Monumental Move in Oil

We wrote in our weekly summary last night

If the US dollar somehow rallies on this, I really give up on making any sense of it all. The potential obligations have ballooned in the past two weeks and we're looking at a very adverse outcome for all of us - meaning much higher long term interest rates as the "risk" of the United States rises exponentially.

Every move has an economic cost. This is what the cheerleaders seem to miss. This move in oil is the inverse of that comment (remember, my belief is oil is the new gold as it actually has economic value) oil is up a breathtaking $25. That is double the move of any other day in history (did I mention every day is a historic one around here?). So now we await the ban on going long oil I suppose...

• Oil prices spiked more than $25 a barrel Monday -- the biggest one-day price jump ever -- as anxiety over the government's $700 billion bailout plan battered the dollar and touched off frenzied buying of safe-haven investments including crude. The huge rally was poised to shatter crude's previous one-day price jump of $10.75, set June 6.
• "We're off to the races again in crude," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill. "There's a renewed scramble for commodities because of a general weakness in the dollar."
• Oil's sharp gains came as energy traders grappled with the implications of the government's proposed $700 billion initiative to stem the U.S. financial crisis by absorbing billions of dollars of banks' bad mortgage-related securities "They're going to have to continue auctioning off a whole lot of Treasurys to finance these projects, so the dollar is going to suffer," (can it be sense and logic has returned?) said Matt Zeman, head trader at LaSalle Futures in Chicago. "Right now it's fear and anxiety driving people who want tangible assets.
• A weak greenback was a catalyst for the commodities boom of the past year, and analysts said large investment funds were expected to pour money back into the sector. (that's the real story) "That trade was very successful in past so if the dollar keeps weakening, a lot people are going to want to own hard assets like crude," said Andrew Lebow, senior vice president and broker at MF Global in New York.

Again folks, the locusts are moving - student body left into commodities! They can take away our short financial trade but they cannot take away our dignity. HAL9000 and friends are back (at least today)

Like I said earlier today, we'll see what sort of legs this move has - if the trend persists we'll get back a lot of the commodity exposure we've been selling off. Another day like today and the massive pile on will accelerate across institutional management land. (actually in oil, 1 more day like today and we'll be approaching record highs) The "globe is slowing" thesis will be tossed to the side in lieu of "I need something that holds its value through thick and thin" thesis - which ironically was the same one that led commodities up much of the winter and fall. That said, the globe is truly slowing so there are many cross currents to digest.

So a few questions - what happened to the world "economic slowdown" that we were citing as a reason to sell off commodities? (answer: the reason is hedge funds took these up, hedge funds were delevered causing a massive selloff - very little to do with "world economic slowdown")

Last, what happens to the thesis of "gas is down 50 cents, the consumer is back" if this move holds? What happens to the stocks of "consumer discretionary" that were going up relentlessly as if the economy is rebounding in 6 months? Hmm....