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US economy set to turn upwards with impacts on oil and commodity prices

In another story from south of the border, at least one financial analyst in the US believes the worst of financial hard times is over in terms of oil and gas prices. At the same time, he cautions the rise in commodity prices is about two-thirds of the way through its cycle.

August 7, 2008  By Delta Farm Press

August 7, 2008

Oil prices, up more than 50 percent since January 2008, are too high but will turn soon, and the commodity price upswing could be about two-thirds through, says Robert Nobles, Synovus Banks.


“Fair value of oil is about $110 (US) a barrel,” Nobles said during the Southern Peanut Growers Conference in Panama City, Fla. At $110 a barrel, prices at the pump
would decline to about $3.50 a gallon (or nearly $1.00 per litre in Canadian terms). “We’ve about hit the peak,” Nobles said.

“Consumers are cutting back and when we get through the summer travel season and hurricane season — we should see a (gasoline price) decline.”

He said consumer sentiment is poor. “But when sentiment gets poor, look for bargains. The economy is about to turn.”

He said financial institutions continue to face troubles for the short term. Wage increases have been modest and below the inflation rate. “Material costs are high. But business debt burdens have been less than consumers. That’s why so few businesses are going bankrupt. Companies usually think long term, but that’s not happening.”

He said short-term profits have done well, except for financial companies. “Corporate profits are trending up.”

Commodities, including corn and other grains, have been above the trend line.

“Wheat is valued fairly; oats are over-priced. The upswing is two-thirds through.”

Nobles said the stock market decline of some 12 percent since the latest interest rate cut is “against the usual trend. That will turn in time.”

Nobles believes the bear market offers opportunities to selective buys. “Recovery will come quickly.”

Nobles said the market trend line will continue to be “up over time. The credit crisis now will be another signpost in the chart. Things will turn back to an upward trend.”

Nobles cautioned investors not to expect huge rallies during an election year. He said interest rates may increase from consumer borrowers, but the mortgage rate will “stay where it is.”

Nobles said 25 percent of the increase in food costs could be attributed to corn and other grains diverted to ethanol. That figure was questioned by audience members and does not compare with other industry estimates that put the ethanol effect at less than five percent.


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