DANGER AHEAD?

As proud as we are here at the Daily Jurojin of being cautiously optimistic on the prospects for the seemingly fragile global economy, we are equally nervous about misreading any of the signals that are given off each day.

For example, the stock market continues to rise at this stage because earnings aren't as bad as was initially felt. The eternal pessimism that was baked in to the cake was suddenly jolted with a vicious whiplash as analysts figured perhaps they went too far. But now earnings forecasts are a little too rosy for our liking because costs have been cut aggressively and probably in an unrepeatable fashion. Scream as we may from the rooftops about this, it's a clarion cry that won't be heard for the thundering roar of bulls' hooves stampeding into the market place. Hence we've noted that it's sometimes best to go with the herd.

Our call for higher commodity prices is essentially based upon a resumption of underlying demand from industrialized nations. We admit that part of our logic lies also in the premise of a weaker dollar. But we say this is likely to unravel at the same time.

Yet we noted the following statement in a report about Tuesday's surge in the price of crude oil in a news report. An analyst based at BNP in London told Bloomberg Radio that oil is "really moving, not only on dollar dynamics but equity dynamics as well. In the end we are looking at oil as more of an investment asset than a consumption asset."

The rally in the price of crude coincided with another bad-hair day for the dollar, which reached $1.4876 per euro and the worst in more than a year. Of course the price of gold escalated precisely because the dollar fell. Gold neared $1,070 per ounce.

As much as we try to read the economic tea-leaves in the eternal hope of supporting our positive view, we still manage to find ourselves alarmed when we read statements like the following about oil. This comment comes from an energy research company from Massachusetts.

"Prices are higher in anticipation of higher demand. We have yet to see demand recover, but as long as there are upward revisions of future demand, there will be support for prices."

The well-respected energy market analyst Phil Flynn from PFGBest in Chicago said, "Oil is getting most of its cues from outside markets and not from what's happening in the energy sector." He added, "We are focused on $75 right now. If we don't take it out in the next couple days, it will show that we are still stuck in a trading range."

While a technical analyst observed, "A breakthrough to the upside instills confidence in further price increases and only adds to the bullish momentum."

Wasn't it baseball legend, Yogi Berra who said, "This looks like déja-vu, all over again"?

We're talking about the insanity that drove crude oil prices to $147 just last year while the credit crunch was unraveling. There's a peculiar virtuous cycle in motion at present and the arguments tend to rely upon one another for being right. When the cards fell after July 2008 things pretty quickly got messy.

For now we have to go with the flow. But we're raising one of those infamous red flags. This time it's rising oil prices when demand really doesn't support it. But heck, if it creates business owners somewhere a profit, who the hell cares?

Ultimately, we do. Because it simply isn't right.

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