Price Watch: Commodities up a bit, but not for long.
The Economy: Business spending will stay flat into 2010.
Federal Spending: Increased funding for research.

Price Watch
A new commodity price explosion? Nah.
The recent rise is more rebound than run-up. With gasoline prices up 25% since Feb., crude oil running $27 higher, and 27%-40% jumps in prices for copper, nickel, and other key industrial metals, there’s a whiff of inflation in the air and the ghost of the 2007-2008 oil and commodities skyrocket. But ...
It won’t last long. There’s simply nothing on the horizon to sustain a sharp uptrend.
So what is behind the current increases?
Mostly that prices fell too low last fall. Investors ran for cover when the bubble burst, and the U.S. and other economies contracted sharply. Oil prices dropped 75%. Many metals ... about 50%.
Another factor: A bit of economic optimism creeping into investors’ psyches and fed by recent signs that the worst is over, a bottom in the housing market is nearing, and GDP will start to grow again come fall.
What’s more, there’s a trickle of capital seeping into markets again. Investors are reemerging from safe havens, sniffing around for improved returns.

The inevitable correction from last fall looks very steep. But today’s prices for oil and many other commodities are actually still down by about 45% to 60% from the 2008 peaks and about where they were a few years earlier, in mid-decade.
From here, prices aren’t likely to climb much more. Brisk GDP gains are still a long way off. We expect only modest growth next year ... about 2% at best. Plus the days of easy credit and leveraged investments are long gone, and with them, the tidal wave of speculative money from hedge funds, institutional investors, etc.
For nickel, copper, and tin ... a downward drift of 12% to 15% in coming weeks, with a modest strengthening toward year-end. Aluminum ... roughly half that decline.
For oil prices ... up maybe $10 more to about $70 by late June, then slipping to the low $50s by the end of July. With the exception of the usual Labor Day bump, oil prices are likely to hover in the $50s till Nov. or Dec., when an economic pickup should nudge prices toward $65 a barrel and keep them there into next year. Available crude supplies are about 3 million barrels a day more than use ... plenty to quickly dampen all but the most severe concerns about supply disruptions.
More or less the same pattern for gasoline prices: First, up 15¢, to $2.50. Then, from the July 4 weekend to the Labor Day break ... drifting back toward $2.25 a gallon. A brief uptick for end-of-summer road trips and stable again till Nov. or Dec.
Diesel ... continued softening, sliding an additional 20¢ per gallon by July. Ditto, retail heating oil. Prices won’t begin to climb again until around Dec. Natural gas ... dipping 15% in the next month or two, then slowly rising to an average of $6.50 per million Btu for the cold months, close to last winter’s price.

The Economy
Don’t count on any kick from business spending for at least another year. Late this year, as the economy starts to recover, firms will be just beginning to shed their current bunker mentality and mull new investment. But it’s likely to be mid- to late summer 2010 before they are confident enough to write checks.
And then, the spur will be mild, pushing spending up at a 4% annual rate in the second half of the year. Still, even that scant boost may feel pretty good compared with this year’s lo-cal diet: First quarter investment fell 38%. Second, third, and maybe fourth will be down, too, before investment flattens out in early 2010.
Uncle Sam is also feeling the pinch of lower income from this recession. In April ... usually a month when tax receipts far outweigh government outlays ... Treasury’s books showed red, posting a deficit of about $21 billion. That compares with a surplus of $159 billion in April 2008. In fact, from Jan. through April 2009, individual tax receipts were running nearly one-quarter lower than a year ago.
As a result ... fair odds that this year’s budget deficit will top $2 trillion. And that’s got foreign investors threatening to park their funds elsewhere ... reflecting fears about the potential for inflation to eat up the value of Treasuries.
If they do, interest rates will soar. With about 55% of federal debt now held by foreign investors and the need for borrowing likely to rise next year ... as the bulk of stimulus funds are doled out ... even a modest drop in foreign demand would hurt. What’s more, any such push would come on top of another likely upward impetus: As the recession fades, investors will forgo ultrasafe, low yielding government bonds for higher returns elsewhere, forcing Treasury to up the payoff on what it borrows.
But so far, foreign buyers are much more bark than bite. In Feb. and March, they were again solid buyers of U.S. Treasuries, after weak buying for three months.
And there’s little danger that the loudest complainer will abandon U.S. debt.
The value of China’s currency would jump ... something Beijing continues to resist stoutly, since it would make Chinese exports less competitive. Meanwhile ...
Congress is again pushing a plan to punish China for currency manipulation: Legislation making the feds treat foreign government efforts to undervalue currencies against the dollar as an illegal subsidy. That way, U.S. industries hurt by imports that are priced unfairly low could get antidumping or countervailing duty protection.
The White House will hold off the rabble-rousers ... at least for a few months ... gaining time to address the problem through diplomatic channels. Obama also is angry about the yuan’s value but wants to avoid the risk of retaliation against U.S. exports ... and to avoid encouraging those in China who want that country to buy less U.S. debt.
A diplomatic solution won’t be easy. China won’t bend to outside pressure.
Beijing will move only if it’s convinced that a stronger yuan is best for China, and not just for the economic health of the U.S., Europe, or the rest of the world.
One Bush agenda item that Obama is determined to pick up and complete:
Free trade deals with Panama, Colombia, and South Korea. The White House is mounting a full-court press with Congress, making the same arguments Bush did: Failure to ratify the Panama and Colombia agreements risks alienating two key allies in Latin America and bolsters Venezuela’s efforts to undermine the U.S. in the area. Similarly, leaving the pact with South Korea dangling could damage that alliance at a time when Seoul’s help is essential in containing a nuclear armed North Korea.
By July, Congress will OK the Panama pact. By year-end ... the Colombia one. Among U.S. industries likely to benefit: Construction, farm equipment, transportation, power generation, and transmission equipment, IT, machinery and financial services.
But it’s likely to take till 2010 to work through obstacles on the Korea deal. U.S. lawmakers worry that the pact gives too big an advantage to Korean carmakers.

Federal Spending
Gaining prominence in Washington: Science research ... even basic science, which doesn’t yield quick economic payoffs. It’s cheering news for business, which struggled against President Bush’s distaste for a large federal research role.
Congress will approve spending billions more on basic and applied sciences in 2010 and beyond. Later this year, lawmakers will dole out about $135 billion for fiscal 2010 to more than two dozen federal agencies, labs, and other facilities working on everything from antiviral drugs to batteries to water reclamation. That’s 18% more than this year and 27% more than Uncle Sam forked over in 2008. Plus it doesn’t include more than $15 billion allocated for science research in 2010 in the stimulus package.
Particularly promising areas worth noting:
More funds for high risk, high return research at private companies ... usually small ones ... on projects that might otherwise not get done at all. Among them: Nanotechnology for improving energy storage. Software for weather forecasting. Deep-sea-mineral detection. Superlightweight ceramic and composite materials.
Awards for medical innovations, such as alternative treatments for cancer and other early stage biomedical work that lacks the data for the big federal grants.
And more cooperative energy research with universities and private firms.