Week in Review

The collective market view is that we are experiencing a moderate slowing: in China, due to Bk of China braking; in Japan, as expected, due to the tragedy; in the UK, sideways but with the threat of a lift over its head; in the EU, the reality of the periphery disassembling, only Germany and France packing the load; and finally, in the US, with manufacturing slowing, with signs of employment doing the same and with the reality of gasoline and Fed policy (lower $) smacking the consumer where it hurts.

We are not in a sweet spot at the moment; we cannot detect just where there may be a major flaw in consensus, just where resides the next opportunity for our clients. We’ve got a long weekend ahead, so plenty of time for thought.


Robert Craven

April Income and Spending

We did not highlight this release as it carried little potential to move the market.. Wages & salaries were up 0.4%, or 3.3% above their year ago level but gasoline prices were the piano which fell on the shopping crowd so that spending came in just below expectations and the past three months were revised slightly lower.

With lower crude, observers expect some improvement in consumer activity. Just ahead we’ll take a look at this and other key sectors.


Robert Craven

Timing

We warned late March that gasoline prices would cut considerably into consumer activity, would cut considerably into GDP. Wall Street, resorting to all sorts of fancy formulas, disagreed. A growing chorus has now come to understand. It is too late.

Next, we predicted that the high risk of further violence in the Middle East put a floor under crude, yet that commodity plummeted today on the threat of a slowing economy. We’re not oil analysts but we understand the Middle East pretty well.

Finally, we noted Monday that tomorrow’s Payroll release carries great potential to worry the market, a little to cheer it. It’s not going to be awful, but likely south of expectations (+190M).

Robert Craven

Briefing For The Business Planner

Encouraged by the results of Nov/2 and Congressional follow through, employers came alive. Encouraged by the same event, including extended tax relief, consumers came alive. This brings us to Q1.

Momentum has now slowed. This is due to 1) permanent elimination of job positions by employers frightened to death by Obama’s statist agenda (Obamacare and other unpredictable costs) 2) billowing commodity costs related to a) Fed policy and b) Middle Eastern upheaval and 3) wage gains which have lagged #2.

Those businesses dependent on discretionary spending were encouraged late Q4 concerning economic reality ahead; those same businesses are now less buoyant, feeling let down.

Next Six months:

Fed policy is not a boon but a bust to the average consumer. Liquidity is not the problem; it is not needed. QE II has thus 1) inflated equity prices and 2) inflated commodity prices. Stock holders have done well. That’s not enough. The rest have been hurt.

Spending cuts ahead? Fine. The more the better. Don’t believe the nonsense that severe cuts will provide a stall. This will instead provide a spark. There is zero evidence that government spending ever provided anything but a wash (except to unions) and plenty that it threw a wrench in the works.

To the extent Fed and Congressional interference subsides we can grow increasingly constructive; the recovery will kick into 4^th gear.

Just crude prices will remain the piano overhead. That is, the odds are very high for further violence in the Middle East as the adjustment (Arab Spring) continues.


Robert Craven

Osama The Has Been

Mom called with the news but we failed to hear the phone, explaining this tardy response.

We can look for little change past the celebration. The leadership vacuum to be short lived. Course-of-least-resistance for crude to remain higher into Q3.


Robert Craven

The Week in Review

Key releases this week were on net, a disappointment, one reason the 10 yr Treasury yield fell from a 3.37% Monday to a 3.30%, Friday.

Of course there are always many factors impacting Treasury prices, including both fiscal and Fed policy, and the occasional flight to quality from folks panicked about one event or another. But the major influence, ongoing, is just plain old real sector developments. Nothing fancy here whatsoever.

For example, Oct/7/2010 the 10 yr was at 2.40%. Nearly everyone looked for dismal economic performance ahead - lousy key releases that is. End of October we advised our clients to look for just the opposite. Sure enough, Dec/8 the10yr printed 3.33%, being a witness to "surprising" vigor. Then the market crowd really got behind the growth mantra, the 10 yr printing 3.53%, Mar/7. About this time we reversed course, warning our clients that there was a piano directly overhead. Yet exuberance continued into early April, the 10 yr printing 3.60% on Apr/8. The trout were still keyed in to the fly long departed. But finally, folks began to catch on. Last print - 3.30%. A interesting little journey.



The equity market went the other way this week, celebrating, but then it’s had a life of its own for some time now.

Key economic data presented nothing to cheer about. Q1 GDP came in under expectations, and key - as we had predicted they would be, those expectations had been shaved substantially from a month earlier. Next, Jobless Claims were up 25M vs market expectations for a decline. Nothing to cheer about there. Both Personal and Disposable Income grew moderately in March. OK, not bad. But Real Consumer Spending was up only 0.2%, not a stick in the eye maybe, but no spark either, suggesting that spending slowed at the end of Q1.

If there’s one primary player which has thrown the ‘ol engine a curve ball, it is oil. We got downright personal with folks several weeks ago and stated that it’s foolish to be constructive (lower prices) on crude. If you are, don’t let your friends know it. Why commit social suicide?


Robert Craven

Moonshine

Grandpa used to have a still, out there in the Kings River bottom land, E of Fresno.  Most folk just looked the other way.  All that water and all that corn mash - distilled right down to just a little bit of pure power.  Quality, delivered at midnight in the back seat of a 1930, straight-eight Nash.

There are still a few talented moonshiners out there.  We're thinking now of the economic variety. They have a known, consistent method and a trusted product; that is, they have a track record. All the rest are just Wall Street kids. And they make bad whiskey. It's dangerous to drink their stuff.

Our job at this center is to deliver only the Real McCoy - just a shot, clear and potent - up to the bar.  You can take it from there.

In that spirit, let's look at our exercise the past six months, delivering the good stuff.

October 2010 most looked for continuing weakness.  Remember? Most looked for employment and spending to go nowhere, including two business planners who happen to be our clients. We told these two to look for more vigor, and why.  By December, others came to agree, discarding the bad whiskey. The economy cooperated.

Both employment and spending improved nicely. That strength carried into Q1, surprising almost everyone. By then, all of the market crowd were fans of the economy. All looked, including nearly all economists, for more of the same.  They started buying the cheap stuff again. Mid-Q1 we told our two planners that was wrong, that Middle Eastern turmoil and crude would force economists to cut their estimates for GDP; they did just that, surprising nearly everyone, including themselves.

Why are employment and spending such key sectors right now?  Because a lagging in both makes for the two-tiered, layered recovery and thus the disappointment for example of those who depend on discretionary consumer activity for a living.

Where are we going the next six months?

There's a governor placed on the economy now; she can't race at full power. The otherwise self-sustaining process is being hampered. Oil prices are not a blip and they are not here to stay. They are a phenomena of the intermediate term, and, an effective brake over that period. And during that period, wages will not keep up with this and other commodity-related costs; yes, those costs ex'd out by our friends at the Fed.

Another drag is that to be applied by the ECB and the Bank of China - higher official rates. That's no fun for US exporters.

Aside from these, the old Nash would be firing on 7 or her 8 by the end of Q2.


Robert Craven

Oil Revisited or Why You’re Not Traveling This Easter

We predicted earlier that higher crude would cause forecasters to shave US GDP estimates. They have done so.

From late February we’ve had WTI (near contract then 99) at 120 but that was/is the first stop tied to Middle Eastern conflict, particularly the threat of, or an actual Iranian / Saudi shootout.

This is the reason we cautioned clients late February that it was simply foolish to be constructive (lower prices) on oil and to most certainly treat any price drop as a correction, not trend. We didn’t foresee a trashed dollar, nor change in demand, nor slim inventories.

Today analysts who apparently know a whole lot more about oil than we do, tag this strength to, sure enough, 1) a trashed dollar, 2) more demand and 3) slim inventories.

I don’t know, I guess the younger guys have passed us by. They’ve got all kinds of models showing this and that. And then one bullish analyst said today that if we get a couple of hurricanes, crude is going to the moon. Well sure, acts of God come in handy when you’re on record. But further Middle Eastern conflict and threat of blockage or interruption is not an act of the God we know; it’s instead a near certainty.

Let the dollar strengthen, let inventories bloat, let June WTI trade at 108 tomorrow (last, 112). Nothing has changed.

It remains foolish to be constructive on crude.


Robert Craven

Better to Anticipate Than Be Bush Wacked

Earlier today we reviewed our method. In this piece, we highlight a very satisfactory result.

Late February we predicted that the risk was for at least a 1 ½% cut in US GDP tagged to oil; mid March we predicted that forecasters would catch on and would lower their US GDP forecasts in the near term.

Forecasters have cooperated very nicely. From today’s Reuters “At the start of 2011, growth looked solid. The U.S. unemployment rate was finally dropping, consumers were in a spending mood, and economists were busily upgrading first-quarter growth projections to the range of 4 percent.

Those forecasts are falling fast. Many economists now think the U.S. economy grew at a sluggish 1.5 percent to 2 percent pace over the first three months of the year, and one forecaster even raised the possibility of a negative reading.”

The lesson here folks is a simple one: It is far better to anticipate major economic news events, than it is to react, far better to understand economic reality, price change ahead than be bush wacked.


Robert Craven.

ANCHORS and Client Security

We set what we call “anchors,” these designed to provide security in the decision making process for corporate planners, investors and traders. Those who have been with us for a while are very familiar with the concept.


We have only one of these anchors outstanding at the moment. That would be our caution on the Middle East set late February 2011. We stated then that the course of least resistance for crude (WTI) is north, and put a 120/125 top side on that commodity. We don’t know we’ll see that price but we know it is foolish to be bearish on crude prices.

We stated also that higher prices will cause forecasters to cut their GDP estimates (already in progress).

Early this week, children at a major security firm predicted prices would now head much lower. The market crowd always demands an authority figure or god and so prices tanked.

If these analysts are intimately familiar with Saudi, or Iranian military plans, or both, then there is something to their claim. Otherwise, it is just noise.



Robert Craven

Retail Sales and Kids at the Keypad - An Alert

Retail Sales for March came in this morning up 0.4%, just under expectations (+0.5%) and the weakest gain in 9 months.

In The Week Ahead we predicted that consumer spending will slow. Thus, we cautioned our clients not to take it to heart if today’s Retail Sales release was through expectations, and for the simple reason this will not be trend. Not that is over the intermediate term.

In March we predicted that forecasters - kids at the keypad - would begin to sober up, to shave their US GDP forecasts due to events triggered by Mid East unrest. Finally they have done so, on average shaving 0.7% from Q1 estimates.

We are not oil analysts and never pretended to be. We do understand however that the very real risk remains for much higher crude, and this tied to what amounts to the heart of darkness in the Middle East - potential Saudi / Iranian armed conflict. Until we may understand that is resolved, clients are to remain on guard.


Robert Craven

Oil - An Alert

After Friday’s spurt in oil prices many look for a correction. If so, we caution taking that to heart. Course of least price resistance for crude is to continue to be north.

Friday’s spike in oil prices is attributed by observers to a weaker dollar, to fears of violence in Nigeria, to better US demand, to a blackout in Venezuela, to Japan’s boosted appetite with nuclear off line, to the extenuation of events in Libya.

No doubt some or all of these play a part but the heart of darkness is growing Saudi - Iranian tension in the region; all the rest pale by comparison.

From the Jerusalem Post: “The Saudi intervention in Bahrain last month ensured, at least for the moment, that the reigning al-Khalifa family would survive. But it has also set the scene for a growing, open confrontation between Tehran, which wants to extend its influence and power into the energy-wealthy Arab monarchies and emirates of the Gulf, and Western-aligned Saudi Arabia, which sees itself as the protector of Sunni power in this area. This rivalry is being played out around one of the most strategically vital areas of the world. It contains vital US air bases and the headquarters of the US Fifth Fleet. The security of world energy supplies depends on stability and the expectation of continued stability here.”

It is this rivalry and potential conflict which motivated us weeks ago to advise clients to look past Libya.

This most powerful of potential events effecting oil prices will remain with us for some time.


Robert Craven

Time To Sober Up - The Week In Review

The Street have come to understand that the US economy is at escape speed, all now looking in that direction. Sure enough, events this week illustrated that unemployment is still improving (Claims), that consumers are visiting department stores like crazy.

Mark Twain reminded us, “Whatever new thing a consensus coppers (colloquial for ‘bets against’) bet your money on that very card and do not be afraid.” Well, it’s not quite that easy, but you get the idea.

We were cheerleaders for the US economy when there was no one else in the stadium. Now the stadium is near capacity.

But those fans have yet to appreciate the impact of a new game rule - Mid Eastern tension and impact on US GDP by the way of crude prices.

Consider this week’s so-called Chain Store Sales result (which represent perhaps 10% of all retail sales but provides a pretty good litmus test). Results are reported Yr to Yr. Yesterday’s numbers seemed encouraging, folks buying like crazy. Now can any reasonable observer believe that results like these will continue with $5 gasoline? No.

The situation in the mid east will prove to be corrosive. This should not be a surprise. The surprise will be the extent of damage. Gas prices are heading higher than most even now appreciate.

Federal Reserve officials warn us that higher oil will not spark inflation. Thank you very much. That was never the real risk.

We have the worst, top-side impact of higher energy at 1% of GDP.


Robert Craven

Much Higher Crude

Understanding crude prices today is not the domain of the economist, nor he who has knowledge of reserves, tankage or inventory levels. It is the domain of the social scientist.

Most have come to acknowledge what is now termed the Arab Spring but they may not have adjusted to the further risk of violence which will accompany that adjustment.

Our clients were warned late Feb, early March that the course-of-least resistance in crude would be higher over the intermediate term, with 120/125 WTI the high side risk.

That is, 1) higher over the intermediate term because of the dynamics of the region and 2) the high-side risk of 120/125 because of Iranian / Saudi tension.

We advised then that any improvement in crude prices (lower) was to be taken as a correction, not trend. That unfortunately has proven to be correct.

Today’s quake in Japan, better world economy, demand “outstripping supply,” the Libya shut down, all seem to conveniently play a part. Yet it is general unrest in the Mid East which will keep crude prices under pressure. It is the event of Iranian / Saudi armed conflict which will print our target.


Robert Craven

Balancing Act

We’ve got the equivalent of an economic ledger, the debits and credits, and everybody wanting to own the identity of the bottom line before the next guy.

Our purpose is to discard the overflow of information, distill what is pertinent and present that to the client. We don’t offer graphs, charts or long-winded explanations, leaving these adornments to others.

The US economy is stronger than most expected it to be a few months ago. Clients were prepared for that fact, having the understanding of reality ahead of the market crowd. Then as recently as mid-Mar we predicted employment results which would again exceed estimates. That has been the result.

Now the crowd has accepted our premise. Once they do that they are slow to let go. While they were adjusting, we identified a threat or potential debit, something corrosive to our own view for vigor - that would be crude as tied to the Mid Easter revolution. That will detract from US GDP.

So we have this situation: We have more vigor than others expected and we have a potential threat that even now most have yet to acknowledge. That’s our ledger.

The average estimate for 2011 US GDP is now 3% and was set to go to maybe 3.75% by mid Q2 (although forecasters didn’t know that). IF that is, all is equal. All is not equal. Crude prices are to erase perhaps 1% from GDP, our worst case. That’s our balancing act.


Robert Craven

Observations At Stream Side - The Week Ahead

The economic release stream is scant this week; we will have a look at March non-manufacturing activity, courtesy of the Institute for Supply Management. This is a valuable read for vigor and employment in agriculture, mining, construction, transportation, communications, wholesale and retail trade. The release will likely exceed expectations.

But the key release by the way of market-moving horsepower is that for new unemployment Claims, for the Apr/2 week, released on Thursday. We told clients that the last figure would fall below expectations; that was the result. If that happens again the market crowd will be greatly cheered.

To understand market tension (and thus have a leg up on price discovery) one must understand crowd behavior. Key - a long time is needed for ideas to establish themselves in the crowd’s mind; once established, it takes just as long for these to be eradicated.

Observations at stream side provide a useful guide. Trout will take some food on the surface; not much however as it’s not worth the effort. They prefer to take nymphs near the bottom; that’s a lot easier and a lot smarter- there are no osprey (fish hawks) down there.

But occasionally a very large variety of stream fly will die and settle by the thousands on the surface. The salmon fly for example is a dozen times as big as the normal fly, a heck of a meal. But at first even though the salmon flies are drifting overhead in clear view of the trout the trout continue to feed as before. They see the salmon fly alright but that doesn’t register. They’re busy with the nymphs. Suddenly, and no one knows just when it will happen, the trout become “keyed in,” forsaking caution, shooting to the surface, slurping up as many salmon flies as they can.

The osprey’s shadow overhead or fly line carelessly slapped on the water - no matter, nothing will interrupt the orgy. Like members of any crowd, trout shed their individual identify and acquire that of the crowd itself. Reason, caution and judgement are exiled.

Soon the drift is over but the trout remain keyed in; they continue to mill near the surface long after, wasting energy, taking only little meals because the salmon fly have all drifted downstream.. Members of this crowd are looking in the wrong direction, once again missing the turn.

Thus, Q3, early Q4 our crowd had embraced the notion that the US economy was stuck. Ample evidence existed to the contrary, floating just overhead, but it was wasted on the crowd. Then something happened; suddenly the crowd abandoned their pattern, rejected their last notion, hanging it in effigy as if they were betrayed (there is nothing more vicious than a crowd which feels betrayed by the idol they once worshiped) Quickly, they accepted the new idol, that of economic expansion, especially that related to employment. Once again, they were all believers.

Another strong employment figure (Claims) will feed the frenzy. Yet the osprey, in the form of potentially much higher oil prices, glides just overhead.


Robert Craven

We Don’t Need No Stinking Formulas - A Special

Ok, so the Mountain Police are no longer about. Still, they had a point. They didn’t need a badge, template, rule-of-thumb or anything else; they operated on pure instinct. So should we.

We have highlighted the risk from the Middle East, to be delivered through the vehicle of crude prices. Our role here is to provide comfort to our clients, to provide (once again borrowing from the past) a bridge over troubled waters, and guidance.

The dynamic associated with the Middle East is not a thing of economics. It is a thing of political science perhaps, more accurately, human science.

Most of us want a say in our future. This applies equally to what on the surface appears to be a raucous and unruly mob in the Middle East. Yet what many now call an Arab Spring has still not registered by the way of implication with most Americans, including perhaps, most investors, most planners.

That is why we cautioned earlier to look past Libya. Crude (WTI) printed 108.31 today but clients are to recall that our top-side target set late Feb is 120.

Keen observers, keen enough that is to discard the headlines, understand this is not just tied to Libya. The business of the Middle East is a singular one - to be dangerous.

We have monitored events in the Middle East for 5 years, an earlier blog dedicated to that exercise. And so, those of us who understand the dynamics of this region know for example that it is the malign influence of Iran which can be found wherever there is unrest, in Bahrain, in Yemen.

Sure, Bahrain is tiny little island. But the violent crackdown there by authorities poses a larger potential threat than Gaddafi could ever cook up over in Libya. We’ve already highlighted the rivalries between the Saudis and Iran and the Bahrain link up.

Then there’s Syria. If the Syrian regime were to be severely weakened by popular dissent Iran's influence in Arab affairs would almost certainly be reduced -- in both Lebanon and the Palestinian territories. That’s not a bad thing. Yet a weakened government there might spark open conflict between the Sunnis and the Alawites in Syria, who hate each other. This could greatly disturb the whole region, and as one observer noted, provide a nightmare scenario for the West.

See what we mean?

So it’s a stew; but one thing’s for sure - these folk are prone to violence. And so are most of the leaders, and all of them, this writing, are totally paranoid. We can therefore not dismiss a direct Iranian / Saudi conflict. We cannot dismiss an Israeli (remember them?) strike.

So unlike the youth of Wall Street, we don’t need a formula to understand the likelihood of impact. We don’t need a template to know that present crude prices are cutting into spending; we don’t need a rule-of-thumb to know that something north of 110 for three months will cut 1% from GDP. And that folks, is the risk.


Robert Craven

Look Past Libya

Those planners and investors who may have an interest, either as a user or perhaps investor in energy concerns are to look past Libya (2% of global production).

The Libyan conflict is priced in, likely at 103, WTI. Yet we have 120 as the top side.

It is foolish to be constructive on oil prices over the intermediate term.

Look no further than Bahrain. A Sunni minority rules the country; the majority Shia population identifies with Iran, a Shia stronghold. Hint: A recent Iranian newspaper article claimed Bahrain was a province of Iran! From the Telegraph, “Since the 1979 Islamic revolution, the ayatollahs have assumed a protective role over the world's Shia. They will not have taken kindly to the sight of 1,000 Saudi troops driving across the 15-mile causeway that links their country to Bahrain, in support of their fellow Sunni royalists.”

Thus the arrival of these troops highlights region-wide hostilities between non-Arab Shi’ite Iran and Sunni Arab states. More than just a few in US and UK security circles tag this as the major potential conflagration - a Saudi - Iranian conflict. Guess where crude would go then? The Saudis are pacifying their own people with handouts; that won’t work with the mullahs.

From Karim Sadjadpour of the Carnegie Endowment for Interl Peace, “Whatever ensues, however, the Arab risings have revealed that Iran’s revolutionary ideology has not only been rendered bankrupt at home, but it has also lost the war of ideas among its neighbors.” This makes the mullahs all the more dangerous over the near term.

Thus, if freedom fighters within Iran (long abandoned by Obama) do not in some way, and pretty quickly, de-louse their country of these Muslim thugs, then a major conflagration awaits us.


Robert Craven

The Middle East - A Special

In judging energy prices look past Libya. Gadaffi may have seen his last sunrise; probably not as the mission does not target him but crude prices will drop on any optimism tagged to this conflict. If so, treat this as a correction, certainly not trend.


We opened the current chapter with a UN resolution with teeth (a rarity), then support of the Arab League (now withdrawn), then rapid mobilization. A repeat of the Iraqi no-fly zone, with us for years? Doubt it. Either way, there is much more to come in the entire region.

Most of us now realize that the old Mid East political order is disintegrating, a region that Chris Skrebowski, ed of Petroleum Review reminds us provides 36% of global oil supply and holds 61% of proven reserves.

For anyone who still clings to the notion that violence in energy prices will quickly subside after Gadaffi, witness the Yemen massacre, witness the mass protest by Bahrain's Shi'ite majority against the ruling Sunni dynasty. Witness the accompanying bloodshed, and key - tension thus sparked between the Saudis and Iran. Or witness this weekend’s mass demonstrations in Syria - “We are people infatuated with freedom.” If this does not convey a message that we are in for something profound, then better crawl back under the rock.

Key - Given the left’s emasculation of US energy independence, we’re stuck; thus it is important to understand that consensual government in the Mid East is in our best economic interest.

Democracies do not war upon one another; they find it in their own commercial interest to get along. Still, critics are everywhere. Easy to criticize from the cheap seats - the whole shebang will be hijacked by Muslim thugs. Or, no way these fanatics will ever embrace democracy. That’s no contribution, simply noise.

The easy way out is to lay a template on the thing and be done with it. It’s just too darn easy to discredit motives in a region fraught with intolerance. Sure there’s the temptation to label the whole bunch as clowns but then that’s no help. Value instead is to look for the unexpected. The unexpected will be the birth of new governments, grasping at something consensual, experimenting with what the West understands to be the rule of law, making a mess of it, but advancing in ratchet fashion nevertheless.

Finally, we return to Fouad Ajami, fellow at the Hoover Institution, “Today’s rebellions are animated, above all, by a desire to be cleansed of the stain and the guilt of having given in to the despots for so long. Elias Canetti gave this phenomenon its timeless treatment in his 1960 book ‘Crowds and Power.’ A crowd comes together, he reminded us, to expiate its guilt, to be done, in the presence of others, with old sins and failures.”


Robert Craven

Week in Review

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