Wednesday, October 21, 2009

How do you think this will play in Peoria?

I'm about the last person that will defend this quote from a Goldman Sachs advisor, but I think his heart was in the right place even if he was having a case of brain freeze when he uttered this quotable quote......

"We have to tolerate the inequality as a way to achieve greater prosperity and opportunity for all".

That is just begging to be turned into a campaign slogan for some 3rd party in 2010.

Oil hit a new high for the year today and seems to be heading back toward the mid $80s per barrel. In my opinion, while you'll hear people say that oil is heading higher because the global economy has rebounded, I'd argue that it's all about the dollar. As the dollar falls, oil rises. The problem is most people have expected the dollar to stop falling and we haven't stopped the slide yet.

While many will point out that oil and prices at the pump are far below their highs, I think it's important to note that when the market last broke out to these levels (Feb 07 - Apr 08) unemployment was about 40% lower. John and Jane Doe are going to really dislike $3.25 gas when the unemployment benefits start expiring.

Good piece from the FT on the perils facing the central banks...

"Our present situation can give rise to two scenarios - or some combination of the two. The first is that central banks start exiting at some point in 2010, triggering another fall in the prices of risky assets. In the UK, for example, any return to a normal monetary policy will almost inevitably imply another fall in the housing market, which is currently propped up by ultra-cheap mortgages.
Check Spelling
Alternatively, central banks might prioritize financial stability over price stability and keep the monetary floodgates open for as long as possible. This, I believe, would cause the mother of all financial market crises - a bond market crash - to be followed by depression and deflation.
In other words, there is danger no matter how the central banks react. Successful monetary policy could be like walking along a perilous ridge, on either side of which lies a precipice of instability.

For all we know, there may not be a safe way down. "


1 comment:

The Hermit said...

Not as strange as you think. Bill Gross from PIMCO, a huge bond fund, is jumping into, are you ready?..... Stocks!!!
Pimco is owned by Allianz, a German company. Gross and Mohammed El-Erian are calling the shots. Gross has a great track record. Mohammed has oil money to spend. With the falling dollar, he'll have a lot more to play with. I love bubbles.