Monday, March 24, 2014

Cheap Natural Gas

Today, in the second section, page 2, of the Wall Street Journal (WSJ) an article appeared about what cheap natural gas means to the U.S. economy. For some time I’ve thought that the abundant gas in the United States would result in greater manufacturing coming here. I had not considered the impact of construction from this change. The WSJ reported that the chemical industry alone is accounting for more than $100 billion of new construction in the gulf coast states, with another $125 billion anticipated. This business investment is by the U.S., Germany, Canada, and other countries. “From 2010 to 2012, energy-intensive manufacturing sectors added more than 196,000 U.S. jobs and increased real sales by $124 billion.”  This new growth is not just in the manufacturing plants moving here and being built, but in the construction, steel and other fabrication industries related to construction. Increasing construction costs, from the pressure on a limited supply of labor and materials in the Gulf Coast, may bode well for other parts of the country with less expensive construction costs. This should have a positive long-term impact for U.S. construction and job formation.
Ed Mallon

Monday, March 3, 2014

The Rhythm is Broken

Sometimes the stock market achieves a nice rhythm. We have recently seen such a period. After a poor start to the year, good economic news prevailed and the markets increased. Today in Reuters News Service, I noted a number of very good traits that should continue the momentum of growth in the economy. Factory orders rebounded from an eight-month low. Automobile sales increased. A gain in construction spending was reported, despite unseasonably cold weather! Consumer spending increased, with spending on services up 0.9%, the biggest gain since October 2001. All good news, and yet, as of this writing, the stock market is down more than 1%. The break in the rhythm is because of the uncertainty surrounding Russia’s military intervention into Ukraine. As I have stated in the past, “the markets do not like uncertainty.” We have no way to dispel this uncertainty, and this is why we have a diversified portfolio. In times like this, investors tend to drive up the value of more defensive issues, such as bonds. I will be watching the situation in Ukraine to determine the best investment course of action. For now we will make no changes. Ed Mallon