No pun intended, but as I write this, I'm looking at retail gas prices, and I'm more than a tad concerned over how they will fuel greater concern for the stock market, as the move in prices year-to-date reignite consumer spending concerns.
While some people will point to how much "lower" retail gas prices are from the May 2007 high of $3.21, compared to the current $3.04 national retail gas price average (as of Feb. 18), a longer-term view shows more cause for concern.
In 2007, per the Energy Information Administration data, retail gas prices averaged $2.76 compared to the current $3.04. On that basis alone, retail gas prices are up 10%, but I would say that a better measure is to compare similar periods -- apple to apples and all that. On that basis -- comparing year-to-date 2007 vs. year-to-date 2008 -- retail gas prices are up 35% on average across the United States.
Yep 35%. That's year-to-date 2008 of $3.04 vs. $2.21 for the same period in 2007.
On its own, that makes me a little uncomfortable, but when we start to layer on negative views by the domestic consumer, rising consumer debt, concern over credit-card delinquencies and rising car repossessions -- I get a lot more concerned for not only the consumer, but for how much he or she is looking to spend in the coming weeks.
One last thing to consider on this gas-price front and consumer spending. If we look at each of the last three years, retail gas prices rose into the summer driving season. On average, the increase from February until the peak was 47% over the last three years. For those wondering, the lowest was 36%, when retail gas prices climbed to $3 in August 2006 from $2.20 on Feb. 20, 2006.
Gas prices are hard to forecast, and it's not my niche, but if the past were to repeat itself even at the low end of the 2005-2007 range, then that could result in retail gas prices of $4 or better heading into the 2008 summer driving season.
What kind of a crimp would that put in consumer-spending patters?
With that in mind, I'll keep my short on Polaris Industries
(PII)
, J Crew Group
(JCG)
and Rush Enterprises
(RUSHA)
and keep my long bias on Krogers
(KR)
, Altria
(MO)
and British American Tobacco
(BTI)
among others.
At the time of publication, Versace was short Polaris Industries, J Crew Group and Rush Enterprises, and long Krogers, Altria and British American Tobacco, although positions may change at any time.Chris Versace joined Agile Equity in 2006 and leads the Washington D.C. office where he oversees Agile Capital Management and serves as a sub adviser for other asset managers. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Versace appreciates your feedback; click here to send him an email.
