May crude exploded yesterday, blowing past the 53.96 target we first advertised here on February 22. How high now? My new target is 59.72, an important hidden pivot that would complete a bull cycle begun nearly ten months ago. This means that although $60 oil appears to be no worse than an even-money bet at this time, prices are likely to stall there for a while – probably for at least 3-5 weeks, but perhaps significantly longer.
As you may know, predictions have been all over the board, ranging from $30 or so on the low end to $100 or more on the high. I side with the bulls, although I’m reluctant to tease your imagination with an off-the-charts number. For now, I’ll stick with 59.72, basis May, since it is a target that I am confident will be achieved. A price of $100/barrel is certainly possible over the next several years, but only if there’s a severe disruption in supply – brought on, perhaps, by the closing of the Suez canal, or the bombing of Saudi Arabia’s oilfields.
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I’ll leave it to Lundberg and other oil experts to speculate on what $60 crude would mean at the pump. I saw a prediction the other day that regular gas would peak at $2.06 this spring, but whoever came up with that number was just playing pin-the-tail-on-the-donkey. If a price peak is a betting proposition for you, trust my $59.72 target before you wager a dime on someone else’s $2.06. Regardless, $60 oil isn’t going to sit well with the airlines, or with any other sector of the economy that consumes energy. That would seem to leave just a handful of bull plays for those of you who would deign to make money on the proposition that nearly everything that moves is about to be taxed even more punitively. My choice: a publicly listed purveyor of hiking/sporting gear. If you can imagine some Wall Street analyst ginning up the same story two months from now, then I say go for it!
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Soft-Money Olympiad
The dollar has got its problems, for sure. But before we get too enamored of the alternatives, we should take notice of what Europe in particular is doing to cripple, maim and otherwise incapacitate its economy. Here are three pertinent dispatches disseminated yesterday by Bloomberg:
· The European Union gutted plans to deregulate services such as health care, construction and retailing, bowing to protests from Germany and France that free competition would lead to an influx of low-paid foreign workers.
The European Commission under President Jose Barroso, which came into office in November with a promise to spur the 25-nation economy, said it will drop health care and public services from the proposed law and come up with ``watertight'' protections against low-wage competition.
· Costs to insurers including Allianz AG, Europe's biggest, for claims handling and computer management will surge as much as 25 percent after Europe's highest court ruled the services aren't exempt from value-added tax.
``This is bad news for insurance companies,'' David Fownes, head of indirect tax and insurance at KPMG LLP in London, said in an interview.
The European Court of Justice in Luxembourg said today that back-office services provided by an outside contractor to a Dutch unit of Allianz are liable for taxes. The ruling means European governments will be forced to change their tax laws as insurance companies will be forced to include VAT, which is as high as 25 percent in Denmark and Sweden, on back-office services.
The U.K. allows for exemptions for back-office services and many large insurers take advantage of the rule, Fownes said.
· Italy can't allow its banks to be ``colonized'' or ``conquered'' by foreign lenders that have less interest in aiding Italian business and industry, Parliamentary Affairs Minister Carlo Giovanardi said today in Rome.
``There's a disproportionate number of important foreign banks in Italy compared with other European banking systems,''
Giovanardi said. ``We have European Union laws that impose some obstacles, but the fundamental importance that the Italian banking system isn't colonized isn't escaping the government.''
