Bernanke's a Prince but what about tomorrow?

Party like its 1929

I was dreaming' when I wrote this. Forgive me if it goes astray, but when I woke up this mornin', could sworn it was judgment day. The sky was all purple, there were bulls running' everywhere. Trying' to run from the destruction, you know they didn't even care. 'Cuz they say the QE2 billion zeros printed party started, oops out of time! So tonight I'm gonna party like it's 1929. I was dreaming' when I wrote this, the markets ran so fast, but commodities are just a party, and parties weren't meant to last, there is danger all around us, my mind says prepare fly, but for now we must enjoy it and party like its 1929. Yeah, everybody's got a printing press and we could all die any day. But before I'll let that happen, I'll dance my life away. So tonight we gonna, we gonna (Tonight I'm gonna party like it's 1929) Say it 1 more time
Two trillion dollars printed. Oops out of time. No, no. So tonight we gonna, we gonna (Tonight I'm gonna party like it's 1929).


Let's get this party started! The Fed is coming out so let’s get this party stared! Forget about the Fed taking away the punch bowl, let’s face it they are trying to get everybody drunk and wow what a party! Remember when the Fed thought that irrational exuberance was a bad thing? With QE2 they want to get us woozy and keep us feeling that way. Of course sometimes when you are drunk you kind of forget about the consequences of the hangover when you wake in the morning. Stocks hit two year high the highest level since Lehman brothers went belly up. Gold hit a record high! Oil is at the highest level since April! Silver soars! Beans trying for the teens! Forget about tomorrow, live for today and just keep drinking and don’t worry about the consequences. Just as long as we don’t have to wake up. Hyper Inflation! Forget about it! Struggling consumers racked with unemployment and food and energy bills! Who cares! How about deflation in Europe and the possibility of sovereign debt imploding? Phooey! It’s a party and everyone is happy so hey you get off of my cloud! Don’t bring me down!

Well maybe not everyone is happy! In fact across the globe others are very concerned that the Fed has just gone way too far. Who are these party poopers? Well China, Brazil as expected and Germany, the strongest economy in Europe. All three of those countries criticized the Fed's deed. Asian central banks are getting prepared for a flood of capital that may distort their thinly traded markets. Inflation will soar in Asia and raises risks of baubles bursting or other imbalances in their economies. Many developing countries will be forced to raise interest rates to head off skyrocketing prices.

China was very vocal saying that the Fed action could spark a new global financial crisis. Chinese Vice-Foreign Minister Cui Tiankai said, “The latest quantitative easing measures by the U.S. have triggered concerns among many other countries. The U.S. should give an appropriate explanation to avoid hurting world economic recovery confidence. Many countries are concerned about the Federal Reserve's decision, and about the impact that the $600 billion easing program will have on the financial stability of other countries. As the issuing country of the main reserve currency, the U.S. should be responsible on this issue." People's Bank of China Governor Zhou Xiaochuan said that the Federal Reserve's decision was an understandable one, but one that may not be good for the world.

Brazil is warning that the Fed printing excesses will lead to an outright currency war. The Financial Times reported that Brazilian finance minister Guido Mantega says that, “everyone wants the economy to recover, but it does no good at all to just throw dollars from a helicopter.” The FT Also reports that South Korea is taking steps to prevent excess speculation. The Fed has taken its problem and now it is the developing world’s problem. They wanted growth well they are going to get growth. China currency manipulator that they are is starting to reap what they have sowen.

For oil though, despite hitting highs not seen since April, was somewhat restrained due to ample supply. Oil is still in its year long trading range and even the Fed's drastic action still has not changed that. As far as the products go, the EIA said that while U.S. gasoline inventories remain at relatively high levels, stocks have fallen in five out of the last six weeks, largely driven by a sharp and continuous decline on the East Coast over the same period. The EIA says that the gasoline supply situation was affected by factors on both sides of the Atlantic. Planned domestic refinery outages on the East Coast were higher than average in September and October and there was reduced availability of imports from Europe and Canada, which provide a significant share of East Coast gas. Gasoline imports to the East Coast were affected by routine maintenance at the 300,000-barrel-per-day Irving St. John refinery in Canada, as well as strikes at refineries and ports in France that began in September and peaked during October.

French refineries have the combined capacity to process up to 2 million barrels per day of crude oil, and industry estimates have put lost French production during the strikes as high as 540,000 barrels per day of distillate fuel and 300,000 barrels per day of gasoline. Typically, Europe is a major source of gasoline to the U.S. East Coast. However, some gasoline volumes from other parts of Europe were diverted to France, and that has been reflected in lower European exports to the United States during September and October. In response to East Coast supply tightness, gasoline spot prices in New York Harbor have shown more price pressure than the U.S. Gulf Coast. Typically, New York Harbor conventional gasoline prices run 2-4¢ per gallon higher than Gulf Coast levels. By mid-October, however, the spread had widened to 9-12¢ per gallon, indicating modest, incremental price pressure of about 5-10¢ per gallon. Gasoline prices also rose more quickly than heating oil prices in the first 3 weeks of October, counter to typical seasonal patterns. Seasonal low demand, ample inventories, and adequate capacity buffered the East Coast from even sharper price effects.

One market that was subdued was natural gas. Joe Silha at Reuters reports that U.S. natural gas inventory levels climbed last week to record highs for this time of year, the Energy Information Administration said on Thursday, as mild autumn weather allowed companies to pick up the pace of builds ahead of the winter heating season. EIA data showed total domestic gas inventories rose last week by 67 billion cubic feet to 3.821 trillion cubic feet, 37 billion cubic feet above last year's record high for that week and just 16 billion cubic feet below last year's all-time high of 3.837 trillion cubic feet hit in late November.

We have been telling you about what impact QE2 could have on the commodities markets for some time. Did you take advantage of it? Well it is probably time to finally open that account.

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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