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Latest Comments30 Comments
Is the Fed Being Hawkish Enough?
Given that there is about a $25 speculative premium in current oil, a 25 bp rate hike and expectation of more to come would have oil at $110 within a week. Quite the stimulus for the economy.
Even Priced in Gold, Oil Is High
The way I see oil priced is on three factors: in relation to gold at 10-1; plus a supply/security premium that factors in Irani embargos or Katrina type damage; plus the speculative premium, standard bubble of new money jumping on an inflated bandwagon.
In today's terms the above yields a base price of $90, plus about $25 for the recent inventory drop and Nigerian threats, as well as the little posturing dances of Bush, A'jad, and Chavez, and the rest as speculation on where oil will go next week or month, basically momentum players trying to squeeze some gravy out of the commodity bisquit:)
The recent drop in oil, 10%, came from speculative positions unwinding because of jawboning by Fed officials. Oil dropped even though inventories dropped, speculative drop overcompensating for what would normally have been about a $5.00 supply spike.
Thursday and Friday's oil spikes resulted from Trichet hinting that the Euro would strengthen from rate hikes and the unemployment jump suggesting that Gentle Ben would give more rate cuts. No concrete actions in sight, just speculation.
Black Gold or Yellow Gold?
Interesting piece, and I do like your realization that politics and the economy, especially in an election year, are linked.
My quibble is with your above. The Dollar has dropped over 70% to gold from it's highs in the late '90's, those glorious days of $24 oil and $250 gold and $2.00 wheat. Deficits, debt, low interest rates, and hyperactive printing presses are the culprits and we are trapped by unfunded liabilities into keeping the Dollar low to repay debt with Monopoly money. We'll have a brief outbreak of stronger Dollar before the election to throw a lifeline to the incumbents, then the Dollar falls again with no predictable bottom.
Inflation Triangle Dilemma: Dollar / Oil / Euro
Trichet and ECB have inflation because they also have been devaluing their currency, preferring liquidity injections. When money is printed faster than GDP growth each unit becomes worth less against commodities with intrinsic value, like oil, gold, or wheat.
As for Bernanke, eventually he might realize that inflation is what is weakening the economy, distorting the normal balance of consumer spending by energy and food taking more than their normal share, causing other sectors to have less available. A couple of quick 25 bp rate hikes, to partially undo the erroneous 75 bp cut after the Asian meltdown, would drop oil to $100 and provide a $160 billion annual stimulus to other sectors of the economy without raising deficit and debt and while lowering trade deficit.
For this week, things will be simple. News that increases the liklihood of FOMC cutting rates will sink the Dollar and sppike commodities; news that makes it less likely that the FOMC will cut rates will keep things flat; news that makes it likely FOMC will raise rates will strengthen the Dollar and lower commodity costs. With faithbased fiat currencies the high priest, Gentle Ben, is also the prophet.
Energy, Inflation and the U.S. Dollar
If you think oil demand has risen 500% since Jan '01 or 250% since Oct '07, then you might be able to support this point, but would still have a hard time explaining why worldwide demand has had less an impact on the price of oil and gold and copper in Euros, Swiss Francs, or Canadian Dollars.
Forbes is a buffoon but is correct that the tanking Dollar has driven much of commodity hikes. We have been reminded of this again lately as the Dollar strengthened from jawboning by Fed officials, causing expectation of rate hikes to be priced in to futures, and oil and gold have to retreat.
Oil also has a supply and a speculation component to the price, but the weak Dollar accounts for over two thirds of the price increase .
How Does an Oil Crisis Impact the Dollar?
Add to this that Trichet will continue quietly devaluing the Euro through his printing presses and the Dollar doesn't look bad in the EUR/USD pair through November, at least. After that Bernanke may turn into Paul Volcker or he may finish destroying the economy.
Weekly Market Commentary: May 19th - May 23rd
3 Reasons Why the Fed Can Afford to Pause in June
Good luck and I appreciate the information.
Dollar Rallies on Retail Sales, Euro Words
Is the Dollar rebounding against the Euro or is the Euro falling toward the Dollar? Based on commodities, I would say the Euro is falling a little, which explains EU's inflation problems. I see the Dollar stabilizing for now, as Bernanke's rate cuts seem at an end, but the Dollar rise won't come until traders start pricing in an expectation of rate hikes to lower oil costs just in time for the election. I expect 75 bp hike by October, 25 bp at a time, and $3.00 gas when voters go to the polls.
Excellent work, Ms. Cheng. You are a great help. Thank you :)
The U.S. Dollar: A Contrarian View
Very good piece and I agree that buying power is the true standard for a currency. The Dollar was "strong" when gold was $250 and oil $24 and is now "weak" with $930 gold and $111 oil.
It's Time to Talk About Inflation
Rather than seeing a "bubble" in housing and commodities, I think it more accurate to see the values as a reflection of how far the Dollar has fallen. The once mighty Greenback is worth about a quarter of what it was in the days of $24 oil or $250 gold. All housing tried to do was keep up with the commodities, but was torpedoed by rapid rate hikes attempting to correct the Greenspan low interest rates. Things won't get better until fiscal responsibility is restored.
The Credit Crisis and the U.S. Dollar
As for your sequence, I see it as:
1: Subprime lossses threaten banks.
2: Bernanke devalues currency to socialize bank losses.
3: Commodities rise.
4: Discretionary income is constricted.
5: Congress passes more tax deferments and bailouts.
6: Dollar devalues.
7: Commodities rise.
8: Etc.
I like commodities long and see short term trading opportunities in currencies, but would be careful with the Euro, as ECB is also devaluing. Gold and the other metals are real money, fiat currencies are no more than raffle tickets.
Why US Interest Rates and the US Dollar Will Continue to Fall
All the weaker Dollar has spurred is commodity inflation and profits for Euro and commodity longs. It's been a disaster for the economy and for wae slaves, whose paychecks will always fall short of inflation, which means their buying power is constricted by higgh energy and grocery prices. FOMC should start raising rates, now.
Rest of the article is good.
U.S. Dollar Paradigm Shift Underway
The flushing is ongoing, the recent Deficit Stimulus Act, liquidity injections, BSC guarantees, and last week's rate cuts still washing over us, with more rate cuts, more bailouts, and congress tripping over themselves to come up with more ways to buy our votes with the grandkids' money.
Gold is useful as a standard, a way to recognize that the Dollar has lost 3/4's of its value in under eight years whil the Euro has only lost a half. Without the commodities, we would have no reference for the incompetence of our leaders and bankers.
Weak Dollar is Bad For America - and ETFs
Excellent piece, but will point out that Americans love their big government as long as they aren't paying full price for it and that no politician can get elected on a platform of fiscal responsibility, which is why the three remaining presidential candidates are all running on four more years of Free Lunch. Commodities look good as far ahead as I can see.
As a great man once said, "Strong currency is the foundation of empire, weak currency is the doormat to Hell."