Monday June 19, 2006 - 10:07:05 GMT
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No clarity yet...
â€śItâ€™s been lonely, and Iâ€™ve had to endure a certain amount of ridicule, but I now have a friend. Lord Browne, the BP chief executive, told the German magazine Der Spiegel last week that in the medium term oil prices will drop to $40 a barrel, and could fall further, to between $25 and $30. It has long been my view that when the current spike in oil prices subsided, prices would drop to $40.â€ť
David Smith, TimesOnline
Maybe it ainâ€™t overâ€”the selling in global markets that isâ€¦Stocks are lower, metals are lower, and the dollar is higher this morning.
The dollar is benefiting, we believe, from:
â€˘ Interest rate coverage provided by overzealous inflation concerns/expectations (and/or implicit central bank targeting of asset bubbles)
But, the dollar could eventually have problems if Mr. Bernanke goes too farâ€¦
â€śThe Fed's policy options are limited. Since Bernanke was appointed Fed chairman in October, he has lost a lot of credibility. In November the price of gold was $480. It subsequently topped $720, and is now $620. [Gold fell to $580 after our conversation.] Commodity prices went up sharply, the dollar went down and bond prices sold off, reflecting concern in the investment community that he is a money printer. The economy probably already is significantly weaker than the statistics would show, particularly housing.
â€śBernanke could either keep increasing rates, which would support the dollar and lead to a bond-market rally and further stock weakness. Or he could recognize the economy is weakening, and pause or begin to cut interest rates. In that case, the stock market might have a modest recovery, but the dollar would get hit hard,â€ť says Marc Faber, quoted in Barronâ€™s today.
Itâ€™s all about as clear a mud. And given that Mr. Bernanke is supposedly still sucking up data before making a decision, the macro environment could remain cloudy for a whileâ€¦
â€śIt's going to be ugly until a clear macro environment emerges -- that is, until Mr. Bernanke has enough hard data on what's going on to make clear what he should do next. I recently met him, and there is nothing unclear about this man. People are confusing his clarity with their uncertainty. Bernanke is focused on the risk of long-term inflation. You can measure the fact that steel prices are back up to $650 a ton, world growth is continuing and energy prices are staying sticky high. Bernanke is a very data-driven man, and he's looking at tons of data on the housing market, 10 or 15 different indicators. The rest of us can have flights of fancy about what's going on, but he's handling this as a serious policy-maker should. He's not going to ease until the data say the housing market and economy are weak. Could he do it wrong? Sure, but to say he's unclear about what he's doing is nonsense. Until the data show clarity, we're going to have one cruddy market,â€ť comments Art Samberg, in Barronâ€™s.
If we continue to muddle and stocks and metals continue to work lower, we have to be open to the idea the dollar will continues its climb of the worry wall despite the obvious warts within the US economy.
US$ Index Weekly testing trend line resistance:
Jack Crooks, Black Swan Capital
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