-- Posted Thursday, 22 May 2008 | Digg This Article
| Source: GoldSeek.com
Rick’s Picks
Thursday, May 22, 2008
“Phenomenally accurate forecasts”
Wall Street may have succeeded in ignoring atrocious Q1 earnings these past few weeks, but it would appear that skyrocketing oil prices are another matter. News that U.S. reserves fell unexpectedly last week pushed crude to new record highs and stocks into their worst two-day decline since February. The usual bunch of analysts seem to think it’s all about supply and demand, but maybe the global energy market simply smells major weakness ahead for the dollar? If so, and the Dollar Index were to break the supposed Maginot Line of support at 70, banging out new post-World War II lows, there’s no telling how high crude could go. We’ve identified a precise target for the July contract in Thursday’s touts that’s about as bullish as our technical runes will permit. Although our number is close to Goldman’s recently spotlighted estimate of $140, because our target is a precise Hidden Pivot, even slight progress above would be warning of significantly higher prices to come.
We doubt the global economy could survive much higher prices, but because the rally is technical rather than fundamental, $200 a barrel cannot be ruled out. We can’t recall anything as big as the energy markets ever getting short-squeezed, but the 1970s oil embargo proved that it is possible for a single entity – at the time, OPEC – to corner the market. Odds of this occurring have probably increased since then, since no one supplier, even Saudi Arabia, can pump enough extra oil at the margin to satisfy a spike in demand, much less a wilding spree caused by global speculation.
Bubble Must Pop
But when the bubble final pops, and it will, it’s unlikely to be bullish for stocks, since the collapse will cause hundreds of billions, it not trillions, of petrodollars to vanish from the financial system in a matter of days. Since no one can estimate the extent to which those petrodollars are propping up the global economy now, we cannot begin to guess how the world’s asset markets would fare without all those dollars.
Whatever happens, it will probably be too late to save the nation’s air carriers, which appear to be in a death dive. Most recently, American Airlines announced that on top of the $25 fee for checking a second bag, they are about to institute a $15 fee for the first checked bag. What’s next? A surcharge based on one’s weight? American is also reportedly cutting back dramatically on domestic flights and laying off employees. The carrier is not alone. We flew Northwest from LaGuardia to Denver yesterday and saw downsizing first-hand when Northwest canceled a flight due to “weather” even though only light rain was falling. We’ve all been hearing for months that this would be a tough summer for passengers, but if the airlines start finding excuses for canceling flights merely because the flights are not full, it’s going to be much tougher on travelers than we’d imagined.
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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2008, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Thursday, 22 May 2008 | Digg This Article | Source: GoldSeek.com
