Sunday, January 18, 2015
Greece, Exxon and markets
Greece is pushing the euro and the rest of the world economy around a bit these days. Nothing new as, over the last five years, Greece has had two bailouts, three Prime Ministers, and two defaults. And negative GDP growth.
Let’s talk about that GDP—with 11 million people, Greece produces a GDP of $242 billion accounting for 0.39% of the world’s economy. Exxon Mobil, with 75,000 employees (down from 98,000 in 2001), produces revenue of $420 billion or nearly twice as much.
Exxon is reviled; Greece is bailed out. Another one is coming, but sooner or later, the rest of Europe is going to get fed up and kick Greece out of the euro.
I wish I were smart enough to know what this “means.” Would suggest it will be a depressant on the financial markets, probably continue to drive the euro down and the dollar up. After all, back in 2008 when the “Great Recession” was going on, it took $1.59 to buy €1.00. As of last Friday, January 16, 2015, that was down to $1.15.
Good news for the dollar? Well, not exactly. US goods are that much more “expensive” on the global market.
Another part of what this means? Take a look at some history:
· In 2008, oil as measured by West Texas Intermediate (WTI) was $133 and the Euro was at $1.59. So, if you had Euros, it cost you €84 to buy a barrel of oil
· By the winter of 2008/2009, oil had dropped to $39 per barrel and the Euro had dropped to $1.25 as the recession hit Europe, too. A barrel of oil cost €31. Instead of a drop of 71%, it only dropped 63% in Euro terms
· In the summer of 2014, WTI was $103 and it is now $46
· Last summer, the Euro was $1.39 and it is now $1.16
The drop in oil in 2008 and now is interesting. The drop in the Euro is also interesting. But here’s another “factoid” to think about:
· The S&P 500 in the summer of 2008 peaked at 1,358
· By March of 2009, it had bottomed at 683, a drop of 50%
· Last July, the S&P 500 was at 1,987
· Today, it is 2,019 or 2% higher than it was
Apparently the wise ones who are stock buyers believe that the economy is thriving although there is some frightful stuff going on in the huge oil sector and the European community is a bit shaky.
Wonder what will really happen? Wait and see.