It’s not crude to protect the American consumer

In the last three months crude oil has soared 18.6%, while the S&P 500 and the 10-year bond are flat.

But why is that the case? Please don’t give me the old “summer-driving season”.

The United States is fast becoming the largest producer of crude oil in the world, ahead of Saudi Arabia and Russia, according to the newest EIA report.

Yet the difference between European Brent Crude and West Texas Intermediate crude is only $3 a barrel. Surely that spread needs to be much wider given the Iranian sanctions.

While the White House is pressuring Saudi Arabia to make up the shortfall of Iranian production, it needs to get a handle on domestic production to curtail rampant price hikes, which amount to gouging for US suppliers, since they are not selling large quantities on the international market.

If the 1970’s and 1980’s were about OPEC dictating price and supply, the 21st century should be about our energy independence and a domestic price suiting that situation.

If American crude producers can survive on $50 a barrel, then why let crude trade here for $70 a barrel?

The higher price only emboldens countries that despise us to gather more profits in order to fund operations against us, while wiping out any monetary gains Americans might realize from slowly rising wages.

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Markets ignore Euphrates line in the sand

This will be a brief posting today, since I have to remove a large tree limb that came down on my wife’s art studio during Monday’s storm.

As I wrote yesterday, the markets are immune to a sell off despite global events. Monday’s development in the Middle East.

Humans are said to have developed in the Euphrates Valley, well this week we could see the ramping up of our demise in the same region as US-Russian warplanes may be having dog fights over the Crescent of Civilization.

Given this difficult situation where the Pentagon came out and said that US fighters will defend the airspace against all hostile actors, equity markets hit new highs, the VIX, or fear index, almost had a 9-handle and bonds are at very low yields. It’s too strange to be true.

Look no further than the price of crude. At $44 a barrel there is no premium being paid for the unrest in the Gulf Oil states as well as Middle East.

I’ll have more on this as I dig further, but there’s a limb that needs to be removed from the roof.

Inflation numbers doesn't mean the consumer is back

Let’s look at the Consumer Price Index that was released Wednesday by the Labor Department.

The report said inflation had its biggest monthly jump in almost four years for pricing. While the report said prices rose 2.5% annualized in January and is over the Federal Reserve’s 2% target level, this could lead to a March rate rise, which I still doubt given the reasons below.

Two quick points on this. Inflation for you and I is not good, although you would think it is since it’s the goal of the Fed. We should not strive or celebrate inflation. It cheapens our money, especially when wage growth is flat, like right now for most of America’s middle class.

Second point: This inflation is being imported because of the strong dollar. Crude oil prices are the major component to the inflation.

Look at it this way for the consumer. Retail sales climbed 0.4 percent, the Commerce Department also said on Wednesday. How can retail sales climb month over month in January with December being the holiday gift-giving month?

My take on this gem is that strapped consumers were giving gift cards to friends and family in order to take advantage of 70% off sales in January at many retailers.

Look at the news out of retail. Macy’s is closing stores and looking to sell the company. Bankruptcies in major chains are growing and major mall operators are buying struggling retail companies to keep their stores open a little longer.

No this inflation number is not to be celebrated for most Americans, since the stronger dollar had energy prices jump 4%, which was the largest jump of all the components measured in the CPI.

So your costs of heating your house and driving your car went up, while your wages stayed the same and this is a sign that the economy is doing well.

Don’t believe it for a second.

Trump calls out China over strong dollar

Well, we knew it had to happen soon — just not this quick.

President-elect Donald Trump came out to beat down the strong dollar. In an interview with the Wall Street Journal, Trump called out China as a currency manipulator by only giving the yuan token support.

I have written about this since last month, when I said that the strong dollar was going to take the knees out of Trump’s plan to move jobs back to the US.

Now why should we care so much about the machinations going on in the currency trading pits?

As the value of the dollar falls 1.0% this morning — on the back of Trump’s comments — the Dow futures are down 100 points and the price of gold is up $20. Crude futures also rise on a weaker greenback.

So as I have often told you the biggest market mover is the dollar. As it has strengthened 4% since the election, equity markets have followed the same trajectory while commodities have lost ground.

The battle of the strong dollar is going to be the major meme of 2017, as central banks — struggling under massive debt by issuing bonds to create “wealth” for banks to bolster their balance sheets — cannot fight a currency war. The central bankers need a stable currency market for their inflation plan to have any chance to work.

Jim Rickards’ book “Currency Wars” can give you insight into what will unfold over 2017.

Green shoots abound on futile Fed

The equity markets see something you and I can’t.

There is just no way as the US economy struggles to continuing growing, that the stock market should look to set all-time highs this week.

Given that equities have no fear of the April Fed meeting, since Q1 GDP estimates put it at 0.3% annualized growth, which puts this quarter at 0.075% growth.

Hell, if  I decide not to buy a second bag of grass seed this spring, we could have a negative quarter. The margin is razor thin.

So what is six months out that could have the market so giddy?

Well we will be in the home stretch of the presidential election and many analysts are probably figuring that the US election will be so tight after the conventions that there is no way the Fed will be able to raise rates until December, if at all.

If free money will rule the day for the next six months, then let’s run up equities and crude oil for the time being, despite there being no cutback on output.

Sure we will get the assorted Fed president coming out saying  rates will rise soon, to jawbone the market back a little. Janet Yellen & Co. don’t want to be accused of creating bubbles you know.

So this spring’s green shoots will be sprung from the Fed’s inability to really do anything to help the economy. It’s too busy managing to keep US treasuries low to help on Uncle Sam’s borrowing costs.