Some people -- they used to be called economists -- call rising commodity prices inflation. That these firms find themselves increasingly unable to pass along these production cost increases to their customers is why they are suffering from a margin squeeze. At the same time, their consumers are facing oil prices in the mid-to-upper $40s per barrel. Gasoline prices have risen considerably this year, and home heating expenses are likely to rise dramatically this winter. Hence, consumers will feel a further bite, leading to pressure on gross sales.
It's a commodity-based double squeeze: While manufacturers' costs go higher, their clients have less discretionary cash.
At the same time, we continue to see evidence that the U.S. "soft patch" is anything but. I cannot find any reason for GDP to do anything other than muddle along at the 2.5%-3.5% level -- at least until some new positive catalyst comes along. Corporate hiring and capital expenditures are not showing signs of picking up; unless and until that happens, growth is going to be on the anemic side. To paraphrase one of my favorite commentators: For the first time in three years, there are no government tax cuts, no rebate checks, no other one-off items to spur the economy forward. The refinance afterburner has flamed out, and the Fed is raising rates.
In other words, the pig is through the python.
As for energy, I simply do not believe there is a $15 terror premium built into a barrel of oil. That thesis is simply contradicted by the way oil traded after the attacks on Sept. 11, 2001. Initially, there was a selloff and bounce back in crude. After that, oil went sideways until the run-up of the Iraq invasion in March 2003. That is hardly what one would call evidence of a terror premium.
Terror Premium? What Terror Premium? Oil's moves since 9/11 belie the conventional wisdom
Barry Ritholtz is chief market strategist for Maxim Group, where his research and market analysis are used by the firm's portfolio managers and clients in the U.S., Europe and Japan. He also publishes The Big Picture, his macro perspectives on the economy and geopolitics, entertainment and technology industries. At the time of publication, Ritholtz had no position in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Ritholtz appreciates your feedback and invites you to send it to barry.ritholtz@thestreet.com.
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