Farrell: Ok With Me If Events Lower Oil And Strengthen Dollar
Chief Investment Officer, Soleil Securities
I would like to think that the Wells Fargo news (a dividend increase !) would be enough to change the market sentiment, but we have a lot more bank earnings to get through this week before we can breath easier. Sure is nice for the moment though.
What is also nice is oil is off again, and, at this moment, off a lot. The news around the world should sell oil off. A large Spanish construction company went bankrupt highlighting that countries growing economic troubles. Germany's previously robust manufacturing business is slowing appreciably. French consumer spending has hit a wall and it looks like Europe is headed for, as the WSJ says, "a hard landing and perhaps recession." Ben's gloomy assessment of US economic prospects and the fact that emerging economies are raising rates to curb inflation all add up to a slowing world wide economy and a fall in the demand for oil.
US fuel inventories announced today surprised with builds across all categories - crude, gasoline and heating oil (distillates.) Wilbur Ross, a famed contrarian investor, put $80 million into an Indian airline and said high oil prices have hit bubble territory and that he's "looking at everything that has been hurt by fuel."
My pal John Kilduff of MF Global noted in his daily that William Burns, Undersecretary of State for Political Affairs, is to meet this weekend with Iran's nuclear negotiator. Kilduff thinks this is "the most significant US diplomatic contact since the 1979 Iranian revolution and represents a dramatic shift in US foreign policy." No guarantees, but a successful meeting could go towards reducing the geopolitical risk premium in oil.
The CPI (Consumer Price Index) announced todaycarried the same sort of discouraging headline the PPI did yesterday. The CPI soared 1.1%, a 5% annual increase, fueled by a 10% gain for gasoline. The core rate advanced 2.4% year over year. So much of the increase is about energy. Yesterday's PPI showed the crude oil component up 45% the last year. But lower the price of oil and these headline numbers will start to drift towards the core rates.
I have been hoping for our administration to take actions to defend the dollar, thus lowering oil prices. It's ok with me if events conspire to lower oil and thus increase the value of the dollar. _______________________________________