Alaron Energy Comment

CHICAGO - Jan 11/08 - SNS -- Following is the energy futures comment from Alaron Trading Corp.

Tough Enough: Who says Ben Is not tough? The New York Times said yesterday that some on Wall Street thought Big Bad Ben Bernanke wasn't bad and wasn't tough but I wonder how many of those Wall Street guys bet on a 50 basis point interest rate cut last September. Federal Reserve Chairman Ben Bernanke long ago convinced me he has what it takes to do the job when he first shocked the market back in September with a 50 basis point interest rate cut. And further more yesterday in his speech in front of the “Women in Housing and Finance and Exchequer Club in Washington Mr. Bernanke made it very clear that the sheriff is on the job and he would do what it takes to save the economy from disastrous economic slowdown. There is little doubt after Big Ben Bernanke gave his speech yesterday that the Federal reserve would continue to cut interst rates in an aggressive fashion but at the same time he made it clear that the battle to save the ec onomy from itself away be a battle has to be fought on many fronts.  Another 50 basis point cut is in the bag but perhaps the most important thing for energy was the commodity price action after the speech and what it says about the future direction of oil.

Mr. Bernanke started his speech saying that since last summer, the financial markets in the United States and in a number of industrialized countries have been under considerable strain. The Turmoil has affected the prospects for the broader economy, principally through its effect in the availability and terms of credit to households and businesses. Financial Market conditions, in turn, have been sensitive to the evolving economic outlook... Mr. Bernanke spoke of the challenges and the fears of banks lending, even to each other and about the stigma of bowering money from the discount window, the deteriorating economic climate and the deterioration in the labor market could negatively impact the consumer that has been the savior of the market. So you have credit problems to fight and the fears of job losses to fight which we know can be beat with aggressive rate cuts but we still have to feat that aggressive cuts could feed inflation.  

 Perhaps one of the most telling and important parts of his speech when Mr. Bernanke spoke of inflation expectations, Mr. Bernanke said that Even as the outlook for real activity has weakened, there have been some important developments on the inflation front. Most notably, the same increase in oil prices that may be a negative influence on growth is also lifting overall consumer prices and probably putting some upward pressure on core inflation measures as well. Last year, food prices also increased exceptionally rapidly by recent standards, further boosting overall consumer price inflation. Thus far, inflation expectations appear to have remained reasonably well anchored, inflation expectations to become unmoored or for the Fed's inflation-fighting credibility to be eroded could greatly complicate the task of sustaining price stability and reduce the central banks policy flexibility t o coun ter shortfalls in growth in the future.

 In other words the Fed is getting towards the end of its rate cutting rope if prices of commodities continue to surge higher against a backdrop of a weakening jobs picture. He is also saying that we can't really afford another shock and that stagflation (oh that word) could be a possibility. We have problems if food and energy continue to soar especially if the jobs market tanks. The oil market was also worried about inflation and a recession and those fears were enhanced by the no action on rates by the European Central Bank and the Bank of England that Fear inflation and probably cringed after Mr. Bernanke spoke. They Fear inflation and they may move to fight inflation at some point by rasing rates thereby slowing the demand for oil.    

 But after the speech was released gold soared as it should and the dollar fell but for oil the market fell. It is a sign that the market is looking to gold more as an economic hedge as opposed to oil It is also a sign that oil traders are realizing that the Feds prior interst rate cuts may not spur demand as originally hoped but may see demad drop as we move into a recession. The Oil Market cannot stay strong if the US gets inro a recession and cant stay in the nineties!

We are selling rallies!!!!!     Have a great weekend and sign up for the Phil Flynn Energy Blast!! Call me at 800-935-6487 or email me at pflynn@alaron.com  

We are short Feb crude from apprx 9999!!! Lower Stop to 9820!!

Sell Feb Heat at 255 stop 265

Short Feb RBOB from apprx 245 stop 250!!!!!!

Long Feb Nat gas from apprx 729 stopped apprx 809!!!!

 Sell Feb Nat gas at 855 stop 865!  

Phil Flynn

Alaron Research Team

800.563.9510

pflynn@alaron.com

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