The Energy Report: Post Fed Commodity Rush

Phil Flynn

First Enercast Financial

Jun 26, 2009

Post Fed Commodity Rush. And the money kept rolling in from every side. Oil bulls hands reached out and they reached wide. Now you may feel it should have been an oil related cause. But that's not the point my friends. When the money keeps rolling in, you don't ask how. Think of all the people guaranteed a good time now. The Fed has called the oil bulls to it, money out the door. Never been a friendlier Fed than the Fed we have now! Rollin', rollin', rollin'...

You can talk about Nigeria as the reason oil rallied and I guess you might be right somewhat. Or you can talk about a couple of refinery issues. But if you leave it at that, you are really missing the point my friend. What you are missing is the wonderfully intriguing subplots that are really driving this energy market. Oh sure, the market has a concern that the ongoing attacks in Nigeria are whittling away at the most significant spare production capacity that we have had this decade. Yet if this was just about Nigeria why did copper and gold turnaround as well? No, this is once again about the strange macroeconomic dynamic that we have been in and the market fears we will never escape from. The rally in oil is about the Fed and their accommodative policies. Oil rallied because the Fed failed to provide the marketplace with an exit strategy from their policy of near zero interest rates and quantitative easing they just gave the world the green light to pile back into commodities. The Fed basically told foreign countries, commodity hedge funds and speculators it's cool to get bullish and to ignore those worries of oversupply.

I guess it took the market 24 hours to digest the fed's message. Well Swiss Bank currency intervention knocked the Franc for a loop and basically had the currency market off kilter. Yet it seemed that the currencies got in line as traders basically bought without regard for the intervention that they hope will be a onetime deal or at the very least unsuccessful over the long run.

Still the best trade on the board might be to buy ‘forever stamps”. You know what I mean. Those forever stamps that are good no matter how many times postal rates increase. The reason I say that is that President Obama, when pushing his cap and trade tax, said that the polluters would pay for it. He said the energy legislation cost American families "maybe a postage stamp a day" in higher utility bills. Which means by my estimate that postage stamp must be going up too about $5.48 each. And oh yeah, don’t worry about those job losses in the oil and gas industry. President Obama says we are overstating it. Just ask the government for a grant to do some green retraining.

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