S&P 500: -0.95 (-0.10%)
What kind of recovery lies ahead?
Most investors seem to believe stocks bottomed in March, but many remain on the sidelines and are eager for a pullback. That begs the question: what kind of recovery lies ahead?
The front page of today’s Wall Street Journal featured an article, titled Land Mines Pockmark Road to Recovery, which looks at the three widely-accepted scenarios for the market and economy.
The first scenario is that massive amounts of government spending and easy monetary policy will allow the economy to have a classic “V-shaped” recovery. The second scenario is that inflation will ultimately force the government to slam on the breaks, which would trigger a “W-shaped” recovery – a concern that has been regularly expressed by Brent in his Daily Insights. The final scenario is that government action fails to stimulate the economy at all, in which case we would have a more sluggish or “L-shaped” recovery.
U.S. supply of coal may be less than we thought
This article is another front pager from the Wall Street Journal. The article explains that the U.S. may have fewer coal reserves than the current Department of Energy estimates suggest. Part of the reason that coal reserves have been overstated is that they include coal that is too difficult and/or unprofitable to mine.
If there were, in fact, lower coal supply than originally thought, then coal prices could get a much-needed boost and coal producers like Arch Coal (ACI) and Peabody Energy (BTU) would turn bigger profits. Recently, coal producers have struggled as stockpiles continue to grow and worldwide demand has stalled.
Producers are cutting output in response to the supply/demand dynamic. ACI and BTU are trimming their output for the year 393 million tons to 345 million-370 million tons, a 6-12 percent decrease.
In short, this article is hardly negative news for coal producers. Longer-term, both ACI and BTU ought to benefit as the global economy eventually starts to recover thanks to their size, diverse operations, and fairly healthy cash positions.
Quick Hits
Peter J. Lazaroff
No comments:
Post a Comment