Reply #4: WrapUp by Jim Puplava

[ozymandius]

This is really two columns in one. I have switched (call me a flip-flopper) the order of the two so as to bring the market summary first.

Today’s Market

U.S. stock indexes headed higher on Monday after a modest retreat in oil prices. Optimism is building with analysts believing that earnings will remain strong well into next year. This assumption is based on the fact the markets can absorb gradual Fed rate hikes. If the Fed continues to raise rates in order to protect the dollar the market will run into strong powerful headwinds coming from higher energy prices and higher interest rates. So far earnings have held up and have helped to bring money back into stocks. Profit at companies within the S&P 500 grew 16.8% in the third quarter. Fourth quarter profits are expected to increase by 15%, which is more than double the average of the past 20 years.

However, at the moment it is energy prices, not profits, that are driving the stock market. The major indexes and oil prices are trading in tandem. An example is last Friday when oil prices spiked by 5% triggering losses in the major averages. The S&P 500 lost 1.1%, its biggest loss since September 22 when a jump in oil prices triggered similar losses. The markets advanced mid-day after oil prices slipped $0.25 a barrel to $48.64 amid speculation that mild weather this winter will help refiners build heating oil supplies.

Now the first half of Jim's column.

Blue Gold

-cut-

For the last two decades the U.S. and the rest of the world have invested very little to develop and secure these necessities that are so casually taken for granted. From energy, water, and base metals, to forests and farmland have all been ignored by the financial markets. Bull markets run in cycles lasting 20-25 years. They are the product of supply and demand imbalances. The declining prices that accompany bear markets lead to a scarcity of new investment. Capacity shrinks, the industry consolidates and new investment dries up leading to decline. In the last two decades no new refineries have been built, very little has been spent on building new pipelines or power plants, building new mines, developing new cocoa or sugar plantations, or developing water infrastructures. Productive equipment in these areas has gone into disrepair, deteriorated or has been cannibalized, scrapped, or shut down. The mining and energy industry is suffering from a shortage of qualified geologists and engineers. Who wanted to go to college and study geology when there were fortunes to be made on Wall Street or in Silicon Valley? The natural resource industry is suffering from a dearth of qualified personnel.

-cut-

The crisis in water centers around three factors. They are listed below:

Water scarcity

Water quality

Water-related disasters

-cut-

Water Wars

When it comes to water there are no alternatives. Water is as much a political resource as it is a natural resource. Between nations it is a question of who controls it. The question of ownership and rights has provoked countless disputes, conflicts and wars throughout all of history. Water was a factor igniting the Six Day War of 1967. The Arab League became angered after Israel’s construction of its National Water Carrier appropriated much of the water of the Jordan River for use in Israel. Today a bitter quarrel is emerging between Turkey and its nearby neighbors, Syria and Iraq, over the flow of water from the Tigris and Euphrates rivers. The Southwest Anatolia Project, a major engineering feat, will place 22 large dams and reservoirs along the Tigris and Euphrates rivers at the top of their source in Turkey. Turkey in essence will control the flow of water along these historic rivers impacting Syria and Iraq. The Euphrates is Syria’s primary source of water. What is left over goes to Iraq. There is no formal agreement between the three states to share the water.

http://www.financialsense.com/Market/wrapup.htm