Farrell: Yergin to Set Spec Record Straight

One of the most dangerous places to be is between a politician and a TV camera. The orgy of self-importance going on in Washington over the role of "speculators" in the energy market has caused a dangerous stampede to get on the air with vehement, if inaccurate, denunciations of the evil folk who trade in the futures market.

At least today, Wednesday, we will see a grown-up take the stand.

Daniel Yergin of Cambridge Energy will appear. In 1991, Yergin wrote the best book I have ever read about the oil industry, called "The Prize."

The New York Times highlighted what will likely be his testimony today. Yergin will say that "the rise in oil prices can be explained by basis economic factors, such as limited growth in supplies in recent years, a weakening dollar, a global surge in energy demand and a string of production disruptions in countries like Nigeria."

Nigeria is "producing one million barrels a day less than its production capacity. ...production has stagnated in places like Russia and Venezuela and is even plunging in places like Mexico. All these factors have left the global oil industry with little capacity to boost supplies."

Not that this will be heard by those in the heat of the blame game, but it's nice to know it will be said.

Reading The Fed

The Fed won't lower rates today, they won't raise rates, and, as has been said too many times, the statement accompanying the decision is potentially important.

If the Fed says something like there are upside risks to inflation (my view), then the inclination would be to raise rates sometime soon. They will probably more or less repeat the statement of April 30 -- when they avoided talking about risk at all.

Bank Stock Rally?

Bank stocks are in the second day of a bit of a rally. It could be biorhythms, a short sale cover rally, or it could be a recognition that the yield differential between the short interest rates and longer maturity interest rates is positive.

My friend Dennis Gartman, of The Gartman Letter (well worth the subscription price), says a "positively sloped yield curve makes geniuses out of banking lending idiocy."

The two-year Treasury is trading at a yield of 2.89 percent, and the ten year is trading at 4.13 percent for a difference of 1.24 percent. That is for government debt, but is illustrative of the type of spread that could allow banks to borrow cheaply and lend at higher rates and start to repair their earnings outlook.

Or, this could be just a "dead cat bounce" as the saying goes (nice image) and the banks will soon roll over again.