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The summer of ‘08 has been anything but a typical lazy, quiet break from an otherwise frenetic calendar. Global equity markets dropped like October meteors in July; oil and gasoline prices exploded past record highs as the summer driving vacation season approached; record levels of rainfall in the mid-west sent the mighty Mississippi River pouring over thousands of acres of rich farmland, destroying much of the nation’s bread basket; thousands of Americans have lost or are near losing their homes to foreclosure; China puts its best national face on for the rest of the world as they host the 2008 Summer Olympics – a time for peace and international friendship, and two Russian and Georgian women hug during their medal ceremony as their countrymen kill one another.

The summer of ‘08 has been anything but a typical lazy, quiet break from an otherwise frenetic calendar. Global equity markets dropped like October meteors in July; oil and gasoline prices exploded past record highs as the summer driving vacation season approached; record levels of rainfall in the mid-west sent the mighty Mississippi River pouring over thousands of acres of rich farmland, destroying much of the nation’s bread basket; thousands of Americans have lost or are near losing their homes to foreclosure; China puts its best national face on for the rest of the world as they host the 2008 Summer Olympics – a time for peace and international friendship, and two Russian and Georgian women hug during their medal ceremony as their countrymen kill one another.

Oil is dropping like arock. It stands at $117.42 a barrel in New York, 20% below its record high of $147.27 reached July11th. Copper heads for its biggest weekly drop since March and down 12% since June. The dollar is climbing to a five?month high against the Euro putting further pressure on oil and other commodities. And gold fell to an eight?week low in London on speculation that dollar gains will spur gold sales by investors who bought the metal as a hedge against a sinking dollar.  

Falling oil prices, an improving credit picture, and a few stronger-than-expected corporate earnings put a floor under equity markets that began a free-fall in June. The S&P 500 is down only 1% compared to a decline of 9% in June. The Nasdaq is up 1.5% for July following its 9% decline in June. Global equity markets demonstrated a similar pattern.

On the 14th of this month, the collective global investor decided oil was entirely too expensive. It is down nearly 15% from its peak of $147.27 per barrel. During the same period the Dow Jones Industrial average rallied 2.7%, the small cap Russell 2000 jumped 5.7%, and the tech-laden Nasdaq, 3%. Some better-than-expected news from leading banks added fuel to the rally.

The oil bulls stampeded last night and the herd is growing. Crude rose more than $8 per barrel on a Morgan Stanley report that Asia is taking an unprecedented share of Middle Eastern exports. The report said that oil could reach $150 per barrel within the month. Almost on cue, Nigerian workers threaten to strike if Chevron fails to meet its demands.

The broad US economy continues to find ways to grow despite mounting hurdles. Government reports this week of increases in GDP, exports, personal incomes, and new houses sold all defied economists’ estimates. Gains in some cases were significant, while others were increases on a declining scale.

With oil and gasoline prices raising to new highs daily it would be easy to paint a bleak picture for the future, particularly if energy was a large part of your expenses. Industries such as airlines, parcel delivery, and small businesses where transportation figures largely, are in a vise-like squeeze without signs of relief.

There remains at least one strong horse in theUSeconomy - exports. As the dollar falls in value relative to other currencies, American produced goods and services become more competitive in the global marketplace. Our trade deficits with creditor nations are shrinking dramatically. As a whole, our trade deficit is now 5% of GDP, down from a 7% peak. According to Credit Suisse it is only 3% when oil is excluded.