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By washcomp
July 24, 2008

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Oil has come down because the latest storm didn't hit Texas - at least that's what the news reports say.

The way I look at it, there didn't seem to be a spike with the expectation of a storm hit, so the excuse of it going down because the storm didn't hit is nonsense. If a storm hits bad (or in the face of another "event" somewhere in the world), it will go up, else sentiment seems to favor a retreat.

In the absence of some event (especially if the dollar continues to go up in value), I would think that oil will retreat to $100 or less. At some point (in the not too distant future), if the world economy doesn't tank, it will resume an upwards trend and probably go much higher than it is today as the supply/demand thing is still a valid issue.

I feel that inflation is going to be a factor which the FED will have to address late next year (unless our economy REALLY tanks). This will cause them to increase rates. Unless confidence has been lost in the dollar (I don't expect this to be an issue, but who knows), the dollar will rise which will help to reduce the acceleration of oil prices. It will potentially actually help gold (which is traditionally an inflation hedge) contrary to current thinking.

The down side of a rise in the dollar is that it will damage the companies who are actually exporting more at this point with a lower dollar. It will also reflect lower earnings for overseas sales when they are translated into dollars. This will not help the equity markets. Likewise, bonds will decrease in value as interest rates increase.

We, as a nation have allowed our greed and complacency to create what could be a "perfect storm" of economic pressures which will destroy the wealth that was accumulated over decades past. Our government and the FED seem to have chosen knowledgeable people with impressive credentials. Unfortunately (for the "rest" of us) they were insiders who came from the very environment they were supposed to be policing.

I am trying my best to keep this post from becoming political, but it was naive of our country to assume that our leaders, whether in the executive branch of our government or their selected managers of our economy, would immediately turn into altruistic white knights and defend our economy for the common man. Unfortunately, when I look at the various programs that congress is currently putting in place, and the overlay of PAC money, lobbyist interests, etc., we have the best legislative branch money can buy. I guess in politics, ya gets what ya pays fer.

(I figure Wendy is still asleep, but I can already feel her cat-of-nine-tails on my back, so I better stop here :-)

Anyhow, the next couple of years will be far from boring.

I want my boredom back :-)