CHICAGO -- "You pump gas, not the S&P 500...but maybe you do," teased Walter Zimmermann, chief technical analyst with United Energy in his presentation "The Economy: Review& Overlook" yesterday at the 2009 NACS State of the Industry Summit in partnership with CSP in Chicago. That was Zimmermann's way of saying that a disparate collection of economic data directly affects the convenience and petroleum retailing industry. "The price of gas is based on economic expectations," he said, adding, "Everything hinges on what the economy is going to do."
With respect to [image-nocss] fuel prices, Zimmermann (pictured) noted that they are in a tug of war between the forces of inflation and deflation. Inflation expectations pushed energy prices higher from 2005 to 2008, with little regard to underlying "fundamentals"; however, deflation forces have been driving energy prices relentlessly lower since July 2008 with little regard to underlying "fundamentals."
Obviously, fundamentals alone can't predict the markets, Zimmermann noted. While fundamental analysis studies supply and demand factors, it is not equipped to forecast prices. He said that those who try to analyze the fundamentals--which he compared to the "herd" mentality--risk being the last buyer in an up trend and the last seller in a down trend.
Instead, he said that technical analysis better provides the ability to forecast the price range for a given time. The biggest risk with this approach is getting out too early, as opposed to too late. But, as Zimmermann noted, "When you're on train tracks and a train is coming, do you want to get off too early or too late?"
He then proceeded to define how fundamental and technical analysis differ.
"First piece of advice: Never look at a bar chart again. Life is too short to look at something devoid of information," said Zimmermann. Instead, he discussed how "candlesticks" can best examine a market. Invented in 17th century Japan, candlesticks reflect points at which markets change. Simply put, they are a replacement for bar charts and reflect the difference between a market's open and close. Every single major turn in the market was signaled by a major, clear-cut unambiguous candlestick reversal pattern. Best of all, "candlesticks are a very, very simple thing to learn," So what do the candlesticks say?
That's where the news got outright depressing. Zimmermann said that there are three warning flags for a depression: an asset price bubble in real estate, the stock market or commodities, and all are possible. After reviewing zooming real estate prices of the 1990s and early 2000s, he asked, "Do you think things got a little overvalued?" He didn't have kind words for Alan Greenspan, calling him a "nincompoop" and comparing the ex-Fed chair to "Mr. Magoo," since they're both famous for leaving a path of destruction to of which they were absolutely oblivious.
"The bigger the credit bubble, the bigger the bust," said Zimmermann in reviewing previous economic cycles. "This bubble dwarfs that of the Great Depression."
Zimmermann had more data to suggest that the economy has yet to bottom out. He said that he expected commodity prices to bottom out in 2011, followed by a low in the stock market in 2012 and a real estate bottom in 2014.
With the unemployment rate already at 8.5%, does Zimmermann expect it to reach the 25% level seen during the Great Depression? Effective unemployment--that is those unemployed plus those who have settled for part-time jobs--already is at 14.8%. "It's a short trip from 15 to 25%," he said. "It's not hard to imagine by 2012."
There was some good news. For one, people have more power than they might imagine. The culture ultimately reflects the government and that ultimately dictates forward-thinking policy. "A country gets the government it deserves--no more, no less," he said. "No government has ever reformed itself until the population reformed itself."
He said that if he were a retailer, he would "keep his powder dry" and have capital available to pick up distressed businesses for pennies on the dollar.
Gold may provide another opportunity. Zimmermann remains bullish on the bullion despite a drop from its high of $1,000 an ounce. "If gold is at 650 in 2012, I'd back up the truck," he said, suggesting that gold had an upside of $1,500 to $2,100.
And what about those pesky bankers who could ask tough questions in reviewing lenders' balance sheets? "I'd ask them about their balance sheets," he joked, adding, "Suddenly they're experts in fiscal responsibility?" Instead, he suggested that retailers discuss the numbers of their business and the economy as a whole. "Show them you've done your homework. They'll be impressed. They probably haven't done theirs."
Approximately 400 top industry leaders attended the two-day State of the Industry Summit, which concludes today, to discuss the industry's 2008 performance in dozens of key benchmark areas and examine areas of opportunity in light of today's economic climate.
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