us, and to act accordingly. For example, history has taught us that credit excesses have fueled speculative asset bubbles, and the greater the excesses the wilder the speculation. We are beginning to see the ramifications of this in the real estate markets as we speak.
After the NASDAQ bubble of 2000, the bubble simply shifted from one sector to another. This new sector was real estate.
Now that our savings rate is below zero, and borrowed credit has fueled the economy as consumers withdrew money from the appreciated values of their homes, what will be left to drive the economy forward as the real estate bubble continues to deflate?
While energy prices may temporarily decline, and inflation may ease, we cannot ignore the fact that China is undergoing an industrial revolution that will continue for the next 50 years. This means that energy and commodity prices (after a meaningful correction) will regain strength in the months after the November elections.
This also means that after a brief pause in inflation, Americans will again be faced with higher costs of energy and materials.
America will survive, and eventually prosper, but not before the ramifications from the above mentioned topics correct themselves and distribute some pain that many are not use to.
I will be heading to Detroit this afternoon, and I let you know what is happening in the industrial belt on Tuesday.
