Ho! Ho! Ho! Merry Christmas. Jolly old Ben Bernanke gave commodity bulls the gift of a lifetime by helping to coordinate the second largest intervention in the global economy in the history of the world! The Federal Reserve thought it is much better to give than receive and was in a giving mood. Along with a coordinated central-bank action bank of Canada, Bank of England, Bank of Japan, Swiss National Bank and China lowered the interest rate on the overnight dollar index swap rate to a plus 50 basis points, or half a percentage point, from 100 basis points and will keep that rate until at least February 1st of 2013. Oh sure maybe China was an unwitting partner in this holiday plan to ward off a European banking collapse, but by China lowered its reserve requirement ahead of what they knew would be a contraction in the manufacturing rate and that helped save the bullish momentum and take the bears out of the market.

Make no mistake about this, it's bullish for commodities! Wildly Bullish. Now I know you are hearing that this is only going to have a short term impact and dada yada, but remember that is what they said about quantitative easing. After QE 1, the last time the globe was on board to bail out the global economy, it reversed a historic deflationary downtrend and created one of the biggest commodity bull runs of all-time. Bail outs are bullish and despite the technical language, at the end of the day, we are flooding the European banks with printed money and other countries are joining in with currency swap transactions setting the stage for another rally in commodities. This is like a rate cut! This is bearish for the dollar. It will help stabilize and increase the demand side. The main beneficiaries will be oil and precious metals and if we do see any pullbacks, look at them as buying opportunities. Santa Claus is coming to town and get ready for one heck of a Holiday rally!

For oil the other key is rising geo-political risk. After the Iranians stormed the UK embassy it is increasingly likely that the EU will have to respond with some type of sanctions. The odds are it will be on petroleum products but some in the EU are against that as they fear the economic impact from the lack of that Iranian supply. The UK ordered the closure of the Iranian Embassy in London and has downgraded their relations. Iran's total disregard for International law and treaties like the Geneva Convention may force the EU to hit the Iranians where it hurts and that is in oil revenue. The risk to be short oil is exceedingly high in this environment so be careful for goodness sake.

The Energy Information Agency had a big correction on distillate inventories from the previous week. After a 6 plus million drop the week before the EIA leveled things out reporting a by 5.5 million barrel build. There could be some making up going on here. Things always get a little goofy around the holidays!

For crude oil we saw a 3.9 million barrel increase from the previous week. That may be the last increase for the year as oil companies will start to reduce inventory as we head into the end of the year. So You Better Watch Out! You better not cry! You better not pout, I am telling you why. Ben Bernanke is coming to town. Prints money why you are sleeping and when you're awake. He knows if you've been long or short, so be long for goodness sake!

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Phil Flynn
Research Division
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