Interesting that rising oil is now a boon to stocks.
By Daniel at 30 May, 2009, 3:52 am
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Asset deflation has made inflation look desirable. The CBO’s research showed last year that a $10 rise in crude translates roughly into a $50 Billion in lost “stimulation” to the economy. Put another way, it reduces US growth by .2% - .3% per year (Global Insight). $40 (assuming oil hits OPECs desired $75 target) means ~$200 Billion lost. Now isn’t the time for Americans who are saving (3% annualized) and paying down debt to have more money taken away. And that money is going overseas to a large group of Bin Ladens.
At this point in time however, supply outstrips demand. There are 2.5 Billion Barrels of oil in supertankers - sitting (6 months of Excess). There’s suposedly only a month of storage left. This would leave a serious glut of oil for the world - hardly supportive of ever increasing oil prices. It would be a reason for a crash actually. Demand and US stored supplies are at 1980s levels. The move in crude isn’t based so much on demand rocketing higher as it is a dollar that’s fallen 10%+ in under 3 months. A rebound (dead cat bounce) would likely send crude quickly lower.
I could see the dollar rebounding somewhat in the coming weeks. Technically some say it’s oversold. Deleveraging isn’t over. A new round of resets in mortgages are coming as delinquencies/foreclosures reach new records. A stock market drop could do it. Plus - Europe’s been behind us in this crisis the entire way. Some say that they will work harder to devalue their currencies to stave off another wave in this crisis. This would help give the dollar “relative strength” - for awhile.
Anyway you look at it, the Fed is in a jam. It’s trying to hold rates in check with purchases of $300 Billion in Treasuries. It’s not working. So is it going to increase the purchase program? Increasing purchases will only send the dollar lower it would seem. Rates must go up -from 0. Foreign investors demand more compensation for ever increasing dollar denominated investments in Treasuries and MBS’s. Let’s face it, they’d like to sell the “investments” but really can’t.
The US is seen as a risk even if Moody’s is willing to say the US is “stable.” Subprime mortgage back securities were AAA rating like US Treasuries. Now I’m beginning to think they are similar - it’s just that the former has the right rating now while the later doesn’t yet. Rating agencies are a joke.
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