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The falling Oil price and Treasuries ‘ bank bailout plan’ falls apart.

Posted by Adrian on November 13, 2008

I have discussed on this blog that Hank Paulson ‘bank bail out plan’, that took congress days to pass, is essentially not going to happen in it’s entirety. The reason, it was from the start an unworkable concept. As discussed in All of sudden the ‘free markets’ don’t feel so free. Wall Street should take the pain. Bank ‘bail out’ bill will be passed, there is no way the market value could be determined on toxic mortgage assets, therefor the Treasury would be taking on uncertain risk with valueless assets which they have purchased at a premium. Meaning, there is no way the US government (using taxpayers money) will know when to sell, especially in a depressed market. If the toxic asset deal was to have gone ahead the banks would unload everything they have onto the US government’s balance sheet; now it seems The Treasury has realized this hence Paulson reworking of the ‘bank bailout’. If however the Treasury decides to purchase shares in financial institutions, they would have done what every other Central bank has done.

So, not only has the Federal Reserve under Ben Bernanake and the Treasury under Henry Paulson caused widespread volatility in the markets, they are also confusing the market. Which will psychologically cause markets just to ‘sell’.

The banking crisis will come back onto the boil and I suspect we will see spreads widen with interbank lending. So essentially risk aversion will come back with ‘sell’ orders on just about everything.

If we to say that the markets could maintain rallies into next year, this most likely will NOT happen; the whole world (as far as the stock/currency markets) could be heading full force into risk aversion, well into 2009.

Remember when oil was $147.00 a barrel? It now sits at $55 a barrel a $92.00 decline. With a major sell off occurring from September 2008 to present. From the 1st of September 2008 to the 15th of September the oil price was showing some instability (refer to charts CCI (2) 3 – using quoted date range); the price of oil then rallied from the 17th to the 22nd September 2008. In which it then collapsed to it’s present price range. Can oil go lower? Yes. If the global recession is deep, hence a depressed global economy, oil could sink under $50.00 a barrel. Oil has yet to find a stable price range, one could argue that $100.00 could be that range. But with oil spiking on high demand, then dramatically been sold off on weak demand, both are neither good for the global economy. If oil does drop below $50 this could significantly effect the gulf countries that rely on oil income.

Please refer to graph (click on graph for larger image)

wti_oil

To think that foolish UK prime minster (Gordon Brown) asked the oil producing gulf states to contribute to the IMF fund. If we do see a further collapse in the oil pice, I suspect Saudi Arabia will be kocking on the IMF door for money.

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6 Responses to “The falling Oil price and Treasuries ‘ bank bailout plan’ falls apart.”

  1. novosel said

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  2. […] markets know this, therefore there is continuing selling on all market indices. As discussed in The falling Oil price and Treasuries ‘ bank bailout plan’ falls apart. , we may not see significant rallies into 2009. Partly because the start of the recession is here, […]

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