Since my initial article suggesting that oil prices will fall in the weeks leading up to the November mid-term elections, prices have fallen about 20%. At the same time, the President's poll numbers have risen dramatically.
This morning, Bloomberg interviewed Eli Broad, who was the founder-chairman of both SunAmerica Inc. and KB Home (formerly Kaufman and Broad Home Corporation).
Here are a few points that Mr. Broad made;
1) The housing market will be in a quite period or slumber for longer than what most people are saying. He basically said there is an over supply, and that exotic mortgages fueled too much speculation.
2) Energy stocks are priced for $40/bbl oil and are currently undervalued.
3) The best investment and growth opportunities are in China and India, not in the United States.
Historically, the last half of September, and the first half of October are normally the most negative period for stocks. The recent rise of the Dow has even the best market mavens scratching their heads.
Since the market has (for now) moved contrary to majority opinion, another leg up from here and into October may give way to a negative trend during the most positive period (November-March) for stocks. So, why has the market taken on such a bullish stance lately? Call it what you will, but its "magic."
Here's what the "magic" has done so far;
1) Caused oil prices to drop 20% in a month.
2) A fall in energy prices spilled over into commodities lessening inflation fears.
3) Interest rates have fallen.
4) The fed has paused for the second time.
How perfect! It doesn't get any better than this. All of these events have lead to a bump up in the polls for our political leaders. The question than remains is simple. What happens after the election?
Well, the answer could be found after looking at the 2004 post election move in energy and commodities. Before the 2004 Presidential election, energy prices mysteriously declined (with help from the Saudis). After the election was over, energy prices reached new highs.
So, what are politicians betting on? Yep, you got it; they are betting that the voting public has a short memory. Based on the past, I have to agree with them.
So, unless the Democrats win both the House and the Senate (not likely), oil prices will jump up after the November elections. This is not a political advertisement, this is a money making opportunity. It never has been, and never will be. This being said, we cannot ignore the ramifications for investors when politics influences our investments.
We need to focus on what is happening in China and India, and not be distracted by the events leading into an election.
Comments (1)
John,
I have been following your comments on oil prices and observations about China and India and the upcoming election.
I guess I have my own views and also some questions.
1) If the Democrats manage to win either the house or the senate what will the reaction be in stocks? I have read several articles indicating some bullishness being the result of some percieved notion that it will stay all republican.
Personally I don't see the vast improvement in numbers, 39% Last Sunday was what the McGloclin group reported (on PBS). Granted he is up from 33% but I wouldn't call that a resounding change.
The way I see it the concerns of the election follow:
1) Iraq
2) War on Terror
3) Economy
I live in Indiana and our senate race has been getting some real national attention. I believe Mike Sodrel will lose and some in Washington have been pointing to this race as a real sign of how the elections are going to turn out. It would take much more than lower gas prices for me to ignore that we are losing billions of tax payer dollars on a war we didn't have to fight. Maybe that's just me, but from the people I talk to in Indiana I think he will lose.
2) Oil prices. I think the oil prices going down have much more to do with supply and demand than with any political interference, as you inferred from the 2004 election.
There has been an obvious decrease off summer driving season, more indications of reserves coming online outside of OPECs control, and driving habits have forced down demand.
Also, while China continues to grow at a torrid pace, they have virtually ended using petroleum for power and have replaced it with coal supplies. In 2004 when their demand surged the infastructure to get coal was not yet built, so a big portion of their power was supplied by burning petroleum. I'm not saying their demand will stop, obviously it will increase over time, but not at the same rate in years when they were using a large amount of petroleum for power instead of coal.
A big reason why I tend to agree with some industry insiders that we will actually see the cost of oil pushed down even more.
Though OPEC can cut production (currently at 30 million barrels a day, I believe earthwide consumption is 28.1 million barrels a day) that may not force prices back up as it may just indicate to more people that OPEC is not responsible for as much of the world supply as they have been in the past.
PRUDO bay is also not even back online yet, when BP does restart it this will send oil prices lower, or at least it should given it has not been online during this entire price drop.
The discovery in the gulf also boads well, though it will not be available for some years, if it is on the high side it should be as big as the Alaska oil field.
That's not to say that middle east tensions won't happen, and also the report that the Thunderhorse facility in the Gulf (schedueled to deliver 250,000 barrels a day domestically) is once again delayed from production till 2008. But I think even over the coming years not just months we could see some extended relief from high gas prices.
3) China and India. We should have money invested in foreign markets, it is high time the worlds consuming force is no longer the U.S., an expansion in emerging economies could actually help us as they start to share more of the consumption of world products (other than natural resources I mean) and that eventually should lead to increased consumption of american products as the dollar falls, and emerging countries have more money.
China also is not going to be seeing these insane trading surpluses. They have devalued the Yuan continually and the EU, America, and other countries are started to get tired of it. As was made a point to China recently about how they charge more money for cars if the car has 60% of it's parts made in China, and that can't continue.
Too much GDP growth is a bad thing sometimes, China has to continue 11% growth otherwise they can't create enough new jobs for workers, but they haven't bothered to put the instruments in place to protect from inflation. (Other than they have a lot of foriegn investment in their banks, instead of domestic, which will help when they hit a recession)
I think it will be their downturn that eventually causes our economy to hit the skids. Maybe in 2008 when they run goverment spending through the roof for the Olympics that summer.
Besides, have you been to China? They are polluting themselves to death. Their consumption of natural resources will have to slow at some point and respond to some kind of government practice of sustainability.
Just my thoughts. Anyone is free to let me know what they think.
I'm actually kind of new to investing. But I have always been heavy into world research. And I work in the energy industry, so my perspective on that comes from the inside somewhat.
Posted by stromprophet | September 21, 2006 3:34 PM
Posted on September 21, 2006 15:34