Brennaman's Four Points For The Week May 12, 2014

Brennaman’s Four Points for the Week

 

1.       Russia and the Ukraine (continued) - The sanctions the West has imposed on Russia (Vladimir Putin) are questionable in their effectiveness and leads me to believe they are symbolic in the short run.  Over the weekend the deepening crisis in the Ukraine punctuated by the elections in eastern Ukraine for independent sovereignty (surprise – they voted 90%+ for independence) has pushed world oil prices back above $108 per barrel on fears that the supply to the EU would be disrupted.  This will have little effect on U.S. oil in the short run but if the supply is disrupted there or in the Middle East then we will see a spike in price in all things petroleum.  Some good news is that we are seeing natural gas inventories increasing at a faster rate than we have seen in the past and we should not have a shortage come the next heating season.  Natural gas prices continue to fall which helps to offset the effects somewhat of the rising crude prices.

2.       GDP Growth – Will it Go South? - The Gross Domestic Product (GDP) growth rate number is already being whispered as having contracted in the first quarter.  As you recall the number we expected was in the 2%+ range but we observed a number of .1%; with economists blaming the ill effects of a brutal winter across much of the United States.  Some economists are now saying the economy actually contracted by as much as ½% or more.  Definitely bears watching as the month progresses and we await the revised numbers.

3.       Shifting Our View to Southeast Asia. - China and her neighbors are still trying to get along in terms of fishing, oil exploration and in general freedom of the seas.  Again I pose the question – “Why do we care?”  It is clear and simple that free movement on the seas anywhere on earth is vital to economic growth and of course our national self-interest and national security.  As you recall, China has essentially claimed the entire South China Sea as their sovereign waters.  This action has been met with condemnation from nearly all the countries in the region since this action by China closes off access to deep sea commercial fishing and navigation routes if unilaterally enforced by the Chinese.  The growing Chinese naval presence in the region threatens to thwart free commerce and create an air of tension that could push the area into deeper conflict.  Any conflict would shut off the free movement of goods to and from China.  Not to mention the impact on Taiwan.  A disruption would impact our economy in a negative way.

4.       Existing Home Sales - The sale of existing homes is increasing in some markets, mostly in homes appealing to affluent buyers (dare we say “sellers’ market”?).  The areas are not located in any one area but seem to be in high growth states that are seeing lower unemployment and population growth.  Historically low mortgage rates are adding to the picture, especially in the price ranges not associated with “starter homes” (varies from “Location to Location to Location”).  Perhaps we are seeing a slow beginning to a better housing market as the spring and summer selling seasons go into full swing. 

Next week I will discuss investment themes we seeing emerge (or sustained) for the next 12-36 months. 

 

Have a good week.