He can raise rates faster than a speeding bullet, has words more powerful than a locomotive, able to leap tall buildings in a single bound. Look up in the sky! It's a bird! It's a plane! It's super Bernanke! Yes it's Super Bernanke, strange visitor from another planet (Princeton) who came to earth with powers and abilities far beyond those of mortal men. Super Bernanke can change the course of mighty markets, break banks with his bare hands and disguised as Gentle Ben Bernanke, mild mannered Fed Chairman for a great central banking system, fights the never ending battle for truth, justice and the American way.
And we didn't even have time to thank him; bummer. Global stock markets rejoiced as the Fed Chairman recounted how he, along with help from his trusted fellow central bankers and an unprecedented amount of printed cash, saved us from a global disaster, a fate so terrible that it might have made the Great Depression look like a summer vacation. Bernanke, after his recounting of the crisis that has gripped the world said that, "the world has been through the most severe financial crisis since the Great Depression. The crisis in turn sparked a deep global recession, from which we are only now beginning to emerge. As severe as the economic impact has been, however, the outcome could have been decidedly worse. Unlike in the 1930s, when policy was largely passive and political divisions made international economic and financial cooperation difficult, during the past year monetary, fiscal, and financial policies around the world have been aggressive and complementary. Without these speedy and forceful actions, last October's panic would likely have continued to intensify, more major financial firms would have failed, and the entire global financial system would have been at serious risk. We cannot know for sure what the economic effects of these events would have been, but what we know about the effects of financial crises suggests that the resulting global downturn could have been extraordinarily deep and protracted." In other words, if it were not for Ben we'd be in deep.
For better or worse the Fed Chairman deserves some credit as it appears that things are indeed getting a bit better. Some might wonder if his Jackson Hole speech might be compared to President Bush's "Mission Accomplished" speech. If you fear a double dip recession or if you believe that Bernanke's policies will only create bigger problems in the future you may want to save this speech. Yet what choice did the Fed Chairman have when the global credit markets began to collapse? Mr. Bernanke was compelling when he said that, "One very clear lesson of the past year--no surprise, of course, to any student of economic history, but worth noting nonetheless--is that a full-blown financial crisis can exact an enormous toll in both human and economic terms. A second lesson--once again, familiar to economic historians--is that financial disruptions do not respect borders. The crisis has been global, with no major country having been immune." I wonder if he was telling that to Jean Claude Trichet. "History is full of examples in which the policy responses to financial crises have been slow and inadequate, often resulting ultimately in greater economic damage and increased fiscal costs. In this episode, by contrast, policymakers in the United States and around the globe responded with speed and force to arrest a rapidly deteriorating and dangerous situation. Looking forward, we must urgently address structural weaknesses in the financial system, in particular in the regulatory framework, to ensure that the enormous costs of the past two years will not be borne again."
The London Telegraph reports that, "Jean-Claude Trichet, president of the European Central Bank, has rounded on his US critics over charges that he has been too cautious in the way he has handled the economic and financial crisis in the euro zone." The Telegraph says that, "He mounted the vigorous defense at the annual symposium by the Kansas City Federal Reserve at Jackson Hole, Wyoming, where the policies of the world's major central banks, the ECB, the US Federal Reserve and the Bank of Japan were examined by economists."
Critics accused Mr. Trichet and the ECB of waiting too long to cut interest rates and being more cautious than the Fed in the way they attempted to stimulate the euro zone. Mr.Trichet argued that the ECB was guided by its primary aim of delivering stable prices and the need to revive bank lending. He said: "Criticizing a central bank that is acting with a steady hand for being 'behind the curve' rather misses the point. A gradualist approach of this kind may be the most effective antidote to the threat of price stability." Of course Mr. Trichet had no qualms about criticizing Fed Chairman Bernanke when he called on the euro zone. Trichet said that, "We see some signs confirming that the real economy is starting to get out of the period of free fall." But, he added the improvement, "did not mean that we do not have a very bumpy road ahead of us".
Natural gas price are at a seven year low. Demand prospects are the worst they have been is recent memory! What a great time to invest in independent natural gas companies! I am serious! Take this very interesting article in today Financial Times that says, "A growing number of foreign energy companies eager to tap into America's vast natural gas reserves are looking to invest in independent companies, while estimates of US supplies continue to increase.
BP and BG Group of the UK and StatoilHydro, the Norwegian energy company and Eni, the Italian oil company, have all bought into the US gas industry in the past year to gain access to the US industry while tapping into the independent groups' experience and technical expertise. PFC Energy, a consultancy, estimates advancements made by the independents - which carry out exploration and production of the natural gas but not refining - in developing natural gas from shale could, if taken abroad, more than quadruple, increasing supplies of this alternative option to greenhouse-intensive oil, coal and oil sands fuels.
The Financial Times goes on to say that the, "US is now believed to have 100 years' worth of resources, at today's usage rates, up from about 30 years just three years ago. Given political concerns over carbon, the industry believes natural gas will have a major role in the energy future of the US and the world. This belief has stoked interest in spite of the drop in the natural gas price to about $3 per million British thermal units, down from last year's record high of $13.694 per million metric Btu."
Yet the companies recognize that working shale gas is different from conventional production. The shale rock must be fractured with high-pressure water to produce the gas, which has been absorbed in the rock, trapped in the pore spaces and confined in fractures. And new wells must constantly be drilled to maintain production. Aubrey McClendon, chief executive of independent Chesapeake Energy there was an "enormous worldwide interest'' in US shale resources. "There are acquirers from all parts of the globe currently kicking tires on US shale plays.' Chesapeake expects to do one more deal by the end of the year. A must read in today's Financial Times.
Now that Big Ben Bernanke has saved the global economy from ruin can oil supply meet the demand? Last week we saw supply mysteriously disappear as Gulf Coast imports grounded to a halt. I expect a big rebound this week and that may cap this Ben Bernanke bad man rally. Still if stocks keep soaring and the dollar keeps falling the crude price can go higher. Longer term we still see the downside correction will end up being greater than the upside move. Yet short term we have to respect the market mood.
Republished with permission from Alaron's Energy Report Daily.