Beirut Burns, Oil Boils

Brian Hicks

Updated July 18, 2006

It’s stifling here in Baltimore. Across the United States and throughout much of the world, summertime is making its full force felt and inspiring us to withdraw into the shade.

Stock traders are proving this meteorological reality to be an economic fact of life. Though only the past week has shot the Fahrenheit mercury up over 100, we are months deep in a sell-off that has prompted cries of a secular bear run.

There’s a saying, "Sell in May, then go away." And the major indices have proven that whether or not this is a force of nature, traders are eager to take this buying break.

If this is the prevailing "market sentiment," should you head down to the cement pond with the crowd and slurp sno-cones ‘til the leaves turn? Or, should you snap up your kerchief, get ready to mop the sweat off your brow, and go on a bargain-hunting frenzy?

I’d opt for the latter.

Mid-May gave us our tallest recent peak, when the Dow was around 11,640. Despite the recent slide, we are still on an uptrend from January, when the "January Effect" of widespread buying sent averages to highs for that time.

Maybe these seasonal swings are something we can predict…Of course they are. What we have more trouble predicting are the geopolitical tides that tweak the trends from year to year.


Mediterranean Madness

Just last week I told you about favorable developments in Israeli life sciences and the potential impact of Israel’s research-based industries on worldwide markets given that country’s widespread market exposure. One day after I wrote that, the Iranian-backed Hezbollah militia succeeded in a cross-border raid from Lebanon, snatching two Israeli army soldiers and killing several more. The ensuing Israeli response has cut Lebanon’s infrastructure to pieces, as volleys of missiles and fighter jets criss-cross the skies between Haifa and Beirut.

Oil prices spiked to over $78 per barrel on this news, as the same old song of regional instability shifted pitches away from the Iraqi pipeline blues to the new worry that Iran and Israel may go head-to-head.

But make no mistake, oil would have reached this level based on supply worries alone and the persistent chaos of the northern Persian Gulf (Iraq, Iran, Kurdistan).

Not only was this increase inevitable, but so was the pullback we saw due to selling. Many news sources attributed the price drop on Monday to an "easing of concerns" regarding Iran, OPEC’s #2 supplier, becoming embroiled in the mess.

Hogwash. Anyone whose minds were somehow soothed over the weekend must have had their ears plugged. Iranian Revolutionary Guard military advisors have been in Lebanon the whole time, and have endowed Hezbollah with missiles capable of reaching up to 150 km from the launch site. Moreover, Chinese-made weaponry purchased by Iran has been passed along to the Ayatollah’s Lebanese foster children, giving us the faint scent of oil-hungry China’s peripheral involvement in this Near Eastern crisis.

But here’s an Israeli angle you didn’t think of, and one where the Israel-Iran-oil triangle of turmoil can add up to heavy Hebrew benefits.

How about Ormat Technologies, an Israeli-run geothermal company with operations all over the world. Ormat (NYSE:ORA) is riding around 34 dollars per share with a consensus price target of 41.

Though it’s considered an Israeli stock, Ormat’s share price will track closely with the increase in world oil prices; not because Israel’s conflicts are driving the price per barrel sky-high, but because every increase in fossil fuel cost makes geothermal more attractive!

Drop that Popsicle!

What you need to do is ask while everyone else is basking. Your buying opportunities are now, while the market is slumping amid a general upward trend.

Do you believe in the long-term worth of your portfolio? Warm it up even more with a couple of value buys.

Is your favorite holding delivering on Q2 earnings expectations? Growth is clearly persistent in sectors like energy and in worldwide markets where intrinsic momentum and productivity are on the rise.

Speaking of heat, China can’t seem to turn down the flame on its economic wok. If there will be a crash in Chinese growth, there is still an upward slope to accommodate as many bandwagoneers as can fit. Beware the panics and sell-offs, but another quarter of 10% growth means the Chinese economy is still going full steam, despite interest rate hikes and whatever seasonal trends may prevail in the West.

So keep a glass of iced tea nearby as you fan yourself and tint your melanin while you make your trades. Though in July and August even the breeze is hot, you will reap the benefits of your sweat come autumn.

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