Category — General

Many people involved with the market are adamantly opposed to any actions justified by the term “too big to let fail.” In capitalism, a company should be able to experience without interference both the profits and the losses that come with business. In theory, if a company has placed itself in a position where there is a possibility of failure, so be it; the company will have to deal with the consequences of their mistakes. The notion that the government – posing as a white knight – will ride in and rescue the company from danger is a thought that repulses many market followers. However, while existing in the theoretical world is nice, reality is far more complex. I applaud the federal government stepping in to help embattled companies Freddie Mac and Fannie Mae, as the extended consequences of their potential failures outweigh the theoretically sweet idea of a non-interfering government. Furthermore, I encourage the Federal Government to continue to utilize the “too big to let fail” mentality in order to stave off a severe recession.

If a house a few blocks down is on fire, should you do nothing? The chance the fire will destroy your house is slim, yet you might still feel the effects of that house burning down. For example, the smoke might linger in your neighborhood for several days, or in the longer-term, nearby property values may fall. In other words, though an entity seemingly unconnected to you is in danger, you still might feel the ramifications should the “fire” not be extinguished in time. No one is an island, and were Freddie Mac and Fannie Mae allowed to fail, people throughout America (and hence, the globe) would have been subjected to a worsened recession. Had the federal government done nothing to help the two companies, it is likely that they eventually would have had to use more taxpayer funds in the long run to help heal the economy. The domestic housing market is already in enough trouble, and though I do believe that discretion should be used when deciding how big is “too big to let fail,” I think the Federal Government was right in its actions.

Upcoming Figures
AUD Reserve Bank of Australia’s Board Meeting Minutes (Jul)
JPY Bank of Japan Monthly Report
EUR Italian Consumer Price Index – EU Harmonized (Jun)
GBP Consumer Price Index (Jun)
USD Advance Retail Sales (Jun)
CAD Bank of Canada Rate Decision

The U.S. banking industry is in the exact situation that the Fed attempted to avoid in August. By slashing the Fed Funds rate by over 4 percent the Fed attempted to pump much needed liquidity into the financial system. Unfortunately their attempts are not enough to save banks that have overleveraged balance sheets with sour sub-prime loans. Banks like Washington Mutual over exposed themselves to the sub-prime crises, and soon a bank run will occur. When the CEO of Bear Sterns argued that Bear had enough liquidity, the market did not believe him because they know he was saying what he had to say. Washington Mutual CEO Stephan Frank came out today and expressed that Washington Mutual had adequate capital to with stand the drawdown. The question remains not if a bank run will occur but when.

Washington Mutual profited greatly during the property bonanza of the past 6 years. The majority of their sub-prime loans were made during the summer of 2006 which are set to reset either this summer or next. The 3 billion lost over the past two quarters will be dwarfed by future write downs. The models used to price these loans will have to take into account the increased risk of default, brought about by a slumping economy and increased oil prices. Washington Mutual had large exposure to Stockton and other California towns that have been hardest hit by the crisis. Their exposure will lead them to be the next bank to topple. The largest savings and loan will not last until Christmas. This will put pressure on the dollar because traders doubt the Fed’s ability to raise rates, in the near future.

The term too big to fail is atrocious, it is an oxymoron that grates at every fiber of my free market body. Investor’s reaped the benefits of Fannie Mae’s and Freddie Mac’s stock price appreciation over the past decade and now the federal government is going to pick up the bill. Fannie and Freddie combined have 5.2 trillion of housing debt outstanding. This amounts to half of the housing debt in the country; they facilitate loans by buying them from banks and insuring the payment of principal and interest. Freddie and Fannie make money charging a guarantee fee of interest and principal to banks. It buys loans from banks and bundles them into Mortgage Backed Securities. Through these securities Fannie and Freddie receive monthly payments from the loan. They use short term government loans to finance these mortgage backed securities. The system is solvent and profitable until a large amount of individuals default on their loans. This decreases not only the value of the MBS but the monthly revenue that Freddie and Fannie receive. Both stock prices have lost 90% of their August 2007 value, and there is fear that both companies may not be able to meet credit obligations. Both companies have adequate liquidity and the dip in the stock prices can be attributed to fear not rationality.

Investors however flocked to Fannie and Freddie bonds, because they receive investment capital in bankruptcy prior to stock holders. Secretary Paulson signaled the companies would not be nationalized. However the question remains whether the Fed will open up the discount window to Fannie and Freddie. This is the most likely scenario, which has huge ramifications with in the Fx market. First it underlines the notion that some entities are too big to fail. On top of that the liquidity needed to prop these institutions up is around 100 billion, which will not directly affect the dollar but the dovish notion will. The Fed’s credibility is razor thin at best and this action will send the dollar into a freefall.

It hurts me to say but I support this decision because these two entities are too big to fail. Combined they insured 81 percent of all mortgage securities generated in the first quarter, more than double the percent guaranteed in Q1 of 2007. In short the credit crunch has forced all banks to only provide rock solid mortgages. These credit crunch situations need entities like Freddie and Fannie to provide needed liquidity to the housing sector. The moral hazard presented by insuring Freddie and Fannie outweighs the danger of liquidity freezing up in the financial sector. If the housing market is to recover Freddie and Fannie will play a large role, and expect the Fed to announce the option of using the discount window to both companies. In order to trade this buy the EUR against the USD you won’t be disappointed.

Recession seems to be on every ones mind, the Fed is pulled on whether to fight recession or inflation. Supply side shocks give Fed governors ulcer’s for this specific reason. To accurately portray the current situation we are in a growth recession, because our output is increasing along with an increase of unemployment. Sounds odd, however numbers don’t lie, and the BEA analysis show just that. Inventories have fallen and consumption has risen through the month of May. Why is every one predicting impending doom, Yellen stated that consumer confidence had cratered, and that tax rebates have fueled the economy. Which could be true, and if so how do we know that we have entered a recession. When the tax rebates end then a drop in consumption will be a good sign of recession, prior to this drop in consumption an increase in inventories would be an indicator. Recessions in the United States are demand phenomena’s because our economy relies so heavily on consumption.

Asian economies are more tied to export growth; however the U.S. economy has a strict correlation to consumer spending. Another important fact that relates to the Fx market is that U.S. export corporations have posted record profits, while International export corporations have posted profit decreases. The decrease in international corporation profit can be attributed to their attempt to hold market share. They have not increased prices even though their product has become more expensive relative to U.S. produced goods. U.S. export corporations have enjoyed the increased profit margin and greater market share. The decrease of the dollar has made U.S. corporations more competitive on the international market. In short the economic slow down that has weighed on the dollar, has improved the profitability of our most efficient sector the export sector. The export sector produces 25% of the U.S. output with only 9% of the employment. The reason that net exports are negative is that we import an enormous number. We have entered a growth recession, but not everyone loses in a recession.

Take your emotions out of the picture, that’s what they say. While some investors are able to treat securities in an indifferent manner, few are able to ignore the feelings of greed or fear that come with profits and losses. For people involved in financial markets, finding ways to trade without emotion is one of the toughest and most important tasks that an investor will attempt. The border between human psychology and investing is a shady one, filled with perilous lessons as well as the figurative corpses of an immeasurable amount of investors who have tried – and failed – to ascertain the balance.

The ugly truth of investing? Not everyone is a winner. This is true in almost any market, including the FX market. Even while attempting to strategize without emotion, we cannot avoid our own psyches; we are not machines, no matter how much caffeine we digest on a daily basis. As a result, things that should be certain are often unclear, and things that should be unclear are often certain. Today, Henry Paulson and Ben Bernanke spoke to Congress and presented a mixed bag of information. However, despite the overall optimistic tone of their talks, the US Dollar got slammed across the board, losing about 100 pips against the Euro. So what to do?

The best suggestion that I have learned from dealing in the FX market is to utilize whatever tools possible that push your emotions out of the equation. Personally, I utilize ‘Stop Losses’ and ‘Take Profits’ whenever trading, and perhaps more importantly, I avoid altering them at all costs. Our minds play tricks on us, fostering greed when we’re up, and inducing fear when we’re down. Even for incredibly successful individuals in the business and finance world (i.e. Jerry Yang), removing emotion can be a difficult proposition. However, there is something else to keep in mind: many traders do win. And as long as you are responsible and mature in your approach to investing, there is no reason why you can’t be one of those people who learns to balance psychology and investing.

Upcoming Figures
CAD Net Change in Employment (June)
CAD International Merchandise Change (May)
USD Trade Balance (May)
USD U of Michigan Confidence (Jul)

Today we have the last part in the three-part series focusing on oil. Again, we hope that you have enjoyed our debate, and look forward to possibly having more debate-style discussions in the future.

Question #5: How will the current energy situation impact America’s relationship with oil?

BB: More than anything, this recession has forced the general public to look in a mirror and see that there is a severe problem. Our addiction to oil has been justified or excused in the past, but no longer. The public– I believe – is ready to admit the problem and look for solutions. One interesting plan was proposed just the other day by billionaire oilman T. Boone Pickens, who is advocating a shift away from foreign oil towards wind power and natural gas (from within the US). It is one of many potential plans being put forth as a way to wean America off of its dependency on foreign oil. Another thing to point out is the timing of this recession. 2008 is an election year where either candidate is more likely to push a more progressive energy agenda than the former president. As a result, many are hopeful that between a more forward-thinking government and a more concerned public will lead to dramatic change in the next decade or so. Despite the best efforts of the current presidential administration, the problems of climate change and high energy costs are now front and center in the public’s conscience, and the next administration will likely pursue “greener” energy policies. I expect that with the next twenty years, America will cut its foreign oil imports by at least 15%. Through the development of more efficient cars and an overall dedication towards cleaner energy sources, I think that the current energy situation will successfully help the US become less dependent on oil, though it may take some time to see pronounced effects.

JK: Americans addiction to oil will continue until the price rises to a point that eliminates demand. The public is not serious about eliminating their carbon footprint. If they were, then lawns would be brown and a victory garden would grace every house. This leads to the conclusion that Americans will not change their way of life until forced too. Americans can not continue their way of life on wind, solar, or wave power. The amount of electricity generated by these sources is minimal and our entire energy infrastructure is not designed for it. If greener technology is to be undertaken then the entire infrastructure needs to be changed, which will happen as a result of sky high oil not a moral imperative. Boone Pickens made the wind power investment to generate stable revenue; he is looking to turn a profit not save the world. Profits are the American way, hope and change is nice but useless without employment. If America’s addiction to oil is too be cured nuclear energy, car pooling, and public transit will play a much larger role. Oil imports will not decrease until cold fusion is invented, or the price is too high. No matter what happens in the long run the short run will continue to be painful. Our relationship with oil will continue to be an expensive love hate relationship. The current price increase will cure the disease but it is a chemo therapy cure for the cancer of oil addiction.

Question #6: Is there any way that oil prices will fall dramatically in the near future?

JK: The price of oil has fallen $9 in two days; however don’t expect this to persist. The price of oil will continue to go up for the simple fact that oil’s rise is demand based. The current dip is a hiccup within the market, the trend has not changed. One of the rules of FX is don’t trade against the trend, this applies to commodities as well. The only way for the price to fall is for demand to diminish, which happens when the price rises. OPEC producers are concerned with the price of oil because they know that the farther it goes up the more alternative sources become profitable. Hence the Saudi output increase because if demand diminishes then so do Saudi coffers. Some will blame speculators whose profit is based on positions based on the direction of oil. No oil changes hand only cash, they are not hoarding oil just taking a position. Blaming speculators is like saying that gamblers affect the direction of a baseball game. Speculators do not influence the price of oil; they profit from it, and lose from it. All commodities have doubled over the last couple of years, and their rise has been demand driven. The transparency of expectations that futures contracts create help airlines and chemical companies secure lower financing to expand production. The price of Oil will not fall in the future until demand diminishes, or supply increases. With all producers at almost full capacity, the demand side of the equation is the only adjustable factor. The only solution is a fall in demand which will not happen at the current price. There is no easy solution, but a bad solution is more regulation. A popular policy that would hurt individuals because clarity would diminish and financing costs for transportation and airlines would increase. Speculation is a hedge used by these industries for future price increases and taking it away would cripple them.

BB: It’s very unlikely… but stranger things have happened. One man quite familiar with global markets, George Soros, has expressed his belief that the current oil prices are a bubble, which would imply that a large fall in price will eventually come. However, I find this hard to imagine happening anytime soon. If the demand for oil persists at or near current levels, why would the price dramatically drop? John is right about this… the price won’t fall until demand does. Unless there is some sort of shock (a new invention, new legislation, etc.), the price is not likely to fall back down. Eventually, however, there will be a point when the price of oil has reached an unsustainable high. At that time, enough people will have finally been “priced out” of using oil in their everyday lives, and as a result, the demand will slowly start to go down. However, this scenario is only likely to play out if we continue today’s trends of increasing supply, demand, and prices. Should we find a way to buck those trends, perhaps by utilizing alternative energy sources, then the process of falling price of oil could happen sooner. I ultimately view oil falling in price as inevitable; one day, we will wake up and there will be none left. However, in the short run, I do not foresee any reprieve for energy costs.

Today is the second part of the series regarding oil. We hope you enjoy our debate, and again, if there are any questions that you would like to see debated relating to oil, please post a comment for us.

Question #3: Can oil prices lead to stagflation? Will they?

BB: Let me put it simply: they can, and they will. Unless something occurs which halts the rise of oil prices, it is very likely for the dreaded situation of simultaneous high inflation and stagnant growth to occur. Of all the terms in economics, there are few as feared as ‘stagflation.’ The last time that stagflation was prominent was in the 1970’s, which also just so happened to have been a time of sky-high oil prices (see where I’m going with this?). Those oil shocks were widely blamed for the stagflation’s onset, and though silly policies by the Federal Government and the Federal Reserve played their part in making the situation worse, it was oil prices that created the situation. That historical lesson does not leave me with an optimistic outlook. In theory, we should learn from the mistakes of our predecessors, yet in this case, that may not be enough. Unless something is done to stop the rise of oil prices, the trends that have already been establish (rising inflation, decreasing growth) are likely to continue until we enter a period of stagflation. Uh-oh.

JK: It depends; the fact oil contributed to stagflation is undeniable. However the assumption that oil shocks bring about stagflation is false. Stagflation is simply rising unemployment and inflation, an oxymoron but possible. The stagflation of the 1970’s was brought about by a variety of factors namely, because central bankers didn’t do their jobs correctly. Inflationary expectations rose, because the initial response to the rise in oil prices was to cut interest rates (sound familiar). Almost all Central banks pursued this pro-growth, pro-cyclical policy, which lead inflationary expectations to rise. If you listen to the press conference from ECB President Trichet one thing you can conclude is that he is terrified about inflation. He highlights the dangers of short-term policies that can alter long term inflationary expectations. When they set in then the domino effect of a wage price spiral can be initiated which will only make a bad situation worse. Oil can be considered a necessary but not a sufficient condition for stagflation. However the given the current situation stagflation will most likely occur, due to the prolonged period of time that oil has been at its current price. The spill over effect can be seen in every countries PPI. The wage increase can be observed in China and India. As for the OECD, a lot of pain awaits because imports which that have contained inflation will become very costly. Let us only hope that Central Bankers choose the prudent course of containing long term inflationary expectations, not promoting short term growth.

Question #4: Will the price of oil lead to the USD losing its premier status in the FOREX world?

JK: No, these types of responses are typical from Mahmoud Ahmadinejad and Hugo Chavez. Both stand up individuals, but both with little or no trade ties to the United States besides oil. Yes, Chavez does export millions of barrels to the U.S. but these countries need to export just as much if not more than U.S. needs to import. One of the reasons that oil is above $140 is because the U.S. dollar has depreciated. The reason for this depreciation is our current account deficit, excess government spending, etc. The rise of oil did not crush the dollar; the depreciation of the dollar gave the price of oil a shot of steroids. The dollar is king because the domestic economy creates 13 trillion dollars annually. As long as the risk premium associated with U.S. investments continues to be low and the U.S. stays on the forefront of technological innovation the premier status will not change. The dollar will lose its premier status when China can build a 747 or provide financial consulting. Currently China fills container ships with of knick-knacks, not very inelastic, and definitely not reserve currency export.

BB: As much as I hate to do this, I agree with John. The critics of the USD have been howling for decades, and I don’t expect this current recession to alter much. The only way that the USD could be knocked off its pedestal is if it becomes so weak that it can no longer function in its many roles, such as the reserve currency for the world, the currency for commodities, or the currency involved in the bulk of FX trades. In the end, it would be too monumental of a project to shift away from the USD, and even if the “powers that be” decided to, which currency would take its place? The only truly viable candidate would be the EUR, yet that has only been around for about a decade, so it lacks the historical track record of the greenback. So while it is possible that the USD might eventually lose its spot as top dog, that time is many years down the road. Even if the price of oil is shifted to another currency in the next few years (also unlikely), I do not anticipate the USD losing much prominence.

One of the major sources behind the world’s current economic woes is soaring oil costs. While we have discussed this problem in recent weeks tangentially, my colleague John and I have agreed to more deeply explore this issue. John has graciously agreed to join me in debating several oil-related questions for the next few days. We hope you enjoy our discussions, and should you have any questions that you would like us to discuss, please do not hesitate to post a comment.

Question #1: When will oil hit $150/barrel? $200/barrel? $400/barrel?

Benjamin Beller: We actually have a bet going on this first one… remember when oil was near $100 and it flirted with that figure for while before crashing through? I think that the oil market will slow down before crossing this sentimentally-important mark, so I predict Monday, July 21, 2008 for $150/barrel.

John Kenderski: Oil closed today at 146.18 on the NYMEX a 1.92 % rise from yesterday. One of the golden rules of trading is not trading against the trend. If the market has appreciated over 40% since January, why would it stop? Regardless of speculation, demand supply, dollar weakness, or the factors moving the price of oil it has appreciated around 7% a month in 2008. Expect July to be no different with oil closing above $150, so I’m predicting $153.50/barrel by July 30, 2008. It is simple trend analysis which Ben cannot deny.

BB: In the words of Ari Gold, “Deny ’til you die.” I think that unless there is a major event (attack on Iran, divine intervention, invention of cold fusion, etc.) within the next six months, the price of oil will reach $200/barrel by December 25, 2008. Merry Christmas.

JK: If you go by back tested data of 7% a month then by December 25, 2008 the price of oil will be $215.29. However this is too simplistic and is a ceteris paribus argument assuming the current trend continues. The current increase in the price of oil is a demand based increase, the trend will continue but the slope will abate. I agree with Ben that the price will be more around $200, at this point supply will satisfy demand.

BB: $400/barrel? If oil ever reaches this level, I don’t think (read: hope) that it will take place until 2012 or so. At this point, oil will have become too expensive for most consumers, and as a result, we will witness a major paradigm shift in how people utilize their automobiles. At the current ratio of oil price/barrel to gas price/gallon, it would cost over $11/gallon to fuel up. If you’re worried about stagflation now, you ain’t seen nothing yet.

JK: I disagree. Oil will never reach $400/ barrel because at this price demand would diminish. The current rise in oil prices is a globalization phenomenon, because increase transportation of goods across borders has increased the demand for oil. Once it becomes too expensive to produce goods in China and ship them, to the US production will be moved closer to the domestic market, decreasing the demand for oil. Look at the US automotive sector and observe the result of $4.00/gallon gas. Fuel efficient vehicles are becoming a necessity, and the extinction of the SUV is imminent.

Question #2: Is the problem due to supply and demand factors or speculation?

JK: The current spike in oil is a multi faceted issue that can be attributed to a variety of factors. Speculation, OPEC, Supply, Demand, or Dollar depreciation – they all have influenced the price. Principally this particular boom in price has been demand driven. The demand from BRIC countries and other emerging markets has outpaced the current supply of oil substantially. It is an undisputable fact that oil comes from bad, unstable places. This only increases the price of oil because there is a risk premium associated with the price. Iran and Nigeria are not nice places, not to mention Russia or Iraq. Obscene amounts of oil come from the third world; these countries can barely provide water to their people, let alone augment oil production. There is a world-wide shortage of engineers, and the engineers that exist are not products of the Saudi Arabian public school system. Thus augmenting production in these countries is not likely. Nationalization of oil industries are populist policies that in the long run lead to stagnant output. For example Russia’s state controlled Rosneft has not augmented production since it illegally took over Yukos. The reason, state assets don’t have to produce a profit, they just have the tax payer make up the difference. The result is no creative destruction, no technological leaps, and for the oil industry stagnant production. The above reasons demonstrate that the increase in the price of crude is a supply demand phenomenon. It is dry and boring but the combination of lack engineer’s, oil nationalization, and risk premium all have contributed to the recent price. These supply reasons, juxtaposed with the fact that China wants to become America. The Chinese infrastructure binge is anything but oil conserving, not to mention their manufacturing efficiency. I admit the argument of speculators sounds better because then we can blame a particular adversary, but it is not factual. The price of oil is headed in one direction because of supply and demand, not because of an evil gnome in the pits of Chicago that manipulates the price of crude oil.

BB: I’m not calling speculator evil gnomes… but I am holding them largely responsible for current oil prices. Since 2002, oil prices have increased by more than 500%… if you think that is primarily due to Chinese growth, OPEC supply, or a weak dollar, you’re not in the right ballpark. In psychology, we have a term describing these types of beliefs: denial. I am not saying that other factors aside from speculation have had an impact - they certainly have. But as figures such as Saudi King Abdullah or George Soros have explained, the reason for the explosion of prices is due primarily to speculators. Along with hedge funds, speculators have pushed prices higher and higher in their never-ending (and to be fair, totally justifiable) pursuit of profits. Some authorities, such as certain political leaders in Germany, have already proposed a worldwide ban of oil speculation. While such dramatic moves are unlikely in the near-term, it is likely that there will be moves against speculators in the future. Oil prices are simply rising too rapidly, and unless something is done to curb the influence of speculators, the outlook is grim for the future of oil.

In the past 15 years, the automobile industry has witnessed monumental shifts, such as the boom in the popularity of the SUV, a Japanese company becoming the world’s largest automaker, and the rise of the hybrid. However, one thing in common between June of 1993 and June of 2008 in the world of automobiles is that roughly the same amount of cars were sold. Today it was announced that US auto sales reached a 15-year low, and I think that it is a fitting reflection of the larger economic situation.

For over a hundred years, automobiles have been mass produced in America. Their presence has encouraged, perhaps more than any other invention, the amazing growth that has occurred in both our cities and populations. When Americans navigated the Oregon Trail in the 19th century, their journeys would last five or six months. Now, because of the automobile, that famous trek could be completed within two days (if you drive like my father does) or three days (if you drive like someone who values their own life).

There are plenty of reasons for why so few cars are being sold. Many of those reasons are similar to the problems facing many of the world’s top economic authorities: oil prices, credit woes, price instability (inflation), etc. Despite automakers best attempts to entice buyers, the fish just aren’t biting on those lines, no matter how appealing the bait. The bottom line is that gas in the US is over $4 per gallon, with no end in sight. Unless a new car can get you fantastic mileage, the odds that a person even wants to consider buying one is slim to none.

Perhaps, in some twisted way, this is a sign of more responsibility being taken by individuals. Perhaps this is an indicator that more people are looking for alternative ways to get around town. Perhaps this is a sign that the US is finally going to start demanding less oil… perhaps probably not. There is a long way to go before the US will kick what my colleague John labeled “our heroin-like addiction to oil.”

When I studied ‘Black Wednesday’ and the subsequent recession that the UK experienced, I read an interesting commentary on the episode. The economist wrote that the whole process was necessary in the long-run in order to “wring out” inflation from the UK’s economy. So perhaps, if certain pieces fall into the right places over the next few years, this current recession might be able to help “wring out” high oil prices and our addiction to automobiles from the US economy. If that ever happens to be the case, maybe today’s announcement will be seen as a landmark for when consumers finally began the long-overdue process of ending “our heroin-like addiction to oil.”

Upcoming Figures
AUD Retail Sales (May)
EUR Euro-Zone Producer Price Index (May)
AUD Trade Balance (May)

            Expect range trading until Thursday, because so many market moving events take place in one day.  Blame the long weekend, but if we don’t play the news correctly the weekend could be very long indeed.  The major news for Thursday is the ECB’s rate decision; expect the following commentary to be picked apart extensively following the decision.  The hike is almost a given, as it has already been priced in the market.  Trichet will most likely explain that inflation within the EZ is his main concerns.  The ECB is viewed as the world’s hawk, and they are poised to defeat the inflation beast.  Prior to the decision Swiss CPI numbers come out, as well as EZ retail sales.  Expect the CPI to be high and exceed expectations, and expect retail sales to be in line with expectations.  In short the jump in CPI will move the market, because inflationary fears will seep in.  While the retail numbers will not be horrible and not signal a contraction but it will indicate modest growth in tune with expectations. 

              Shortly after US unemployment data comes out which is likely to be larger than expected, the market moving non farm payrolls follows and it may shock.  The growth of the past quarter was almost entirely export driven.  This sector of the economy must compete on a global scale, and because of this they are uber efficient.  An increase in export production does not correlate to a decrease in unemployment.  Expect the non farm payrolls disappointment to indicate a future slow down in the US economy, and has the potential to be very market moving.  The Fed definitely dropped the ball last week because all the data juxtaposed with expectations do not look promising.  In short all the news together may move oil to past the $150 threshold.  Gracias Bernanke & Co.  The economy will recede regardless of the interest rate; however the depth of the recession will reflect the Fed’s future decisions, and reputation.