Author: Ben Dickey, BSG&L Financial Services LLC
Covestor models: Pure Growth and Growth Plus Income
The U.S. economy grew by 2.2% during the first quarter. However, it appears that the economy is slowing going forward. Weekly unemployment claims have risen for the last few weeks.
[Related -International Business Machines Corp. (IBM): What To Watch In Q3 Results?]
Oil prices have remained firm, with Brent crude prices still holding an abnormal premium to WTI prices. There has been some disruption to oil shipments from some of the OPEC producers thus reducing the spare capacity left in the market.
These disruptions exacerbate the prices in the futures market. Overall, the world is using about ninety million barrels of oil per day, with a speculated spare capacity of only two millions barrels.
The first of several new pipelines from Cushing, Oklahoma to the Gulf Coast refineries will begin shipping their oil from storage in Cushing to be turned into product. This, however, will not lower WTI prices. Instead, this price will increase and begin approaching Brent prices.
[Related -Google Inc (GOOG): Why Nest Labs Deal Is A Wakeup Call For Apple Inc.?]
The only reason there had been an abnormal price differential to Brent is that WTI is priced in Cushing. With approximately forty four million barrels of crude in storage with limited ability to ship it out, the price was being bid down. We also still import about nine million barrels per day at Brent prices which keeps our gasoline prices high.
The economy is also being buffeted by Europe. I believe that Europe has slipped into a mild recession, due in part to their austerity programs and also due to the massive amount of sovereign debt that must be rolled over in the next year or so.
There is also a growing concern that all of the liquidity that the U.S. and other central banks are creating will cause inflation sooner or later. Currency and interest rate markets are looking uneasy. The Euro is under pressure due to the opposition to the austerity programs that the European governments are trying to implement.
As I previously stated, our economy and markets should move ahead slowly, but in an ever so slight upward direction, and I still believe we will slow to a crawl in the second half of this year. We are starting to see a slowing in our economy now. Markets and economies do not like the possibility of rising taxes nor the ever increasing amount of regulations descending on businesses.
However, emerging markets continue to expand, consuming larger and larger amounts of industrial and agricultural commodities. Copper is approaching $4.00 per lb. again. The economies of the emerging market countries should continue growing at their 6% to 8% clip.
The ISM index was up again and China's version was up as well. China sold 20 million automobiles in 2011. This growth will continue to put pressure on the oil markets. The Chinese government is investing billions of dollars in oil exporting countries to guarantee future supply.
For the first time, China now buys more oil from Saudi Arabia than the U.S. does. Many of the large US based companies that operate globally will be able to take advantage of this increased consumption demand and should grow their bottom line.
However, I do not think that all of these positive factors around the world will have a large enough impact on our economy to improve it enough to reduce the large overhang of unemployed and under-employed Americans.
The U. S.