Credit Markets, Commodities, U.S. Factory Data & Stocks
If you have been following the credit market mess you probably saw the news yesterday that Lehman Brothers may need to raise more cash. That is really no surprise to people following credit market developments. I posted on the subject May 23rd.
Strength in the dollar over the last week has pushed several commodity prices lower, especially oil, closing at just over $122 a barrel today from a high of $135 on May 22nd. I have recently read several commentaries on the price of oil with most writers' bullish long term. However, there are strong arguments that the price of oil will come down, potentially much further, in the near term. Many oil companies are using a price below $100 a barrel to determine if an extraction project is viable.
An interesting projection from the U.N. food summit was reported in Investor's Business Daily yesterday, estimating global food output will need to rise 50% by ’30 to meet global demand. After spiking around $43, the Powershares DB Agriculture Fund (DBA) is trading in the mid-30s. DBA is an agriculture commodity price play but I can think of at least two other risk managed ways to participate in the projected increase in global demand for agriculture commodities.
As we muddle through the credit mess it becomes more obvious with each round of economic reports that the U.S. economy has not fallen over a cliff. It still could, but the Commerce Department reported yesterday stronger-than-expected factory data up 1.1% for April, following March’s 1.5% gain.
U.S. stocks appear mixed on future economic prospects. I suggested back on May 10th the price action of major indices around their 200 day moving average might be a good proxy for the near term direction of stocks. I also mentioned back on May 2nd the performance of the Nasdaq 100 looked healthier than the S&P 500, Dow Jones 30 or New York Stock Exchange. Of the three, only the Nasdaq 100 is still trading above its 200 day moving average. Stocks are decidedly mixed, with the Nasdaq 100 outperforming in a market that started another correction on May 21st.