If you look at the yield curve below, you'll see it's almost inverted. The 2-year note is 4.98% and the 10-year is 5.02. Inverted yield curves, for those of you who don't know, have been a reliable economic indicator of a coming recession. The yield curve was inverted earlier this year. If the yield curve inverts and/or the U.S. economy goes into recession, mortgage rates are going to fall.
Forbes just posted an article about a coming recession
http://www.forbes.com/home/investmentnewsletters/2006/06/06/stack-recession-in_js_0606soapbox_inl.html
Peak Oil Passnotes: Zarqawi Don't Drive
By Edward Tapamor
So Zarqawi is dead, oil drops by a buck and a half and suddenly the world seems a great place again. Not.
If ever there was a pointer to the underlying fundamentals of the oil and products market right now it was this one incident. Zarqawi had supposedly been the head of Al-Qaida in Iraq, although the whole idea of Al-Qaida even having a head seems faintly ridiculous to those who have studied the transient grouping.
When he is killed in the US bombing raid the mainstream media, and the various interested politicians, trumpet this as some kind of huge success. Sure he may well have done some very bad things, but he is not the cause of Iraq's collapse. That is something rightfully shared out between Saddam, President Bush, Prime Minister Blair, all of Saddam's previous supporters from France, Russia and China to the USA and all the conniving middle eastern governments you can think of. As well as the self-serving malcontents who make up the laughable attempt at a government now in Baghdad.
Zarqawi was a bit part player who came in at the end with a penchant for self-publicity and bloodshed. Like so many other players in the region. But his death drove down the price of crude landing thousands of miles away in Cushing.
We could not hope to spell it out any clearer than this. It is ridiculous. Geo-politics are the driver of the energy price, they will remain so. They are mixed in with the herd like reaction of the markets. They are mixed in with increased demand, maturing fields (or `peak oil` if you like the contaminated brand name) and daft investment cycles that have culminated in a terrible lack of spare capacity. But do not take it from me, take it from Alan Greenspan.
Just before Zarqawi's death Greenspan pointed out that "the buffer between oil demand and supply is so precarious that even small acts of sabotage or local insurrection have a significant impact on oil prices."
The part of the phrase we should be looking at is "small acts," with the emphasis on "small." The globalisation of the energy market place - just like so many other market places - means that even "small acts" like the death of Zarqawi can rattle institutions, shake the money tree and even end up affecting the lives of ordinary people who cannot even spell Zarqa…Zaqraw…the dead guy's name.
If one sits down and just has a brief look at history do we expect some kind of huge wave of peace to envelope us all in the next six months, year, five years? No we do not. There is no respite from high energy costs just because of an internal struggle in the White House finally putting forward some half decent rhetoric to Iran. Does anyone think this rapprochement will last? If so for how long?
Nor is there any respite from high energy costs because the Nigerian oil minister says they are going to add 1.5 million barrels per day of supply in the next fifteen months. Or that Mexico has found the new Cantarell. Or that Saudi Arabia say they can add gazillions of barrels to its reserve estimates, because none of it is true.
The hole Pemex drilled offshore Mexico is not only not the new Cantarell, it is not even the new hole. It seems hard to believe that almost all the mass media were captivated by such a brazen load of rubbish as that day when pre-election Vincente Fox welcomed the `discovery`. These are the games played out in front of our eyes, do not believe them.
We are in a time of high energy costs period. There is one thing and one thing alone that can bring them down and that is a recession. There will be no downward drivers of the oil price from the peace camp, no drivers of the oil price from renewed investment, more wars, superb exploration techniques or better technology. And there will certainly, never again be a man called Al-Zarqawi driving the oil price. That small act we can agree on.
