The January Effect!
Here it is, January 4, 2011 and we have no unfolding crisis. I mean usually about this time every year don't we normally have some type of earth shattering event that gets the year off to a panicky start? Last year the market fretted about the Dubai debt crisis and the preceding years it was the Russia-Ukraine gas disputes or some scary revelation about Iran's nuclear program that would surely lead to a conflict that would drive oil and gas prices higher.
Instead in 2011 we see oil and gas rallying on a wave of optimism as opposed to all of the New Years problems of the past. Now I am not complaining of course but it does seem a bit strange. Is it possible that 2011 is getting off to the best start in many years or are we just lucky?
Well you might not feel lucky when you pull up to the gas pump. The national average gas price hit $3.07 as rising oil prices and refinery outgases really took their toll. RBOB futures are looking tired and we should see heating oil gain on gas. We should see retail gas prices peak at close to current levels assuming that we don't have another refinery glitch.
Has the carry trade got too carried away? Bloomberg News Reports that, " Currency traders that seek profits by borrowing in nations with low interest rates to fund purchases in countries with higher yields are losing more money than at any time in at least a decade.”
The strategy lost 2.5 percent in 2010 as the dollar -- a favorite for financing the trades because of record low U.S. rates – appreciated, according to an index compiled by UBS AG, the world's second-largest foreign-exchange trader. That's more than the 0.98 percent drop in 2008 when the collapse of Lehman Brothers Holdings Inc. caused credit markets to freeze and the worst performance for so-called carry trades since at least 1999 when UBS began releasing yearly figures.
Falling demand for carry trades may help the greenback extend a rally that drove Intercontinental Exchange Inc.'s U.S. Dollar Index up 4.5 percent from its 12-month low on Nov. 4. Gains in manufacturing and retail sales are leading investors to buy the dollar, rather than sell it to fund other investments.
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 firstname.lastname@example.org.