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Great Depression Online Archive Issue:

Trend Reversal?

Great Depression Online
Long Beach, CA
August 15, 2008

Inside This Issue You Will Discover…

*** Trend Reversal?
*** For The Collected Observer
*** Rational Insolvency
*** And More

Trend Reversal?

The trend over the last six years – dollar down, oil up – appears for the moment to have reversed.

First oil prices peaked at $147 per barrel on July 11th.  Next the dollar bottomed out against the euro on July 14th at $0.62.  As of Wednesday, oil was at $113 per barrel…a decline of 23%.  And the dollar was at $0.67 per euro…an 4.96% increase.

This trend reversal is obviously good for those living in the United States…that includes us.  But is it just a temporary relief from the painful squeeze of higher oil prices and a lower dollar?  Or is it truly a trend reversal?

What follows is a rejoinder of the sort that’s reserved for the collected observer.

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~~~~~~~~~~~~~~~~~~~~~~~~~

For the Collected Observer

Al Gore says it’s too hot.  But over in London on Wednesday the high was a rainy 65 deg. F…the historical average high for London this day in August is 70 deg. F.  From that bit of data it appears the world is cooling, not warming.

Yet last fall on the state capital steps, the Governor of Georgia, while holding hands with other public officials, prayed to the Heavens for rain.  “Lord,” they prayed, “Send rain!”

While the next drainage over, at the mouth of the Mississippi River, they’re still drying out from the 100-year flood a few years back.  Whether this was an act of God…or a work of voodoo…depends on who you ask. 

Nancy Pelosi may say it was Mother Nature releasing her fury for all the greenhouse gases clogging up the atmosphere…and absolutely no offshore oil drilling allowed.

Too a great hubbub’s been made over the possibility that the next President of the United States could be a black man named Barack.  We’ve even seen news articles calling him The Black Kennedy…we imagine they’re not referring to Teddy. 

Still, we find this scrutiny of skin pigment and name to be trivial…like someone being left handed or having freckles.  Our unease with the guy is that he’s a Chicago Liberal preaching ‘change’…while offering more big government twaddle that’s not new, or different, but is more of the same. 

His only upside so far is, thanks to him, we no longer have to listen to Hillary Clinton lecture us with the shrill condescension of a fourth grade teacher between now and November – if not longer.

Could John McCain do a better job?  It depends who you ask.

Rational Insolvency

Getting back to our initial questions on oil prices and the dollar…

“Oil prices fell again Tuesday, dampened by a stronger U.S. dollar and more evidence that developed countries such as the United States are cutting back on their energy use,” reports Madlen Read, AP Business Writer.

Nonetheless, can we call it a trend reversal?

“The IEA [International Energy Agency] cautioned that it is too early to determine whether the recent fall in oil prices is a longer-term trend.  It said demand in developing countries could offset declines in developed nations, and that it sees Chinese oil demand continuing to grow at a robust pace.”

And Jim Ritterbusch, president of energy consultancy Ritterbusch and Associated in Galena, Illinois, does his part to clarify things for us…

“Sometimes the cause and effect is difficult to define.  It’s a self-perpetuating, vicious circle going on, where oil falls, strengthens the dollar, then the strengthening dollar forces oil down more.”

After pondering that for a moment, we’d like to make sure you get your money’s worth here.  So we’ll offer some solid analysis of our own…

Will it rain tomorrow?  Maybe. 

Who will be the next President?  Could be McCain.  Could be Obama.

Will oil prices continue to drop?  They could for awhile…before they go back up.  But, too, they could again drop more.

And the dollar?  Sure, it could also.

English economist John Maynard Keynes said, “The market can stay irrational longer than you can stay solvent.”

And what’s rational about today’s market?

A rise in unemployment’s reported and stocks soar.  The Federal Reserve bails out Fannie Mae and Freddie Mac and the dollar rises.  The Russians invade Georgia, where a critical pipeline delivers oil and gas to Europe, and oil prices fall.  Earnings reports are dismal and stocks rally.

With this in mind, we’re hesitant to call this a trend reversal just yet.

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  Find out all about the “Income Security of the Month – August 2008.”  This fund invests exclusively in one of the fastest-growing and most undervalued foreign markets on the planet. Thanks in large part to its international strategy, the fund has posted total returns of +179% over the past five years, and it ranks in the top 10% of its category over the past decade.  Learn more here: Income Security of the Month -- August 2008.

 

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