Friday – the light volume day – was pretty flat across the board, which help lead to a relax weekend – for once it seemed. Maybe that was Santa’s gift (no surprises). The economy seemed to have paused over the holidays – absorb the impacts from the weeks of negative broadsides – we wait – and dare I say, hope.
For those following the new entrance on the political seen in the coming months, the new improved stimulus package seems to be getting all the media attention – up to over $800 billion now and new programs are in the early planning stages. I have heard the term “shovel ready” – all too many times. Which leads me more than a little concerned. Now doubt, Obama has serious challenges ahead – he is a very smart guy and seems to be aligning himself and taking meetings with several people that have a keen insight – however he is also being seriously tugged by his party members who rule the roost over at Congress. Only time will tell – if he is able to beat to his own drum or if party politics play a bigger part in his agenda.
_______________________________________________
Gaza – never sleeps
If Obama didn’t have enough to deal with coming into office next month, add on an increase conflict in the Gaza strip which has the Israelis mustering their tank divisions into the neighborhood – well it is sure injecting some instability into both the political scene and the oil scene. While Gaza is not a center for petroleum production it is close enough by – enough so – to inject a second day of shocks to oil prices which had seen some serious lows.
From an interesting discussion I had a few weeks ago – major companies that have held larger than normal oil futures (for delivery) will start coming due by the end of next quarter (1st quarter). Depending on the “risk assessment” of these firms – we could see the major oil consumption companies begin hedging with future contracts again come late 1st quarter of 2009.
If this conflict is any indication of the level of concern vs. current future holdings – well – we may see early and more hedging – instead of hoping the spot market remains low. It would stand to reason that the major players are not totally reliant on spot prices – as the future contracts further out have still been trading with a rather steeper premium than normal.
Maybe the philosophy is “buy what we need in the spot as it is cheap, but keep future inventories higher than normal.”
_______________________________________________
China – our prime lender
As Obama is planning his $800 billion plus stimulus package and New New Deal “Shovel Ready” plans – the debt it will create is enormous and the current trade balance (and other sources of income will not make up for it) – the need for China’s money to buy our Treasuries (the current largest buyer) is a need we can’t dismiss. However – China is getting a short changed deal. Why would anyone want to buy treasuries as interest rates are lower and the risk of the currency exchange rates and increase debt behind the currency sky rockets? China is also not happy with the number one consumer nation not buying as many tube socks and Elmo’s as they once did. With trade revenue down and now the world’s reserve currency seriously on the rocks – the relationship between China and the US is about to seriously heat up.
Our current Congress agenda is not showing any signs of favors and will no doubt do some serious finger pointing at China (as many of the existing members have done in recent years). They had pressured China to not PEG their currency (YUAN) to the dollar (claiming unfair price competition – we call it protectionism) – since then it has climbed 21% against the dollar. While some may say cheer to that notion - as those companies that export do better and imports suffer – the double edge sword is that it hurts the national debt, which for some strange reason our government doesn’t seem to care too much about.
Congress is looking to push forward a very HARD line trade approach with China – as protectionist policies come to the surface as the economy suffers. China which already feels they have been getting bullied by the Bush Administration – is about to seriously face a big stand-off with the next administration. How much will Congress push? Will Obama follow party lines or play good cop? We could be facing some serious economic policy shifts with China. The problem is that when looking at the math – you don’t really want to piss off the largest credit line this country has ever seen. Additionally – they may be the only credit line to continue to float this country as we print more paper and create more debt. I hope Congress wakes up to that fact before they put too big of a foot in their mouth – which could cause an economic storm that would make the housing and credit crisis look like a cloudy day.
Keep your eyes on this ECONOMIC relationship – it’s very important. Whether you like China or not – they are the one that is floating the government’s credit line right now and we hope they do in the future.
More on this at Bloomberg: http://www.bloomberg.com/apps/news?pid=20601109&sid=ai3pbN.JY7tY&refer=home
________________________________________________
Futures Pre-market
The futures were down, then up, and then backed off to even again. Expect some volatility and light volume – this is still a holiday week for the most part.
_________________________________________________
Support / Resistance
Seems like the pivot points are ruling the day as we try to determine which way is up going forward.
INDU 8000 (8500) 9000
NDX 1100 / 1200-1250
SPX 800 (850) 900
RUT 400 (450) 500
__________________________________________________
Conclusion
2009 will be interesting – economic storm, oil price uncertainty, a serious change in government policy and agendas, dollar risk, China, debt, and a long list of new reforms. It’s time we need some of it – certainly not all of it. We will get through it – for sure – that is not the question. We should be asking ourselves how long and how bumpy.
Keep your chin up.
No comments:
Post a Comment