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Zimmermann's Take, Part 2

Economic analyst weighs in on gas prices, energy independence, faulty predictions

JERSEY CITY, N.J. -- A staple of convenience-store industry events and a trusted advisor to many of the industry's leading retailers, Walter Zimmermann, chief technical analyst with United-ICAP, Jersey City, N.J., is also famous for his accurate economic predictions.

In Part 2 of a wide-ranging exclusive interview with CSP Daily News, the analyst hits on this year's high gasoline prices, the United States' potential for energy independence and predictions that have not turned out as expected.

On 2012's Record-High Gasoline Prices

It's what I call the "financialization" of energy prices. For the past few years, energy prices have been increasingly dictated by two things: trends in the stock market and trends in the U.S. dollar. You have a situation where everybody wants a higher stock market but also wants lower gas prices. The reality is you can't get both.

The reality is it's the Fed's attempts to weaken the dollar to keep the economy alive that has really been one of the dominant forces in driving gasoline prices higher, because [Fed chairman Ben Bernanke] is trying to re-inflate the economy. So you have a situation where, in general, you want higher stock market prices, and, in general, you want a weaker dollar, but the reality is both of those things mean higher gasoline prices.

"Drill, baby, drill": Well, what does that mean? How do you make that a short-term solution? The country already has a serious glut of crude oil--inventories are the highest they've been in 20 years. The solution clearly is not drill. The problem is the [weak] U.S. dollar, Iran--These things are masking the impact of having enough crude oil, and so you have geopolitics obscuring the fact that we clearly don't need to drill more for crude oil. They're running out of places to put this stuff.

The only way to get lower gas prices is if the stock market sells off or the dollar strengthens, which would be an indication that Bernanke has failed to re-inflate the economy, or the situation in Europe is so much worse that his efforts to weaken the dollar are getting sabotaged.

On the Potential for Natural Gas

Given where natural gas is priced right now, if you could go into a service station and fill up your car with natural gas instead of gasoline, you'd be paying the equivalent of 40 cents per gallon. We have immediate ability to be almost energy independent because of the huge volume of natural gas being discovered every day, and that has absolutely collapsed the price of natural gas. But why is no one talking about putting in an infrastructure of natural gas, even for fleets?

The irony of Republican attacks on Obama--that we need to drill more--is that we have drilled so much already that it's collapsed the price of natural gas. The Republicans would be better advised to come out with a program to put in a natural-gas infrastructure. But of course, that would mean probably that the government would have to spend money because the natural-gas companies themselves have almost been bankrupted by the collapse of natural-gas prices.

On Faulty Predictions

We thought the stock market would have peaked sooner and fallen off more quickly. What we're discovering is that the 2007-2009 collapse was in fast-forward. This time around, it's proceeding in almost super slow-motion. It's the same peaking pattern we had in 2007, but at such a slow, glacial pace. We think it's because all of the central bankers were completely caught off guard by the collapse of 2007-2009. They didn't predict it or see it coming, so they were completely unprepared to deal with it. Now they're out there trying to stimulate, to put the brakes on the descent. And that is working--it has put the brakes on--but it hasn't stopped the peaking process.

Part of the problem is Europe. What they're stimulating in Europe is the banks on the assumption that they will lend to their countries and so will alleviate the debt crisis that way. But that doesn't bail out the consumer or the person who lost their job. So we have a situation where banks are strengthened but the economy is collapsed. That has, if anything, galvanized Bernanke to do whatever he can to avoid a similar situation. It's not clear what he can do--probably try a QE3 or QE4. As a side note, Japan got up to QE11 before it realized it wasn't working and was actually causing serious damage to its financial system. Now it is 22 years into a deflationary economic contraction that 11 doses of QE did not reverse.

One thing I've learned is people very reluctantly admit to bad news. They hold onto hope until the last possible moment. This is still a market suffused with hope, that somehow we won't end up like Europe or Japan. Somehow the financial cliff … we will find a way out of that.

Things will continue to move very, very slowly until after the election--a peaking action and a downside. You can't rule out one more look at the highs, but at super-slow-mo mode, it's not going to be like the drama, flash and crash of 2009. You have to wait harder for confirmation. Months can go by, and you're not sure if it's peaked or congesting. That makes our job little more difficult; we think we're on the right track, but we don't have the confirmation we would like to be more aggressive with our advice.

See Related Content below to read Part 1 of this interview. And read Zimmermann's take on why today's high gasoline prices may actually be better than the alternative in the special State of the Industry issue of CSP magazine.

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