Anyone who has read my blog for some time, knows that I am bullish on oil over the next 12-24 months. I recommended purchasing oil in the 50s and low 60s . I still like it over that period, but think it ran up a bit too fast. Rex Tillerson, CEO of Exxon said on 6/16/09 The recent rise in oil prices is mainly caused by the weak dollar and not supported by market fundamentals. “When you look at just fundamentals, there’s not a lot to support this kind of price movement we have seen…in the last six weeks…Concerns about a weakening dollar and coming inflation have led some investors to bet on an economic recovery and try to get ahead of a rally.”
Source: Rex Tillerson, Exxon CEO statements made at a gas conference the Dutch city of Groningen.
My Comments: Merkel has been critical of central bank actions for some time. The independence of the Federal Reserve specifically is very suspect to me. Merkel was on the record saying “I view with great skepticism what authority the Fed has and the leeway the Bank of England has created for itself,” Merkel said in a speech in Berlin. “We have to return jointly to more independent central bank policies.” Stricter monetary policy isn’t politically acceptable, even when it’s the right thing to do. Merkel has called for tighter monetary policy (from foreign and the German central bank). Merkel apparently was awake on the day they taught about German’s inflation problems of the past.
Take a look at these two pretty good articles by Bloomberg and old faithful the Wall Street Journal.
My Comments: In Germany you can now buy gold out of vending machines in the subway. Gold is a funny asset that many people believe is the only real hedge against inflation. The problem is you will always need willing buyers and sellers and during panics it usually goes up and during periods of normalcy everyone forgets about it. It is the wrong asset to buy and hold for decades, but can provide some diversification benefits during periods of uncertainty.
My Comment: As market observers we have to wonder how much of the jobless losses is factored into the economic data that is coming out. I saw a statistic that for every 6-10 jobs lost adds up to one more foreclosure. Also, the recently announced car dealership closings will have a serious negative impact on the jobs numbers. It feels like the “crisis” may be over, but the economic pain may have a ways to go. We may be in for a long recovery, if measured by jobs, home prices or wages.
Nobel laureate economist Paul Krugman says financial markets have overestimated economic strength in their recent rallies. Continue reading
The recent run-up in stocks have some investors wondering if municipal bond buyers rotate into stocks. On balance, I don’t think so. Granted, some investors used muni bonds as a “safe haven” while the stock markets declined, however, most muni bond buyers are long term buyers. Munis remain attractive for the following reasons:
Personal income tax rate outlook (Taxes are going up)
Perceived level of safety (Lower volatility than stocks)
Competitive tax equivalent yields
Not as interest rate sensitive as some other types of bonds
Historically low default rates
We refused to touch credit default swaps. It would be like buying insurance on the Titanic from someone on the Titanic.
My Comment: I’m sick of hearing about bank stress tests. It’s a joke and the Government has mismanaged this from the beginning. First the Government couldn’t decide if they were going to publish the results. Now, they say they will publish the results and that no bank will fail the test. So is this a case of participation alone gets you a gold star? The public and investors are supposed to feel good about a transparent “stress test” that no bank fails.
In my opinion, the results should not be published. The Government will have the ability to pick and choose which banks win and lose from the stress test, by publishing which banks are healthy than the others. Another potential problem is how much data is the Government going to release; just the score or a detailed report. If the release is skinny on details, I suspect investors will view this as a bad sign, because the government is trying to hide just how bad the results are.
Bank bailout plan’s ‘stress tests’ already causing stress