Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
From Recession to an Ever-Deeper One - 19th Oct 20
Wales Closes Border With England, Stranded Motorists on Severn Bridge? Covid-19 Police Road Blocks - 19th Oct 20
Commodity Bull Market Cycle Starts with Euro and Dollar Trend Changes - 19th Oct 20
Stock Market Melt-Up Triggered a Short Squeeze In The NASDAQ and a Utilities Breakout - 19th Oct 20
Silver is Like Gold on Steroids - 19th Oct 20
Countdown to Election Mediocrity: Why Gold and Silver Can Protect Your Wealth - 19th Oct 20
“Hypergrowth” Is Spilling Into the Stock Market Like Never Before - 19th Oct 20
Is Oculus Quest 2 Good Upgrade for Samsung Gear VR Users? - 19th Oct 20
Low US Dollar Risky for Gold - 17th Oct 20
US 2020 Election: Are American's ready for Trump 2nd Term Twilight Zone Presidency? - 17th Oct 20
Custom Ryzen 5950x, 5900x, 5800x , RTX 3080, 3070 64gb DDR4 Gaming PC System Build Specs - 17th Oct 20
Gold Jumps above $1,900 Again - 16th Oct 20
US Economic Recovery Is in Need of Some Rescue - 16th Oct 20
Why You Should Focus on Growth Stocks Today - 16th Oct 20
Why Now is BEST Time to Upgrade Your PC System for Years - Ryzen 5000 CPUs, Nvidia RTX 3000 GPU's - 16th Oct 20
Beware of Trump’s October (November?) Election Surprise - 15th Oct 20
Stock Market SPY Retesting Critical Resistance From Fibonacci Price Amplitude Arc - 15th Oct 20
Fed Chairman Begs Congress to Stimulate Beleaguered US Economy - 15th Oct 20
Is Gold Market Going Back Into the 1970s? - 15th Oct 20
Things you Should know before Trade Cryptos - 15th Oct 20
Gold and Silver Price Ready For Another Rally Attempt - 14th Oct 20
Do Low Interest Rates Mean Higher Stocks? Not so Fast… - 14th Oct 20
US Debt Is Going Up but Leaving GDP Behind - 14th Oct 20
Dell S3220DGF 31.5 Inch VA Gaming Monitor Amazon Prime Day Bargain Price! But WIll it Get Delivered? - 14th Oct 20
Karcher K7 Pressure Washer Amazon Prime Day Bargain 51% Discount! - 14th Oct 20
Top Strategies Day Traders Adopt - 14th Oct 20
AMD is KILLING Intel as Ryzen Zen 3 Takes Gaming Crown, AMD Set to Achieve CPU Market Dominance - 13th Oct 20
Amazon Prime Day Real or Fake Sales to Get Rid of Dead Stock? - 13th Oct 20
Stock Market Short-term Top Expected - 13th Oct 20
Fun Stuff to Do with a Budgie or Parakeet, a Child's Best Pet Bird Friend - 13th Oct 20
Who Will Win the Race to Open a Casino in Japan? - 13th Oct 20
Fear Grips Stock Market Short-Sellers -- What to Make of It - 12th Oct 20
For Some Remote Workers, It Pays to Stay Home… If Home Stays Local - 12th Oct 20
A Big Move In Silver: Watch The Currency Markets - 12th Oct 20
Precious Metals and Commodities Comprehensive - 11th Oct 20
The Election Does Not Matter, Stick With Stock Winners Like Clean Energy - 11th Oct 20
Gold Stocks Are Cheap, But Not for Long - 11th Oct 20
Gold Miners Ready to Fall Further - 10th Oct 29
What Happens When the Stumble-Through Economy Stalls - 10th Oct 29
This Is What The Stock Market Is Saying About Trump’s Re-Election - 10th Oct 29
Here Is Everything You Must Know About Insolvency - 10th Oct 29
Sheffield Coronavirus Warning - UK Heading for Higher Covid-19 Infections than April Peak! - 10th Oct 29
Q2 Was Disastrous. But What’s Next for the US Economy – and Gold? - 9th Oct 20
Q4 Market Forecast: How to Invest in a World Awash in Debt - 9th Oct 20
A complete paradigm shift will make gold the generational trade - 9th Oct 20
Why You Should Look for Stocks Climbing Out of a “Big Base” - 9th Oct 20
UK Coronavirus Pandemic Wave 2 - Daily Covid-19 Positive Test Cases Forecast - 9th Oct 20
Ryzen ZEN 3: The Final Nail in Intel's Coffin! Cinebench Scores 5300x, 5600x, 5800x, 5900x 5950x - 9th Oct 20
How Soon Will We See Stock Market SPX 4000? - 8th Oct 20
Stock Market Spy ETF Testing March Price Peak – What Do the Charts Say? - 8th Oct 20
5 Consequences of US Debt at $50 Trillion - 8th Oct 20
Long Term Cycles Suggest Stock Price Reversion Pending & Gold Price About To Explode High - 8th Oct 20
AMD Zen 3 Ryzen 5000 Launch - Performance, Prices Skews, Cinebench r20 Scores, 5800x, 5900x, 5950x - 8th Oct 20
Gold vs. Silver – Absolutely No Comparison - 8th Oct 20
Gold: Why You Should Be Wary of the "Consensus" - 8th Oct 20
UK Covid-19 Hospital Admissions and Deaths Since Testing Positive in 28 days Analysis - 7th Oct 20
Amazon Prime Day 2020 Sales Top Tips of How To Get Big Savings! - 7th Oct 20
Want To Win Big In Forex Trading? Leverage Is Your Friend - 7th Oct 20
Why I am Voting for Donald J. Hitler - 6th Oct 20
Markets Chop & Grind: Gold, Stocks & Commodities - 6th Oct 20
Silver Price Great Buy Spot Ahead of Second Big Upleg - 6th Oct 20
Forget RTX 3080 Get Zen 3 Ryzen 5900x / 5950x - GPU vs CPU - PC Bottlenecking - 6th Oct 20
How to Get Budgies / Parakeets to Eat Vegetables for the First Time - 6th Oct 20
How to Pick a Reputable Double Glazing Window Company - 6th Oct 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

OPEC Cartel Scuppering G7 Central Bankers Financial Sector Rescue Plans

Commodities / Credit Crisis 2008 May 09, 2008 - 01:05 AM GMT

By: Gary_Dorsch

Commodities Best Financial Markets Analysis ArticleThe “Group of Seven” central bankers, who control the money spigots in 2/3's of the world's economy, huddled with their colleagues from China and Russia behind closed doors in Basel, Switzerland this week, haunted by the “Crude Oil Vigilantes,” who threaten to unravel G-7 schemes to rescue troubled global banks. Earlier today, the price of West Texas Sweet traded as high as $124 /barrel, doubling from a year ago, and guiding Chicago Corn futures to all-time highs.


European Central Bank chief, Jean Trichet, chaired a meeting of central bankers from the “Group of 10” industrialized nations on May 5th, and acknowledged that, “Inflation risks are significant under the influence of oil and energy price increases, commodity price increases more generally, and food and agricultural products. This is perceived in all economies without exception. This is no time for complacency for central banks in any respect,” he warned.

In China, food prices rose 21% in the first quarter of 2008 from a year earlier. The Euro zone's figures showed that food prices surged 6.1% in March alone while prices of basic staples such as bread, milk and cheese grew even faster. In the US, bread prices have jumped 12%, milk 20% and flour 32 percent. A dozen eggs are 30% more expensive and tomatoes and bananas are up 13 percent.

“Food pressures are one of the most serious problems that we have to face now,” added Poland's central bank chief, Slawomir Skrzypek. “But central banks cannot use monetary policy tools to manage this problem,” he said. Worldwide, food prices in March were 57% higher than a year earlier, according to the United Nations. The price of rice is up 120% and wheat has climbed 65%, triggering violent protests across Asia and the Middle East, following reports of deaths from starvation.



Crude prices have doubled in a year and risen four-fold since the US-UK conquest of Iraq's 120 billion barrels of proven oil reserves in April 2003. Powerful economic growth in emerging markets like China, India and Russia has increased demand for crude oil and other commodities, pushing up inflation worldwide. China, India, Russia and the Middle East for the first time will consume more crude oil than the US burning 20.7 million barrels a day this year, an increase of 4.4 percent.

Yet emerging markets burn only a fraction of the energy of the US, leaving enormous room for growth in global demand for crude oil. The 2.45-billion people in China and India used only half as much crude as 300-million Americans last year. The average person in China consumed less than 20% as much energy as the average American, according to US Energy Department. In India, energy use is less than 10% of America on a per-capita basis. Indeed, China's oil imports grew rapidly in the first quarter of 2008, up 15% from a year earlier, to 45.5 million tons.

Last year, the United States imported $330 billion of crude oil from abroad at an average price of $64 per barrel. If crude oil were to average $124 /barrel in 2008, the US oil import bill would nearly double by $300 billion, and easily wipe-out the $150 billion of tax rebate checks going out to American households in the weeks ahead. The US government is simply going deeper into debt, to help Americans pay for higher oil prices. The global transfer of wealth will add $1 trillion into the coffers of the OPEC cartel this year, up from OPEC's $665 billion of revenue last year.



US President George Bush, whose approval rating has sunk to an all-time low of 28% in recent polls, said on April 29th, there was no “magic wand” to bring down record-high fuel prices, with angry Americans facing $3.65 a gallon for gasoline and soaring grocery bills. “I firmly believe that, you know, if there was a magic wand to wave, I'd be waving it, of course. I've repeatedly submitted proposals to help address these problems, yet time after time Congress chose to block them,” he argued.

Yet it's increasing obvious to most casual observers, that the biggest culprit behind the historic rally in crude oil is the Bush administration itself, which has put enormous political pressure on the Federal Reserve to slash the federal funds rate by 325-basis points to 2%, and crushed the value of the US dollar in the process. That's unleashed the “crude oil vigilantes,” who have jacked-up “black gold” by $55 per barrel, since the Fed's rate cutting spree began last August.

The Bernanke Fed, working under the command of US “Plunge Protection Team” (PPT) chief Henry Paulson, has doubled the growth rate of the US M3 money supply to 17.5% rate, its fastest in history, and slashed the fed funds rate far below the inflation rate, to “negative” interest rates. “The turmoil in some global equity markets and the considerable depreciation in the US dollar have encouraged investors to seek better returns in commodities, particularly in crude oil futures. This has driven prices higher,” said OPEC Chief Adbullah al-Badri on May 8th.



Sharply higher oil prices are likely to lead to greater production of ethanol, and in turn, lead to greater demand for corn. Earlier this week, corn futures surged to record highs of $6.28 /bushel, after crude oil spiked above $123 a barrel. As crude oil climbs further into record territory, alternative energy markets have also risen, boosting profits for US ethanol makers who use corn as their basic feedstock.

Worldwide demand for corn to feed livestock and to make bio-fuel is putting enormous pressure on global supply. About 20% of the 13-billion bushel US corn crop was consumed by ethanol production last year. That percentage is expected to increase to 30% for the next crop year, ending Aug 31, 2009. But with the US expected to plant less corn, the supply shortage will only worsen. The USDA says farmers will plant 86 million acres of corn in 2008, or 8% less than last year.

While corn growers are reaping record profits, livestock producers are forced to pass on higher animal feed costs to US consumers, who can expect even higher grocery bills. Corn and corn syrup are used in an array of products, meaning the price of everything from candy to soft drinks will eventually go up.

Are the Bernanke Fed and the US Treasury largely responsible for the recent doubling of corn, rice, and soybean prices? Earlier this week, after the US dollar rose to a two-month high of 105-yen, and the Euro fell to a one-month low of $1.5400, on ideas that the Fed was done cutting interest rates, the USDA said export sales of corn sales in the week ended May 1st fell to 337,200 tons, down 39%, from the previous week. Soybean export sales fell to 41,000 tons last week, a marketing year low, down 87% from the previous week and 91% below the four-week average.

Contrary to Mr Bush's feeble explanations, there is a “magic wand” that can rein-in the “crude oil vigilantes,” - a quick reversal of the Fed's aggressive rate cuts to defend the US dollar. But PPT commander Paulson is loathe to hiking US interest rates right now, since higher interest rates can undermine the fragile housing market. Instead, Paulson has backed a G-7 plot to knock the Euro lower against the dollar, aiming to wipe-off the speculative froth from the crude oil market.

The G-7 cartel of central bankers agreed on April 11th, “to monitor exchange markets closely, and cooperate as appropriate,” - secret code words for intervention in the marketplace, and ramped-up a “jawboning” campaign to knock the Euro off its record high of $1.600. The G-7 enjoyed initial success, knocking the Euro to $1.5400, which in turn, knocked the crude oil market for a $10 /barrel slide to $110.

But the G-7's plot to knock oil prices lower with a weaker Euro, began to unravel, when crude oil resumed its upward thrust, fueled by the Bernanke Fed's quarter-point rate cut to 2%, on April 30th. The advance in crude oil prices to fresh highs was aided by investment banker Goldman Sachs, which predicted the world may face a “super-spike” into a trading range from $150 to $200 a barrel as early as October, up from just over $120 now.

At the pump, $150 per barrel for oil translates into gasoline prices of $4.50 a gallon, putting further strain on US consumers, airlines, truckers, and utilities, and shaving roughly -1.8% off US economic output. Seeking a quick fix to combat the “crude oil vigilantes,” the Bush clan is exerting maximum pressure on Saudi king Abdullah to pump more oil, from the kingdom's 3-million bpd of spare capacity.

On May 8th, OPEC's secretary Adbullah al-Badri responded, “There is clearly no shortage of oil in the market.” Still, “OPEC stands ready to act if the market shows a need for any further measures,” he said. But OPEC chief Chakib Khelil doesn't think an increase in output would cool the oil market, because “there is no link between price levels and supply, and inventories are already high.”



Meanwhile, the “crude oil vigilantes” are receiving extra ammunition from the Bank of Canada, which has slashed its overnight loan rate by 150 basis points over the past six-months, including two half-point rate cuts. Canada's new central bank chief is 43-year old youngster, Mark Carney, previously a Goldman Sachs investment banker. The rookie central bank chief is building a reputation for himself as a “radical inflationist,” molded along the same lines as Fed chief Ben Bernanke.

Carney is slashing Canadian interest rates, fearful of a slump in Canadian exports to the US economy, its biggest customer. However, over the past 12-months, Canada's employment has increased by 325,000 persons, including 104,000 new jobs in the first quarter, and the jobless rate is just above a 33-year low of 5.8 percent. There hasn't been a meaningful slump in Canadian exports either. So what's the justification for such radical rate cuts by the central bank?

Carney hinted on April 30th, that “Some further monetary stimulus will likely be required to achieve the inflation target over the medium term,” he told the House of Commons. Most likely, the Bank of Canada is slashing its interest rates to curb the Loonie's strength against the US$. Yet the un-intended consequence of the clandestine “competitive currency devaluation” game is sharply higher oil prices.

By Gary Dorsch,
Editor, Global Money Trends newsletter
http://www.sirchartsalot.com

To stay on top of volatile markets, subscribe to the Global Money Trends newsletter today, for insightful analysis and predictions for the (1) top stock markets around the world, (2) Commodities such as crude oil, copper, gold, silver, and related gold mining and oil company indexes (3) Foreign currencies (4) Libor interest rates, global bond markets and central bank monetary policies, and (5) Central banker "Jawboning" and Intervention techniques that move markets.

GMT filters important news and information into (1) bullet-point, easy to understand analysis, (2) featuring "Inter-Market Technical Analysis" that visually displays the dynamic inter-relationships between foreign currencies, commodities, interest rates and the stock markets from a dozen key countries around the world. Also included are (3) charts of key economic statistics of foreign countries that move markets.

Subscribers can also listen to bi-weekly Audio Broadcasts, with the latest news on global markets, and view our updated model portfolio for Q'1, 2008. To order a subscription to Global Money Trends, click on the hyperlink below, http://www.sirchartsalot.com/newsletters.php


Mr Dorsch worked on the trading floor of the Chicago Mercantile Exchange for nine years as the chief Financial Futures Analyst for three clearing firms, Oppenheimer Rouse Futures Inc, GH Miller and Company, and a commodity fund at the LNS Financial Group.
As a transactional broker for Charles Schwab's Global Investment Services department, Mr Dorsch handled thousands of customer trades in 45 stock exchanges around the world, including Australia, Canada, Japan, Hong Kong, the Euro zone, London, Toronto, South Africa, Mexico, and New Zealand, and Canadian oil trusts, ADR's and Exchange Traded Funds.

He wrote a weekly newsletter from 2000 thru September 2005 called, "Foreign Currency Trends" for Charles Schwab's Global Investment department, featuring inter-market technical analysis, to understand the dynamic inter-relationships between the foreign exchange, global bond and stock markets, and key industrial commodities.

Copyright © 2005-2008 SirChartsAlot, Inc. All rights reserved.
Disclaimer: SirChartsAlot.com's analysis and insights are based upon data gathered by it from various sources believed to be reliable, complete and accurate. However, no guarantee is made by SirChartsAlot.com as to the reliability, completeness and accuracy of the data so analyzed. SirChartsAlot.com is in the business of gathering information, analyzing it and disseminating the analysis for informational and educational purposes only. SirChartsAlot.com attempts to analyze trends, not make recommendations. All statements and expressions are the opinion of SirChartsAlot.com and are not meant to be investment advice or solicitation or recommendation to establish market positions. Our opinions are subject to change without notice. SirChartsAlot.com strongly advises readers to conduct thorough research relevant to decisions and verify facts from various independent sources.

Gary Dorsch Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules