Brennaman’s Four
Points for the Week
1.
Energy – The
windfall Continues For The Consumer – Seven states now have average
gasoline prices under $2.00 per gallon and based upon oil futures many more
states will join the list as oil breaks the $50 per barrel barrier. The world-wide glut of oil continues even as
the price continues to negatively impact many oil producing countries dependent
upon oil revenues to maintain their budgets.
Adding to their misery is the fact that oil on international markets are
priced and transacted in U.S. dollars.
The U.S. dollar is at the highest level since 2009 and seems to be
gaining momentum as the global economy continues to slow. The U.S. is seen as a safe haven for investors
as they seek yield and growth of assets, hence a demand for U.S. dollars. Investors are also flocking to the U.S.
Treasury market in seeking safety and yield as compared to the falling yield
levels in the European Union. Lower oil
prices, slowing economic growth and political uncertainty are definitely
helping the U.S. markets but how long until the bloom is off the rose?
2.
Market
Outlook – The Bull Market Continues to Charge –The Bull market that began
in March 2009 has turned in yet another stellar yet frustrating year. The S&P 500 turned in a 13.7% return to
go with the DOW’s 10.04%. The NASDAQ
also performed well at 13.4%. This
nearly six year run came about despite near anemic growth and high unemployment
for most of the period as the markets have been propelled by extremely low interest
rates, low valuation rates (until 2014) and a realization that investors did
not want to miss the train as it was leaving the station. Foreign investors have also played their part
as they seek the safety and transparency of the U.S. markets as opposed to some
overseas markets. As the new year begins,
the momentum is tainted somewhat as the Energy Sector continues to labor under
the pressure of falling crude oil prices and the resultant margin compression
as the price of finished goods fall in concert due to low demand and natural
market pressures. The Energy Sector has
fallen in the S&P 500 in terms of percentage points to the seventh position
pout of ten sectors. Historically, the
sector has been in the top five. This
underperformance is holding back the performance in the new year to a certain
extent but other issues abound such as lower global demand for U.S. goods due
to slowing economies as well as concerns over future corporate earnings. But these issues should not thwart the
market’s progress for too terribly long as the Federal Reserve remains on the
sidelines, the U.S. economy continues to recover/expand while the global
economy lags behind and the U.S. consumer remains active. Volatility will creep into the markets so the
markets will, as always, present challenges and opportunities to us all.
3.
Economy –
Growth at a Sustainable Rate – We like to compare the 1990’s to where we
are today in terms of everything pre-Dotcom Bubble as if the Great Recession is
comparable to the fall of the technology sector and the subsequent demise in
the market (Bear Market 2000-2002). So
let’s go there in in looking at gross domestic product (GDP) of the U.S. The 1990’s were indeed a heady time in terms
of the GDP of the U.S. The ten year
period tuned in a 3.16% annualized growth rate in the GDP, with 4 years turning
in rates of growth in excess of 4%.
Ironically, three of these periods were in the immediate years prior to
the Dotcom bust in 2000 (GDP for 2000 was 4.17%). If you take out the years of 4%+ growth and
isolate the other 6 years the GDP rate is a modest 2.79%. Fast forward to the first decade of this
century we find the GDP was 1.68% with only two years above 3%. The growth rate for the current decade so far
is 2.09% well below the rate of the 1990’s minus the exceptional years. In fact the GDP growth rate from 2000 until
now is only 1.79%. So where does this
lead us? Historically, GDP for the U.S.
hovers in the mid to high2% Range with the rate since 1970 at 2.76%. All the numbers aside (U.S. Bureau of
Economic Analysis – www.bea.gov) our present
growth rate of 2.32% is clearly sustainable and will provide the basis for the
continued recovery here in the U.S. But
is it enough to help the struggling economies on a global scale get through the
growing global malaise?
4.
Organized
Labor – A Balance With Management is Needed – The Panama Canal Expansion
project is back in operation with the labor disputes that threatened the
project settled over the holiday period.
The project in a nutshell will allow the larger classes of containerized
ships now plying the seas to pass through the canal allowing shipments from the
Far East to reach the eastern ports of the U.S. and those of Europe in a much
faster transit period. The ports of Savannah,
GA., Charleston, SC and New Orleans, LA are busily upgrading their infrastructure
to facilitate these ships to utilize these deep water ports. Currently these ships are using the deep
water facilities in Washington and California where the goods are offloaded and
then transported overland by rail and highway.
These additional costs are borne by the receiving companies and ultimately
passed down to consumers. With these
ships transiting the Panama Canal time and money are saved. Not to mention the pressures on the national
transportation infrastructure. The most
recent work slowdown in west coast ports only exacerbates a growing problem and
contributed to the December manufacturing slowdown as needed materials were not
available to manufactures to produce goods (The December Purchasing Managers
Index registered 55.5 percent, a decrease of 3.2 percentage points from
November). These slowdowns have persisted
since July 2014 and no end appears in sight.
This lack of port efficiency is indeed a drag on the U.S. economy. There needs to be a broader focus on both
sides of the equation in order for the nation to move forward.
“There is no security on this earth; there is only
opportunity” Douglas MacArthur
Have
a good week and do not get hit by falling oil prices.
Steve
