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Business News Update

Business Politics

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.

So, therefore:

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.

Stock Markets

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.

Buy low.
Sell high.
Not vice-versa.

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.

Lead Paint

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.

$ H $ 2 $ O $

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.


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Comments (11)

Something that's always puz... (Below threshold)

Something that's always puzzled me about the Dems and oil - would they rather bitch and whine about high oil prices and how 'someone needs to do something' - which usually somehow boils down to taxing the oil companies - or would they actually fix the problem, which is that the US is vitally dependent on oil from outside sources because we will not, not cannot, drill for oil in places like ANWR and the coastal shelves?

The oil reserves are out there. Extraction from oil shale should be getting to a point where it's economical. Biofuels are getting economical, there's other technologies coming on line - why not drill for oil now and phase those in?

Yeah, I know - why take the chance of pissing off the environmental groups? Besides, it's a LOT easier to go ahead and blame the current administration for the oil difficulties than actually take steps to solve the problem. Also, a solved problem doesn't register with the voters - you've got to promise them steak tomorrow, not remind them you got them steak yesterday and today. (Or maybe that should be pork...)

If we let our politicians refuse to take realistic steps to solve the problem, if our politicians REFUSE to deal with the problem in a way that will solve it instead of providing finger-pointing, feces-flinging election fodder, why should we be bitching because oil is too expensive?

the mess involving sub-prim... (Below threshold)
nogo war:

the mess involving sub-prime derivatives just another example of the "greed is good" philosophy.
Glad to see you left the oil monopolies off your reasons for high prices...
and just maybe Bush/Cheney now verbalizing attacking Iran...
Far to many Dems in Congress?
Damn I thought Republicans and roll over Dems have ruled this century..
Anwar is a drop nothing important..
as for drilling off Florida?

and this cannot be good
outside of these I agree with you...
course this is nothing compared to
what what happens when Asia quits buying bucks and goes for Euros...which they are already starting to do..

Yes, nogo. Let's ignore ev... (Below threshold)

Yes, nogo. Let's ignore every solution. Let's not even attempt to drill in ANWR or off the coasts. Blame the oil companies. Blame Bush. Blame Cheney. Blame everyone you want!

But don't blame the people who WILL NOT EVEN ATTEMPT to solve the problem, but will piss and moan about it forever, and block any attempt to change things!

Didn't nogo talk about the ... (Below threshold)

Didn't nogo talk about the world coming to end earlier this year when the dow dipped down a few percentage points and thus sparking some ridiculous claim that China was doomed as well since their markets dipped at the same time...or was that some other bitter doom-sayer crank that inhabits the left. Hard to tell you guys apart.

Hooverville! The sky is fal... (Below threshold)

Hooverville! The sky is falling!

My husband has been working... (Below threshold)

My husband has been working for a Citigroup subsidiary for a few years and has complained repeatedly about their management. He says they're cleaning house now. Bigwigs are dropping like flies. They're finally reacting to some very poor management. In the past they've reacted by laying off scads of little guys, then hiring contractors at a higher rate, never admitting that the fish stunk from the head down.

We were dismayed a few months ago to find that CitiMortgage bought out our mortgage. We were quite happy with ABN-AMRO because they actually paid our taxes and insurance on time from our escrow account. We're worried we'll have to go back to the old way (when another company held our mortgage) of paying these ourselves on-time and then waiting to get reimbursed months later.

Hopefully, with getting some new blood in there, they'll make a come-back and that will be avoided.

Buy low, sell high is a pla... (Below threshold)
Jeff Blogworthy:

Buy low, sell high is a platitude used by those looking at the market in retrospect. IBD's O'neil says to "buy high and sell higher." In other words, market leaders make the best investments.

The Oregon Lefties are comp... (Below threshold)

The Oregon Lefties are complaining the Cigarette Tax failed due to all the money the tobacco industry spent on advertising. They fail to mention the poor record any tax increase on a ballot measure has had in the State, the disgust many nay voters have noted for the legislature's continued failure to come up with fiscally responsible long term solutions for all aspects of the State's programs, and the fact that the only place where it did pass (the People's Republic of Portland) was where a large amount of those dollars were spent.

the mess involving sub-p... (Below threshold)
Les Nessman:

the mess involving sub-prime derivatives just another example of the "greed is good" philosophy.

Uh, no. It's another example of Clinton-era social engineering. Clintonites ordered the lenders to give mortgages to people who had no business getting a loan (especially with little or no money down). Many of these people were minorities. Naturally, the Clintonites accused the lenders of racism to force them to lend to these bad risks.

Now we are paying the price.

I would be VERY careful wit... (Below threshold)

I would be VERY careful with Citigroup stock - there is much more bad news to come that will threaten their solvency - they have tens of billions of dollars of garbage on their balance sheet in the form of the CDOs and CLOs you've read about - I would not be so glib as to blithely say buy low, sell high - what seems a low price today might seem like a high price tomorrow - this is far from over for Citi

"Anwar is a drop nothing im... (Below threshold)

"Anwar is a drop nothing important.."

Posted by nogo war

If it were just a drop then nobody would be interested. You libs talk a great game about not being dependent on foreign oil, but when push comes to shove you won't have any more domestic drilling or refineries, no nuclear power, and your fearless example of waterboarding (Ted Kennedy) won't allow wind turbines off Martha's Vineyard. When you come up with this new energy source that is workable and affordable to the masses, then you might have something worth listening to.






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