Peter Yastrow's Blog

Taking Action Against Rising Oil

Airtime: Fri. Feb. 25 2011 | 6:56 AM ET

A look at how traders have been dealing with rising oil prices on growing Mideast unrest, with Peter Yastrow, Yastrow Origer, and Tony Crescenzi, PIMCO Executive VP

Global Market Update: Feb 24th 2011

The U.S. Federal Reserve continues to keep monetary policy as accommodative as possible. To put it simply, interest rates are as low as Bernanke can get them. Whether or not we agree with this policy is irrelevant to our outlook.
The stock market will continue to benefit from this low rate environment. More specifically, we should expect larger capitalized companies to continue to feast on these low rates. (Ideally we would buy an enormous company without any employees.)
The recent uprisings in the Middle East and Africa have already had an immediate impact on the price of oil, and we would be naive to ignore the potential ramifications. Gasoline prices above $5.00 would be a huge burden on American consumers, and would crush demand for discretionary items. We will keep our eyes on the oil prices, but at this juncture this is not a reason to exit equities.
Commodities are going to remain strong. While the Fed is on hold, we hold onto those commodities. The low interest rates shift many decisions. Corporations are acting rationally if they take on additional inventory, and forfeit interest earned on cash. Now with the possible supply disruptions due to the Middle East and Africa Uprisings, purchasing managers again will be increasing inventory levels.
The Fed is in charge. Bernanke is fixing the biggest financial problem ever in the history of the world, with a stealthy approach of inflating us out of it. Ben Bernanke is not a magician, he is an economist. We handed him a huge mess, and there is no easy solution. We either deflate now, or inflate our way out of it. Hopefully someone will create something big soon.

Sorry it has been so long.
Joy to the world.
peter

Tags: ben bernanke economics