Just Because it Won't Solve The Problem
Just because it won't solve the problem does not mean it isn't bullish. Yesterday when I was singing that Ben Bernanke is coming to town and that you better not pout and you better not cry, you better be long I am telling you why, some called me to say that the Fed's action to flood the European Banks with cheap dollars won't solve the problem. Well my answer is I don't care. Of course I mean that in the trading sense, not in the sense that I don't care about the fate of the European banks and the global economy. I mean in the trading sense that whether the move solves the problem or not, or buys Europe more time, it is just very bullish for commodities. Kind of like in the movie “The Fugitive” when Tommy Lee Jones is in hot pursuit of Harrison Ford and his Dr. Richard Kimball character says earnestly that he did not kill his wife and Tommy Lee Jones character says, "I don't care." In other words, his job was not to judge whether or not the fugitive was guilty, only to get him back in custody. So what I am saying is that whether it helps the situation or not, the act of cutting the lending rate to US dollars and swaps devalues the dollar thereby driving commodities higher.
So I'll be long till Christmas, you can count on me! Please rise slow, so I can make some dough and put money under my tree! Well before visions of profits dance in my head we still have to get through today's jobs report. Expectations are rising as they should be as US economic data is showing that the US economy is picking up steam. Reuters News reports, "U.S. employment growth likely picked up speed in November, but the pace is not expected to be quick enough to bring down the country's 9 percent jobless rate. Nonfarm payrolls likely increased by 122,000 last month, according to a survey, which would outpace October's 80,000."
Now the jobs number to shake the bullish commodity momentum will really have to be lousy. Real lousy. Because if we are just a little bit lousy the commodity markets might already start pricing in another round of Quantitative Easing. If we are too strong, well then the market will focus on increasing demand. I think it is going to be hard to change the bull trend but that does not mean that we could not see some wide swings in the market.
At the same time global tensions are rising. I agree with Bloomberg News that said the EU 'Wimped Out" when it came to placing sanctions on Iran. Bloomberg said, "Who would have thought a week in which protesters rampaged through the U.K. Embassy in Tehran would end with Europe going soft on the Iranian regime? Yet that’s exactly what happened. At a meeting Dec. 1 in Brussels, European Union foreign ministers signed off on measures against some 180 individuals and companies in reaction to Iran’s continued support for terrorism and an International Atomic Energy Agency report finding that Iran had conducted secret activities ‘specific to nuclear weapons.’” This was expected and deserves a positive response (as do new penalties the ministers announced against Syria). The real news, however, was what the EU didn’t do: Announce an agreement, proposed by France and backed by the U.K., Germany and the Netherlands, to proceed with a full embargo on imports of Iranian oil. Instead, Catherine Ashton, the EU foreign policy chief, said that any consideration of steps against Iran’s energy sector would go “to the technical experts.” There are two main arguments against a European embargo: It would disproportionately harm the EU’s weakest economies, such as Spain and Greece, and Iran would simply ferret out other markets if Europe is shut off. Both are valid points but unpersuasive. An embargo on Iranian crude would doubtless put pressure on oil prices in Europe. Greece has recently stepped up its purchases of Iranian oil because other suppliers are leery of the country’s credit risk; shaky Spain and Italy use much more of it than say, France. Still, Iran accounts for only 5.7 percent of Europe’s oil imports.
And oil is a global commodity, with European prices affected by any number of variables. For example, the Nov. 30 move by the Fed and other central banks to ease borrowing costs for financial firms drove Brent crude prices to a two-week high. Should the banks’ move have been rejected over Greece’s oil concerns?