As the price of crude oil drives higher towards the $80 mark the shorts are rightfully becoming nervous as this economic life blood resource appears to be trading higher, not due to fundamental data, but to the currency in which the commodity is traded. Comparing the price appreciation of USO (WTI crude oil spot ETF) to GLD (gold spot ETF) from the market bottom on February 19, 2009 to yesterday at the close, the comparable difference in prices is unmistakable. Rightfully so, the price of oil has undergone a generous lift due to a combined forward outlook of global economic growth and the macro inflationary environment which has had a considerable effect on the MSCI basket of commodities in recent weeks.
Yes! Gold and Oil are rallying along side U.S. corporate equity valuations... this must be the glorious recovery we have now come to expect. Never mind a housing index sub 20 and the responsible tax credits nearing termination in less than a month. Disregard initial jobless claims' sinusoidal dance around the 550,000 mark still having not broken below 75% of the record highs reported in March. Profits are coming in better than expected for many firms and these beacons of light allow for many to be swayed into a risky environment to purchase a basket of S&P 500 beauties at a 19.5 P/E as of Friday's close. Perhaps cynical criticism of those blindly investing in U.S. corporations on the "hope" of a new economy will pay out, as the bulls dig deep to pull the begrudged economy just over the next ridge. It won't have been a first for such a cycle to play out and may ultimately prove true this time around.
The U.S. trade surplus has narrowed from nearly 6% in 2007 by half, so a declining currency resultant of the perceived government's loose wallet may be curbed. But like a heavy buoy among lighter ones floating on a tidal current, the currency may be the last asset to surface as commodities, equities and wages rise under a new regime. What regime is this which beckons a new school of thought? The regime of government spending and regulation. A powerful mix of metasticising centralist rhetoric and political tethers will more than suffice to bind the American business and byproduct workers in a state of stagnation, unlike any past reality with models to compare. Reality will set firmly within the hearts and minds of hopeful investors now clinging to visions of previous wealth and overexuberant preferences. Whether the fault lies within our inability to spend or our reluctance to face the proverbial wealth destroying music, we must recognize the potential for a decline.
As company dollars increase in count, furious constituents cock their brows at a government gridlocked stimulus dispersion, ridden with pork barrels and inefficiencies; alas the sweet nectar of debt must turn stale and hard with age. Perhaps the U.S. Equity Market will bring turkey to the Christmas tables of Wall Street, but jobless parents and weak dollars will offer Main st. a cranberry jelly, more bitter than sweet.
