SONDERS: OIL PRICES WON’T WRECK THE RECOVERY
Liz Ann Sonders of Charles Schwab is taking the other side of a popular concern, saying that high oil prices won’t derail the recovery unless prices move much higher:
“At some point, a continued surge would be a risk to the positive market and economic outlook I’ve had for some time, but at this stage it’s not a deal-breaker for the recovery. For one thing, in the past century, the real price of gasoline has spent almost all its time between $2 and $4 (in current dollars), and we’re within that range today.
Yes, oil price spikes preceded the 1973, 1980, 1991, 2001 and 2007 recessions, but the spike in early 2011 did not lead to one, and I believe the current spike will also be an exception. US consumers are now much better positioned to weather higher energy prices, with well-improved job growth and consumer confidence, credit growth picking up, aggressive Fed stimulus and record-low natural gas prices. Most important is the fact that energy price inflation last year was largely spurred by the second round of quantitative easing by the Fed (QE2), whereas today’s driver is global growth.
As well, in the United States, spending on energy overall as a percentage of disposable personal income is less than 6% currently, down from the 8% of the early 1980s.”
Ironically, she says the cure for higher prices is “higher prices”. So maybe we need higher prices to cause a downturn that brings in lower prices???
Source: Charles Schwab
Most families I know have a set amount allocated to discretionary items. When gas and food go up, we all just cut back on other things. These spikes seem to happen every year, so par for the course.
“higher prices are the cure for higher prices”
why does that not apply to the SPX or Apple? Why does Wall St. set to set it’s self up for failure. Why push and push the bullish recovery story so far that you set your self up for failure? The bears have given up on any correction. This is the last thing the bulls should want. Now Oil doesn’t matter?
I paid $103 to fill up my car on Saturday night in Irvine, Ca. The only benefit I can see right now is the U.S 101 is much safer. At least my fellow Californians have slowed down and are taking it easy on the roads.
And why is the trend your friend for security represented in a mutual fund but not oil? Demand isn’t really pushing prices up. So what will it take to bring oil down? A phot shopped picture on the bloomberg wire of Ahmadinejad wearing a Sandy Koufax jersey playing catch with Billy Crystal?
The level of compacancy is like nothing I’ve seen. Yes…high px on any asset has a way of curing high px. It’s not just oil. Investors should ask themselves not what will take this market down. But why should it go up to the lines they’ve drawn in their head. Further…why do they want them to get there so quickly. Then what? I’ll continue to overweight those areas that offer the best risk reward. There are fewer and fewer each day.. Oil is one I still like. The trend is your friend Liz.
Commodities are a different asset class, so their “cure for high prices” is much more immediate than it is for stocks.
Stocks are the present value of future cash streams and profitability or for growth stocks it has nothing to do with valuations….it’s all about EXPECTATIONS of future earnings and sentiment. Does anyone believe Apple will deliver these earnings 10 years out. NO..but right now it’s the Andy Warhol Pop stock of our time. It will fade like all the rest. GE, MSFT, CSCO, QCOM(god I’ll never forget the Prudential analyst in 2000 who put a pric of 500 or something on that stock and it tanked months later) Like any great team the best and brightest will be paid and called away to work elsewhere. I used to love Nokia, then I loved Samsung and now I like Apple…but I hate the cost of everything they offer. So Value stocks reflect PV of FV cash flows. Growth Stocks reflect sentiment and an ESTIMATE of what someone thinks the future will be today. DO NOT LISTEN to someone who tells you why you should sell a growth stock based on valuation. Valuation for growth stocks don’t matter at the beginning. but….What are commodities? What is Oil? Does the PV actually represent the FV of 1. population growth 2. Earths Supply 3. Some alternative source/behavior change estimate of the U.S turning in to Denmark(bikes)? I would argue…that if I thought oil was going higher I would buy more today in the futures market or aquire reserved to do so.(I would love nothing more than having a gas pump at my house. I’d buy 1 years worth of reserves at 80-90 a barrel)
More…if price in food/land/gold/oil/water etc which are becoming more and more scarce higher prices should be on the rise for sometime. Unless nature or man finds a way to alter laws of population growth. And lastly…I dropped my iphone in the pool two weeks ago.(My Korean inlaws were in town and they burried it deep in the rice..it was DOA even with the special rice they had) I have to wait until May to get the upgrade price(AT&T).. back to my point. the phone costs 600+ I was LUCKY to get a “advance upgrade” for the discounted price of $419 with tax. Yes I know I had other choices…and I didn’t have insurance. BUT..for some that price is 6 weeks of gas @ $70.00 a week. PX works for stocks also.If it didn’t LIZ then MSFT, CSCO, QQQ, DJIA, SPY would not be where they are today.
Expectations of future earnings? No. What do earnings matter to an investor in a company that pays no dividend (though, in the case of AAPL, one is rumored)? If a company pays no dividend, the only hope is that someone else will pay more later for the share that you purchased.
@ Andrew
Earnings matter. Its the E in PE.
They don’t have to be paid out. A company that doesn’t pay a div. if analyzed correctly will grow. When others realize this growth they buy. Yes I agree you hope others pay more…and they will as long as your correct.
I agree with u.
VII
You must have hit the Chevron on MacArthur across from John Wayne (NB?)….I just had a $100+ fill up myself! But yea, $4.35 is about the norm price around NB/CM/Irvine. Not cool….
HAA @ Luke…
Actually…it worked out perfect. I was with my in-laws and we were on our way to a Korean/chinease restaurant Lunar…http://www.lunarchinese.com/ It was the Chevron station on Yale ave.
BTW- that place is F$$$ing really good. If you get a chance to go there please do. I was the only white person there. My mother in law ordered everything…but I snuck in the lettuce wraps(best ever). God I love Newport/Irvine Ca. What a great place you live. So my father in law saw my gas bill and he picked up dinner for his #1 son in law
13110 Yale Ave, Irvine, CA 92620se restaurant
Liz Ann Sonders notes that oil prices spiked in early 2011, which she attributed to QE2, but did not lead to a recession. However, she notes that oil spikes did preceed the 1973, 1980, 1991, 2001, and 2007 recessions, presumably due to demand pull inflation. She also attributes the current price rises to “global growth.” Global growth sounds a lot more like demand pull inflation than quantitative easing.
Also, she mentions the “well-improved job growth.” Actually, the total job numbers remain largely unchanged, The jobless rates are dropping more because increasing numbers of people have given up looking for jobs not because there are huge numbers of new jobs. Is this her well-improved job growth?
The commentary of Liz Ann Sonders always seems slanted toward keeping skin in the game. She seems similar to the analysts who recommend “buy” or “hold” for stocks and never alter their recommendations to reflect changes to market conditions or company outlook.
What recovery? The recovery in numbers? Many a common folk haven’t seen any of it. Even those who have found work have done so at lower salaries most of the times. Why do to think disposable income is lower despite higher employment?
BTW, this market reminds me of the market the Fall of 1998 after AG had that “surprise” 3/4% (? I have a bad memory for nasty events. I was over 100% short when he did that:-) cut on aTH afternoon. Anyone here remember that one. Takes look at a chart of Nasdaq. It went up vertically! It is not going up as strongly now but the virtual assurance of almost 100% of days being up days reminds me of that….
Just noticed my posting of BG latest letter got deleted. Let’s see this this one makes it: http://www.pimco.com/EN/Insights/Pages/Defense-March-2012.aspx
BG insists ZIRP is bad for everyone. I agree.
Just noticed my posting of BG latest letter got deleted. Let’s see this this one makes it: http://www.pimco.com/EN/Insights/Pages/Defense-March-2012.aspx
BG insists ZIRP is bad for everyone. I agree.
I agree posts with links containing SPAM should be deleted. Perhaps we are dealing with a subjective matter here.
I never delete your posts OR. Never. Not sure what you’re referring to….
No censorship in this blog. It’s the only one in the US where I post. The level is high here and I’m learning a lot of stuff. But sometimes there is a delay between the “post your comment” keystroke and the actual posting. Sometimes IT is black magic.
Funny. The word censorship gets censored here! Ha.
OR and VII, Every post I look for your comments. I just want to say thank you for your insights.
VII, Hang in their with your sds. Sooner or later this baby will turn and It will.
@ David
Thank You.
When I booked my reservation, I wasn’t expecting the delay on SDS island to be so long. There’s no flights out. Right now it’s me, Tom Hanks and his volleyball, and some doctor named Hussman. SOS
VII – we are in a bull market and going to new all-time highs.
If we ever correct, this will be your LAST chance to buy.
Given what happened this past August/September from a quantiative standpoint and destruction to market internals, history says there is a 100% chance that the SPX rallies at least 60% before any type of top can be considered.
By my math, that equates to the S&P500 above 1,800.
Using the same data, history suggests SPX of ~1,500 by October. While the level we are at in October is uncertain (1,500 is just an average of past rallies) history does suggest there is a 100% chance we are above the level from last October.
@ B Ferro
“in the 9 months I’ve been running money professionally, I’ve learned one thing- to submit my ego at the alter of the market’s divinity…..it gets to do whatever it wants”
You wrote that too me around Feb-March of last year. You’ve just told the market it’s going to 1800. You are not listening to the market. You have some data and believe you have found the hidden scrolls passed down to you by Pathros of Palmyra himself. “you and I don’t get to decide what it should or shouldn’t be discounting” B Ferro- yet you just did this very thing based on your destruction to the internals which from the ripe age of now maybe two years of managing money your able to decifer a level of 1800 on the SPX. Your reply will be…yes I’m listening to the market it’s telling me that it’s..going to 1800.
Let me see…1360 to 1550- 12% OK…should get there. But there are some Elliot Wave guys who say that the top of the supercycle to then test the 2008 lows.
But 1550-1800 that’s 14% nothing crazy really. So maybe your right B Ferro.
We’ll see…but your ego and hubris have crossed over. For that you should not worry about the market. The greatest enemy for you is yourself.
I have 5 guys on my team(sorry ladies) and everything we saw was almost 100% perfect from 2009-2011 and this made us call a decline then recovery then low into 2013. This has been wrong so far…and these guys are some of the best. So 15 years of doing this I have to put my ego aside on this.
You make a compelling case B Ferro- so show your work on the samples of why this is 100% accurate. I’m sure many here could benefit from this.
Actually VII my ego has not crossed over – this isn’t politics, I’m allowed to flip flop all I want. And a healthy bit of that is what you need in this job.
But right now, yes, given the historical data and the fact that the market’s price action is confirming it strongly, I’m inclined to believe what history says at this point which is that there is a good chance that 1) we eclipse the old highs and 2) put a new high in before rolling over, which might be 1800 (crazy, I know).
I’m not going to share what it is that I’m using because that’s just silly. I get to enjoy the fruits of my labor. If, however, you want to email me (my email is, using spaces… b ferro 04 at gmail . com) I’d be happy to send a PDF of what I’m looking at visually (without descriptions of what it is, to prove my point)….look forward to seeing an email.
So, it’s possible that the oil spike may now be receding, due to some pretty obvious information of oil & gas supplies being well in surplus; the next monthly report should probably lead to a bear signal as well, showing that supplies have increased. It seems that the U.S. consumer is now quite sensitive in his/her consumption of gas, driving much less when the price spikes above $3.25 or so, and I would be interested in seeing U.S. monthly gasoline consumption for the past 3 months – perhaps we’ll close our oil trade deficit via conservation in a couple years. I also wonder if the speculation in the future will be harder to push on other traders, as there was a pretty big shout-back among many traders about it be detached from supply and demand. We’ll see if this recent sell-off continues or if it goes back bullish.
Liz Ann Sonders is just another yammering head–little or no predictive value. More and more, economic pronouncements are becoming political statements which reflect the meme of the side the speaker has chosen, most often out of mercenary motives.
Every penny increase in gasoline price takes $1 billion out of the economy.
At current levels, the increase in gas prices is equivalent to completely offset the payroll tax cut.
If it continues to rise, it will have an even greater affect.
The job growth she alludes to is more than offset by lower overall income levels. If in fact, as according to ERCI growth is negative, then higher fuel prices will only accelerate that trend.
Sonders is just another Wall St. propaganda minister with a vested interest, and little or no credibility.
In my experience and I have a lot Liz Anne Sonders is very good at making overall economic and market calls.