Thursday, June 26, 2008

Market Concerns and Calming Words

A regular reader asked me to send him some calming words. The following is my response.

As far as calming words, I am running low. In games of brinkmanship, one after another, the President and the Congress seem willing to crash rather than to chicken out. The same is true for the game between Iran and the US.

Bush was just on TV asking Congress to pass a drilling bill and a "good" housing bill. I think a housing bill will be passed latter today or tomorrow. It is impossible to know if the drilling bill will be saved as a campaign tool or if it will get passed before the elections. Bush also asked for his political appointees to be approved. The FOMC is just one important agency that has several vacancies.

The bright side of the story is that international agreements are popping. Even Venezuela is considering signing a 123 Nuclear Agreement!

Russia and Venezuela are in talks. The huge nuclear agreement signed between Russia and the US (not yet approved by the US Congress or the Russian Parliament) requires Russia and the USA to not share nuclear materials with any nation that supports terror. Venezuela is the location for several terrorist camps. The skeptical might say that Russia is playing fast and loose. My opinion is that there is a chance that Venezuela, being aware of the turn in North Korea, the turn in Syria and the potential turn in Iran, will climb on board. No, Venezuela will not make a deal directly with the USA but, the beauty of the 123 Agreement is that various countries can strike their own deals with those who have signed on to the central promise. For example, Russia, France and Britain are all eager to do business with India as soon as they sign-on.

The most positive thing I can say is that these deals need to be signed very soon. The train is leaving the station and some countries will not be passengers. The train will not stop here again for quite some time.

While it will take years for new signers to get a nuclear plant constructed, the psychology will change immediately when it becomes clear to the world that electricity is going to be abundant relative to oil.

The "nuclear collar bottle neck" is being rapidly addressed. At least seven countries, including South Korea, Japan, China and Russia, are preparing to expand capacity. Westinghouse has ordered collars from more than one source to insure supplies are coming. The number of plants to be built in any one country is being limited so that more countries can put their name on a slot. Who would have thought that Turkey, Jordon and several oil rich Middle Eastern countries would be in a scramble to be among the first to have nuclear power plants?

While all of the above seems to be far removed from the daily grind of the stock market, I submit that the markets are in for a big change. The change in sentiment will result in higher PE ratios for many companies.