A Few Dollars More

Pity poor Ben Bernanke and his men of the Federal Reserve! Caught between rising inflation and a declining dollar on one hand and an economy teetering on the edge of slow to no growth he has few options. This week he tried one time-honored approach—jawboning.
Words are cheap but they carry a lot of weight when spoken by the most powerful central banker in the world. More than once he reiterated that the Fed’s priorities have changed. Inflation, he clearly stated, has become public enemy number one. As expected, his mere threat to combat inflation immediately started things rolling in the way he wanted. The dollar had one of his strongest weeks in months, gold retreated back to the $850/oz. level and interest rates began to climb. Even the oil price hesitated in its rise to the moon.

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All the news that seems fit to print these days is on the subject of oil.
This week in response to congress and the public’s demand “that something must be done” to halt the inflationary spiral of commodity prices, the United States Commodities Futures Trading Commission announced the formation of an interagency taskforce consisting of the Federal Reserve, the Securities and Exchange Commission and the Treasury, Energy and Agriculture Departments to go after the commodity “speculators.”

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I first met John Roque in early 2001 while working for a boutique Wall Street investment bank which has since been bought by the French. John was our technical analyst. I had no interest in the subject at the time so I ignored him. That is, until he wrote his first positive report on gold that year and a year later wrote a similar report on the bullish future of oil and gas. It was then that I realized my mistake. Now, when John Roque talks, I listen.

An avid sports fan, you can usually find this dark-haired Bronxville, N.Y. native striding through his firm’s cavernous trading floor talking to traders about stocks and markets. His customers, a vast array of money managers and other institutional investors throughout the world, manage trillions of dollars for clients like you and me. Back in the day, when he first took a stand on gold and oil, he recalled, his opinion was met with disdain, even contempt.
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It was a “Back to the Future” week on Wall Street. Reminiscent of this winter’s wild swings in the averages, investors were running first for their foxholes and then a day or even a moment later buying at the market in an effort to get in on the upside. On the surface, there were many reasons for the volatility–oil, the dollar, the unemployment data, European interest rates and the Federal Reserve’s worries about the economy. But to me it all comes down to one word: stagflation.
On one side you have worries about the economy exemplified by Friday’s unemployment number, 5.5% versus 5% last month, the largest monthly increase in 22 years. Then there were more bad numbers, credit downgrades and other problems within the financials led by Lehman Brothers, this month’s poster child for possible insolvency.
[Read more →]

It was a “Back to the Future” week on Wall Street. Reminiscent of this winter’s wild swings in the averages, investors were running first for their foxholes and then a day or even a moment later buying at the market in an effort to get in on the upside. On the surface, there were many reasons for the volatility–oil, the dollar, the unemployment data, European interest rates and the Federal Reserve’s worries about the economy. But to me it all comes down to one word: stagflation.
On one side you have worries about the economy exemplified by Friday’s unemployment number, 5.5% versus 5% last month, the largest monthly increase in 22 years. Then there were more bad numbers, credit downgrades and other problems within the financials led by Lehman Brothers, this month’s poster child for possible insolvency.

[Read more →]