Market briefing--Lori (slow)
Chart of the day -- Tom (slow)
>> the new york stock exchange discloses in its latest s.e.c. filing that it’s looking at more possible acquisitions. it is the latest evidence that the pace of consolidation in the global equity markets is about to increase. it was just last month that the big board completed its purchase of archipelago and ended 213 years as a member-owned institution. that’s john thain, chief at the nyse. he said he wants to make acquisitions using shares of nyse group. the stock has gained almost 20% since trading began last month. if you haven’t heard by now, gold moves higher today, smartly above $600 an ounce. how does that compare to a 1980 price, over $1,600 an ounce? time for a look at the “chart of the day” with tom keene. big move behind gold today.
>> sustained move, the persistency going back a year or two, gold up year to date -- year over year, rather, 40%. what’s great is last week we looked at inflation-adjusted oil. here’s gold inflation-adjusted and jump to the chart. it’s interesting in that it’s from 1970 so it’s a good 35 years and we go straight up and adjusted for inflation in today’s dollars. you go from $140 to $1,600 an ounce in today’s dollars. the green line is $1,000 an ounce. then we come down to $300 right here. we’ve doubled the price adjusted for inflation from $300 to the present $600 an ounce and you can see that really takes us back to the late 1980’s, 25 years, and then you really go back to where you’re above some of those surges in gold. it’s getting historic, what we’re seeing.
>> today’s news is iran, seems to be a different reason, though, each day why we see even oil, too, continuing the gains.
>> this is a great quote from david meger of alaron trading out of chicago. “it’s a perfect storm, lower dollar, higher oil prices, base metals rallying, commodity interests across all different commodities and funds are not afraid to buy on highs.” there seems to be a word du jour, it’s iran. it will be interest rates, maybe inflation fears, but what’s interesting here is it’s just about buying. here’s a key distinction. to a bi―about―to bias―the physical demand for gold is very weak. this is about the speculation, the emotion of iran and emotion of interest rates.
>> one word we’re not hearing in buzz words is “collapse.” we hear analysts calling for gold to rise up to $800 an ounce. what is the possible for a collapse?
>> it’s always out there and with the speculative long interest so strong, that is a risk but that’s a distinction from oil. a lot of people looking at oil today, record $70, rationalizing it could come down $60 or $50. someone like daniel juergen at cambridge associates saying oil could come down. i don’t hear that about gold.
>> way back when when i was a college co-ed, i took gold 101, they always talked about the precious meths. • metal. how does the inflation picture play into gold.
>> gold leads, inflation follows. the people you talk to, lori, that worry about gold and inflation, john ryding at bear stearns and michael darda at m.k.m., a few others, as well, those people are simply saying watch gold, inflation will follow. we haven’t seen the inflation yet. time will tell.
>> sounds good. bloomberg news editor-at-large tom keene. harvard management company’s new chief executive needs a few good money managers to help him invest in the university’s riches. interested? tell you what you need to qualify. next on “after the bell.”
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Listen Focus: Energy
>> welcome back to tv. in the last couple of blocks, we talked about why the u.s. stock market looks pretty good for this year and going into 2007 and why some of the international markets , specifically, japan, may be ready to continue the rally, that really japan’s been in for the last couple of years. let’s get more specific about the u.s. and talk industries and companies with jason and joe, jason trennert and joe zock. joe, let’s talk about energy. this has been the powerhouse, no pun intended, of the stock market for the last couple of years but if you look in the weightings of the s&p, it’s still one of the smallest so you basically have the smallest donkey pulling the biggest cart. can that continue?
>> it can and if you look back to the late 1970’s, you saw the energy component of the s&p 500 go from about 8% to 23%. and the same thing could happen now. i really doubt you’ll have that much of a frenzy in this area.
>> it’s getting bigger every month.
>> it is. and you see a lot of consolidation in that area. jason talked about large cap stocks being unloved. we are a midcap and small cap area manager that. there have been tremendous acquisitions in this area. the number of dollars focused on exploration and production help all of the service companies and it looks like it’s embedded, it will be there for a while given the fact that worldwide divhand has reached a new level. , obviously, there are political pressuresall around the world on energy-producing countries and we think that equilibrium will be tenuous.
>> will all the future stock gains come from deals, not organic growth within the companies?
>> not at all. some of these stocks are selling at relatively low p/e’s versus their expected earnings next year and there are a whole number of investors that have been burned in the past by being long energy, suddenly the commodity price dips and the stocks are penalized for that and they have that scar tissue. they understand the relationship between the underlying commodity and the price of these stocks. they all travel together. the rising tide lifts all of these stocks.
>> talk about the rising tidewater, which i know you like. and jason, you like b.j. services. is this a special story or do you like services stocks?
>> it’s more of a broader call on the service companies. one of the things―i agree with joe. personally, i think if you look at what’s happening in japan, world’s second largest economy, closed line 17 years ago.
>> which by the way imports 100% of their oil.
>> right. and you have china and you have india. it’s hard to fade commodities and it’s hard to fade oil in particular and it seems to me one of the things that makes me think this cycle will last longer is that the energy companies themselves have been hesitant to spend a lot on cap-ex. before the energy cycle was over in the late 1970’s, early 1980’s, the energy companies were the biggest believers in the sustainability of the high price of oil. they couldn’t put holes in the ground fast enough. and there’s been a much more moderate, more sober view of cap-ex this time, which suggests to me that the cycle lasts a lot longer. the energy stock cycle in the 1970’s lasted about seven years and right now we’re in the third or fourth year of the energy stock cycle in the u.s. so i think it’s got longer to go. i think you’re at the stage, now, where there is going to be more dollars focused on the service side as opposed to maybe e&p.
>> you like tidewater company that would benefit directly if we see increased capital spending and a new lease cycle coming up in the gulf of mexico, and everyone expects those leases won’t be unused this time. companies will try to drill.
>> the disturbing part about that is in the 1970’s, you had an awful lot of rigs working and the number of holes they punched in the ground prugsed -- produced new energy, new discovers. that relationship is not the same anymore, even though the technology is better, more efficient, we’re developing wells, we’re not discovering new stockpiles of energy. and that’s going to be a problem. so you’re going to have to look a little bit more --
>> go deeper, extract more, be more efficient, go to harsh environments?
>> one of the reasons these large energy companies haven’t devoted more money to cap-ex is not only the caution jason cited, is because the projects have gotten much more expensive and more elaborate. you’re talking about 5,000 feet, deep water, harsh environments and for a lot of money.
>> we’ll talk more about oil, maybe energy, as well, and the rest of the stock market . this is a special edition with jason trennert and joe zock.
