The interplay between the dollar and the price of oil continues. Oil futures have been very strong in 2008 as supply never seems to materialize, despite reduced demand from the world’s largest consumer of oil, the United States. The high cost of gas is putting a dent in consumers wallets and it’s causing them to ride the bus or a bike for the first time in years. But oil production remains pretty much stagnant.
Oil just keeps on going up in price, which should cause consumers to buy less. But with something as important as transportation fuel, even a lessening in demand won’t automatically create a price cut. At least that’s what the International Energy Agency seems to be saying.
“Supply growth so far this year has been poor and higher prices are needed to choke off demand to balance the market,” they wrote in their Annual report.
Right now, global demand for oil is 86.8 million barrels barrels per day. But the IEA thinks there will be a contraction in 2008 of 2.5 percent this year to 20.3 million barrels a day.
The Airline Industry has already announced that they would be offering fewer flights, which will reduce oil consumption. Statements from consumer groups and business owners indicate demand for oil could drop even further than expected.
It’s up to investors to decide if the “oil bubble” is about to burst, of if increased demand from India and China for petroleum will continue to push oil prices to unthinkable highs. Energy stocks and funds promise to be very active in the last half of 2008.
Remarks by Fed Chairman Ben Bernanke helped to lift the U.S. dollar to a two week high. Investors have been extremely nervous about fuel costs, and the negative effect high gas prices have on the economy. They feared that if the Fed were to continue cutting interest rates, chances were becoming greater that inflation would spiral out of control. Bernanke made it clear that he was “attentive” to the investor’s concern.
“It could be a turning point for the dollar,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon. “It’s very unusual for a sitting Fed chairman to talk about the dollar explicitly.’”
In fact, the dollar did rise to a two week high against the Euro and the Yen. Analysts seemed to be happy about what Bernanke said, but were still remaining cautious about over optimism. The dollar has faced a lengthy and brutal decline. Is this the start of the road back up or just a false start?
We’ll know more in the next few weeks, as investors react.
Ethical investing is a subject that’s been of great interest to people for years. But one of the big problems was that “ethical” companies tended to fare much worse than their aggressive counterparts. Tobacco companies have traditionally done much better than a small company focused on the humane treatment of animals. But there are signs that ethical investing is starting to pay off for many investors.
As a result of this, many mainstream fund managers now include an element of green screening in their risk management criteria. But if reputation-sensitivity is the stick, changing consumer behaviour is the carrot. Consumers are shopping more ethically, leaving hefty revenuegenerating opportunities for companies which are willing to behave well.
Penny Shepherd, chief executive of the UK Social Investment Forum, uses the growth in fair trade coffee as an example: “A much wider range of people are interested in doing the right thing and acting responsibly, she says.
“Fair trade products were originally available only from health food stores and were for a very limited range of consumers. Now they are available in supermarkets and there has been a huge increase in growth.”
It’s safe to say that “green companies” are hitting critical mass and need to be considered in almost any investor’s long term portfolio.
Today HUD (The Department for Housing and Urban Development) announced that they have helped
200,000 troubled homeowners from losing their homes. FHASecure, a program that was recently enhanced by the Bush administration allows consumers with good credit standings to refinance their
ARM (adjustable rate mortgage) into a safer FHA insured loan.
A recent press release from HUD stated:
“From September 2007 to February 2008, FHA insured 100,000 refinanced mortgages. As more homeowners continued to learn about the benefits of FHA’s traditional 30-year fixed, prime-rate financing, FHA-backed another 100,000 loans in half the time.”
The FHASecure program will soon allow eligible borrowers with subprime loans to refinance into FHASecure mortgage loans as well.
What are your thoughts on the FHASecure program? Is this just a bandaid for today’s mortgage crisis
or is it a long term solution to helping homeowners and families?
In general stocks were down today on Wall Street, as soaring oil prices have investors worried about how the skyrocketing costs will affect the beleaguered consumer. Oil went over $119 per barrel, and has showed no real signs of a slowdown as the summer driving season has arrived.
“We’ve melted here, but it isn’t a plunge,” chief market analyst at Jefferies & Co. Art Hogan said, “We’re in a day-to-day assessment of how good earnings season is, and right now there’s more bad news than good news — the parade has been less positive than we’ve anticipated.”
Investors are looking closely at every sign from companies about profit, and even the news of several companies coming in around expectations did nothing to inject enthusiasm into the market.
Higher prices seem to indicate that inflation is setting in in earnest, and this leaves a great doubt as to how the Fed will react. With inflation kicking in, it’s very possible that the Fed will not cut interest rates any lower in 2008. Whether that will spell continued doom for the credit market is on everyone’s mind.
More earnings news is expected this week, and all of it will be watched closely by interested parties.
Oil set a new record at $114.54 per barrel. The main reason cited is that speculators are pouring money into commodities, due to the continued decline of the dollar. As the Euro continues to climb against the dollar, money keeps pouring into oil.
According to Olivier Jakob, the trend is likely to continue, regardless of fundamental reasons. “Monday and Tuesday crude oil managed to move ahead without the help of the dollar,” he said. “But once we broke above 1.59 euros per dollar and as we move toward 1.60, there’s going to be more buying coming into oil.”
Investors have been putting more money into commodities, and so far have found an above average return, especially as opposed to stock market investing. However, there are warning signs that the price increase in Oil might be slowing. Consumer demand appears to be sluggish, despite the U.S. heading into the driving season.
The Dow Jones had a decent day, as technology and retail leaders led a small rally. The primary mover pushing tech stocks up was that Banc of America Securities upgraded the U.S. semiconductor sector. They reasoned that a modest inventory buildup has eased. This lead investors to pounce on some shares.
Retail stocks also shared a small rise today as anticipation for the Economic Stimulus package checks is rising.
Most investors expect the checks to be spent mainly on retail items. Wal-Mart shares were up 1% today on such sentiment. There are a number of major earnings reports coming up this week.
So far investors seemed mixed to upbeat.
Another great banking institution has taken on water with mortgage defaults and delinquencies. This time it’s Washington Mutual.(WM)
The company is taking on 7 billion dollars from private equity firm TPG Inc. and other investors.
Washington Mutual announced plans to eliminate 3,000 jobs and will close 186 stand alone home lending offices. They will offer mortgage products at their retail branches. They are projecting a 1.1 billion loss for the quarter.
WaMu also stated their dividend for the quarter will be $.01 instead of $.15.
WM is now trading at around $11.00.
U.S. Inflation Soars – Oil Is Main Culprit
I’m sure you already know the news if you’ve been to a grocery store, or Walmart, lately. Inflation is the United States is soaring. The main culprit, naturally is rising energy prices.
Inflation is not quite as bad as 1923, but it’s getting worse
One reason that people are taking more notice of the inflation rate is because Fed Chairman has been making more comments about that very issue this week. According to Bernanke, you can now expect the Fed to “strongly resist an erosion of longer-term inflation expectations”. I guess they plan on doing something about it, although details have been scant.
The big problem remains high energy costs. In the dead of Summer for most of the world, it’s doubtful that energy costs will drop anytime soon. Since transportation costs are passed on to all businesses, costs everywhere will likely continue in the interim.
What will be interesting is if we see any strong initiatives by the Fed to reduce inflation. I myself am amazed the United States and other big Western countries who rely on oil have just began to talk about releasing oil from their strategic reserves..
“IEA member-states are required to hold oil stockpiles equivalent to no fewer than 90 days of the prior year’s net imports. The agency calls on countries to release emergency reserves of oil if supply is threatened.”
Certainly flooding some of the strategic reserves into the open market would have an immediate depressing effect on oil and gas prices. In fact, it might even send speculators heading for the exits, precipitating a further decline.
We’ll see what move comes next now that inflation fears are increasing.