GAS PRICES
The opportunists were out in full force this week as Democrats and Republican's began an old fashion version of finger pointing. If they were really sincere about what they were saying, they would have started a year earlier.
Now, just as the oil companies are close to completing there implementation to ethanol blended gasoline, President Bush announced he wants the EPA to consider waiving clean air rules, and go back to the refining system we had post Katrina. It痴 going to be interesting to see if this actually hinders the refining process since many refiners are in the last stages of the ethanol conversion.
In addition, the President ordered a halt to adding oil to the Strategic Petroleum Reserves, but geopolitical turmoil in Iran is causing oil prices to remain high.
UNCLE BEN'S TESTIMONY
Fed Chairman Bernanke testified before the Joint Economic Committee on Thursday, and revealed that the Fed "may decide to take no action at one or more meetings," even if the "risks to its objectives are not entirely balanced." Then he added "Of course, a decision to take no action at a particular meeting does not preclude action at subsequent meetings."
After his remarks, bank stocks rallied, and the dollar sold off. Obviously currency traders believe inflation is a bigger problem than what is being reported. Bernanke's remarks of the Fed possibly pausing did not signal that the Fed痴 work was done. I took it as a pause comment as an opportunity to raise the periscope and assess the damage.
Often, it takes 6-12 months before the full effects of a rate hike are felt, it is probably wise that Fed pauses or risk overshooting and throwing the country into recession.
The real estate market has already begun to slow, but cost push inflation as it relates to energy and commodity prices remain a problem. Often, the only way to kill cost push inflation is to drive an economy into recession.
GEOPOLITICAL RISKS
Iran remains defiant about their uranium enrichment program, and the International Atomic Energy Agency told the U.N. Security Council that Iran continues to hide information.
The next step could result in sanctions by the Security Council, but the real geopolitical firestorm could come from China and Russia. Both countries are permanent members of the Security Council, and have great relations with Iran. As such, China and Russia are strongly opposed to sanctions or military action against Iran.
Needless to say, oil prices will probably stay until a solution is reach. When you add in the fact that hurricane season starts in June, the odds of a big decline in energy prices are pretty slim.
TECH SECTOR SLIPPING
Today, shares of Microsoft (MSFT) took a beating after the company issued guidance that disappointed the street. Microsoft stock fell 11% to close at $24.15. The company went on to say that 兎arnings would be hurt by increased spending to stay abreast of competition such as Google Inc."
Let's keep an eye on this one, I wouldn't mind adding the stock to the IA portfolio on a break below $23.50.
Have a nice weekend.
