Tuesday, May 10, 2011

$100 Oil Fears Threatens Economic Recovery

This isn't good:

My Take:

So much for that "relief" at the pump that CNBC loved to crow about last week. "Bubblevisions" calls of $3.50 gas by the summer look like a pipedream as the commodity speculators once again turned bullish. Silver and gold also surged as traders shook off last week's historic commodity sell off.

I am continually amazed at the risk taking that we continue to see in the markets. You would think after a 30% sell off that the commodity speculators would want to take a breather in order to lick their wounds after last week's slaughter.

This idea turned out to be a foolish theory. It's becoming icreasingly clear that the market continues to resemble something from "The Wild West". There are no "rules of thumb" anymore when it comes to the price action on Wall St.

The robots that dominate the trading on Wall St decide what the rules are on any given day. Wounds no longer need to be healed because robots have no emotions.

Wall St has become an increasingly dangerous place to play because the trends now change faster than Lady Gaga's costumes during a 3 hour concert. Trends that lasted weeks during the '70's and '80's now potentially last for only a few hours or days. Should we expect anything different when stocks are held for seconds today instead of years like they were in the '70's?

It's becoming more clear that speed rules Wall St at this point. Fundementals and historical trading patterns are increasingly becoming irrelevant. As a result, the markets are basically been morphed into a giant casino at this point.

There is no "fundemental" reason why oil is up 6% today. Demand did not pickup. Inventories remain high because the economy continues to show no signs of life.

The Bottom Line

Keep a close eye on oil prices and understand that gas prices never had a chance to drop because there is a lag time before you see a drop in oil prices show up at the pump. If anything gas has continued to rise in most staes in order to reflect the $113 oil we saw just 2 weeks ago.

This means that the consumer will continue to be restrained as a result of higher energy costs. This will also continue to pressure companies because input costs will remeain high.


Let me refocus here for a second and remind everyone to keep their eyes on Greece and the PIIGS debt crisis. Greece apparently is threatening to leave the Euro. This will be a disaster for the banks if this becomes a reality. All you need to do is look at the chart below to see how catastrophic this would be for the Eurozone and it's banks:

Bottom Line Continued:

The crippled banks of Europe cannot afford to take tens of billions of dollars in losses if Greece decides to bail on the Euro and walk away from it's debt obligations. What's even more concerning here is the rippling effect that a Greece departure could have on the rest of the PIIGS.

Perhaps the rest of the PIIGS might all come to the same conclusion as Greece? I mean when you boil it right down the various "PIIGS" rescue packages bailout the banks instead the country and it's people. If anything, these are bailouts of the banks at the EXPENSE of the people.

I mean let's get real here. Who ends up paying these ECB loans back? Why the taxpayers of course. The politicians of these countries are slwoly starting starting to realize is it's the people(not the bankers) that get them re-elected.

Iceland's politicians came to this conclusion a long time ago, and their economy is starting to rebound after telling the bankers to take a hike.

The European debt crisis is a very unstable situation that needs to be monitored closely.

As for today, stocks finished slightly higher for the day. We have some huge bond auctions coming up here in the US this week so don't forget to keep an eye on treasuries. I took no new positions in the markets.

I continue to believe that sitting in large amounts of cash works for the shorter term because the US dollar is going to rise as the European debt crisis countinues to take it's toll on the Euro.


getyourselfconnected said...

Greece is really screwed here, they don't want to set a bad line with how they handle Greek debt, but they need to get serious before Spain blows up.

flipdippy said...

We are close, real close. The street has you where they want you - dazed and confused and starting to think maybe, just maybe things are different this time.

The only things which are different is the banks know when to go balls out short and we don't, and when the market rolls over, even the banks won't be covered as liquidity disappears faster than it did in 08 and the Fed can't step in as it has the last few years.

It's hard being in cash but patience will pay off big time with this one. If not, go buy an ipad or ten and enjoy being able to spend dollars while they are still able to buy anything.

Herb said...

The flooding in the Mississippi is going to put a snafu in more than a few oil barges and cause a few issues with refineries in LA.

Funny how the politicians just don't get it.

Jeff said...



You know it's over when they scream everything is fine.

I am afraid SPain is already toast.

I would worry about keeping France in tact at this point. the PIIGS are toast.

Jeff said...


My feelings exactly.

I have actually been spending the past few months.

Went and got a nice steak the other night and wondered how long I can continue to use paper dollars to pay for it.

Bought some clothes. Fuck it. You only live once and I have a feeling living down the road is about to become brutal to say the least.

Might as well enjoy the last few months or years of buying nice things with the USD.

Jeff said...


Oil over $104 as we speak.

No worries....Everything is just FINNNEEEEE....LOL

So much for margin increases calming down the oil market. Looks like it's having the opposite effect.

SurfCityBear said...

I look at your blog daily for some fresh comment. I like your style and point of view. I wish you could update the blog more often. A year ago this month I bailed out of the stock market and into short term treasury bills and cash (hundred doller bills in safe deposit box). I missed the run-up this past 6 months but I still believe there will be a big deflation in the near future which will blow away that run-up and much, much more. You help me stay the course and I thank you for that.

Jeff said...



I'll be back. I have been on the road a lot recently.

Stay tuned. Updates are coming.

I see dollar strength and a weakening Euro right now.

Thanks for your support:)