Earlier in the week, David Rosenberg wrote that he is bullish on energy stocks due to the exogenous shock that tensions in the Middle East are creating in the energy complex. However, this is not a bullish story for overall U.S. growth or for business profit margins. In the Bloomberg video below Rosenberg tells Margaret Brennan that he believes U.S. growth will slow in the second half of the year due to rising oil and food prices and the anti-stimulus state and local governments will apply starting in July for fiscal year 2012. Rosenberg points to the huge downdraft in Treasury yields as an indicator that this is a deflationary shock rather than an inflationary one.
The key to whether this shock is fatal for a nascent recovery has much to do with Saudi Arabia, Rosenberg says. He wrote:
"If Libya can spark a $10-a-barrel response, imagine what a similar uprising in Saudi Arabia could unleash. Do the math: we’d be talking about $200 oil."
Indeed, the Saudis are the key, not just in terms of threats over regime change in the Middle East but also in terms of increasing supply to meet global oil demand.