NO JOY

Those waiting for the jobs number for the next directional cue, will probably be desirous of liquidating length after the Labor Department showed that the economy shed another 131k jobs and that the unemployment rate remained steady at 9.5%.

This suggests recovery and attendant job growth will be slow and hardly an environment in which one can expect vibrant energy demand growth. The most likely outcome is moderate private sector hiring and income gains through the rest of the year.

Another astounding understatement by Fed chief Bernanke, “We have a considerable way to go to achieve a full recovery in our economy,” he said in a speech earlier this week. No kidding! Still oil prices have shown astonishing strength, pushing up to $83 earlier in the week.

The only explanation can be, short covering, investor mistrust of financial assets, or Iran's intransigence on the nuclear issue. The first one would appear to be the most likely with the Commitments report of 7/27 showing growing non-commercial length and falling shorts.

We still think conditions are such that a deflationary spiral has already begun. Wage concessions, a falling CPI and a rising savings rate will confirm this going forward.

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