Business & Media Institute
April 6, 2010
With summer driving season upon us, it’s important to note that there’s a traditional jump in gas prices. But will this seasonal adjustment benefit commodities, specifically oil and make the price of gasoline even higher? That could happen if those forms of energy lure investment from what seems to be an over-valued equities market, brought on by what some claim is cheap money.
On her April 5 program, “Closing Bell” host Maria Bartiromo asked CNBC’s CME Group floor reporter Rick Santelli if a move higher in commodities was due to inflation. However, according to Santelli, it’s not inflation but a move by investors out of a potentially over-valued equities market that will cause a rise in commodities.
“Well, you know, I don’t like to link the two together,” Santelli said. “I mean, many times you know, it is core [minus] food and energy. So I think throw all that away. I think the better question is, is that when people are afraid to put their money to work in treasuries, because rates may be going higher, maybe afraid that we are a little long in the tooth in the sugar-buzz rally of equities – boy, commodities is the place to be. Most of the good dollar trades probably already out there.”
And with this flight from equities to commodities, Santelli explained it could and will cause an upward adjustment in energy prices.
“We have the cyclical side – we’re going to have $4 gas this summer probably anyway,” Santelli explained. “It’s a great trade. Maria. You know, we’ve been to $150 before and I don’t see why it couldn’t happen again.”
“Closing Bell” co-host Scott Wapner agreed with Santelli and explained it won’t just hurt the consumer, but it would have a ripple effect across the economy into corporate profits. He explained that Alcoa (NYSE:AA), a commodity stock that one might think would benefit by this shift in investing behavior would benefit, actually would be hurt by higher energy costs.
“You know Rick, you look at what’s happening with commodity prices today, and Maria was talking about how energy stocks as one of the leadership groups,” “If you have a continued rise in say the price of crude oil, the impact is not only on the consumer at the pump with rising gas prices, but certainly the crimp on corporate profits, because margins get squeezed because of rising input costs. For example, Alcoa today got downgraded because of the issue of maybe having a disappointing first quarter even though commodity prices like aluminum have been higher and energy costs are higher as well, so it becomes more costly to produce some of these products. So, it could have a real impact on corporate profits.”
This article was posted: Tuesday, April 6, 2010 at 4:30 am