The Incredibly Clumsy Hands of Government

Great. The Fed is riding to the rescue of the banking sector once again.

This is not the first time we've seen this. The Fed helped pull out Bear Stearns from the jaws of bankruptcy a couple of months ago. And now it is providing the investment banks with more emergency cash and loans.

Do these banks deserve the largesse of the government? NO! They've been incredibly reckless in how they've managed risk and generated past revenues.

Can the government afford to give the banks these loans? NO! The government deficit is completely out of control. But the current administration doesn't care. It'll be the problem of the incoming President.

And who pays for the government's generosity? We do, of course. The rich get richer and ordinary tax payer pays more.

But what chews me up is that the government is once again interfering with the stock market. The S&P financial sector was up 2% yesterday. Yet, the balance sheets of most financials still look like crap.

I have a bet that a certain bank's shares will drop. It deserves to. It just cut dividends and it's losing money. But because the government decided to stick its nose into the private sector yesterday, the bet turned bad on me ... at least temporarily.

And I have Uncle Sam to thank .. as in thanks for nothing.

Great. The Fed is riding to the rescue of the banking sector ... YET AGAIN.

Oil Prices Not Done Moving Up

Has the oil bubble burst? Prices have fallen almost 10 percent from a high of over $147 last Friday. This morning crude is trading just north of $134. What happened?

The dollar has had a couple of decent days. But it’s more than that. At least for a couple of days, the fear that U.S. economic problems will leak into Asia has spiked. The fact that European growth is also being taken down a notch or two doesn’t help.

So take a deep breath. China’s economy is still registering double-digit growth. There are no signs of oil inventory buildups in Asia. The global growth story is still intact.

And we’re reminded (yet again!) this morning how vulnerable crude supply is. The oil strike in Brazil continues. Brazil produces 1.8 million barrels per day. And the strike is disrupting production at its biggest offshore field – the Campos Basin.

What new disruption will there be tomorrow? Who knows? But given recent history, it’ll be something.

Continued global economic growth and an uncertain crude supply will keep oil prices high. The busting of the oil bubble will have to wait.

Batten Down the Hatches for Inflationary Storm

Oil rose for the third straight day as of yesterday. And this morning crude is again up -- posting a 0.4 percent rise.

But yesterday was a rare occurrence. Not that crude rose. That is happening quite often these days. But that it rose at the same time that the dollar strengthened.

This is the parting of the ways that I've been looking for: oil and the dollar no longer going in opposite directions. Since the beginning of the year, crude has mostly gone up on dollar weakness.

Now I understand that one day does not make for a pattern. For this trend to establish itself, the dollar has to rally... like it did from March to mid-May.If it does and that's a big "IF" (the dollar is finding support at its 100-day moving average, so there's hope), I would still expect crude's price to go up.

Supply and demand in the oil patch are so out of sync that crude doesn't need dollar weakness anymore to go up in price.

Super-expensive oil and gas ... the (coming)soaring price of steel ... Dow Chemical raising their price up to 25 percent in July ...

These aren't merely inflationary winds. It's a dern hurricane. And it's heading our way.

All Eyes on Jeddah

Don't tell me this was the meeting that was going to turn the oil market around? Make crude shortages disappear ... put the fear into Nigerian "freedom fighters" ... get the piggish West to cut back on their outsized oil-consuming habits ... and get OPEC to reveal (and use) their heretofore hidden spare capacity to make more crude?

What could have they been thinking?

Saudi Arabia promised to up production by 200,000 barrels a day. Big deal. That was plastered all over the news before Sunday's meeting.

The West promised to think about trying to do more in alternative energy. Yes, it was just about that vague.

Even vaguer? Statements on the West cracking down on speculators.

So there was a lot of talking past each other Sunday. No big announcements. No revelations. No meeting of the eye. No coming together right now over oil.

Jedah gave us vague and vaguer. As a result, oil prices will go from high to higher.

Oil’s Race to the Bottom

Appeared on Fox News this morning ... very early ... as in 6:10. Gulped down a cup of Java that seemed to clear my head. Then I gave viewers my take on the International Energy Agency’s report yesterday.

I said that it’s a race to the bottom. What trend is getting worse faster – crude supply or crude demand? Crude supply is winning by a mile. Non-OPEC production is going down by 300,000 barrels per day. Yikes! Global crude consumption is slipping a mere 70,000 barrels per day. That’s nothing.

What does it mean? Oil prices aren’t through rising.

Oil’s One-Track Mind

What don’t you get about oil? You can pretty much count on it following the price of the dollar these days. The dollar goes up, oil prices go down. The dollar goes down, oil prices go up. Yesterday, the dollar went up...

So, obediently, oil prices dipped below $132. The market turned a deaf ear to news of an attack on a Nigerian oil security ship. It should have popped the price a bit but it didn’t.

The market also turned a deaf ear to a report by the Paris-based International Energy Agency that global demand for crude was stabilizing but that supply was decreasing by several hundred thousand barrels a day. In other words, the supply-demand imbalance is getting worse. That should have spiked prices but it didn’t.

The energy bill got voted down yesterday. So the government is offering no answers to increasing energy prices. That helps lock in the status quo, don’t you think? And the status quo – right now – favors oil prices going higher (at least in the short term). That should have given oil prices a boost but it didn’t.

Nope. Oil just followed the price of the dollar. The dollar went up yesterday and oil went down. That simple. End of story.