A Melman Minute
By: Leonard Melman
June 6 was one of those market days which will be
long remembered. Not only did the Dow Industrials plunge by almost 400 points,
but the price of Crude Oil skyrocketed by almost $11.00 (all prices US$) to over
$138.00 per barrel - the highest such price in history - and the markets
received an additional major jolt by the release of the U.S. Department of
Labor’s jobs report which showed that the U.S. economy lost jobs for the fifth
consecutive month and the Unemployment Rate soared by 0.5% in one month to 5.5%,
the highest in three years.
The implications of the Crude Oil price, along with strong moves in Heating Oil
and Unleaded Gasoline as well, are enormous. As the price of gasoline and
heating oil soar, the extra money that now must be spent to fill gasoline fuel
tanks or heat homes must be taken away from consumer expenditures of virtually
every other sort and those markets are now beginning to suffer.
Particularly hard hit is the airline industry as rising airplane fuel costs are
being passed on to the flying public in the form of fuel surcharges. Airlines
are also cutting back on the number of routes being flown as well as the number
of aircraft serving the remaining routes as older, less fuel-efficient airplanes
are retired from service. Along with those cutbacks come inevitable job losses.
Higher costs associated with rising petroleum prices are also hitting various
state and provincial governments as well as asphalt prices soar, leaving many
levels of government unable to afford their planned road repair projects. A
recent story in USA Today newspaper detailed how asphalt prices have risen 25.9%
during the past year and bids for projects are now routinely exceeding planned
budgets. In addition, the costs of fuel to transport the asphalt to project
areas and then heat it prior to application have skyrocketed as well. Not
unexpectedly, many municipalities are appealing to Congress to add funds to
present infrastructure allocations.
How Congress is going to find those funds while already running at a humongous
deficit is another question.
With air travel becoming expensive and less available and with auto travel plans
being scaled back, many industry leaders fear that the travel and tourism will
be in for a difficult time. In Canada, the Tourism Industry Association of
Canada called for the government to get the structural costs of aviation down by
removing or at least reducing some of the fees and levies now associated with
air ticket costs.
Unfortunately, we continue to work with a heavy travel schedule and must leave
by 4:00 Am for a visit to Mexico to report on Soho’s Durango State operations.
However, early morning indications show that markets have settled down
considerably with Asian markets selling off to match American ones on Friday,
but European markets mostly unchanged. Crude has backed off slightly to just
above $137 per barrel and precious metals markets are slightly higher, with gold
up $6.00 to about $907, following gold’s burst upwards of nearly $30 on Friday.
Will be flying most of the day today, but will report from Mexico tomorrow
morning.
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