Oil Prices Might Halt Stock Rally

Investors may be pleased to see stock prices hitting highs this year, but there’s something else soaring that’s a bit scary: oil prices. Oil prices are storming higher because investors anticipate stronger global demand as factories, cars and idled production facilities creak back to life.

Gains in oil prices are head-turning. The price of a barrel of oil has jumped to more than $78, a high this year and a staggering 76% rise in 2009. That gain dwarfs stocks’ 20.4% increase this year as measured by the Standard & Poor’s 500.

Most troubling, though, is that the last time oil started spiking was late 2007. That jump in energy prices helped start a decline that knocked stocks into the worst bear market since the Depression.

Now that oil prices are ticking up again, some are wondering whether rising oil prices are the potential spoiler for this market rally.

The rising price of oil “triggered part of the recession,” says Doug Roberts of market research firm ChannelCapitalResearch.com. “If it continues to rise, it could be a problem.”

Investors wondering how rising oil prices could affect stocks will be watching for:

•Onerous energy burden on consumers. Consumers are cutting borrowing costs, but rising energy prices could undermine savings efforts, says Jim Paulsen at Wells Capital Management.

Energy costs as a percentage of disposable personal income jumped 3 percentage points from 2002 through 2008, to 6.3%, Paulsen says, a much larger hit than the 1 percentage point rise of debt obligations, he says. The energy burden is now 4.4% of income, and an increase could be hard for consumers to take, especially with unemployment stubbornly high.

•The $80-a-barrel barrier. Rising oil prices weren’t a problem for stocks until they cracked $80 a barrel in September 2007, says Jack Ablin of Harris Private Bank. It’s at that level, historically, that energy prices could start negatively affecting consumer behavior, he says.

•A rapid surge in oil prices from here. Some investors aren’t worried about the absolute price of oil as much as the direction and speed. Slow and steady increases can be absorbed by the healing economy, says Charles Crane of Douglass Winthrop Advisors. A surge, though, could be a problem.

Concern about rising oil prices is just another sign of how investors, while pleased to see stocks rising, are watching for anything threatening the momentum, says Hugh Johnson of Johnson Illington Advisors.

In keeping with the past, this bull market has a lot to overcome, and the biggest hurdle is rising oil prices.

Boom – thud! – Economic recession…how far is recovery?

Is recession in US coming to an end or is the recovery far from reality?

Recession is a characterized as a period of negative growth or fall in the real national product, contraction in the employment, income and output levels. Going by these traits the real GDP growth of US was 1.1% in 2008 and -3.2% in the 2009. Unemployment levels are at an all time high and the consumer spending has been whipped. There is recession for sure and this one has been the longest recession in the US since World War II.

There are several regulatory laws that the Obama government has introduced. There are several new fiscal and monetary policies that are introduced every day; the idea is to make the markets more regulated than ever. The million dollar question here is with these regulatory norms being introduced are we actually amending the loopholes and giving ourselves a reassurance that the recession is deep buried for good? The answer is uncertain and is more of a trial and error than thoughtful move.

What the government has been able to do is to ease of the credit crunch by introducing more money into the market. The bubble in the US economy took place when there was more of credit available to people which was not backed by the income. Today the government may have painted a pleasing picture by splashing all over in the headlines that the borrowings have increased, investment in asset backed securities have picked up and the investors are getting confidence in the markets as well. But there is still no income.

The capital market is surely the strength of an economy and also reflective of the performance and indicator of growth. We should not forget that the capital market acts as a catalyst. It only strengthens what the performance of the individuals put together would be. The injections of the household savings into the economy and the income levels will churn the growth on macro level. The solution to the problem does not lie in printing more of currency when there is shortage of it.

There is a mixed bag of reactions on whether recession has ended in US. The Fed claims that the recession is over. As per Morgan Stanley report most executives feel that the recession is over. A poll of Fortune 500 CEOs indicates that 75% of the best CEOs disagree that the US recession is over.

The recession would end when the market activities would pick up when consumer spending increases backed by income. Some analysts expect the US economy to shrink by 2.8% this year after 1.1% growth in 2008. The economy’s graph has gone bungee jumping and the recovery is far from near and is still very feeble and in its nascent stage. The recovery period no doubt has taken much longer and recovery speed much slower than political spin predicted.

Cash for Clunkers Program Working?

Cash for Clunkers is a government stimulus plan enacted to help the struggling automotive industry in America. There are many different opinions on this program, but most agree that it is working in the short-term, at the very least. Some say it is a success, though others believe it will lead to long-term tragedy.

This program provides consumers with up to $4,500 when they give up their old “clunker” to be destroyed. They are then expected to purchase a new car with their monetary gains, thus stimulating the auto industry. This strategy appears to be working. Everyone likes free money and a new car. It should be stressed, however, that this is not a long-term solution to the United States’ economic woes, nor is it particularly intended to address anything but the issues of the auto industry.

Despite its narrow focus, it has ended up influencing the stock market in positive ways, some of which are quite unexpected. For example, platinum stocks are skyrocketing due to the fact that platinum is used in car manufacturing. Savvy investors can make quite a profit if they read the market right. Besides these side benefits, the Cash for Clunkers program has definitely helped boost car sales, at least in the short-term. The auto companies who did not experience higher sales rates reported that their losses were still significantly less than had been expected.

It may be too early to label the Cash for Clunkers program a success or a disaster, but it is still certain that profit can be made from it. Hopefully, its current benefits will lead to stock market boosts and eventually full success.

US Unemployment Rise

US economy is getting stabilized and has improved in the pace of economic contraction when compared to economy during mid 2008. But there still exist some sort of uncertainty because of the rising unemployment and tight credit conditions. According to the recent news, labor department has said that the number of people getting unemployed is raising more than expected. Unemployment is supposed to rise to 9.6% in the coming months. It is also seen that about 51% of the corporate chiefs are going to reduce the capital spending and about 49% is going to cut the jobs. All these can very badly affect currently achieved pace in the recovery. 

It is found that gross domestic product is now facing an annualized decline of 5.5% from the months of January to march which is better compared to that of the preliminary reports which was 5.7%. The decline in GDP by 5.5% in Q1 2009 is mostly contributed due to the decrease in the business inventory. Most of the economists believe that the pace of downturn is about 2% currently. Investors are also finding a hope with the low pace of recession. It is seen that Dow Jones Industrial average has risen to 2.1% and there is also ascend in other gauges by 2%.  The standard & Poor’s500 Index has recently increased to 34% from the lowest hit it had during the March this year. Most of the businesses and investors are now anxious about the recovery from December 2007.

It is noticed that there is only a slight improvement in the rise of home sales and that too is below the expected pace. Reports say that there is a rise in the initial claims for jobless benefits by 15000 in the seasonally adjusted 627000.  But a drop to 600,000 was predicted by the economists. But most of them still expect that the number of the initial unemployment insurance claims will be lowered in the coming months. Even though Wall Street is having a little contentment with the current decline in the economic slump, the situations of the families are still pitiable. The rising unemployment, descend in family wealth and financial misery are posing serious threat to the families. In order to raise the economic security and living standards there needs to have public investments in health care, energy independence, and public education. Only with these, there can be increase in the job opportunities and acceleration in the productivity.

Obama’s Restructuring Plan

A man with motivational speeches, carrying a strong conviction that he has the vision of all that America needs and that he would bring to life all that the past governments have been incapable of doing.  President Obama says that he is more than shallow promises and says that ‘change is what he believes, he can’ is the right of Americans and they shall have it. He says that in times of ‘unusual situations’ he is doing the unusual to baptize the US economy.

With a lot of hope and belief the people of United States of America extend their support for Obama. There were several issues that the government was to address in times of serious crisis. There was a large fiscal deficit to address, one of the most matured financial markets was sagging and the liquidity crunch led to the slow down of growth, the big bulls of the finance market –likes of Lehman Brothers, Washington Mutuals, Bears Sterns collapsed like a house of cards, others had fractured their spinal cord and were looking for bail out support for revival. The sub-prime crisis had washed away the remaining confidence of the people that the economy was soon to see revival, and it had become official that United States of America was in the recessionary phase, a phase that was to stay.

With such challenges to take up the Obama administration jumped headlong to delve with all these issues. Obama’s agenda during the campaign hit the nail right, the key areas of focus was a) higher employment levels by creating jobs in America, b) Immediate relief for struggling families, c) assistance to the homeowners and lastly to salvage the economy from the ongoing crisis. More than 7.5 lakh jobs were lost in the year 2008. People started parking their funds in gold or kept them locked in their cupboards rather than making investments. The basics of macro economy would not work if the money supply went any haywire. So to keep the consumer spending alive, it was important that jobs remained intact and employment levels increased. This is where from the ‘buy American’ drive began. Next on the agenda of ‘change’ was relief to the struggling families. A lot of thinking had been done on this front and several tax exemptions and remedies were provided. The Housing market would make rigorous efforts in collaboration with the mortgage industry to revive the markets there is still no progress seen on this front. The treasury would regulate the interest rates and the refinancing industry was sure to act like a catalysts. North American Free Trade Agreement was to be amended, outsourcing of jobs to be reconsidered so that the companies cannot escape the tax burden simply by outsourcing and reducing job prospects in America. Next and the most important on agenda were using ‘tools and means’ to revive the economy.

Now that more than 100 days of Obama administration are over and people are all over, meticulously analyzing every move that he has made so far, there are people questioning whether the reforms implemented are doing any good to America or is Obama and his team creating a bigger mess of an already messy situation.

Obama’s $800 billion stimulus package, now a law, would add $400 billion to the fiscal deficit and bring it to 10% of the GDP levels which are currently at 8.3% of the GDP. The benchmark Federal fund rates are at zero. Money supply in the market has been increased by 20% in the three months of his administration. The Congressional budget office has announced a fiscal deficit of $1.19 trillion which is 8.3% of the GDP. The unemployment levels are on an all time high. Revision in the financial markets regulations have been eyed; making them more transparent and pro-investors and looking for the systemic risk approach to ensure that no company’s risk appetite would cause the economic downturn.

What does the layman understand of all these policies? Is America on its way to recovery or are they digging a bigger pit for themselves. A lot of analysts have been calling names and ridiculing every move that Obama is making. From outsourcing policies, to health and environment issues, shedding billions of dollars in bailout or increasing the burden on the government or investment in clean energy and technology, because people love to take potshots at others.

An economy is not driven by a particular factor but several factors – significant, insignificant, big or small and affects everything. So there is a Herculean task. A policy is not bad unless the shortcomings start to show. So to understand the economies of recovery we will have to wait for a while because what took eight years to destruct can’t be rebuilt in only 100 days.

Fall of the Domestic Auto Market

At the end of WWII, there was the post war boom. Factories that used to make military equipment started building cars, television sets and washing machines while Europe lay in ruin. The US had the richest and biggest automotive market to ourselves for the world to envy. They had the Big Three – Ford, GM, and Chrysler (Daimler DAI). There was no competition from the foreign markets whatsoever.

In the 50s and 60s, we began to see a few foreign oddballs like Hondas, Datsuns, Jaguars, Mercedes and MG’s. The foreign auto manufacturers had their goal set on the American auto market. The final fall of the Big Three was last summer, when gas prices skyrocketed. Chrysler (Daimler) spent all of May in bankruptcy and filed for court protection on April 30. A group of Indiana pension funds tried to block Chrysler’s deal with the Italian automaker Fiat through the Supreme Court. But, the federal bankruptcy was appealed on May 31 and Chrysler sold its factories and dealerships to a new company called the Chrysler Group comprised of major stakeholders. The United Auto Workers Union Trust would own 55 percent, Fiat 20 percent, eight percent would go to the US government and two percent would be held by the federal and provincial governments of Canada and Ontario.

GM stock price is still hovering around $1.30 and out of this we will see a slimmed down, 60 percent of it owned by the US government. In May, GM sales were off 30 percent, Chrysler 47 percent, Honda 42 percent, and Toyota 41 percent. Ford is the only American automaker to avoid bankruptcy. Its sales declined by only 24 percent. Incentives and discounts for purchasing cars were up across the board, Chrysler’s being the most aggressive. Annual auto sales will always be a measure of the US economy and overall health.

Smart Investments in a Tough Economy

With the economy slow and extra cash slim, investing can be a difficult step to take. It’s always a risk, but during uncertain times like this, investing becomes even more frightening. However, gains are still there to be made, and what better time is there to invest then when you need that extra return?

The first thing you should consider is what you want to invest in. You could invest in property, stock, bonds, jewelry, or perhaps gold or silver. When choosing the area or company to invest your money in, first think about what is essential in a recession economy. For example, a restaurant might not be ideal because most people are trying to cut back on eating out, but a producer of staple foods would be a good bet. Other essential areas that you might consider are oil and gas, health care, and utility companies. Investing in gold and silver is widely considered a good move for weathering an unstable economy.

Once you have decided the best investment strategy you, conducting exhaustive research is necessary to make sure that you are investing your money in the very best way possible. Investing is always a risk, but the best investing makes the risks as minimal as humanly possible. Always be sure to research past trends and future expectations. The important thing is to figure out where your money will be at the least risk, while also maintaining the greatest potential for growth.

Don’t lose hope for your investments during this economic downturn. Gains are there to be made for the smart and knowledgeable investor and those that exercise patience.

Current State of US Economy

The economic crisis that hit US economy in the mid 2008 has now spread to other parts of the world and is continuing to gulp down credit markets and financial institutions worldwide. As per the economic analysis of the present year, the current state of the US Economy is expected to become worse than the last year and may prevail for a few more months ahead.

According to the stock market analysis of economists during the 56th annual economic conference held at the University of Michigan, the present US economy may hit bottom halfway into the year 2009 and the percentage of unemployment in the country is predicted to be of 8 %. If the condition prevails as such it is certain that the United Nation in the next 18 months shall drop about 2.4 million jobs from different companies. The rate of GDP is also predicted to experience pitiful fall of 1 % in the present year 2009 and may continue to fall further by 2 % in 2010. Although various important financial stimulus packages are introduced as a rescue measure, the condition may still be difficult to rise up. Altogether the overall outlook of the US economy shows that it may experience uncertainty. To increase liquidity to the markets, the Federal Reserve of US has implemented numerous measures to satisfy the demand of new homes because of which aggressive monetary and fiscal policies shall be introduced in the present year.

The US economy shows a pitiful downtrodden condition with the ongoing collapse of the domestic automobile industry and numerous companies that supply automobile parts. This browbeaten effect of the automobile industry offers profound economic crisis in the whole nation. As a result of lay-off in the automobile industry, unemployment is at its peak with the dismissal being 18,500 workers in Chrysler (Daimler News) and lesser percentage with Ford News and other popular automobile companies. Similarly lay-off is affecting other area of workers such as with Whirlpool (5,000), DHL (9,500), Yahoo (1,100), Citigroup (50, 000) and many more. In the same way the sinking of banks and other financial institutions are a common sight in the US where lay off of workers are still more critical than anywhere else.

Business investments are also experiencing a fall because of unemployment and cut spends. The oil prices that continue to drop are expected to show slow hike by the end of the year 2009- climbing to $107 a barrel. However, the petrol price is expected to remain in line as in 2008 and heating oil may rise to an average of $3.08 a gallon. The forecast revealed by blue chip shows the contraction of US economy by 0.4 % in 2009 and is predicted to fall to longer and deeper recession, though there are some areas of hope. With the current state of US economy, most economists predict an increase of 4 to 5 % for food and farm inventories in 2009.

A Struggling US Economy and the Stocks that Love It

Federal Reserve chairman Ben Bernanke predicts the current recession could end this year. Perhaps this message accidentally went into the economy’s junk e-mail box. We’re over three months into 2009 and the economy continues to struggle. According to the U.S. Bureau of Labor Statistics, the unemployment rate has grown from 6.6% to 8.5% since October ’08, its highest mark since 1992. Retail sales are down almost 11% from a year ago. Core inflation has risen 1.8 percent in the past 12 months and 0.2 percent in March. This US economy update can be summed-up by a quote from the tv show Seinfield, “That’s not good for business. That’s not good for anyone.”

However, a few values can be discovered if you sift through the mess. We’ll start off in the food industry. It’s not like Americans need more reasons to stuff their faces with fast food, but due to the sagging economy, it’s becoming a good value and they’re flocking to them like lemmings to a cliff. McDonald’s stock price (MCD) has stayed consistent during this turmoil between $55-$65, probably due to it’s high-value dollar menu. Consumers can chose from a Double Cheeseburger, McChicken Sandwich, fries, soft drink, 2 pies, and sundae all for $1 each. Wow, your wallet can gain girth proportionally as you do.

In this economic crisis, consumers are choosing fast food chains over moderate to expensive restaurants. Burger King’s stock price (BKC) has risen to $23.56 from $17.33 in November as Brinker International, who owns restaurant chains including Chili’s has traded as low as $3.99 a share and has suffered a $22 million loss in 2009.

The US economy is also pushing consumers to used cars instead of a new car purchase. As new car sales have been struggling, certified pre-owned car sales have been climbing the past few months. Lexus was up 10.3% the first two months of 2009 compared to 2008. Mercedes-Benz vehicles were up 28% from a year ago as well. BMW has increased 12.5% and even Ford, the only US auto company not benefiting from federal aid, was up 10.8%. March was the 17th consecutive month that new-vehicle sales dropped. Toyota, Nissan, and Honda sales have all fell at least 36%.

The video game industry is also worth watching in this economy. Not only is the number one game maker, Electronic Art’s stock price (ERTS), in a steady decline from $48.97 to its current price of $19, the video game market as a whole is down 17% from April 2008. Conversely, Game Stop (GME), which conducts a good portion of its business in used video game merchandise, has increased from $17.50 in November to as high as $32.42 in April.

Consumers are also staying away from high-end retail stores such as Nordstrom (down 8.5% in ‘09), Coach (down 14% in ‘09), and Tiffany Co. (down 20% in ‘09), in favor of lower-priced bargain stores such as Wal-Mart and Wal-Mart owned Sam’s Club. Wal-Mart’s stock price (WMT) traded evenly between $47-$57 in ‘09 as sales increased 1.4%. Sam’s Club sales have increased 6.2% from last year.

So, if you have learned anything from this US economy update, you’ll be feasting on a double cheeseburger, rocking out to ACDC on a pre-owned guitar hero video game, watching falling prices at Wal-Mart, and cruising around in style in your used Ford Focus. Enjoy the deals in this struggling US economy.

Gregg Andreski

Analysis of US Economy

The United States of America is considered the largest and one of the most important markets in the world in respect of economy. It is normally controlled by consumers but often troubled by high debt levels. It is a globally accepted fact that the US has the largest economy. Let’s take a closer look at the analysis of the US economy.

After world wide survey, according to the CIA World Fact Book 2007, the US GDP is considered to be $13.84 trillion.  As a result of the quick economic growth in China, it is forecasted to overtake the US GDP within the next three decades. Of late failure in the US housing project and credit markets have caused in gradual slowdown in the US Economy.

US Economy is mainly based on freedom of the private sector. The economic freedom of the private sector is combined with the relatively low level of regulation and government involvement and a court system that generally protects properly rights and enforces contracts. The US is very rich in natural mineral resources both metallic and non-metallic and a very fertile soil for agriculture and the country is fortunate to have a moderate climate. Besides these advantages, the country has very extensive coastlines on both Pacific and Atlantic Oceans as well as on the Gulf of Mexico which helps export and import system. Besides very long coastlines, it has many rivers, great inland lakes along the US Border with Canada which provides shipping access. The vast waterways are of great help and shape the country’s economic growth over the past several years and also integrate America’s 50 individual states into a single economic unit.

Throughout the history, analysis of the US economy has shown steady growth in labor force, which is a result of constant US expansion. The high wages brings many highly skilled workers from around the world to US together with skilled workers from different parts of the world.

ANALYSIS OF US ECONOMY NEWS RELEASES

MASS LAYOFFS (Monthly)
In February, employers took 2769 mass layoff action involving 295,477 workers. Mass layoff events increased by 542 from January, and initial claims increased by 57,575. Layoff events for all industries and for the manufacturing sector rose to their highest levels on record. Thirty states reached program highs in average weekly initial claims.

EMPLOYMENT SITUATION OF VETERANS
The unemployment rate for the 22.4 million veterans of the US Ar med Forces was 4.6% in 2008. The jobless rate for the nearly 1.7 million men and women who have served in the US Armed Forces since September 2001 was 7.3%.

CHANGE IN REAL AVERAGE WEEKLY EARNINGS, JANUARY 2009- FEBRUARY 2009
Real average weekly earnings fell by 0.3%from January to February 2009 after seasonal adjustment.
US ECONOMIC  ANALYSIS FORECASTING

Prediction about the direction of the US Economy in the short and long term is crucial factors in determining federal government policies, business decisions, and Federal Reserve decisions. Several Institutions make economy predictions and analysis of the US economy including Global Insight and the UCLA Anderson Forecast.

Read more US Economy Stock News blog by Ryan

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