Futures markets correctly priced in an Obama victory yesterday and all of the economic pain that will go along with it. As I have said weeks ago, before it was a popular topic, that an Obama victory would be wildly bullish for commodities as it would mean a vote of confidence for Fed Chairman Ben Bernanke and his policies of easing. Of course at the same time that means that the market is pricing in perhaps a decade of more economic pain. The markets are saying that under an Obama presidency get ready for continued high unemployment, higher budget deficits, higher taxes, and higher gasoline prices and less job creation.
The markets are expecting more of the same. Now you can blame George Bush for the fiscal fall and you could say that Obama was dealt a bad hand but the market is saying quite clearly that the pain will continue. Oh sure the stocks are popping but that is because the dollar is cheaper and corporations will gain in value as they will continue to hoard cash and not take any risks to expand and create more jobs. A win for Obama means the banks will continue to get rich and hot money will continue to seek yield in emerging markets. The established companies will get rich as small business owners will get squeezed out as regulations will keep them from entering the market place. Banks will continue to not lend money because they can make more money playing the spread then lending money. Your house value will continue to stagnate as government regulation will mean less loans for new buyers. Gas prices will rise as President will raise taxes on oil companies and slow down the historic job creating shale gas drilling in factor of high risk low return wind and solar. We are pricing in the government going after a thriving industry that has used creativity and imagination to make us energy independent and will have the government.
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China will continue to manipulate its currency taking manufacturing jobs away from a more regulated US. Instead of using our natural gas bonanza to recreate our industry we will see government regulation slow us down allowing an emerging market advantage. Europe is absolutely giddy with the outcome as they will have another country moving towards their failing socialist experiment be happy as we are moving into the same drug that has dragged that union into a fiscal crisis. Misery love company. They will look better as the US will be held back and Ben Bernanke continues to provide them cover as he devalues the US dollar making their failing Euro currency look better.
Labor Unions will be thrilled because they will continue to dictate policy. Of course they better expand their union card to cover China or India because that where all the new jobs are going to be created. China will continue to bully their currency to provide an advantage offsetting the advantage we should have assuming that our energy companies were allowed to do their jobs without the threat of vindictive taxes and increased regulation and arbitrary fines.
T he President asked for four more years and the markets are pricing in four more years like the last ones, perhaps even longer. More easing means commodity brokers like me should do well as QE means more commodity bull markets. Of course I may have to learn how to trade the Australian or other foreign exchanges as regulations and Dodd Frank is already sending volume off shore in droves and all the jobs that go along with it. CME Group volumes have been plunging. Trading in stock-linked derivatives fell by more than a third in October, continuing a decline in volumes that began in the middle of the year. Daily volume at the CME Group averaged 9.9 million contracts last month, down 20% from October 2011 and 17% from September. Daily volume for Interest-rate futures, the company's largest product by that metric, averaged 4.1 million contracts a day in October, down 16% from a year earlier and 19% from September. Equity index volume averaged 2.3 million contracts a day last month, a 34% decline from a year earlier and a 19% fall from September's levels. FX volume 709,000 contracts, down 23% from a year ago, and 31% from September.
Oil did rally despite weakling demand forecasts from the Energy Information Administration. Oil may also be a bit worried about the nor’easter that is going to hit the Northeast. The API reported a boring report showing that crude inventories fell by 27,000 barrels. Gasoline inventories up by 1.38 million barrels and distillates up by 27,000 barrels.
The EIA Hurricane Sandy resulted in the loss of electric power to about 8.5 million customers on the East Coast and the shutdown of two refineries, major petroleum distribution terminals, and pipelines because of power outages and flooding. Progress reports on the status of electricity and liquid fuels supply are available in the U.S. Department of Energy's Hurricane Sandy Situation Reports. EIA projects that the West Texas Intermediate (WTI) crude oil price will average $89 per barrel in the fourth quarter of 2012, about $4 per barrel lower than in last month's Outlook, while the Brent crude oil price is expected to average about $1 per barrel less than in last month's forecast at about $110 per barrel over the same period. The projected WTI discount to Brent crude oil, which averaged $22 per barrel in October 2012, falls to an average of $11 per barrel in the fourth quarter of 2013. WTI crude oil is forecasted to average $88 per barrel in 2013, while the Brent crude oil forecast remains unchanged at $103 per barrel. U.S. regular gasoline retail prices began October 2012 at $3.80 per gallon and fell to $3.49 per gallon on November 5, 2012. Projected U.S. regular gasoline retail prices average $3.56 per gallon during the fourth quarter of 2012. Hurricane Sandy, however, has contributed to higher wholesale gasoline prices on the East Coast, and the recovery schedule for affected refineries, pipelines, and distribution terminals contributes to uncertainty over the near-term price outlook. EIA expects regular gasoline retail prices, which averaged $3.53 per gallon in 2011, to average $3.64 per gallon in 2012 and $3.44 per gallon in 2013 EIA expects U.S. total crude oil production to average 6.3 million barrels per day (bbl/d) in 2012, an increase of 0.7 million bbl/d from last year. Projected U.S. domestic crude oil production increases to 6.8 million bbl/d in 2013, the highest level of production since 1993. Working natural gas inventories are at a record high level. As of October 26, 2012, working inventories totaled 3,908 billion cubic feet (Bcf), which is 56 Bcf greater than the previous record high of 3,852 Bcf on November 18, 2011. EIA expects the Henry Hub natural gas spot price, which averaged $4.00 per million British thermal units (MMBtu) in 2011, to average $2.77 per MMBtu in 2012 and $3.49 per MMBtu in 2013.
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