By Money Matters Editors
What’s the most perplexing market in the world? Well, a strong case can be made that it’s the oil market.
The oil market’s fundamentals – primarily high inventories - argue that the price should be considerably lower, perhaps as low as $40-45 per barrel, and yet, oil’s price hangs in the $70-range. What’s going on here?
Some assert that market speculation - institutional investors who establish positions in oil not for industrial reasons, but simply as an investment - are keeping oil’s price artificially high, or above where it would be based on supply/demand fundamentals. Net long positions did increase in the past week to more than 16,800 contracts - a period when oil briefly neared $75 per barrel - according to the Commodity Futures Trading Commission, marketwatch.com reported Monday.
Can oil bulls keep crude’s price high?
Still, it remains to be seen whether the oil bulls, including speculative longs, can keep oil near $70 amid plentiful supplies and slack demand. On the former, oil storage facilities on land have started to run out of room, so oil holders are storing oil in super tankers at sea. On the latter, slack demand in the U.S., due to more than 6.8 million job lay-offs since the recession started, and modest demand increases in emerging markets, have been unable to prevent supplies from building.
This fall, the U.S. Congress is expected to again take up the issue of the role speculation plays in the price of oil futures, including considering proposals to limit speculative positions by increasing margin requirements, or by capping the number of positions an institution/trader can hold, and certainly if oil remains at its current lofty price, there will likely be increased pressure to investigate market participants who trade the world’s most important commodity.
On the other hand, if oil’s price corrects back to $40-50 per barrel, the pressure on Congress to investigate may lessen. Where’s oil headed from here? If emerging market GDP growth in Q3 meets/exceeds expectations, that will keep oil at/near its current price, about $65-70.
However, if any signs of lower-than-expected Q3 GDP growth in Asia, especially China, appear, that will bring the oil bears out in force, and oil will likely drift back toward the $50-range heading into the end of the year.
Monday, August 31, 2009
Should Bernanke have been re-nominated as Fed Chairman?
By Money Matters Editors
Should President Barack Obama (D-Illinois) have re-nominate Ben Bernanke as chairman of the U.S. Federal Reserve?
Ask three economists and you’re likely to get three different answers. From political and public policy standpoints, the decision to re-nominate Bernanke was not a slam-dunk. But the more-important values of expertise, performance, and continuity have won out, and that represents a victory for investors, and for American taxpayers. Here’s why:
History has a way of placing the right person in the right position at an appropriate time, and that’s been the case with Bernanke. A Princeton economist who has spent a lifetime studying the Federal Reserve’s responses, successes, and failures during the last global financial crisis, the Great Depression, little did Bernanke - or policy makers, for that matter - know that his academic specialization would prove to be invaluable preparation for world’s second, major credit trauma, the current financial crisis. Perhaps more than anyone, Bernanke has a keen grasp of the 1930s Fed’s mistakes and monetary tools that did work during that crisis. This time, backed by an army of Fed economists and researchers, and via accessing Bernanke’s knowledge, the Fed has been able to steer a path to financial stabilization.
First hurdle cleared
And that’s the main reason for Bernanke’s re-nomination: we’re not out of woods yet - far from it - regarding the credit crunch, but U.S. banking system and the global financial system has not collapsed and has been maintained. That may not seem like much to investors, but based on where we were a year ago, in September 2008, that’s an awful lot. There have been mistakes - the decision not to, at minimum, stabilize Lehman Brothers was perhaps the biggest - but the Fed, in conjunction with other, major central banks, including the European Central Bank, Bank of England, Bank of Japan, has move adeptly to provide essential liquidity to credit markets, especially commercial paper, to keep the lifeblood of commerce - capital - flowing. To be sure, small/medium sized businesses still aren’t able to borrow enough capital to expand their operations, but the Fed’s liquidity interventions and term auction facilities have maintained bond market and broader credit market liquidity. Again, that may not seem like much, but it is an enormous achievement. Consider this: a half-year ago the industrial giant General Electric (GE) was having trouble accessing short-term capital in the commercial paper market.
True, Bernanke’s actions have not been without blemishes. Some have argued that the Fed has been too forth-coming with liquidity, or too accommodative, and that will lead to rising U.S. inflation in the quarters ahead, and some are calling for an immediate decrease of that monetary flow. But given the scope of the liquidity crunch - and historical precedent - one can understand why the Fed would rather err on the side of too much liquidity than too little.
A second criticism concerns the $700 billion Troubled Asset Relief Program (TARP), the bank bailout, and whether the U.S. taxpayer will be repaid in full, but that is more-properly an issue for the U.S. Congress. As of this juncture, it’s an open question whether the government will be able to obtain even 60-70% of its invested money back, and much will hinge on how the U.S./global recoveries affect the value of distressed assets.
But one thing is certain: the U.S. and global financial systems are healing. As noted, much work remains to free-up more credit for businesses and individuals, and it’s unlikely credit markets will ever be ‘normal’ in a pre-financial crisis sense (numerous structural and regulatory changes will occur), but the flow of capital and the modern banking system that’s essential to commerce has been maintained. The first hurdle of the financial crisis - avoiding a degeneration into the barter system - has been mounted, and Chairman Bernanke is a key reason investors and economists can concentrate on the second hurdle.
Should President Barack Obama (D-Illinois) have re-nominate Ben Bernanke as chairman of the U.S. Federal Reserve?
Ask three economists and you’re likely to get three different answers. From political and public policy standpoints, the decision to re-nominate Bernanke was not a slam-dunk. But the more-important values of expertise, performance, and continuity have won out, and that represents a victory for investors, and for American taxpayers. Here’s why:
History has a way of placing the right person in the right position at an appropriate time, and that’s been the case with Bernanke. A Princeton economist who has spent a lifetime studying the Federal Reserve’s responses, successes, and failures during the last global financial crisis, the Great Depression, little did Bernanke - or policy makers, for that matter - know that his academic specialization would prove to be invaluable preparation for world’s second, major credit trauma, the current financial crisis. Perhaps more than anyone, Bernanke has a keen grasp of the 1930s Fed’s mistakes and monetary tools that did work during that crisis. This time, backed by an army of Fed economists and researchers, and via accessing Bernanke’s knowledge, the Fed has been able to steer a path to financial stabilization.
First hurdle cleared
And that’s the main reason for Bernanke’s re-nomination: we’re not out of woods yet - far from it - regarding the credit crunch, but U.S. banking system and the global financial system has not collapsed and has been maintained. That may not seem like much to investors, but based on where we were a year ago, in September 2008, that’s an awful lot. There have been mistakes - the decision not to, at minimum, stabilize Lehman Brothers was perhaps the biggest - but the Fed, in conjunction with other, major central banks, including the European Central Bank, Bank of England, Bank of Japan, has move adeptly to provide essential liquidity to credit markets, especially commercial paper, to keep the lifeblood of commerce - capital - flowing. To be sure, small/medium sized businesses still aren’t able to borrow enough capital to expand their operations, but the Fed’s liquidity interventions and term auction facilities have maintained bond market and broader credit market liquidity. Again, that may not seem like much, but it is an enormous achievement. Consider this: a half-year ago the industrial giant General Electric (GE) was having trouble accessing short-term capital in the commercial paper market.
True, Bernanke’s actions have not been without blemishes. Some have argued that the Fed has been too forth-coming with liquidity, or too accommodative, and that will lead to rising U.S. inflation in the quarters ahead, and some are calling for an immediate decrease of that monetary flow. But given the scope of the liquidity crunch - and historical precedent - one can understand why the Fed would rather err on the side of too much liquidity than too little.
A second criticism concerns the $700 billion Troubled Asset Relief Program (TARP), the bank bailout, and whether the U.S. taxpayer will be repaid in full, but that is more-properly an issue for the U.S. Congress. As of this juncture, it’s an open question whether the government will be able to obtain even 60-70% of its invested money back, and much will hinge on how the U.S./global recoveries affect the value of distressed assets.
But one thing is certain: the U.S. and global financial systems are healing. As noted, much work remains to free-up more credit for businesses and individuals, and it’s unlikely credit markets will ever be ‘normal’ in a pre-financial crisis sense (numerous structural and regulatory changes will occur), but the flow of capital and the modern banking system that’s essential to commerce has been maintained. The first hurdle of the financial crisis - avoiding a degeneration into the barter system - has been mounted, and Chairman Bernanke is a key reason investors and economists can concentrate on the second hurdle.
Sunday, August 30, 2009
Welcome to Money Matters
By Money Matters Editors
Welcome to Money Matters, a web site about stocks, sectors, investing, macroeconomics, and more. Our focus is on the markets and the economy, but really, if it’s about money, it’s fair game here. We offer independent news, analysis, commentary, and research to help you, the investor, make more-informed investing decisions.
Welcome to Money Matters, a web site about stocks, sectors, investing, macroeconomics, and more. Our focus is on the markets and the economy, but really, if it’s about money, it’s fair game here. We offer independent news, analysis, commentary, and research to help you, the investor, make more-informed investing decisions.
Further, because our focus is on you, the investor, we want to hear from you to make our service better. Please offer your thoughtful comments in the comments section provided.
Money Matters has assembled a team of experienced reporters, analysts, columnists, and economists with one goal in mind: to help you navigate through these challenging times.
Our Stock Reviews by our stock analysts are based on an independent, proprietary stock investment formula, and is not affiliated with any bank, brokerage, or research service. If you’re looking for a stock to invest in, low risk to high risk, be sure to check out our Stock Reviews.
Thank you for reading Money Matters, and visit us again soon.
-Money Matters Editors
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