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MAKING CENTS OUT OF THE NEWS
Blog #18
(November 13th, 2008)
CHICKEN LITTLE'S NOT INVITED
By Tom McAllister, CFP™
In recent weeks it may have felt as if "the sky is falling". Looked at from my perspective, though, things are not nearly so bad, certainly not half as bad as the media would have us believe.
Almost no one seems to be paying attention to one positive development that positively amazes me: gasoline for under $2 a gallon. I never thought I'd see the price of gasoline this low again, and I've followed the volatility of the petroleum sector for thirty five years. A huge boost to consumer spending is the inevitable result of cheaper energy this winter and spring, not to mention the benefits that lower fuel costs can bring to industry and transportation. Looking ahead to 2009 and beyond, I expect oil prices to rise to a range of $70-$95 per barrel, with gasoline prices in the range of $2.50 to $3.00. Just think about that for a moment - when you take inflation into account, prices at the pump are now cheaper than the 25¢ per gallon I was paying in 1953 when I bought my first car!
Speaking of pumps, positive reinforcement to the effects of lower energy costs should arrive next year with rebuilding inventory, as a result of all the liquidity the government is pumping into the financial system. The freer flow of credit, along with modest increases in capital investment should allow for reduction in the glut of cars on dealers' lots. On yet another positive note, exports, already rising faster than imports, will help boost Gross National Product.
The sky's not falling in employment, either. The media continues to ignore the 93 1/2 % employment figures, using the converse 6.5% unemployment to bemoan the "terrible" state of things. Truth is, employment is a lagging indicator, meaning the effects show up later than other economic symptoms. Employers, initially reluctant to downsize and lose valuable employees, wait for confirmation that the economy is in a downward trend, and then are equally reluctant to rehire downsized workers until a recovery is self-evident.
For all these reasons, I believe, by spring 2009, we should have positive growth to report.
In spite of a terrible October in our economy, the fundamentals remain strong. Meanwhile, it's a great time shop stocks - today's stock market represents the greatest bargain I've seen in my forty-six years as an investment advisor. I invite everyone to raise a half-full glass and toast next year and the positive news I expect we'll begin to hear by then. As for you, Chicken Little - you and your media doom-and-gloomer pals are definitely not invited!
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