Another one bites the dust

Fed Governor Mishkin-a close confidant of Bernanke- has resigned. That leaves only 4 Fed Governors since Senator Dodd is in stall tactic mode to get Democratic supporters nominated for the FED. This could become a problem, especially if the need arises for 'emergency Fed action'. If Bernanke is as good as the financial media say he is, then why is his closest confidante leaving? Way to help out your friend. It smels like Bernanke has sold his soul to the bankers-just like Greenspan-and is about to emabark on another bubble blowing mission.

What is happening?

The world is in flux once again. The US inflation trade is running out of steam as the media is in an all out blitz to heap praise onto Bernanke for his bold action in responding to the subprime problem. Financial executives are all over the media talking about the end of the sub prime credit issue. On that point, I could agree that subprime has largely been accounted for, but the full effect of the subprime issue has yet to pass through the economy. In addition, the next leg in the credit down cycle is about to hit-starting in Oct.-that being Alt-A ARMS. This section of the mtg mkt is just as big and expectations are not built in for the train coming down the track.

Oil Supply Peak

Taking the supply peak further, what does that mean. Recently their has been talk of oil pushing the 3rd standard deviation from its 200 dma and hence on a statisitical basis, it should correct to at least 1 std dev. In addition, the oil/gold ratio was pushing multi year lows. However, as with the great sub prime model, everything works fine until one of the variables becomes in accurate. The concept of supply peaking is going to result in all sorts of model distortions.

Oil Prices-why the 20$ move

As always the news is now out why the back dated oil contracts have outperformed the near contracts. The IEA has drastically cut its supply forecast for oil. Instead of forecasting 116mm barrels a day in 2030 of supply, it is now only forecasting 100mm. Matt Simmons seems to be vindicated. What does that mean for the various equities. Oil service stocks strangely ehough may suffer as the current producers who have in the past rushed to produce as much as possible, may now actually curtail spending as the resources they seek are finite. Oil is not an ipod. Hence, rationing supply in a tight mkt is what a long term mgr may consider. Alternative energy stocks should benefit as would coal. If the amount of energy to be supplied by oil declines, the slack will be taken up by other forms of energy-solar, wind, nuclear, geo thermal, etc.

Recent oil spike has claimed more victims-namely the airlines and truckers. Airlines are based on a terrible model-they will merge to make a giant money losing business as opposed to several money loing businesses.

Oil Prices

Nothing but commentary on 134$ oil this morning. All the signs of a short term top in place. Main evidence is an underperformance of the oil/energy shares vs the underlying commodity. I suspect the oil chart is going to resemble the gold chart from March 20 to May 8-a quick 15-20% drop. The only evidence of a top not being in is that everybody is calling a top. Talk of oil bubbles and commodity bubbles usually do not occur at turning points. This could be like the Nasdaq in 1998 where the top callers were right for 6 weeks only to watch the index rocket higher 50% into Jan. 2000. Plenty of shorts in oil and maybe the squeeze runs until it is not just overbought, but ridiculously overbot.

Ron Rosen Comments

Ron has an interesting commentary today:
http://www.kitco.com/ind/rosen/may212008.html

The comparison of the 1978 to 1981 period of rapidly rising commodity prices to the present ramping up of commodity prices. In short he predicts a top in gold and silver in the first qtr of 2009 (Feb 18/09 for gold, Jan. 14/09 for silver) . In terms of equities he is anticipating a March 2009. He looks for low below the 2002 level in the SP500. The quarterly MACD has turned negative and that does not happen often-a longer term early warning sign. Selling rallies is probably the correct strategy and buying only oversold dips.

Moody's- You have to be kidding

There is a story circulating that Moody's has 'discovered' a computer glitch that incorrectly rated some debt securities-most likely CDOs got rated AAA. You have got to be kidding. That mismarking of debt securities was due to payola from the Wall Cheat rocket scientists. That story is going to get blasted along with the dog ate my homework excuse. Moody's is going down not because of a 'computer glitch', but because they are going to get sued to death by angry toxic waste holders-namely the pension funds.