Well, the Fed wanted inflation…

QE2...Is it a Bounce or Bust? Surging retail gasoline prices and surging food costs! Cotton price going through the roof! Not to worry, it’s just the Fed here to help you. I do not know about the consumers, but the farmers sure love the Fed. The Wall Street Journal's lead article is, "How the Farm Belt" is bouncing back in part based on strong Asian demand as the USDA projects net farm income to climb 24% this year to 77.1 billion dollars, the fourth highest year on record. Farmers are getting about 62% more for hogs than a year ago and 32% more for milk! That means for most Americans to feed their families, costs are going up.

The cost of filling their gas tank is going up as well. Gas prices have surged at the retail level almost 20 cents a gallon since the Federal Reserve said it wants inflation. Oh sure, the French refinery strike and the improved export picture for gasoline is part of the story, but in reality the spike in gas and the timing of the spike can be traced back directly to your friends at the Fed. With friends like that, you need policy makers. Since the Fed meeting, we have seen the price of oil add over 11 dollars a barrel from peak to valley. RBOB gasoline futures went up from a low of 192 a gallon to as high as $2.20 a gallon and Heating oil hit as low as $2.1114 a gallon to a high of $2.3341 a gallon. Are you feeling the Fed's love now?

Today we are seeing signs those things may be getting ready to peak out a bit. Isn't it about time? Over night the dollar is rebounding and the euro is falling, putting pressure on oil and other commodities. Dow Jones News Wire says that the reason is that traders are taking cover ahead of the FOMC minutes released at 1 p.m. central time today. Dow says that, "Sentiment is being dominated by speculation that the FOMC minutes will show that any plans for further quantitative easing by the Federal Reserve will prove smaller than expected. If that is the case, the dollar, which reflects a much more extreme level of easing, could bounce back. One analyst reckoned that market participants had expected the Fed to increase its balance sheet by as much as $1 trillion. At the same time, however, the continued lack of intervention by Japan encouraged market participants to push the dollar lower against the yen."

Maybe the second time is the charm for China and their lust for global natural resources. CNOOC bought a 1 billion dollar chunk or 33% of Chesapeake's Energy's Eagle Ford Shale acreage in Texas. This is China's first bid for a piece of American energy since their failed bid for Unocal. Of course the politicians will have their say as shale gas and China's growth continues to change the global energy supply and demand balance. Get ready for the volatility to come back. The market has priced in QE 2, now the debate will be by how much and what impact will it have? We should start to see some good trading ranges again.

The API will be delayed until tomorrow at 330p (Central Time). The EIA Weekly Petroleum Status Report will be released on Thursday, October 14, 2010 at 10:00 A.M. (Central Time) due to the closure of the Federal Government on Monday, October 11.

Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at pflynn@pfgbest.com.

Be careful of what you wish for. The Federal Reserve wanted inflation and inflation is what they got! The Feds plan to restore activity to the economy by printing money and inspiring people to spend may have hit what you might call a reality check. While after a very weak jobs report showing that the economy lost 9,500 jobs, increasing the odds of quantitative easing, a report released simultaneously from the Department of Agriculture shows the perils of this policy. The USDA dramatically lowered its corn stocks to the lowest level in 14 years. Corn shot up to the daily price limit sending shockwaves across the grain complex and the stock market as well.

The Wall Street Journal reported that, "A steep cut to U.S. corn-harvest estimates triggered a rash of trades by investors who bet that tighter corn supplies could keep rippling through the stock market." "Analysts called the U.S. Department of Agriculture report a shocker. It shaved a record 6.7 bushels per acre from last month's corn-yield estimate, pushing the figures well below consensus expectations and stirring worries of tight supplies and higher prices."

And it was not just corn. We saw limit moves in cotton, soybeans, wheat, oats, and also sharply higher prices for energy. These sharp increases continue the sequence that will put a monkey wrench in the Feds plan to create inflation. With unemployment being as bad as it is, the Fed just increased the cost we'll all pay for heating our homes, filling up our gas tank and feeding our stomachs. Real supply tightness and the impact of quantitative easing could deal a double blow to an already struggling consumer. Still the Fed will press on with printing more money and keep their foot on the accelerator because at this point they feel that they have no other choice.

Have a great Monday in a great trading day. Remember that this week we're going to see a delay in the Department of Energy's supply report that comes out normally on Wednesday will be released Thursday. Also beware of some early closings in certain markets because of the Columbus Day holiday.

Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at pflynn@pfgbest.com.

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.


Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.

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