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Markets Are Becoming Interesting, What You Should Watch

24 February 2011 2 Comments

The past couple years have been somewhat mundane if you watch the stock markets since its been essentially a constant Fed induced melt up in stock prices.  Great for “nominal value” but rather boring to watch if you’re a trader of any type.

This week we have seen some good volatility return to the market, mostly in conjunction with the uncertainty in the Middle East.

Here are a few thoughts on what is going on and what you should be watching:

  1. As far as I’m concerned, we have always had uncertainty in the recent years, the masses are just now forced to acknowledge it as people riot and governments fall in the Middle East.
  2. The price of oil is one of the main ways the masses get “woken up” to the realities of the world.  By realities of the world I mean that the Middle East is indeed unstable, we care that it is unstable because we need oil, and that the Fed quantitative easing policies are a major factor in global inflation (which as a result has fueled uprisings in other parts of the world).
  3. It was only a matter of time before oil crept towards (and broke) the $100 level.  At some point we probably need to just get used to this.
  4. Yes, this will impact consumer spending on other areas in America
  5. No, I don’t think we have gasoline shortages similar to the Jimmy Carter era, because I don’t think we will put price controls in.  Price controls cause the shortages.  Allow the price to rise, and you’ll simply kill demand enough to balance out the situation.  With that said, I wouldn’t put anything past our government.
  6. Timmay Geithner recently said that he was confident that the Fed would be able to handle higher gasoline prices.  What the heck does that mean?  What the heck does the Fed have to do with gas prices (besides indirectly causing them of course)?  Will the Fed be ready to print more money and give to the masses to help pay for gas?  Yes, we’re spiraling quickly out of control.
  7. Saudi Arabia is what needs to be watched.  Any turmoil there and oil is going to skyrocket towards $200.  Yes, this would be severely disruptive to everything in the economy.

Interestingly, the Fed is starting to show a lack of solidarity.  Hoenig is starting to publicly denounce some of the Fed policies especially too-big-to-fail and has said that the US has undermined free market capitalism.  I couldn’t agree more.  Read more here.

I’m going to spend some time soon on some articles on how this impacts you personally and what course of action you should be taking as the global economy essentially unravels.

2 Comments »

  • xfiltrate said:

    Well done Kevin. I would only add that keeping an eye on the price of Brent crude (LCO) verses the price of OPEC Reference Basket, Dubai Crude, (WTI) is worthwhile.

    Serious investors understand that as the price of oil (per barrel) increases, this increase is eventually reflected in the price of gasoline. Today, gasoline, in California, is over $3.40 per gallon. As the price of gasoline (and food) increases, the masses have less money to spend on other products or services that the sale of which determines the price per share on the stock market. The price of oil is very important to almost every share one can buy.

    When oil reaches $200.00 per barrel, and it will, the U S will open off shore and Alaskan oil fields – and cut production in the middle east. Of course, Russia will provide oil to China, and the middle east will provide oil to Europe, but the U S will be providing oil to itself.

    This, only when middle eastern oil costs $200.00 per barrel. The United states will back out of Kissenger inspired long honored "deal" between the Saudis et al and the United States that leaves the Saudis et al holding U S paper (bonds) in return for the U S buying oil – and as the dollar devaluates …the middle east and then the U S will collapse. You can continue to watch it happen here: http://english.aljazeera.net/watch_now/

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