Marty’s Money Minute
October 16, 2014
“To Him Who Is in Fear, Everything Rustles”
(Sophocles)
The rustling in the bushes (media hype) is only the wind and not beasts of prey
ready to pounce and consume you (and your portfolio). This volatility represents
your basic run-of-the-mill market correction that occurs in all secular bull markets.
Corrections of 6% to 7% occurred in 2012, 2013, Jan. 2014, and now again this
month. On Oct. 15, 2014, the Dow was down 6.5%. Unfortunately, there is a bit of
sensationalism caused by the large absolute number of points in these drops,
though the drops are a small percentage of the respective index. By way of
example, the Dow hit an intra-day high of 17,350 on Sept. 19 this year. A 10%
correction from that level would be 1,735 points. That is the kind of absolute
number that puts fear into the hearts of investors. The reality is that the U.S.
economy is still strong, and improvement in almost every corner of the economy is
under way. This morning it was announced that U.S. jobless claims fell to a 14year low last week. Additional issues, both positive and negative, are:
A dramatic decline in the price of energy. Oil prices have tumbled to below $81
per barrel. The price of gasoline at the pump is tumbling, putting more money into
the hands of consumers.
Industrial output today posted its biggest gain since Nov. 2012.
The yield on the U.S. benchmark 10-year note is down to about 2%.
The dollar is continuing to strengthen against the Euro and Pound, making
imports affordable to American consumers as well as making imports of
manufacturing supplies less expensive.
The negative on the strong dollar is that our exported goods are more expensive
to outsiders.
A very subtle note on energy prices as it relates to increasing oil production by
OPEC in the face of falling prices is the risk that OPEC is actually driving oil prices
down on purpose. A motive for this would be to get high-cost providers to curtail
their production. For example, the cost per barrel of Middle East oil production is
$27. The cost of oil production from oil sands in Canada is $70 per barrel. The
risk is that high-cost producers shut down their production making us again
dependent on Middle East oil.
The big negative, in my opinion, which has been mentioned in previous issues of
my Money Minute, continues to be Europe. There must be some type of
negotiated settlement between the E.U. and Russia to start trade flowing again to
accelerate the E.U. economy out of its recession. The E.U. is trying to get this
resolved ASAP, especially in Germany, where sanctions have taken their greatest
toll. The resolution of this problem should be the spark that the E.U. needs to
move their economy forward, creating new opportunities for U.S. exports.
If I hear another word about ebola I am going to scream! Talk about fear
mongering, while ebola left unchecked could create an international health-care
catastrophe, developed countries are well equipped to deal with situations like this
from both a health-care aspect and an ability to track and treat the disease. I am
putting ebola in the category of mad cow disease, which, hopefully, my readers will
remember, and which became another tempest in a teapot.
As always, I would be happy to discuss any of this with anyone who would like to
give me a call or send me an e-mail – ([email protected]).
Marty Resnick