Markets’ worries now are relative

Three-dollar-a-gallon gasoline is back, and nobody’s happy about it.

Oh, wait -- actually, there are plenty of people happy about it: the commodity speculators who’ve been helping to drive up prices of oil and other raw materials for the last five months.

The price of crude reached an eight-month high of $72.68 a barrel Thursday, before slipping to end Friday at $72.04. Oil now is up 113% from its five-year low in December.

Though we curse them at the gas pump, however, we owe a debt of gratitude to the commodity gamblers. Even before the stock market turned in early March, rising oil prices were signaling faith that the world really wasn’t coming to an end.

If you think back to what the U.S. economy and most financial markets looked like in the thick gloom of February, that was a gutsy bet. Somebody had to take a stand and put up some money that civilization would survive.

Once equity markets began to rally worldwide in March, they fostered a sense of relief that fed on itself. You don’t have to own stocks to feel better that the financial system has avoided total collapse, albeit thanks to massive government cash injections.

Now, with the Standard & Poor’s 500 index up nearly 40% from its 12-year low reached on March 9, the question of whether Great Depression II is imminent has receded. Wall Street has gone back to worrying about issues that are more or less evergreen -- including rising gasoline prices, our foreign creditors’ concerns about the dollar’s long-term health, and the recent jump in government bond yields.

The sharp rebound in U.S. stock prices naturally has some investors wondering whether it’s time to take some chips off the table. Key indexes have made little net progress since June 1 and trading volume has waned.

But among market pros, selling at this point might be motivated more by a desire to have money available for opportunities in other assets, such as corporate or municipal bonds, commodities, foreign stocks or even real estate -- and less by a fear-driven need to build a bigger cash cushion in a money market fund paying a nearly undetectable annualized yield of 0.15%.

Yet for the economy, the overriding theme remains that things are merely less bad, not good.

New claims for unemployment benefits fell in the latest week to 601,000, a drop of 24,000 from the previous week and the fourth decline in five weeks, the government said.

But the number of people drawing jobless benefits hit a record 6.82 million, reflecting the dearth of employment possibilities for those who’ve been laid off.

Retail sales rose 0.5% in May after declining in March and April, but escalating gasoline prices boosted the total spent last month.

The Federal Reserve’s latest report on regional economic trends showed that five of the Fed’s 12 district banks described activity as “stable or little changed in recent weeks.” But the gist of the report was that business and consumer activity remained very weak.

A much less ambiguous sign of progress for the financial system was the Treasury’s approval this week of 10 major banks’ requests to repay the capital infusions they got last fall under the Troubled Asset Relief Program.

For the economy to eventually get back to some semblance of normality, the government will need to extract itself from many of the places it has gone in the name of staving off a worse catastrophe.

Of course, that idea will seem laughable to people who believe the Obama administration is socialist at heart. But the White House at least sounded the right notes this week.

“The president’s program at this point appears to be having many of its intended effects,” Lawrence H. Summers, President Obama’s chief economic advisor, said Friday at the Council on Foreign Relations in New York.

“What is crucial and where our focus has been as we have intervened when necessary, is on the intervention being temporary, based on market principles and minimally intrusive,” Summers said.

The issue of how and when to wind down government intervention programs also will be a key topic at the meeting of finance ministers of the Group of 8 major industrial nations this weekend in Italy.

The Obama administration no doubt got a wake-up call from the action in the Treasury bond market in recent weeks. Some investors, no longer worried about an economic meltdown but instead focusing on the potential inflationary effects down the road from soaring government spending, pushed longer-term Treasury yields to eight-month highs this week before the bond market calmed a bit Thursday and Friday.

Rising T-bond yields have pushed up mortgage rates and have made some of our foreign creditors jittery. What’s more, government bond yields also have rebounded in other developed nations.

The fear is that higher interest rates could quickly halt any economic recovery. So too could a continuing jump in oil prices.

But so far, the feedback from global stock markets is that these problems are exactly the ones you’d like to have -- at least if the alternative is the economic and market nuclear winter that seemed all too possible just a few months ago.

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tom.petruno@latimes.com