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Energy Sec.: 3 More Years of $3+ Gas? MoneyNews
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U.S. Energy Secretary Samuel Bodman didn't have a lot of good news for American consumers Sunday, saying it could be a while before we see the end of gasoline at $3 and more per gallon. Bodman, appearing on NBC's "Meet the Press," said that suppliers are wrestling with manufacturers - and the consumer is caught squarely in the middle. "Suppliers have lost control of the market," Bodman said when asked the reason for the latest spike in U.S. gas prices. "Therefore demand exceeds supply." That's because "suppliers are unable to make the kind of demands to make the flows equal to the demands. We've got demands coming from China, India the U.S. … all of this is good because economies are growing ... but demand is also causing the kind of price spikes we've had," Bodman added. Bodman also blamed the seasonal shift from winter to summer gasoline grades for "dislocations" that have fueled gasoline price hikes.
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"All of that is adding to the situation we now have. I expect the latter to settle down over a month or two, but clearly, we're going to have a number of years, two or three years, before suppliers are in a position to meet demands of those who are consuming this product." Sen. Edward M. Kennedy, D-Mass., also appeared on the program and said that excess-profit tax on oil companies might be in order. "This is not a time for greed, and that is what we have on this. The administration has been slow to act and has failed to take action." Last week, futures prices for crude for June delivery climbed as high as $72.65 a barrel, closing up 91 cents - or 1.3 percent - at $71.88, the lowest level since April 13. May unleaded gasoline futures rose 2.02 cents, to finish at $2.0921 a gallon. But in early Monday trading, oil shot up to over $72 again, with some oil traders anxious that prices could go significantly higher after news that the world's second-largest oil field (in Africa) might be "tapped out." Their worries were also based on Iran's threats to reduce the flow of oil to the west after calls for the Iranian regime to cease development of nuclear capabilities. Editor's Note:
2. More Fund Managers Playing It Safe These days, hedge fund managers are making a concerted effort to avoid risky investments, and it has become more difficult to find managers willing to take big chances. That's because managers have consistently earned relatively large sums for investors for some time now, according to industry experts, including Emil Henry, the U.S. Treasury's assistant secretary for financial institutions. "There is less systemic risk in the hedge fund space than is generally perceived," according to a speech Henry was set to give to the Federal Reserve Bank of Atlanta, reports the International Herald Tribune. According to Zurich-based GAM, the largest hedge fund in the world, most fund managers are no longer willing to take the necessary risks to garner high returns demanded by their wealthy clients. Says the Financial Times: "David Solo, chief executive of GAM, which manages $55 billion for private clients including $23 billion in hedge funds, said the change in managers' risk appetite stemmed from their success in raising money from pension funds, endowments, insurance companies and other institutional investors. The FT goes on to explain that as managers are garnering management fees that generally range around 2 percent a year on large amounts of assets, managers would prefer to maintain those earnings by reverting to safer, more cautious investing rather than "seek additional performance fees from outsized returns." In recent years, the hedge fund sector has changed drastically, as worldwide fund assets have soared to $1 trillion. "Institutional investors such as pension funds have demanded that hedge funds in which they invest reduce their risk levels," say the paper. Editor's Note:
3. GDP Rise to Force More Rate Hikes? But some Wall Street observers say that an overheated economy might need some reining-in to forestall a run-up in inflation. After the impressive 4.8 percent first-quarter GDP growth, Gary Wolfer, senior portfolio manager at Pennsylvania's Univest Wealth Management & Trust, doubts that the Fed will be able to temporarily halt rate increases after an expected boost at its May meeting. "I anticipate GDP growth of close to 4 percent for the rest of the year," Wolfer says. "With such a robust growth outlook, it may be better for the Fed to continue with quarter-point increases at the May and June meetings to make sure they don't get behind the inflation curve." The Commerce Department reported Friday that real (i.e., inflation-adjusted) GDP grew in the first quarter of 2006 at 4.8 percent, up from 1.7 percent growth in the previous quarter. Strong contributions to growth were seen in all categories of personal consumption expenditures (durables, non-durables and services), which accounted for 3.8 percentage points of the growth - as well as in investment in equipment and software (1.2 percentage points) and federal government spending (0.73 percentage points). Editor's Note:
4. 'Sell in May, Go Away' for 2006? The Dow could sink as low as 30 percent between May and October, according to Jeffrey Hirsch, president of the Hirsch Organization. Hirsch is not alone in his assessment. While "sell in May and go away" is a maxim that has long been taken seriously on Wall Street, this year it could be more accurate than ever. "Hirsch's forecast reflects the six-month period's track record, the mid-term congressional election in November and Ben S. Bernanke's arrival as Federal Reserve chairman," according to Bloomberg News.
The news service quotes Hirsch - whose father created the original Stock Trader's Almanac - as saying: "We have a very lofty market entering a seasonably unfavorable time in the most vulnerable period in the election cycle. This is something that we've been pounding the table about and we're even more concerned about it now." Based on that almanac, "$10,000 invested in the Dow Jones Industrial Average on Nov. 1 and sold on April 30 of every year going back to 1950 would net the lucky investor nearly $490,000 for an average 7.9 percent return. Meanwhile, $10,000 invested and sold during the opposite time frame (May 1 to Oct. 31) would have lost the investor $502," according to TheStreet.com. Others, including at least one trader at Bear Stearns, agree that the "sell in May" axiom should grab the attention of all of those bulls out there. But while you can't argue with the historical data, some economists believe investors must be more concerned with the here and now. "What's most important is the actual market action. Market history can be a useful tool as a background," Mike Hurley, chief technical strategist with M.S. Howells & Co., tells The Street. "But it's just a background." "The Dow has risen 0.3 percent on average in the May-to-October period since 1950. For November through April, the Dow has climbed 7.9 percent - a performance that reflects year-end bonuses, tax refunds and pension-fund contributions flowing into stocks," according to Bloomberg. "Last year, the 30-stock average gained 2.4 percent in May to October. The Dow industrials then climbed 8.9 percent from November to last week." Now we wait to see what happens after May. Editor's Note:
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