There were two major business-related ballot referenda decided Tuesday:
1. Oregon rejected cigarette taxes designed to fund a socialized medicine program for children.
2. New Jersey rejected a stem-cell funding measure.
The only major partisan business-related election was in Mississippi, where Republican Mike Chaney easily won a non-incumbent race for insurance commissioner.
Glug, Glug, Glug
Oil prices this week nudged up towards $100 a barrel.
The causes of high oil prices (in no particular order):
1. Massive demand from the fast-developing economies of China and India,
2. Strong overall global economic growth,
3. Large-scale margin buying on Wall St.,
4. Large-scale use of leveraged call options on Wall St.,
5. A weak U.S. Dollar,
6. Far too many Democrats in the U.S. Congress over the past several decades,
7. A war premium re: Mid-East geopolitics.
Nos. 1, 2 + 7 are self-explanatory. No. 6 led directly to severe restraints on oil and gas production, to a severe retardation of the use of nuclear power, and also to restraints on the development of various other energy sources. The landmark 2005 Energy Policy Act was a step in the right direction, but it’ll take a long, long time for those reforms to affect the oil markets. No. 5 is basic — a weak dollar increases the relative price of imports and the U.S.A. is the world’s largest importer of oil. Nos. 3 + 4 might be complex for non-investment junkies or those without specific training in finance — suffice it to say that when the prices of commodities traded on Wall St. go up they tend to keep on going up for quite a while — until they inevitably drop, that is.
Citigroup’s share price has fallen 39% this calendar year. At present the media/market Lemmings on Wall St. are falling over themselves to sell or to short-sell.
The company’s trailing P/E ratio has been pushed down to 7.6. Its dividend yield has been pushed up to 6.0%.
Citigroup is one of the preeminent financial services companies not only here but anywhere in the world.
1. Read “The Intelligent Investor,” by Ben Graham.
2. Read “Wall Street on Sale,” by Timothy Vick.
3. Be guided accordingly.
4. It’s a no-brainer.
Speaking of falling share prices, Mr. Market has been depressed lately.
With any luck the Dow will fall all the way back down to 12,000. At that level there undoubtedly would be large-scale, no-brainer purchase opportunities among various blue chip companies with economic moats and positive demographic trends.
Import Safety Rules + Regs
The Prez announced a working plan for prospective new rules for product safety for imports. Here’s a link to the summary report.
When I first heard about this plan I immediately thought of President Reagan’s quip about people from the government announcing they’re here to help. You know what I’m talking about, don’t you?
In any event, soon these lead product recalls will be forgotten. The media and other malcontent blocs will have found something else about which to bloviate. With any luck the predictable overreaction to the recalls will not result in too much overregulation. But even with some degree of overregulation the economy won’t seriously be affected.
Speaking of lead, a Wisconsin jury became the latest in a long line of fact finders to reject a personal injury claim for lead paint exposure. In the 20 or so years since Edwards-style plaintiffs’ attorneys began filing shakedown lawsuits against the paint industry only one such claim has survived trial; that case presently is up on appeal.
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The U.S. House overrode the Prez’s veto of that pork-laden water infrastructure bill. The Senate will follow suit.
Productivity and Labor Costs
Worker productivity was extremely high in Q3, coming in far above expectations and well above the rate of productivity posted in Q2. Unit labor costs were much lower in Q3 when compared to Q2.
Higher productivity and lower unit labor costs portend lower inflation.