The stock market was closed today due to Good Friday, and I hope everyone has a great holiday weekend. The stock market had a low volume week, and this is mainly due to traders leaving their posts for the Easter and Passover holiday.
High energy prices are beginning to get the attention of many on Wall Street. Some fear that higher energy prices will begin to talk its toll on the consumer, and this has been my belief all along. I don't think there is any doubt that the consumer is as angry as a hornet every time they go to fill up their vehicles. I find it amusing that the Bush Administration announced this week that they were going to get more vocal over the high energy prices.
I say amusing because the mid-term elections are a little more than 6 months away, and if they have any power at all over oil trading, they will do everything in their power to briefly talk prices down. I don't find this the least bit amusing, but this is what the May 2006 Crude Oil contract has done since it began trading under an oil friendly White House.
The sad part of this situation is the limited choices that American's actually have. Do they really want the Democrats to run the country? My guess would be no. But, if consumers continue to get taken to the cleaners on a daily basis, even Venezuelan President Hugo Ch疱ez could win if he were allowed to run. Here's a scary thought, how about Hillary on 2008? Sounds impossible, but if consumers are angry enough, anything is possible. Talk about someone who is unqualified. She must have really pulled a rabbit out of a hat to be elected to the Senate in a district where she had no roots, and no previous track record or experience. Something is fishy about this.
One of the excuses for higher gasoline prices are the re-imposed environmental standards that were relaxed for six months after Hurricane Katrina. Many refineries had to shut down for maintenance now that the U.S. is shifting away from MTBE and reformulating the mix toward ethanol. This process is time consuming and costly.
In addition to the energy woes, interest rates continue to climb, and commodities and metals are reaching multi-year highs.
The 10 and 30 year Treasury bonds are now yielding over 5%. Since the rise of these yields are beyond the Feds control ( controlled buy foreign holders of our debt), the more longer term yields rise, the more room the Fed has to raise short yields to fight off inflation.
Rising interest rates are normal in a robust economy, but since the yield curve is still very tight, I would question how robust the economy actually is.
Some market experts are calling for a reversal in the recent bond sell-off. If in fact yields begin to decline, this will send us a signal that the economy is not as strong as what we were lead to believe.
Since I have always been an advocate of a reversion back to the mean, this chart tells us that after the 1960's the mean interest rate for the 20 year Treasury is above 5%, and the 1 year Treasury is also above 5%. How high above 5% is anybody's guess.
Monday marks the end of tax season. It will be interesting to see if Wall Street can drive prices up into June for the cyclical bull痴 grand finale.
