I agree with what you say. Thing is, our CAD is shrinking which should be bullish for the dollar but somehow the market doesn't care. Our interest rates are higher than Europe but the market doesn't care. Some countries in Europe have worse budget deficits. The current trend keeps on going on it's own momentum (piling on as Professional put it), but at some point there has to be a 'This is Stupid' moment where reality kicks in, and I'm guessing it probably has to happen before it no longer is profitable to make anything in Europe anymore.
On oil, supply projections are fairly flat from what I’ve seen, while demand is projected to grow significantly due mainly to India and China. It seems like the fundamentals are there to maintain a high price. It wasn’t that long ago that analysts predicting $80 oil were ridiculed on CNBC.
Indeed. However, as another freeper put it recently, China and India aren't that big in the global oil market and their demand hasn't gone up that much to warrant oil going from $20 to about $100 (400%) in just a few years. If that had happened in real estate or the stock market, we'd never hear the end of people screaming 'Bubble!' from the rooftops, yet in the case of oil (as in the currency markets), there hasn't been any 'This is Stupid' moments to drive home reality. In fact, supply has kept up with demand and has done so no matter how many hurricanes occur in the Gulf, how many speeches Chavez makes, how many threats come out of Tehran, or how many 'oil workers' get kidnapped in Nigeria.
The trend is bullish as speculators pile on but it has to end sometime. I don't know when that is but it certainly isn't now, which is why I'm still long.
I saw a chart the other day showing spare capacity for OPEC nations. Only SA and UAE had any meaningful capacity. I’m not an expert on the oil sector, but from what I’ve read, a number of large fields are projected to go into decline soon, if they haven’t already. I get the gut feel that supply will be an issue. Oil is higher now, on an inflation adjusted basis, than it was during the 70s crises, and yet we don’t see much of a reaction in the economy or in consumer behavior. I know the economy is less sensitive to oil than it was back then due to manufacturing being a smaller percentage of total, but still it seems a bit strange.