That Was The Week That Was

Americans have no equivalent to the wacky, satirical, and cerebral BBC show written by Cleese, Chapman, Peter Cook, and Kenneth Tynan. I think we need something like this is the current manic depressive environment of Wall Street News. Equity markets are running the bulls in Pamplona because of the coming Q3 and Q4 inventory rebuilding, softening energy prices, and a positive unemployment report. Goldman Sachs now forecasts 3% or better GDP growth in the second half of 2009.


Fundamentally, it doesn't seem as if the snapback has legs to sustain it in 2010. Failure to act early and aggressively to head off foreclosures is now yielding its bitter fruit, as one-third of home sales are coming from foreclosures. Just as the Columbia Business School researchers stated last year, the servicers are now standing in the way of meaningful loan restructuring, claiming that they don't have the power to carry these out; the truth is that they are sitting back enjoying billing and collecting a plethora of new fees. Let's sweep this under the rug. Cars, appliances and other consumer durables are continuing to languish, with the exception of expensive and inefficient programs like Cars for Clunkers. Nothing meaningful has been accomplished in the financial re-regulation arena. Investment grade corporate spreads have narrowed significantly and that's appropriate normalization. It's also the past. What about the future?


Dr. Fathi Birol of the International Energy Agency published its study of more than 800 major petroleum fields around the world and found that production declines have been faster than previously thought. He notes that the world must discover the equivalent of "four Saudi Arabias" by 2030 if current levels of daily oil production are to be sustained. This seems like a remote possibility. Our July post reporting the comments by the CEO of Hess Oil captured all these issues. They have not gone away. Dr. Birol laments the "chronic underinvestment by oil producing countries" in exploration and development to maintain or grow production. The international majors, kept out by resource nationalism, have found it easier to buy back their shares than to take risks of investing in projects for which the terms may be abrogated in the future. Demand is down now, but if the economy recovers, demand comes back and supply won't keep pace.

Consumer spending still has to be impacted with the massive loss in wealth and the continuing uncertainty about employment stability and growth. Early into the conversations about a New Deal type of recovery plan, there was talk about a nationwide infrastructure rebuilding program. Now that seems like something that is necessary, and it could be far-reaching and create employment in lots of trades and professions. Our grid is outmoded, our water supply systems are antiquated and at risk, and a combination of technology improvements and good, old fashioned reconstruction could yield real benefits. It beats Cars for Clunkers!

Dieter (Mike Meyers), the host of "Sprockets" on SNL said it best, "Zis conversaton has become tiresome!"