My Questions About BenghaziSubmitted by JAVA on Thu, 11/22/2012 - 10:40
AFTER QADDAFI: Oil Prices Will Tank, Stock Prices Will Soar...
Aug. 21, 2011
News reports continue to show the progressive demise of the Qaddafi regime in Libya.
Rebel forces have apparently taken more of the country’s oil refining (Zawiya) and processing infrastructure (Brega). Most observers give the Qaddafi regime limited time before a full regime change takes place in Libya.
Watch what happens to oil prices if and when the Qaddafis lose and leave.
In short order, Libyan oil production will ramp up. As it does, oil prices in world markets will fall and oil futures markets will reflect the expected increase in production of oil from Libya. The key prices to watch are those trading in Europe, like Brent. US oil prices (WTI) are no longer the leading indicator of world prices intersecting with world supply/demand. Excess inventory at Cushing, OK is complicating the pricing structure.
We expect oil prices to fall when highly desirable, sweet Libyan crude production is fully resumed and enters the pipeline. Maybe, they are going to fall by a lot. This will come as a much-needed boost to the US economy and to others in the world.
Lower gas prices could not come at a more needed time. With weakening economies around the developed world, the lowering of the consumption “tax” from high oil prices will be a welcome boost. In the US, it is possible we will see gas prices with a $2 handle, instead of the $4 handle of a few months ago. This is a large positive change for the US economy, and it is not being incorporated in the gloomy forecasts that we see.
At 1.8%, the core CPI is still below the Fed’s informal target. Future inflation may be a serious concern for the three dissenting presidents on the FOMC. Real growth and risk are clearly the dominant and majority view. Bernanke fears a softening of the economy and a resumption of deflation risk. He is trying to get some growth and a little more inflation. Oil price declines may get him the growth. There seems to be a long way to go before the inflation side becomes the serous threat.
We intend to remain underweight energy for some time and will wait out the Libyan regime change and subsequent rebalancing of the world oil price and world oil markets. Meanwhile we are more optimistic than most about the US.
We believe there is a large difference between a full recession vs. a period of very slow growth and low inflation. We think about this in terms of 1-2% real growth and 1-2% inflation. Taking the center points in each, one sees a 3% nominal rate of GDP expansion in the US. That will keep the employment situation weakly improving, and it will mean a continued slow recovery. It will also mean higher profits for business.
We have written about the valuation metrics we use and how they indicate that stocks are strategically cheap. We are looking at some of the financials for the first time in four years. I know, everyone thinks the world is ending, and the financials are decimated. That is the old news. Tell me some new news.
This is one of the most washed-out sectors one can imagine. After fours years, after many adjustments, after ongoing consolidation, after the mortgage fiasco, after Lehman-AIG—after all this, we now see banks and other financials selling well below their book values, and with substantial reserves for losses.
We are on the buy side now and believe that stocks present an unusually good entry point for a strategic investor. For a short-term trader this is much more difficult.
Just over a year after this article was written, on September 11, 2012, the embassy in Benghazi, Lybia was attacked by unknown forces. Was the Benghazi attack related to the little publicized facts stated in this article? Is something larger at play here than the terrorism innuendo being served to us by the media? Was it instead one more chapter in the process leading to a Libyan regime change? Were 4 American lives sacrificed in Benghazi by TPTB in order to further their own agenda?