It is our exercise to absorb the inflow of economic data, discard the chaff and then present the rest to our clients in distilled form. Thus, one Week in Review will generally suffice. Two are required for this week: yesterday’s summary of key data and how that may fit client anchors, and, today’s summary of impact, the myriad of events offshore.
Turmoil in the Mid East remains the key potential retardant to US growth. That consideration took a back seat this week given the tragedy in Japan.
The press continues to sensationalize, embellish and distort Japan's crisis. Reality remains that which we highlighted at the onset: 1) Japan will recover more quickly than most expect (despite excessive debt), 2) the nuclear situation and contagion will be limited and 3) influence on the US economy will be a wash, perhaps even positive. We also highlighted a wild card, a potential retardant tagged to this situation - Japanese repatriation and the selling of US assets. With that goes Yen strength, which if maintained over the inter term would retard the Japanese recovery. Today’s stunning G-7 activity reduces that possibility.
So back to the Mid East. A complete stoppage of crude deliveries from Libya was priced in at around 102 - 104. Thus, many look for a long term improvement in energy prices past this event and today’s “cease fire.” No. We have noted in several past posts why this time is different (see rt column). Contagion will continue to sweep the region, and with that, turmoil and threat of violence. On the plate is growing tension between Iran and Saudi Arabia. The potential of stoppage, or blockage of trade routes will remain a significant one. Eventually we know the spawning of consensual gov’t in this region is a plus, we’ll simply be a while in getting there.
We reminded our clients that when Bernanke implied that higher energy costs are a blip he was dead wrong, that when the IEA states that higher prices are here to stay, they are also wrong. But there is now a new potential element which may impact energy; that would be the demise of nuclear and the resultant increase in the demand for fossil products. We don’t think that will happen, but it’s now part of the equation.
Robert Craven
Turmoil in the Mid East remains the key potential retardant to US growth. That consideration took a back seat this week given the tragedy in Japan.
The press continues to sensationalize, embellish and distort Japan's crisis. Reality remains that which we highlighted at the onset: 1) Japan will recover more quickly than most expect (despite excessive debt), 2) the nuclear situation and contagion will be limited and 3) influence on the US economy will be a wash, perhaps even positive. We also highlighted a wild card, a potential retardant tagged to this situation - Japanese repatriation and the selling of US assets. With that goes Yen strength, which if maintained over the inter term would retard the Japanese recovery. Today’s stunning G-7 activity reduces that possibility.
So back to the Mid East. A complete stoppage of crude deliveries from Libya was priced in at around 102 - 104. Thus, many look for a long term improvement in energy prices past this event and today’s “cease fire.” No. We have noted in several past posts why this time is different (see rt column). Contagion will continue to sweep the region, and with that, turmoil and threat of violence. On the plate is growing tension between Iran and Saudi Arabia. The potential of stoppage, or blockage of trade routes will remain a significant one. Eventually we know the spawning of consensual gov’t in this region is a plus, we’ll simply be a while in getting there.
We reminded our clients that when Bernanke implied that higher energy costs are a blip he was dead wrong, that when the IEA states that higher prices are here to stay, they are also wrong. But there is now a new potential element which may impact energy; that would be the demise of nuclear and the resultant increase in the demand for fossil products. We don’t think that will happen, but it’s now part of the equation.
Robert Craven
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