Something to Believe In
Oil price plunge as inflation rises in China and the global markets are trying to find something to believe in. Fear is at a premium as the VIX index continues to soar and men put their trust in their gold as the lack of leadership from Washington is played out in dramatic fashion. Instead of solutions we are getting slogans. The newest is calling the US downgrade from S&P the "Tea Party." Sort of like “Change you can believe in.”
President Obama failed to create confidence with a pathetic speech that just seeks to assign blame to others as opposed to making plans to fix the problems. The markets realize we are on a rudderless ship and that is why the markets are getting violently swayed by the wind. The government once again is going to have to rely on the Fed. Other than QE3D, what might the fed do to restore confidence? Well come on baby, let's do the twist.
The New York Times wrote in 2009 "A project, started in 1961, called ‘Operation Twist’ was intended to lower long-term interest rates (to stimulate investment) while propping up short-term interest rates (to attract capital from abroad and support the dollar). Economists generally seem to think the experiment flopped, though Fed policy has changed so much between then and now, and the experiment was on such a small scale, that it’s hard to draw too many conclusions on how a second ‘Operation Twist’ would fare today."
In other words, the Fed would try to invert the yield curve by buying the long-end yields and driving up.
China inflation numbers actually seemed to give the market a bit of a short-term lift but at the same time is a double edged seaward. On one hand, inflation shows signs of economic life but at the sometime may reduce the chances of more stimulus from the Chinese government.
Reuters News reported that "China's industrial output grew at a slower pace in July while inflation unexpectedly quickened, putting the central bank in a bind as it tries to keep prices in check without dragging down an economy facing increasing threats from abroad. Industrial production rose 14% from a year earlier, a strong showing but shy of the 14.6% rate that economists polled by Reuters had predicted and slower than June's 15.1% jump. Annual inflation inched up to 6.5%, its highest mark since June 2008, when global oil prices were soaring toward a record high. Economists had expected a dip to 6.3%, after June's reading of 6.4%.”
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.