Market Commentary

The US market took a big tumble overnight as the oil price raced over $140/barrel. There seems no reason it won't go higher unless there is a severe squeeze on the global economy, or if India and China don't curtail demand with the removal of subsidies. The reality however is that the oil price is being pushed to speculative highs by the Fed policy on interest rates. It makes you ask whether Bush has a deal with his oil buddies to push oil to $200/barrel. Why? Well if oil went to $200/barrel, the oil executives would do very well, the US government might be forgiven for a market-sponsored slowdown, and he might be able to secure a lot more funding from oil companies for his presidential campaign. Well, its just a conspiracy theory. But its not like he needs to identify the implicaitions as such. He need only convey to Bernacke that lower interest rates are required to hold up the economy.
Higher interest rates are the surest way to reduce demand for oil. Not just physical demand but speculative demand. As soon as the Fed starts raising rates we will see a fall in oil prices because the speculators will see a downward path for oil. No doubt that would be another basis for a Dow Jones rally, though not likely to be sustained. The Fed is waiting for bad news to take the Fed rate down to 1%, then I think it will be looking for bad inflation to raise it. The USD strength is surprising me.
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Andrew Sheldon www.sheldonthinks.com