Thursday, August 25, 2011

The Natural Gas Conundrum

I wrote last about natural gas prices in my October 14, 2010 post "Update on Natural Gas Prices". Current natural gas prices seem to have stabilized between U.S. $4 and $4.50 per mcf. The number of drilling rigs in the U.S. aimed at natural gas is 900 suggesting, using Chesapeake's forecast a production drop to 53Bcf down from 68Bcf/d at the peak of the 2008 gas boom when prices were as high as $8/mcf.

The I.E.A. states that 2011 produced approximately 22Tcf/year or 57 Bcf/d with Shale gas providing 5.22 Tcf/d or nearly 25%. A somewhat more optimistic picture, but does that mean Chesapeake is wrong? Shale gas production rates decline as fast as 68% from their initially reported production. That is faster than the depreciation of a new car in its first year. Thus gas production drops from 5.22 to 1.67Bcf/day if we were talking about new wells; older wells decline a lot less fast but their production rates are a lot less. A good well that starts out at 6,000,000 cubic feet per day would decline to 750,000 cubic feet in four or five years or an average annual decline rate of 22-23%. Assuming an even distribution of old and new wells, that means that to keep shale gas production even, 1.14Tcf of gas has to be added each year or 3.1 Bcf per day or between 500 to 1000 wells at a typical cost of $7.5 million per well. Yes that is an investment between $4 and 8 billion each year.

Unfortunately at current prices it is not economic to drill such expensive wells. When gas prices were hedged in 2008, the effects of this economic reality has been softened and companies like Encana remained profitable for the duration of those high priced hedging contracts but that is now coming to an end. Guess what, Encana just put its 'high quality' unconventional gas plays in North Texas up for sale. Chevron and even the president of Chesapeake (who regularly sells of parts of their holdings) claim that they cannot justify drilling these wells. The only reason shale gas is being drilled is because investors consider it sexy and the company's 'reserves' grow rapidly each year (well that is book keeping not cash flow). So a company's reserves and thus book value may increase but it is not making positive cash flow.

Chesapeake's original gas forecast is in my mind still valid, although delayed by the reserve's addition and land addition game. But overall, with improving economic conditions, we are moving every day closer to higher gas prices. Yes shale gas has caused an energy revolution and we will have plenty of it for the foreseeable future, but we will have to pay a higher price than today's. Just like we do with oil. I would not be surprised to see $6.00 to $7.00 gas within a year and a revival of Alberta's conventional gas industry.

Wednesday, August 24, 2011

Pugh Clauses and Shale-Gas Activity. By Peter Staas

I came of this review article on shale gas economics. Now with posting natural gas prices in the blog header, reprinting this revealing article is a good introduction.

2 Sep 2010. Investing Daily.

“Why hasn’t Chevron made a bigger splash in North American shale gas? During last year’s third-quarter conference call Vice Chairman George Kirkland indicated that an oversupply of natural gas had prompted management to curtail its drilling activity in the Lower 48 states.

Kirkland elaborated on this decision during a recent conference call to discuss Chevron’s second-quarter results: “We like unconventional gas where we can make reasonable returns…[Our US holdings] don't presently make development sense because the gas price and the market conditions with oversupply in the U.S. just doesn't make it attractive.”

This statement reflects an apparent anomaly in the domestic market for natural gas: Drilling activity in unconventional plays remains robust despite depressed natural gas prices–a puzzling disconnect that prompts many investors to steer clear shale-gas producers.

Attractive economics in some of the nation’s hottest shale plays partially explain why producers continue to ramp up production, even as the seasonally weak “shoulder” period approaches and concerns.

As my colleague Elliott Gue explains at some length in Why Some Natural Gas Is Worth $7.28, producers in the Eagle Ford and Marcellus, two shale plays rich in natural gas liquids (NGL), continue to enjoy solid profit margins. NGLs such as propane, butane and ethane tend to command a higher price that tracks crude oil; for many producers, the natural gas is almost an afterthought.

But NGLs don’t explain why drilling activity remains strong in the Haynesville Shale, a dry-gas play in Louisiana and east Texas. Although profit margins aren’t as attractive as in liquids-rich areas, producers can still eke out positive returns because the play is so prolific. …

Why then is Chevron’s Vice Chairman down on the US natural gas market? The answer relates to the Pugh Clause, a term contained in most of the leases that producers sign with landowners in parts of the US.

Louisiana attorney Lawrence Pugh pioneered the clause in the 1940s to ensure that energy companies developed leased land within a reasonable amount of time.

Although these clauses vary slightly, they generally require the operator to make the well commercially viable within a certain period. Producers that fail to comply with these requirements run the risk of losing their lease–and a substantial amount of money.

Chevron doesn’t pay royalties on its holdings in Colorado’s Piceance Basin, and its position in the Haynesville Shale is “held by production” (HBP)–that is, the company produced commercially viable wells within the allotted time frame. In other words, Chevron has the flexibility to curtail drilling activity without fear of forfeiting its acreage.

Many producers aren’t in this boat. The case of the Haynesville Shale is particularly instructive, as the returns aren’t as compelling as those offered by the Eagle Ford and other liquids-rich plays.

Producers began snatching up acreage in earnest in 2007 and 2008, primarily under three-year terms; most management teams readily acknowledge that ensuring that these leaseholds are HBP is a top priority.

Consider these comments from Aubrey McClendon, CEO of Chesapeake Energy (NYSE: CHK) at Bentek Energy LLC’s Benposium earlier this summer: “If I had my druthers we’d be running no more than a couple [rigs]…You’d be surprised how much drilling is not voluntary today.”

This urgency to complete leaseholds afflicts many in the industry and explains why drilling costs have increased dramatically over the past year. According to one of the most cost-effective producers in the Haynesville Shale, fracturing costs have increased 35 to 40 percent in 2010, further squeezing margins. I discussed rising service costs in shale-gas plays in the Aug. 17 issue of The Energy Letter, Big Fracking Deals: Investing in Shale Gas Production. …

Pressing deadlines to secure leaseholds and an influx of cash from JVs and asset sales also explain why producers continue to drill at a frenzied pace despite lower natural gas prices.

At the same time, the disconnect between gas prices and drilling activity offers investors an attractive opportunity to pick up best-in-class names at cheap prices. The bearish outlook for natural gas prices continues to weigh on related stocks.”

Arthur Berman interview with The Peak Oil Review Team

Athur Berman is an outspoken critic of current shale gas economics. Here is a recent interview with Berman by the Oil Drum. Here is a link to Arthur Berman's blog: .

28 Jul 2010. The Oil Drum.

“Arthur Berman talks about Shale Gas. Posted by Gail the Actuary”

“Recently, ASPO-USA's newsletter printed an interview (Part 1 and Part 2) with Oil Drum staff member Art Berman (aeberman). Art is a geological consultant whose specialties are subsurface petroleum geology, seismic interpretation, and database design and management. The people doing the interview are members of the “Peak Oil Review Team,” abbreviated POR in the text below. This is the shale gas portion of the interview. …

One other important thing is the Barnett shale. We keep coming back to it because it’s the only play that has much more than 24 months worth of history. I recently grouped all the Barnett wells by their year of first production. Then I asked, of all the wells that were drilled in each one of those years, how many of them are already at or below their economic limit? It was a stunning exercise because what it showed is that 25-35% of wells drilled during 2004-2006-wells drilled during the early rush and that are on average 5 years old-are already sub-commercial. So if you take the position that we’re going to get all these great reserves because these wells are going to last 40-plus years, then you need to explain why one-third of wells drilled 4 and 5 and 6 years ago are already dead.

POR: When you say one-third of the wells are already sub-commercial, do you mean they have been shut in, or that they are part of a large pool where no one has sharpened the pencil?

Berman: Some of them never produced to begin with. No one talks about dry holes in shale plays, but there are bona fide dry holes-maybe 5 or 6 or 7 percent that are operational failures for some reason. So that’s included. There are wells that, let’s just call them inactive; they produced, and now they’re inactive, which means they are no longer producing to sales. They are effectively either shut-in or plugged. Combined, that’s probably less than 10 percent of the total wells. But then there are all the wells that are producing a preposterously low amount of gas; my cut-off is 1 million cubic feet a month, which is only 30,000 cubic feet per day. Yet those volumes, at today’s gas prices, don’t even cover your lease/operating expenses. I say that from personal experience. I work in a little tiny company that has nowhere near the overhead of Chesapeake Energy or a Devon Energy. I do all the geology and all the geophysics and there’s four or five other people, and if we’ve got a well that’s making a million a month, we’re going to plug it because we’re losing money; it’s costing us more to run it than we’re getting in revenue.

So why do they keep producing these things? Well, that’s part of the whole syndrome. It’s all about production numbers. They call these things asset plays or resource plays; that reflects where many are coming from, because they’re not profit plays. The interest is more in how big are the reserves, how much are we growing production, and that’s what the market rewards. If you’re growing production, that’s good-the market likes that. The fact that you’re growing production and creating a monstrous surplus that’s causing the price of gas to go through the floor, which makes everybody effectively lose money….apparently the market doesn’t care about that. So that’s the goal: to show that they have this huge level of production, and that production is growing.

But are you making any money? The answer to that is…no. Most of these companies are operating at 200 to 300 to 400 percent of cash flow; capital expenditures are significantly higher than their cash flows. So they’re not making money. Why the market supports those kinds of activities…we can have all sorts of philosophical discussions about it but we know that’s the way it works sometimes. And if you look at the shareholder value in some of these companies, there is either very little, none, or negative. If you take the companies’ asset values and you subtract their huge debts, many companies have negative shareholder value. So that’s the bottom line on my story. I’m not wishing that shale plays go away, I’m not against them, I’m not disputing their importance. I’m just saying that they haven’t demonstrated any sustainable value yet.”

Tuesday, August 23, 2011

Time to abandon the gold ship.

Compare a typical bubble chart (the one below shows the 2007-2008 oil bubble) with that of the today's gold prices.

Classic bubble chart - many financial bubbles show the pattern of this oil price chart. From 2000 to 2007, oil prices gradually increased, then the speculators took over and prices increased at an accelerated pace. Followed by the crash in 2007-2008 and prices fell excessively below the long term equilibrium price. Upon a vigorous short recovery until mid 2008, oil reached their 'equilibrium price' and increased thereafter at the same pace as before the peak.

Now compare this to the five year price chart of gold today. Looks familiar? Yep, the rate of gold price increase has accellerated dramatically and it is building a speculative peak. I sold most of my Gold ETFs at $1100 (a bit early). Now again today, I sold all my gold coins bought way back in the early 1990s for under $300 each.

There is no way to predict when this bubble will burst; but burst it will! The price is likely to fall back to  $1400 or when there is a real panic, even lower. So everyday you wait, the risk of a crash increases. Should you buy gold today?  Well, I think my answer is obvious. But more aggressive investors may still buy in the hope of relatively small profits - looks to me like a game of musical chairs! Who will be holding the bag?

Monday, August 22, 2011

Investing in real estate without getting your hands dirty

Maybe 'landlording' is not for you. But you can still invest in real estate and let others do the 'dirty work'. Of course, the others want to be paid for their efforts so that will reduce your profits. Like other investments nothing is risk free. The easiest way to invest in real estate is through REITs such as RioCan and Boardwalk.

Today I will mention yet another alternative, but there is typically a minimum investment of $25,000 involved. This alternative is investing in limited partnerships, but as stated earlier they are not without risk. This weekend I received an e-mail from Thomas Beyer, president of Prestigious Properties which offers several limited partnerships and is very successful at what he does. Here are some of the more worthwhile remarks. This is not to endorse Thomas' ventures but it may give you more insight in yet another form of investing.

Something is changing in the world. What is it? (Excerpts from Thomas Beyer's e-mail letter. 

I think it is the realization that a) democratically elected officials cannot protect the average person as previously assumed and b) that Wall Street and its extension does not provide meaningful benefits for investors anymore. People across the developed world are starting to realize that the welfare state, the reliance on public healthcare, clean financial markets, safe investments, guaranteed pensions or the dream of Freedom 65 is seriously eroding! The "state" is not all powerful, will have far less resources going forward, is over-indebted and will give us far less benefits we hoped for. 

I too was enraged these last few weeks at the stock market collapse, the UK riots, the Greek riots, and all the capitalistic greed that caused so much money to disappear not only in the stock market, but also from real estate investments such as Shire, Concrete Equities, Signature Capital, Libertygate and the increased difficulty we now face to raise money into our fairly safe and still quite lucrative investments due to these failures but also due to recent changes in the exempt market. 

To the second point read this blog post by Mark Cuban, the billionaire owner of the Dallas Mavericks, on "What business is Wall Street in". The ONLY parties that make money in the financial industry are traders and banks, trading on extreme volatility. With several billions shares traded over the last few days of extreme volatility alone, with no transaction tax, there is no benefit to investors nor governments, only to trading houses. Why does the BC or ON government charge a 2% real estate transfer tax, but no share transfer tax ? Surely, that would be one good way to encourage stock ownership for more than a few seconds, to reduce volatility and to boost Ontario's, Ottawa's or Washington's empty coffers. Additionally, banks can borrow money at next to nothing and buy treasuries with a 1% (or 100% profit) uplift or lend it to homeowners for 3.5 to 4%. Why risk lending to a job creating small businesses such as a software start-up, a manufacturing or bio-chemical firm, or for a real estate land deals, if a bank can make money almost risk free. No wonder so little jobs get created in North-America anymore. ….

Well, you have a choice: continue down that same insane path of "investment" or try another path. Why not co-own some residential land or income producing real estate in one of the most advanced and prosperous parts of the world, namely W-Canada. We have what the world wants: oil, gas, coal, wind, water, uranium, potash, agricultural land, clean air, space, scenic beauty, less crowds, low debt, low deficits. W-Canada has high levels of in-migration due to very strong job growth. Our rents in Calgary and Edmonton are going up, and so are buildings values. After only 2-4 years of ownership we have sold a portfolio of 4 buildings in Yorkton, SK at an enormous profit. …

Here, I'll take over from Thomas. You may have heard about the 'financial transaction taxes' proposed by Nicolas Sarkozy and Angela Merkel at last week's EU leader summit that outlined a blueprint for the future evolution of the EU. This is similar as to what Thomas' suggests. Guess what? The Goldman Sachses of this world, high frequency traders and other hedge fund managers have been ho-humming these proposals for it will obviously affect their manipulative investment strategies. However, it may make your life as a 'buy-and-hold' investor a lot less volatile.

North Americans have the tendency to put down Europe as old and over-regulated but I wouldn't count these old worlders out, in fact you may be surprised to know that the combined EU-economy outsizes the U.S. significantly. The traders say that they will go with their business elsewhere if those transaction taxes are applied just like they did around 1984 in Sweden. Sweden is a small market, when applied to the entire EU, the question is where would the traders go? Especially if North America does the same.

Good investments are boring

I have recently not paid much attention to real estate. After all, it is so boring and mundane. Today I have to go to one apartment to see what to do about a lose shower tap and then work on renting another unit that became suddenly vacant. The last unit I bought 6 months ago was a 2 bedroom apartment for $178,000 in NW Calgary bringing in $1000 per month rent. Combined with low interest rates it provides $100 net cash flow per month. So boring, but in the meantime, the mortgage payments covered by the rent pay down another $250 per month of principal. Oh! I am netting $350 per month or $4250 per year on a $60,000 down payment! That is a return of 7% not counting the benefits of appreciation (which has stalled over the last couple of years). Average annual appreciation is in the order of 4 to 6 percent or $7120 to $10,680 per year. So that would be $4250 plus $7120 = $11,370 on average per year not counting future rent increases. Give me boring anytime!

As long as you don't sell you don't lose. So sit out market volatility and take your profits at market highs. Real Estate is for the long run, 5 to 10 years at least. Looking at last week's stock market, I certainly am glad I diversified my portfolio and emphasized cash flow (which prevents forced selling).
Of course, if you are a 'buy and holder' in the stock markets, you can also ignore a lot of the day-to-day noise and collecting your regular dividend income may cause you to yawn while doing crossword puzzles in your recliner. Ah, maybe not, let's watch the shrill excitement of BNN and find some other investment gems to take advantage of.

Did you notice that Warren Buffett is not selling? He has been buying, why would that be? Is he bored too collecting dividends from Kraft and Coca-Cola?

Emotional computers and traders

You would think that computer trading programs were not emotional, but what do you call the herd mentality of traders and their computer programs all using similar trading algorithms and software? Using technical analysis patterns such as 'death crosses' to trigger further sales these strategies become self fulfilling prophesies in the absence of retail investors who are spending their vacation time on beaches and beautiful mountains.

Using my playbook to access the National Post's financial pages, I came accross this interesting article titled 'The Madness of Wall Street' by Goldstein et al. published this weekend in various publications. When good stocks fall indiscriminately along poor ones, what else can one call a computer trading free fall than emotional? Irrational? Case in point was McDonald's stock falling 3.6% in spite of a 5.1% increase in same store sales.

The 'Flash Crash' of May 6, 2010 is yet another example of a computer and 'high-frequency' trading strategy induced crash. Research by Strategic Insight - a mutual fund consulting firm, found that in 2009 $85 billion of new mutual fund investment money went into stocks while $425 billion went into low yielding bonds. That is the real effect of this computer induced high market volatility.

High frequency trading destroys investor confidence; it drives the small investor saving for retirement, out of stocks. It keeps large investment pools on the sidelines because of unpredictable returns and ultimately this will reduce stock equity as a viable source of corporate investment capital. It will, in the extreme end, destroy the stock market and the publicly traded corporations. The few spoil the benefits of stock markets for the many.

In the meantime, I hope you have controlled your urges to sell and instead nibble at cheap market indexes such as the Dow Jones Spider (DIA). Use short term volatility to buy long term holdings at the right price.

Friday, August 5, 2011

Bull and Bear Market Analysis

So let's look a bit closer at the history of the Dow Jones. It is obvious from the previous posting and the chart below that we have experienced numerous crashes, small and large since the Great Depression. Scientists may tell you that stock prices move in a random fashion, but if I look at the long term stock price trend below to me it doesn't look random at all. Overtime, our economy grows and so do the companies that make up the Dow Jones Industrial and the companies that make up all those other broad based stock market indexes.

I used the Dow Jones Industrial history starting in 1932 to measure the length of bull and bear market cycles. I counted starting in 1933 until yesterday, 23 market cycles. They are tabulated below.

For each bear market (Low) there was a bull market (Peak), some bear markets were not much more than a minor correction (e.g. between January 1994 and November 1994) others showed drops of 49% from the peak. The same for the bull market phases where some moved barely 20% from the low while others such as between November 1994 and April 1998 moved nearly 142% off the low. On average the entire cycle from Low to Peak to Low lasts 3.5 years but may be as long as 7 years. The biblical 7 fat and 7 meagre years are apparently a bit drawn out compared with today's cycles.

Also, the current August 2011 drop is around 11% while it is just 2.5 years from the previous low with the Dow Jones not even fully recovered to its October 2007 high. This makes me suspect that the current drop is not yet a bear market; more likely we're dealing with a correction. But really, just like the numerous previous cycles this one will recover and exceed previous highs as well eventually.

Many experts tell you that you need to have a long investment horizon to fully recover and that the older you get the more you should invest in conservative fixed income instruments such as bonds. When you're 50 years old, an investment rule of thumb suggests that you should have 50% bonds (1% for each year). Well, excuse me but the average person has a life expectancy of close to 82 years and the average bull-bear market cycle lasts 3.5 years so I think that in today's age most people can easily wait out a market cycle.

With interest rates likely to rise in the coming years investing in government bonds (except maybe short term bonds to park temporary investment funds) is not as save as those experts would like you to believe. If interest rates of 5 year bonds move up from 3.5 to 4 or 5% you can  lose up to half the bond's value.
Well there you have it. Once again, the world will not come to an end after all!

What stock market environment do you think we’re in?

I down loaded the Dow Jones monthly closing prices from 1928 until today. We are all familiar with the chart as it looked over the last decade or so. But just to set a bench mark, here it is again:

Now let's compare it to another traumatic event, the crash of 1987:

Looks somewhat familiar doesn't it? Well we had this great bull market starting in 1982 which really didn't stop until 2000. Prior to that we had the 'dreaded 1970s market' which looked like below:

From 1967 until 1979 culminating in Jimmy Carter's diminished U.S. and the Iran debacle. The U.S. was severely weakened due to high oil prices and intense competition from Japan, this was a pretty black period for most of the developed world, with the exception maybe of resource rich Canada whose dollar was on par with the debt laden U.S. From 1955 until 1967, the industrialized world led by wunderkind U.S.A. experienced one of history's largest bull markets – just like 1982 until 2000. Here is the chart:

It took the new world nearly 30 years from 1929 until 1955 to recover from the 1929-1933 crash, where the stock market fell from a high of 380 to a low of 44.84. But if you started buying anywhere after 1933 you would have done well. The years between 1933 until the end of the Second World War may have been somewhat similar to the 1970's. It was though a period of great economic uncertainty where several countries experienced sky high inflation; in particular Germany.

Today may be a period of great uncertainty, but I don't think it comes even close to being comparable to the 'Dirty Thirties'. It is more like an economy kept in check by energy prices similar to the 70s. The 1970s were a period of inflation, ever higher government debt and a bear market every 2 to 4 years. Overall it was a period characterized by no real market appreciation other than the cyclical highs and lows within a trading range. Yet even the 1970s are not the perfect model for today. Currently, we are having little inflation although government debt is very high; inflation and debt culminated around 1984 during the Mulroney years (and Ronald Reagan) near the end of the commodity bull market. Today, we're acting against high government debts much earlier in the commodity cycle than in the 1970s and… rather than a young population; we're dealing with the retirement of the baby boomers. Although 'history may repeat itself, the 'details' vary.

Between 1928 and today we divided the Dow Jones Index history into 6 epochs (1928-1933; 1933-1955; 1955-1967; 1967-1982; 1982-1987; 1987-2000). Now we live in the seventh epoch which started around 2000 and includes the Great Recession. Of the 6 previous epochs, 4 were bull markets, one a prolonged period of decline (The Great Depression) and one a period of stagnation (1970s). The seventh epoch seems to be one of rebalancing: rebalancing of current accounts between developed and emerging markets; rebalancing of government debt loads and rebalancing of the use of resources. Will it compare in length with the 15 years between 1967 and 1982 or will it be shorter? If we start counting in 2000; we're now more than 10 years at it.

There are other differences with the 1970s that are significant. Nobody bailed the Western world out during the oil-crises years. There were no emerging economies that could pull the world economy forwards and during the 1970s it was an era of political turmoil were oil was used as a political weapon by OPEC. Today, we're living in an era of explosive technology development. If you think you're cool with your Blue Ray DVD player, well that is already passé; we're on to Netflix and Social Networking. Heck, even Google is becoming stale. And Microsoft? What is that a subsidiary of IBM or U.S. Steel? Just kidding! But it all goes to show that we're not necessarily mired in stagnation like in the 70s. Although, The Beatles, the Rolling Stones, Status Quo, Jimmy Hendrix, Bob Dylan and Janis Joplin. Neil Young, do I go on? That is something we're definitely missing in today's Gaga world with deep thinking artists such as Paris Hilton… Oops that one is also passé.

All this to say that although we can draw some parallels with the markets of the 70s we should not think that it will be exactly the same. If we learned anything from the seventies, it must be that dividends are critical as long as they don't succumb to inflation and that buying during lows at the right price is more important than ever before. And… although many were ready to write off the U.S. as superpower in the late seventies, look what followed, including the collapse of the Soviet Union and the Japanese economic collapse. So don't count out the U.S. There is more that we can learn from the past. Yesterday's 'crash' was not unique that we'll discuss in the next post.

Post-traumatic stress and too many back seat drivers

Looks like today's market decline was the reaction to two months of warnings and fear mongering by talking heads and politicians – 'Chicken Littles' is what Don Campbell calls them. With the internet spreading everyone's opinion of recent 'on-goings' we seem to have become a society of back seat drivers (I guess I better look in the mirror). The economic performance is disappointing and many conclude that we're in for yet another recession. So run for the hills!

I came across this chart by the Alberta Treasury Branches or ATB Financial published in their Daily Economic Comment – American Personal Consumption Expenditures. Economists seem never to be happy. First they fret over expanding consumer debt and mortgage debt. They tell everyone to cut back. Then the governments are told to bail out the banks with their bad debts and then the economic gentlemen turn around and state that governments should reduce their 'excessive spending' because their ever increasing debt load is a threat to the economy. Barely is the debt ceiling in place or these oh-so-knowledgeable economists feel that all this austerity will reduce spending (duuuh!) which will reduce economic growth! After weeks of browbeating the U.S. public about rising debt and demanding a higher savings rate rather than consumption, those same forecasters are shocked that Americans have reduced spending and that over the last couple of months the public has increased its savings rate from 5% to 5.4%. "Oh, ahhh!", the experts whine you should save more but… you should spend more too because otherwise GDP growth stalls. Lately, large companies have been raking in cash by the shovel full. Yet, they are not hiring, because they are scared by all the economic whining; who is going to hire in these uncertain times when we're not even sure about how much U.S. corporate taxes are? If you don't hire people, they don't earn wages and these people cannot go on spending AND they have no money to save and reduce debt. And so on and so on.

 Are we truly amazed that spending over the last quarter plateaued and that GDP growth has slowed and that we don't get new jobs? "Not me", says the cat; "Not me", says this author, but our bright backseat driving Chicken Littles (CLs) are 'shocked' and the stock market tanks big time. Yes we have seen the messy U.S. government system in action dealing with cost cutting and debt ceilings. It was not pretty and … this week's stock market weakness may be just a case of 'post-traumatic stress'. The economy has not been overheating; the debt issues in Europe and North America are being addressed; may be not as fast and painless as the CLs would like; but it is under way. Corporate profits have once again surprised the CLs on the upside and the stock market is outright cheap. So is this the time for a crash; for a recession or is this a crisis of confidence? My guess is that we're just suffering from post-traumatic stress and too many economic back seat drivers.

Thank the lord that I invest for the long haul and that I don't care about the precise cause of this latest kerfuffle. Asset prices are low though. I am seeing buying opportunities that likely will pan out in the future. Yes, prices may fall even more; but then they may rise as rapidly as they fell. Who knows, but my money is itching in my pocket! Personally I don't think we're ready for yet another recession; but just in case there is one coming only buy in small chunks as discussed in my previous post because the price is right. Stay cool; buy some of those spiders who are getting cheaper by the day.