Financial Phenology

I received an email containing several interesting insights from regular visitor M'Liz Dupree, and I asked her if I could share them with other Financial Armageddon readers. Fortunately, she agreed, and here is what she had to say (with a few slight tweeks for clarity):

In the horticultural world, in which I work, the science of phenology tracks the relationship between natural events and plants and animals. I've been applying phenology lately to the economy. Observation is the key; little things that didn't register previously now offer insight to the future of the markets, individual stocks and trends.

For instance, when General Motors (GM) announced deep cutbacks at their plants which manufacture SUVs, I saw "For Sale" signs on more than 60 percent of the rental units in Janesville, Wisconsin, where one of the affected plants is located. One shift was cut, but that wouldn't normally precipitate widespread rental vacancies. That is, unless you deduce that the Janesville plant will be shuttered by the end of 2008. Given GM's losses and the recent $200 million concession to American Axle, a supplier of truck and SUV parts, more plant closings are a distinct possibility.

Kroger (KR) announced last week that it would give a 10-percent bonus to customers who purchase Kroger gift cards with their tax rebate check. A $300 card would yield an additional $30 in credit, etc. The fine print reads that no personal checks will be accepted for the card purchase, only rebate checks. A quick trip through the local Kroger store during the past few days was an eye-opener. All prices were up from a week ago, from canned goods to meat to cleaning supplies, by about 8 percent. No free samples in the deli or bakery were offered. Usually, one can cruise those sections and munch enough for a small lunch. Goldman Sachs changed its rating of Kroger from "neutral" (based on fundamentals and recent underperformance) to a "buy." They noted the benefits from fiscal stimulus package as a reason for the upgrade.

Then we come to the 500-pound gorilla, oil. Goldman Sachs also said recently that oil may go to $200 a barrel. My ringing telephone verifies that prediction.  I inherited the mineral rights to three parcels in the Permian basin of West Texas and Oklahoma, both beehives of oil and natural gas production. Until, that is, the early part of this century. About 2002, before the election of George Bush, oil companies stripped out as much as they could and then shut down numerous wells rather than drill deeper. Middle Eastern assets were more profitable for them.

Hundreds of new wells have come online in the last 90 days, according to The Tulsa World's weekly drilling completion report. Played out fields are being drilled as deep as 19,000 feet to tap larger pools (as late as 1999, drillers in the Gulf of Mexico were hesitant to go more than 15,000 feet). It's worth the expense with the prospect of $200 oil. Leasing agents are giving you anything you want for your mineral rights now. You can name your cash bonus and easily negotiate 25 percent royalties. Two-hundred dollar oil may be conservative, if you read the financial phenology.

Comments

[roger]

Phenology= scientific value for understanding the interactions between organisms and their environment love it .it has a dialectical flavor right up my alley. thanks for sharing.

[Jes]

nice article!

[Jes]

nice article!