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Prices Rise and Prices Fall

May 6, 2011 – 5:03 pm

This morning the market is reacting strongly to a much better than expected jobs report. The report came in at an increase of 244,000 in April. Too bad the unemployment rate went up to 9%. Previous months’ jobs numbers were increased as well.

Yesterday we had a sharp fall in oil, gold and silver prices and that drove the market down. But isn’t a fall in those items and other commodities a good thing for our economy and shouldn’t the market go up not down? Of course the big commodity stocks fell sharply like big oil and that certainly put downward pressure on the overall market.

If commodity prices stabilize or continue to tumble Bernanke is going to be right when he told us that inflation is transitory and something not to worry about. Of course being transitory also means that they can go back up at any time.

Short term oil and other commodities are likely to fall but do not expect much more weakness. Long term the price of oil is going to rise. Other commodities, especially the soft commodities, will not always rise as producers around the world will be able to meet demand. That is not so easy for oil and gold. It takes 10 years to find and develop a mine and there are just not that many places where mining is practical, and we all know the political resistance to drill for more oil in the U.S. and the difficulty finding new oil. There is plenty of oil and we know where a lot of it is but it’s not cheap to drill and takes almost as long to develop new oil fields as it does to find and develop a new mine.

It is always interesting, not easy, but interesting.

Good Trading
Steve Peasley

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