News, local or global causes the market to either advance, or decline. When the bulls are in control, and profits high, the slightest negative news is a reason for a sell-off sending the market or a stock down. Investors like to see reports that are issued on a regular basis with numbers that are better than expected, when that happens, bulls continue running. If reports are lower than expected the bears take over, and the market pulls back.
Always buy stocks you understand. By understand, I don’t expect you to know every detail about the business. You need to know something about the business, and how it makes its money. For example, restaurants receive food products by truck, prepare and sell meals to customers. This is enough information so that I understand that fuel prices (gas and diesel) would have an effect on the restaurant’s margin. Continue reading, and decide if you think what is happening in the Middle East and North Africa would have an effect on a local restaurant chain.
First the Middle East; More than three weeks ago, Egypt's people demanded a new leader, and government. Today celebrations of victory, with the Egyptian army taking temporary control of the country, and promising free elections, with a new government.
More recently we have seen the entire region demand removal of their leaders, and protest for a new government system with elections. The world is watching, and worrying about problems with getting crude oil out of the area, and what will happen to the Suez Canal? Will there be restrictions to ships passing through? Will the oil fields be burned by their leaders as they battle to remain in power, and how many of the population, that are protesting, will be killed by their own armed forces?
Heavy gunfire broke out in Libya's capital as forces loyal to Dictator Moammar Gadhafi opened fire in the city’s streets a day after the longtime leader called on supporters to crack down on anti-government protesters. The world doesn't know if Gadhafi will set fire to his countries oil fields. The fear is that he is in a position to do so, if he wishes. This is sending oil futures higher, even though oil inventory in the United States is over 90% of capacity. Investors are asking, if the price of oil continues rising, raising the price of gas and diesel, how much less will the consumer be able to buy of manufactured products at stores? A higher price at the pump for gas in a car is like a tax on the consumer, reducing household money allocation.
Libya, Yemen, and Syria are in focus. While we continue to have airstrikes in Libya to keep Libyan citizens from being killed by Gadhafi's army, the unrest in Yemen, and demonstrations in Syria, oil price will continue to rise. Today Libya is off line for the foreseeable future in oil production. Saudi Arabia is producing extra oil to make up for the shortage of oil from Libya. The type of oil produced in Saudi Arabia is called ‘Sour Crude’ which is harder to refine into gasoline. ‘Sweet Crude’ is what refiners really want as they go into summer refining. The reduced availability of ‘Sweet Crude’ will keep the price of oil high.
Food and gas are needed purchases; both are more expensive, leaving less or no money to buy manufactured products that would help our economy grow. When there is less money in the average house hold, spending goes down on manufactured goods, and new hiring by companies cannot grow. Without more people being able to get jobs, because there is no hiring, new home and existing home sales will continue to slump, depressing the value of homes, and delaying the need for construction of new homes (no construction workers needed). The housing problem can only be corrected by people having jobs.
Now that Gadhafi is killing his own citizens in his desire to remain in control, and the world plans to stop the killing, what will happen moving forward? The world’s powers have decided to work together to stop the killing by Gadhafi’s army and air force of civilians, by using military action in the form of bombings and missiles. The foot soldiers are the protestors (citizens) that want Gadhafi out of power.
Oil operations in Libya have shut down as chaos continues. The price of crude oil is holding on to two-year highs. As I write this, crude is $104 per barrel. Markets expect the price of oil to continue rising to the range of $150 or $200 a barrel within a year. Gas prices at the pump in the U.S. are above $3.40 a gallon, and diesel's price is more than $4.50 a gallon. Both gasoline and diesel prices continue rising for the consumer.
A higher fuel price means that the movement of products from manufacturing to the consumer will increase. The higher cost of shipping will then be charged to the consumer, in higher product costs. The price of jet fuel will be a higher percentage of an airline's operating expenses, costing more per seat, and charged to the passenger. This makes travel more expensive, and the shipping of items by air more costly.
Second big item; The quake and tsunami in Japan has caused huge areas of destruction, with 9,099 bodies collected so far, while 13,786 people are listed as still missing. The loss of life is huge and so unfortunate. Had Japan not had an earthquake warning system, many more would have died.
Manufacturing in Japan is delayed because of infrastructure problems. Power, rail, and roads need to be returned to use to be able to remove all the debri in the areas damaged by the quake and tsunami. After the clean up, roads and rail can be used to move equipment, materials, and supplies for the rebuild of the country. The manufacture of products by industries will follow to rebuild the economy. Japan’s nuclear power plant that ran six reactors in the facility was in danger of a melt down, and was unable to produce power. Rolling blackouts to conserve energy were used for a short time, making operating a factory intermittently impossible.
Corporations had other problems; getting parts. Toyota is delaying reopening its 12 Japanese assembly plants till Saturday. Six days beyond the day the company had planned to reopen. Sony is cutting production at five more plants. The delays in factory restart-ups for Toyota, Sony and others are caused by disruptions to corporate supply chains, which are escalating. If suppliers are unable to produce and deliver the products needed to the factories that produce the finished product, factories remain quiet. Honda Motor Co. is extending its suspension of car and motorcycle production in Japan until Sunday, amid a shortage of parts because of the earthquake, and tsunami. The number of vehicles they were unable to produce is over 20,000 units.
Today March 21 2011 two days later since starting this blog, investors have changed from a position of fear, to a position of, things appear a bit better. The reactor problem in Japan appears to be more under control. The Japanese Fukushima power plant, which had been in danger of the melt down, of several of its six reactors in the facility, had power lines reconnected by its workers to all six reactor units. This is a significant step in bringing the overheated complex under control. This alone made investors feel better (fear reduced). Problems of getting uncontaminated water and food, to its people continue. Some food and water supplies have been found to have low levels of radioactive contamination.
Japanese markets opened after a long weekend. The Nikkei 225 (Blue Chip Companies) is back over 9500. The index has gained nearly 17% since the low of the quake period. Why the sudden rise in the Nikkei? Investors seem to be jumping back into risky Japanese assets again. They are beginning to see a positive outcome to the reactor story, and for the people of Japan. Japanese stocks jumped more than 4% today on the nuclear plant progress.
Japan’s demand of oil is currently down, but it is expected to increase import demand of oil, diesel fuel, and LNG in order to generate power. On this expectation oil prices will rise. As an investor in stocks or the funds in your work place retirement account (401K or similar), we need to pay attention to our investments frequently.
The world is constantly changing, and because of this, our investments could grow on good news, or fall in value on bad news. Those that put there investments on auto pilot complain when they receive a monthly statement, because they lost so much. A loss can be controlled, but only if you’re watching. A once a month look at a statement is the way to lose value in your portfolio, or individual stocks. Stay invested not only in the market, but also in your portfolio.
Know where you money is, and how global events and global economics can affect your investments.
Good Investing,
Bruce Cortez
For more information on investing in the stock market visit http://www.YouControlinvesting.com Ask for your free Lesson 1 to get started in understanding investing in the stock market.
Posts
So great info and content.
ReplyDelete