Uncharted Waters
Research for Online Investors

by John Dalt

6/23/11

The last 24 hours has been full of events and headlines that individually could make the markets turbulent.  Put them all together and we have a real “witches brew” of information.  Bernanke started it off yesterday with his press conference that left the market wondering “What the heck! The Chairman of the Federal Reserve doesn’t know what is happening in the economy, is surprised by the weakness after spending $600 billion, and doesn’t know what to do in the future.” If he doesn’t know, what am I doing in the market?

President Obama addressed the nation last night, promising to bring home 10,000 troops by the end of 2011.  There would be another 23,000 come home by the end of summer in 2012.  Reuter’s reports there are 99,000 troops and uniformed support personnel in Afghanistan today.  Does it surprise anyone that one-third of the troops will be out of Afghanistan before the 2012 elections?  Maybe it is just me, but…

Admiral Mike Mullen, Chairman Joint Chiefs of Staff, appeared before the House Armed Services Committee this morning and told members “The president’s decisions are more aggressive and incur more risk than I was originally prepared to accept.”  He later told the committee there were also risks associated with keeping a large force in Afghanistan.

A reduction in U.S. forces allows/forces the Afghan military to step up to secure their country.  Afghan President Hamid Karzai cannot blame the U.S. as being occupiers.  He will have to reduce his dependence on the U.S. to protect him as he tries to play both sides of political issues.

Secretary of State Hillary Clinton told the Senate Foreign Relations Committee that the U.S. has had “…very preliminary outreach to members of the Taliban…this is not pleasant business.”

Sounds like the recent playbook.  Beat your chest.  Send in the young men (and women).  Tie their hands with rules of engagement, and lawyers on the battlefield, that make it impossible to win.  Negotiate a withdrawal.  Claim victory and come home.  Clinton should ask Henry Kissinger how he did with the North Vietnamese in 1972.  Karzai should read a little history of what happened to S. Vietnamese political and military leaders that co-operated with the U.S.

This morning, just before markets opened, the International Energy Agency (IEA) announced a release of 60 million barrels of crude oil from the world’s strategic petroleum reserves (SPR) over the next month.  The world’s SPR’s are maintained in case of an emergency.  SPR’s have been tapped twice before.  Once during the 1991 Gulf War to remove Iraq from Kuwait and again after Hurricane Katrina.  Half of the release is coming from the United States SPR.

Why would the U.S. release 30 million barrels of crude oil from our SPR during a time of oversupply?  Crude oil and gasoline have been in a downtrend since May 1, and accelerating down in the last week.  Was this to teach commodity traders not to “manipulate” the market?  Any long contract holders got burned this morning.  Was it to buy votes from an uneducated public?

At least Obama is trying to hold prices down, they might say.  Or was it to tell Iran, and OPEC, that if they wouldn’t increase production to cover Libya’s lost production (1.6 million barrels per day) we would release two million barrels per day?  Maybe it was to narrow the spread between Brent Crude and West Texas Intermediate.  To do that we would need to export our SPR oil to Europe.

If none of the above makes sense to you, join the crowd.  We are in uncharted waters.  The administration has just used the SPR to manipulate price for the first time in thirty-six years.  The legislation creating the SPR cites the primary purpose is for use in case of “severe supply interruption.”  Another law has just been ignored or bent to fit political needs.

U.S. markets were poised to open lower this morning.  European markets were lower on lingering concerns over Greece.  The release of crude oil from SPRs drove oil down 5% in the first twenty minutes of trading.  This triggered margin calls.  The dollar moved higher.  Precious metals tanked as traders had to sell holdings to satisfy their brokers.

As we go to press, the market is recovering.  Here is a trick you can use.  As the markets tumbled this morning, charts looked like a waterfall.  Oil fell in the first twenty minutes, gold & silver hit their lows of the day after thirty-five minutes.  Look at your holdings and how long it took the share prices to catch up to the carnage.  The longer they held, or the less that they fell, tells you if the shares are held in steady hands or must be sold on any market turbulence.  Check the volume on the way down.  Was it forced selling or just lack of buyers?  This can help you identify stocks you may want to put on a list to sell on a market bounce.

Apple (AAPL) fell initially but was back in the green after the first thirty minutes of the day.

The Mailbag:
I couldn't believe Bernanke's horrible responses yesterday to the questioning. If he doesn't know what's going on, he should resign. Then our president releases information about troop withdrawal to our enemies, apparently during the heaviest part of the season of the fighting. Then Obama releases this information this morning regarding the oil. And Cantor walks out of the budget meeting. What a mess.---subscriber T.M.

John:  The world we live in.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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