The Energy Report for Friday, June 8, 2012
By Phil Flynn 888-264-5665
Economic Cliff Dwellers
Ben Bernanke sends a strong and an unpopular message to the QE vigilantes and to the economic cliff dwellers or as you might know them, Congress. While the US economy is on a path to fall off an economic cliff as the Bush Tax cuts expire January 1, Ben Bernanke appeals to Congress and ignores market expectations and dampens expectations for QE 3D.
Ben caught markets by surprise after traders were led astray by Fed Vice Chair Janet Yellen and action by the Chinese central bank. It seems that unlike Janet Yellen, Ben Bernanke is wondering about the costs and risks of another round of easing by saying the risks of that policy may outweigh the benefits. In other words, Fed Chairman Bernanke may be worried about the possible side effects like rising commodity prices. Fed Vice Chair Janet Yellen has lived in a world of denial about the impact of quantitative easing on rising commodity prices and has been a staunch defender of QE. Yet in what now may be a philosophical split from his loyal assistant, it appears that Ben Bernanke is not so sure.
Perhaps Ben Bernanke is relived that oil prices have finally come down and does not want to jinx what has become the biggest weekly oil losing streak in 13 years. Mr. Bernanke may not want to increase the price of oil with a premature QE and allow the stimulus created by lower oil prices and regular market forces to take affect. Perhaps he is really tired of having to carry the global economy on the back of his printing press. Not only did he appeal to Europe to get their fiscal house in order, he appealed to congress that he can’t just do it alone.
Ben Bernanke got it off his chest what Fed Officials have been dying to say and I have been saying, that the Fed can’t do it alone. Ben said, “'I'd be much more comfortable if Congress would take some of this burden.” Yes I said it! I said it because I can!
Of course gold traders were not happy with Ben Bernanke’s venting and want QE. In fact they felt they were promised QE. Well sure the gold bugs tried to push the issue by reversing higher last week in the depths of the global stock-market collapse, but a promise is a promise Mr. Cellophane Transparency. Ok, so Janet Yellen said she was not talking for the Fed Chief but in the past it seemed that when Ben Bernanke spoke Janet Yellen's lips would move. Traders get bitter easily.
So the oil sell-off of historic forces continues and may continue until the market starts to speculate on a global economic coordinated fiscal intervention. Ben Bernanke is looking to Europe to lead the way. Fitch downgraded Spain’s credit rating and warned that US could see its AAA credit rating downgraded in 2013 if the US doesn't put in place a serious deficit-reduction plan. Serious! They were serious about that? With more weak data, oil is in trouble and only hopes of the possibility of global intervention may stop the free fall.