Alaron Energy Comment

CHICAGO - Jun 1/09 - SNS -- Following is the energy futures comment from Alaron Trading Corp.

I am in the dollar! Get me out of here! Macro Economic misadventures, signs of recovery and the mother of all budget deficits created lust for commodities that made the month of May live up to its lusty reputation.

It was the lusty month of May as the lust for commodities grew at an incredible pace. Commodities went on a month long  adventure that many have not seen in years. Commodities as a whole had their biggest monthly rise since 1974 as a confluence of factors, especially stronger demand hopes, against the backdrop of a deteriorating dollar. The yield curve between the 2 and 10 year notes which widened to the largest spread in history seen last month and seems to suggest that the  either the economy is going take off like a rocket or just a lack of confidence that the Obama Administration will ever be able to get the budget deficit under control. The buying of General Motors and another $30 Billion dollars to finance GM's bankruptcy is just the latest in nonstop spending that is shaking the confidence in the fate of the US credit rating. This  increase fear of hyper inflation  is leading to historic moves in commodities. Oil for one had the biggest monthly rise in a decade and silver the biggest monthly run since 1987. And the dollar hit a five month low and had the biggest monthly drop against a basket of currencies since 1985.

This is leading to angst in China where they hold billions of dollars of our debt and tons of dollars and we are looking  to them to buy more. At the same time demand for commodities in China seems to continue to grow.  The Chinese are  buying commodities because they are looking for an alternative  to the dollar and they are buying them because it appears that the massive government stimulus spending in China is starting to work. For the third month in a row the Chinese manufacturing sector improved and expanded hitting 53.1 in May following up on a strong April of 53.5 as measured by the official Chinese Purchasing Manager index.

Meanwhile as Bloomberg News and Reuters and Dow Jones reports the Fed is puzzled by what all of this means. The Fed is studying why the yield curve looks wider than the Snake River Canyon and what the implications are on for central banks strategy for quantitative easing. The Fed is wondering if the steepening yield curve means the economy is going to recover faster and therefore it's time to stop stimulating it  or is it because the market thinks that the dollar is going to be worthless because it feels the amount of economic growth that the plan will generate will not justify the cost sending the dollar tanking. That would mean the Fed would need a lot more stimulus of some sort  going forward. The Fed is stumped by the yield curve conundrum and if they guess wrong either way it could cause problems for the US and global economies for years. Or it may be that we may see a real decoupling of the global economies away from the US for a period unless we get our twin deficits under control.

In the meantime investment in traditional forms of energy is being discouraged by the Obama administration. The anti petroleum president will visit Saudi Arabia and bow not so much in a sign of respect but so the King can kiss the President's backside. On the one side  Obama needs Saudi Arabia as a mediator if his Mid-East peace initiative is going to bear any fruit and on the other hand he has said, according to Reuters News, that  Obama would discuss oil costs when he meets with Saudi Arabia's King Abdullah next week and plans to say that big price rises are not in Riyadh's interests.  Where does  Obama get off lecturing the King on rising energy costs when it could be argued that his   energy policies may be the most expensive and bullish for energy prices in the history of this country. How can he ask for the Saudis to drill more when he desires to drill less. How can he say he is concerned about the impact of energy on the global economy when he supports an expensive cap and trade agenda? How can he tell the King to invest in oil and pump more when he says that he wants raise lease and royalty rates to discourage domestic production Saudi imports to the US fell to a 20 year low so I am sure the King is not all that concerned about losing this customer.

You should not be losing out! You need to OPEN your account now!!! Also you should be watching the Fox Business Network where you can see me every day! Call me at 800-935-6487 or email me at pflynn@alaron.com.      

We're long July crude  from apprx 5959 on the roll - raise stop to 6300!!!

We're long July heating  oil on roll  from  apprx 15645 -   raise stop to 16800!!!

Buy July RBOB  at  18200-  stop 16900.

We're long  July natural gas from  apprx 390 ' raise stop to stop 340.

Phil Flynn

Alaron Research Team

800.563.9510

pflynn@alaron.com

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