CRR CARBO Ceramics Inc

This should be a relatively quite week. Earnings season is winding down, and there will only be 17 earnings reports out for S&P 500 firms, with the bulk of them being retailers (and some tech) that have fiscal periods that ended in October, not September.

The economic calendar is also sparse. On Monday, Consumer Credit is expected to have increased by $5.0 billion in September, partially reversing a $9.5 billion drop in August. I suspect most of the increase will come from non-revolving loans like car loans, rather than higher credit card balances.

On Tuesday, we will get more detail on the employment situation with the JOLTS report, but that will be for September, not October. It is likely to show that he number of unemployed outnumber the level of job openings by more than 4.5:1. In a healthy economy the ratio is closer to 2:1. It is also likely to underscore that the real job problem we face is not an excessive number of layoffs, but an extreme dearth of new hiring.

The biggest report of the week will the on the Trade Deficit. It is expected to edge up slightly from its August level of $45.6 billion. I consider the Trade Deficit to be a far more serious economic problem than the Budget Deficit (which we will also get on Thursday), particularly in the short to medium term. It is directly responsible for the country being deeply in debt to places like China and Japan. An increase in the Trade Deficit is almost a dollar for dollar reduction in GDP growth.

Our problem is not on the export side -- exports have been growing nicely are on pace to double over five years -- it is more on the import side. However, it will be interesting to see if there has been any impact from the Euro crisis on our exports to Europe. Taken together, Europe is our biggest trading partner and accounts for about 25% or our exports.

More than half of our total trade deficit is due to our addition to imported oil. We need to finally get serious about ending that. Conservation and higher levels of energy efficiency play a critical role here, but alone will not be able to solve the problem. Over the long term, we need to transition to more renewable power, but we are starting from a very small base, and so it will take a very long time before we get the bulk of our power from things like wind and solar.

In any case, wind and solar mostly provide electricity, and the imported oil is mostly used as a transportation fuel. While the technology for powering ships with wind power has been well established for thousands of years, the same is not true for cars and trucks. Natural gas, though, could be easily adopted as a transportation fuel, and we have lots of it available domestically.

Very modest government incentives could go a long way towards jump-starting that, and the jobs creating in tapping our huge shale gas reserves would go a long way towards bringing down unemployment. But given the "chicken and egg" problem of no one buying a natural gas-powered car since they can’t refuel, no refueling since there are no natural gas cars on the road, it is not going to happen without government leadership. Yes, we will need some regulation of the drilling to make sure that groundwater is not contaminated, but that is not a reason to avoid using that vital new resource.

The money spent on natural gas would stay within the U.S. economy, rather than flow overseas, and that would stimulate more domestic demand for a wide range of goods and services not directly related to the oil industry.

It is also a policy that can get bipartisan support.  Since the major natural gas producers are the existing oil companies, such as Exxon (XOM) and Chevron (CVX), the GOP is not likely to upset its biggest backers by blocking it the way they have other measures to stimulate the economy and bring down unemployment. The biggest direct beneficiaries, though, would probably be the more gas-focused independent E&P companies like Chesapeake (CHK) and firms that specialize in fracking operations, such as Carbo Ceramics (CRR).

With earnings season slowing and a light economic calendar, all eyes are likely to continue to be focused on the ongoing Greek drama this week. I think the market will drift higher through the end of the year, mostly because valuations remain compelling. The key word is "drift," not "zoom" higher like in October.
 
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