John Ransom

 

Maybe it was just the pause that refreshes, but prices are up again for gold, silver and oil.

So much for the release from the strategic oil reserve. From here on out fundamentals will rule the commodity markets, not political stunts.

Over the long-term the release of oil will be looked upon in the same way as many of Obama’s political stunts: A carefully crafted rabbit trick. People in his administration actually get paid to think up these types of moves. But hey, at least here’s proof that Obama created a few jobs.

The problem with the Obama administration is that in Chicago, unlike Washington, they don’t let the rabbit fight back.   

Not coincidentally, interest rates have had a little rally here too. And as we predicted earlier, there has been a scarcity of buyers for U.S. Treasuries. That’s a reaction to both inflation data and to loss of confidence in the Obama government.  

"A selloff in Treasuries on Monday brought yields to important technical levels and initially spurred some buying early Tuesday," reports Reuters. "But the direction of the market shifted, bringing lower prices and higher yields."

Meantime, a survey of home prices showed that the prices for homes declined 4 percent, evidence that the housing market is still struggling with unemployment.

Bloomberg reports: 

The S&P/Case-Shiller index of property values in 20 cities fell 4 percent from April 2010, the biggest drop since November 2009, the group said today in New York. From March to April, prices fell 0.1 percent on a seasonally adjusted basis, the smallest decline since July 2010.

A backlog of foreclosures and falling sales raise the risk that prices will decline further, discouraging builders from taking on new projects. The drop in property values and a jobless rate hovering around 9 percent are holding back consumer sentiment and spending, which accounts for 70 percent of the economy.

Economist Robert Schiller told a conference earlier this month that real estate prices could slide an additional 10-25 percent in the next five years. 

But, not unexpectedly, if you live in Washington D.C. real estate prices went up. "Washington showed the only increase, up 4 percent from April 2010," reports Bloomberg.

Does that make things a bit clearer for you?

So we're back to the price of "things" like oil going up and the asset price of the largest purchase any of us will ever make- our house- going down still. 

The stock market fortunately is set to rally here. That bodes well for the future.

But the future could be a few years away. Or just 2013. 

With oil prices bouncing back from the dip they took after the release of oil from the U.S. strategic reserve, the Obama administration can take little heart from new numbers that say consumer sentiment has fallen to the lowest level in 7 months. 

It was hoped by the administration that falling oil prices would stop a free-fall in consumer confidence.   

Consumers don't seem to be worried about the price of oil so much as the state of the job market, say new consumer confidence numbers from the Conference Board.

"Following a string of bad economic news," reports the AP, "consumer confidence plunged to a seven-month low in June on continuing worries about high unemployment and stagnating wages, according to a report released Tuesday by a private research group. The Conference Board's Consumer Confidence Index slipped to 58.5 in June. That's down from a revised 61.7 in May, which marked an almost six-point drop."

Economists expected the numbers to come in at 61, little unchanged from May.

Despite a drop in the price at the gas pump, consumers are being pinched by a stagnant job market and low wages, according to some analysts.

“We have a fairly weak economy with little to no job growth,”  Mark Vitner, senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina told Bloomberg. “With consumers so worried about their job prospects, I’m not so sure that we can count on demand picking up.”

Gas prices have come down about 30 cents since May 4th according to Bloomberg.
 
However, oil prices are expected to be little affected by the release of 30 million barrels of oil from the strategic reserve. With U.S. using 21 million barrels of oil per day, that only amounts to a day and half supply. 

Instead of oil prices, the Obama administration should be more worried about consumer confidence. And at least two economists now say that unless consumer sentiment reverses, Obama could be in trouble.

On the 18th of June we wrote about a WSJ article that quoted Steve Blitz, senior economist at ITG Investment Research as saying "When the income up percentage is on the downswing, incumbents do not get re-elected." Now, according to an economist from the National Association of Realtors, consumer confidence numbers are a reliable way of predicting the outcome of presidential elections. And this time, the economist provided some graphic proof.  

"When pocketbooks get pinched and many face unemployment, there’s bound to be plenty of anger," writes economist Lawrence Yun. "This anger generally means high voter turnout at elections. For better or for worse and for whatever it is worth, one key economic data component has been quite good at predicting presidential elections, and that is consumer confidence.   If the consumer confidence index is at 100 or higher, then the incumbent party is likely to win. If not, then the opposition party wins."

It’s not magic; it’s common sense.

Yun provides a graph below:

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John Ransom

John Ransom is the Finance Editor for Townhall Finance.