Is Oil the New Bubble?, Obama & Investing, An Oversold Sector, Jim Rogers, and More!

by Addison Wiggin & Ian Mathias

  • Is oil a speculative bubble? The final word on the debate… for now
  • Gas at another record high… automakers turn in worst sales rate in 15 years
  • If president, will Obama be good for investors? One famous fund manager weighs in
  • A gloomy indicator for tomorrow’s jobs report
  • Eric Fry with a heavily sold sector ripe for bottom picking
  • Last, readers on Jim Rogers… “constructive commentator” or “glamorized nation destroyer?”

  All right… enough is enough. It’s time to set the record straight:

"Often it is a case of political expediency,” reads the latest International Energy Agency report, “to find a scapegoat for higher prices, rather than undertake serious analysis or perhaps confront difficult decisions… Money flows and speculation can have a day-to-day influence on prices, but it is not one that can be sustained for any length of time without a market imbalance being apparent. The economy is impacted by fluctuations in spot oil prices, not futures prices."

“Blaming speculation is an easy solution which avoids taking the necessary steps to improve supply-side access and investment or to implement measures to improve energy efficiency."


In its latest forecast, the IEA cut its medium- and long-term oil demand outlook. “High prices are clearly affecting consumer behavior,” it noted.

“I think if oil were in a speculative bubble, it would be more obvious,” notes Chris Mayer. “That sounds weird to say, but look at the last two bubbles. Tech was obvious — huge price earnings multiples, if there were earnings at all. Housing was also obvious — massive debt build up and strained personal incomes.

“If this is an oil bubble, it seems awfully mild. I would think oil stocks would all trade for 30 times earnings or more. I would think anything associated with oil would be flying. But we don’t see that.

“Most Wall Street analysts still model at $80 or $90 oil. Seems to me you need that psychology to turn — to believe that the oil price is not going down — before we call it a bubble. When Wall Street starts building in oil price increases in its models and we get them stepping up, rather than down, then we get worried.”

  Oil remains at yesterday’s levels, around $141 a barrel.

  Gasoline struck another all-time high this morning. We’re now up to a national average of $4.09 a gallon.

  No surprise, U.S. auto sales are at a 15-year low , say the latest industry data. Total sales plunged 18% year over year in June, the biggest annual decline since 2002. At the current rate, Americans will buy “only” 13.6 million cars this year, the weakest sales pace since 1993.

GM, despite all its shortcomings and shareholder suffering, remained the U.S.’ No 1 automaker in terms of sales. But looking at the bigger picture, the majority of cars sold in the U.S. are of Asian origin… Far Eastern automakers captured 46.2% of the market, barely edging out American manufacturers. Check out this chart from today’s N.Y. Times… sums up the situation nicely:

U.S. automakers are struggling more than foreign manufacturers, but really… almost everyone in the industry is feeling the effects of a struggling U.S. economy. 

  Another sign of the times… Starbucks announced yesterday it would close 600 stores around the U.S. Sickeningly, that’s only an 8% dent in the coffee vender’s arsenal of caffeine huts. Up to 12,000 Starbucks employees will be put out of work.

Starbucks didn’t reveal which stores will be closed, but company representatives did say that 70% of the stores set to be closed opened within the last two years. Not that we know anything about the coffee biz, but here’s our “off the wall” advice: If you can stand outside one Starbucks and see another, one of ’em needs to go.

Besides, we’ve said it before… if your coffee doesn’t come with a shot of anarchy , it doesn’t taste right.

  And another kick in the consumer’s pants today… ADP estimates 79,000 private sector jobs were lost in June. That’s way more than economists predicted, and ADP’s biggest projected monthly loss since November 2002. But wait, it gets worse:

The ADP report has garnered the reputation of consistently overstating job gains and understating losses. For example, the agency claimed the county added 40,000 jobs in May… only to have the Labor Department announce a 49,000 job loss two days later.

Frankly, we don’t trust either report. But if the ADP measure looks gloomy, chances are tomorrow’s official jobs report will be a doozy. We’ll let you know how it goes.

  More than ever, “the economy” is the No. 1 issue among voters in the coming presidential election. According to the latest CNN poll, a stunning 93% of voters say the economy has an “extreme” or “very” important impact on their vote. As recently as January, the economy and Iraq war were tied as the top issue in CNN’s monthly poll… not anymore.

Iraq remains No. 2, however. We were a bit surprised to see gas prices not only become a category of its own, but to occupy the third most important issue on voters’ minds.

  The Obama administration “will produce this nation’s first trillion-dollar deficit,” predicted bond legend Bill Gross yesterday. In a strange open letter to the likely 44th president of the U.S., Gross paints a nasty picture of the U.S. economy circa 2010.

“You’ll have your tax bill and your health care bill and your housing fix, and somehow it’ll all be paid for by wealthy hedge fund managers, oil companies or, pray tell, a robust economy that’s creating good jobs at home, instead of exporting them abroad. Uh, I don’t think so, Mr. President. That’s where the ‘Yes, we can’ morphs into ‘No, we can’t.’ Not that you won’t accomplish most of that – the robust economy and the good jobs notwithstanding. It’s just that you won’t be able to pay for it.

“And what will this mean for investors… intermediate and long-term yields on government bonds have already bottomed and will gradually rise throughout your first, and perhaps second, administration. Your term will not go down in history as investor friendly.”

  The stock market suffered some violent swings yesterday. As you can see, the Dow was a day trader’s dream (or nightmare):

The Dow opened down 100 points as Europe sank and financial fears ramped up. Then shot up 100 points on the better-than-expected ISM manufacturing data. Then we went back down 150 points, then back up… and back down… all to finish mostly where it started. The Dow managed to gain 0.3%, while the S&P 500 and Nasdaq ended up around 0.5%.

One more note…at their lowest, the Dow and Nasdaq dipped into official bear market territory.

  “Since the stock market peaked last October,” Eric Fry observes, “the shares of refining companies have tumbled even more than the shares of finance companies.” Incredibly, he’s right: The S&P Refining Index is down a whopping 47% since last October, compared with a 40% drop for the XBD, an index of the most popular investment banks and brokerages.

“Perhaps both indexes deserve such scorn, but the refining sector would seem to deserve it less than the financials. Even with today’s thin refining margins, the refining sector continues to produce robust cash flow. The finance sector produces robust losses.”

If you’re looking to pick a bottom, refiners might be a good place to start. Check out today’s Rude Awakening for Eric’s full exposition.

  The dollar traded flatly yesterday, but fell off a cliff after this morning’s ADP report. The dollar index shed half a point after the disappointing private sector employment report. It scores 72.1 as we write.

As such, the euro inched up to $1.58. The pound held its ground at $1.99, and the yen sells for 106.

  Last, it’s been a good week to own some gold. The precious metal’s suffered a few dips, but all in all, gold has been trending up. An ounce of the stuff now goes for $940.

  “Jim Rogers happens to be one of the best financial commentators out there who isn’t afraid to say what’s on his mind,” writes a reader in response to yesterday’s inbox . “For speaking up and exercising his right to free expression, the old fool wants to fight him? Let me tell you, old man, you are the part of the problem with this country. Always trying to shut people up you don’t agree with. If violence can’t settle it, then murder or war would do, right?

“Personally, considering Jim Rogers traveled around the world twice (lots of guts and willpower), I will easily wager Jim isn’t a pushover, by any means. For those of us who are intelligent and freethinking, we know the best way to fight a system that’s trying to rob us is to get away from it. Take away the money, nothing happens.”

  “I agree with yesterday’s comments about Rogers,” writes another. “I am not American, but I love this country with all my heart and soul. Each day, I volunteer with many people that are great citizens. They work, donate money and volunteer many hours to help others. All of you, on the other hand, are a bunch of predators who live off the money we so hard work for. I do not mind very much, because is my choice.

“But as a man of 70, I get very upset each time you glamorize people who live in others’ countries we pay the bill for, and to make us feel lower, you insult us and tell us to destroy this country and its money. As the man said, many people had died so you can have this privilege to steal and enjoy others’ countries, I had no problem with it. My problem is promoting people who are totally wrong.

“I traveled a lot and lived in other countries and know that most of the things you claim are untrue and apply only in the rarest situations. As an example: Argentina. You spent a lot of time telling us about the positives and greatness. The reality is quite different. What about Brazil? Etc., etc., etc. I can go on forever, or if you like, we can sit down and I can tell you about the reality of many countries and destroy the Fantasy Island that you print for us.

“Sir, this is the best country on the planet today. There are a lot of hardworking people ready to extend their hand to anybody who needs it. Nobody goes hungry in this country. Many rich countries do not allow people to eat. They’d rather put the food in the garbage. God bless America.”

The 5 responds: Most of the things we claim are untrue? Sorry… no… can’t let that one slide. If we were in the business of deception, we’d be better off starting up a ratings agency or insuring bonds. As you’ve witnessed here before , the very few errors or untruths uttered in the history of these 5 Min. have been mercilessly exposed by our legions of attentive readers… and publicly corrected shortly thereafter.

As for the rest of your comments, we’ll allow this last reader the first retort:

  “If you have listened to Mr. Rogers,” writes a reader, “he has railed against corrupt, excessive, burdensome government for years. As the people in ‘Amerika’ continue to send the same asshats to Congress to fleece them, Mr. Rogers and people such as myself have chosen to insulate ourselves from the continuing unethical appropriation of our wealth through inflation and excessive taxes by moving assets out of the reach of the thieves and parasites (I mean fellow Amerikans) in this country. As they say in the movies, it’s nothing personal, it’s business.

"My and Mr. Rogers’ main responsibility is to each of our families’ well-being, not the collective’s well-being. I suspect that if you were standing in the middle of the freeway blindfolded and traffic were coming toward you, Mr. Rogers would advise you to remove the blindfold and get to the shoulder. That’s not egoistic. However, it is quite constructive.”


Ian Mathias
The 5 Min. Forecast 

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