I want to know what hedge fund blew up to cause the drop in oil......something along those lines happened however the only one I see was some auction related to Cheyene...
Well, now perhaps we'll see just how much was bubble, and how much was a supply shift.
BTW, I really hate the term "Demand Destruction". No such thing exists. Demand shifts or changes. Demand destruction is merely a slide down the demand curve as the supply curve (in oil's case) shifts.
Enough of that silliness. There will be Blood. Now give me your damned milkshake!
Oil prices don't translate to refined products instantly - up or down. And refiners have been squeezed so they won't readily pass on decreses since they were unable to pass on increases. I don't see CPI letting up any time soon.
Food prces will continue to rise, although perhaps more slowly.
Would it make a difference if the government opened up some (maybe 10%)of the strategic reserve at below market prices to pop the bubble? Is it even feasable?
HA,
that graph is exactly what I was talking about. Notice that CPI and
core-CPI are inversly related Nowadays. A fall in oil and food prices will lead to a price increase
in other goods ( due to limited incomes). CPI-down core CPI-up;
hence the need for the FED to start
hiking rates sooner than Kasriel expects.
Would falling crude (core CPI) lead us into deflation? Look at how falling crude (red line) from 2001-2002 led the core CPI down in 2002-2003 time period.
If we had a 50% pull back in crude, and with falling imputed rents (largest component of core CPI), why wouldn't we see negative headline CPI YOY?
Yep, $134 oil made news on the upside just a couple of months ago. If you said $120 oil last year people would think...god forbid. Is it just me or does anybody see a short squeeze developing here in the near future.
CR, I don't understand your chart. Didn't the core rise 1.2% last month alone yet you show the total core CPI increase to be 2.2%? I know I'm missing something.
"And refiners have been squeezed so they won't readily pass on decreses since they were unable to pass on increases. I don't see CPI letting up any time soon."
I generally agree, but I'm not sure they were "unable" to pass on increases. I think they were "unwilling" as they realized that this would just result in even less gasoline usage, and even more pressure for people to move off their product. It's not in a drug dealer's best interest to make their drug too expensive - the users might consider quitting.
If the oil price decreases significantly (say another 10-20 bucks a barrel) and gasoline doesn't come with it, there will be an outcry, investigations by populist senators, and even more Prius buying and less usage. I think given the economic picture, they'll be more likely to maintain current margins and let prices of gasoline drop as quickly as possible. It's in their best interests...
Even if the demand declines in place like China, it will still outpace new supply. Oil prices might stabilize but I dont think you will ever see a long-term drop in prices.
IMO this can still be considered statistical noise. The oil price is still trending well above the 200 day moving average. Until it gets closer to that, there's no reason to be optimistic.
Hedge funds that want to keep their powder dry should only perform stock manipulation to the upside. So if you want to manipulate a stock, blow out the shorts. I guarantee the SEC will not come knocking unless they are bringing you an award.
Don't be surprised if you see small bear funds get shut down or trading halted from the SEC this year.
My aunt IS a teacart. What do you have against teacarts.
And this is interesting:
"Swedens financial meltdown of 1991 involved the government guaranteeing the obligations of the entire Swedish banking system, and recapitalizing the major banks, with the sole major exception of Svenska Handelsbanken. The total cost of the rescue to Swedish taxpayers was around $10 billion, equivalent to about $1 trillion in the context of todays US economy. The causes of the crisis would be familiar to most Americans today: misuse of off-balance sheet securitization vehicles to invest excessively in real estate and mortgage lending.
It is thus not impossible for the entire US banking system to implode"
The underlying fundamentals have not changed as far as i can tell. Other than spin and (tinfoil hat) timely large volume dumping, it's just fluctuation of an upward trend for now. But, I'm not a day trader, long term preservation of capital and growth through macro-economic studies is my game.
A short economic decline in an economy that has much of it's structure based on vendor financing of a consumer driven, predominant service industry workers, with large personal and national debt that is fighting two simultaneous prolonged wars (looking for 3?), seems counter intuitive, at least from a historic perspective.
Unless we had conquered, plundered and shared the loot, I might be persuaded with a short downturn. Not good on the sharing part as a country.
U.S. inventories seem like one tiny piece in an very big puzzle. What about demand overseas? What about supply? What about new finds? Corn crop good this year?
I'm amazed such a large drop can occur with such a tiny piece of information.
Tells you something about who is setting prices, I guess.
Ding! Refining was a money losing operation for the majors in the last quarter as they did not pass along all the crude increase - as prices ease, they will decrease motor gasoline at a slower pace.
Another ding was the $120 comment, though I would put that at $100 - if we get under $100 for a month then we are doing the macro economy some good - as noted above, not all price increases have been passed along to the public and the other price to watch is diesel (at some point, everything we buy is moved by diesel).
As for the price drop, let's see what the close is - we have already cycled from down $6 to unchanged to down $5 last I checked...
Maybe I'm an alarmist - but is there any consideration of what one strong hurricane heading into the Gulf might do to oil prices? Short term impact maybe but in a couple of short months we will be at the peak of the season.
Was reading some energy blog and the author was claiming inventories are the way they are is because at this price holding costs for refiners are killing them; so they run lean.
If that is the case, then this would indicate demand shift downward.
Could falling oil prices due to reduced demand/increasing supply be a proxy for declining economic activity? If so, it wouldn't necessarily follow that lower prices would lead to a shallower recession. It could simply be an indicator that economic output is falling faster than everyone believes.
CR said: "the difference between a moderate and severe recession might be what happens with oil prices. Falling oil prices would move CPI below Core inflation and might keep the economy out of a severe recession"
I suppose this could be the case, but I think that oil prices will have very little to do with the upcoming recession. We are facing a massive credit contraction and energy prices are only a secondary factor. Frankly, if energy prices begin to fall it will primarily be due to demand destruction (around the globe) which would be VERY bearish for the economy indeed.
In other words, falling energy prices would be an indicator that the global economy is in for one mess of hurt.
Consumer prices shot up in June at the second fastest pace in 26 years with two-thirds of the surge blamed on soaring energy prices.
The Labor Department reported that consumer prices jumped 1.1 percent last month, much worse than had been expected. Energy prices rocketed upward by 6.6 percent, reflecting big gains for gasoline, home heating oil and natural gas.
You may have sunshine all the year round, but here in flyover country, I've got cheaper gasoline at the moment.
Along I-70 in western Pennsylvania, on Monday I paid $3.97 a gallon for regular. In southeastern Ohio, it's going for between $4.05 - $4.15 per gallon.
Out of respect for the pain of others here, lets just say a real fast $1 a gallon increase type of situation if the big refineries went offline... not so much if a sh!t kicking hurricane rucked up the pea patch in the GoM.
Thanks - I'm not one of these "speculator conspiracy" nuts looking to lay blame - but a Gulf threatening 'cane seems like a prime opportunity for spec...
So true and I think you will see that come to fruition..Isn't funny how they have drove oil up so Bushes buddies can drill offshore...He will threaten veto on housing bill but will not veto if congress gives his buddies the free pass...
Oh I think there is some speculative premium in the price - but it only works due to the fundamentals underlying the supply/demand story - looking at about a five year price trend in comparison to drillbit reserve replacement ratios on a rolling three year average along with F&D viewed similarly (again on a drillbit basis) - prices and costs up and up but the new barrels added come up a bit skinny.
Look for more 'surprises' as election season heats up - or as the economy teeters on the brink. I am with CR that oil prices will fall, but I think so for the wrong reasons.
safe_as_apartments writes:
Lag the core graph 1.5 years, and you will find that core and CPI are nicely correlated.
safe_as_apartments | 07.16.08 - 11:54 am |
That only butresses my argument. According to your lag theory, we should experience a big spike in
core-CPI soon, and even sooner if
there is a sharp correction in oil prices.
"Hellsfire, CNN only needs to put "Iran" and "Israel" in the same sentence to give oil another reason to rally. "
If we actually get through the Bush administration without an attack on Iran by the U.S. or Israel, I could see things calming down and prices going down somewhat. But what are the odds on that? Especially since the Israelis know that the likely next administration won't be quite so much the enabler )of their worst instincts)?
Falling oil prices would move CPI below Core inflation and might keep the economy out of a severe recession (although the period of economic weakness would still linger for some time).
The problem with that scenario is that the base cause of the problem here is asset price deflation, particularly in nominal terms. How will a fall in CPI help heal that? Wouldn't a rise in inflation be more helpful?
And won't a sharp fall in commodity prices lead to a slowdown in Brazil, Australia, Russia, the Gulf States, Canada, South Africa and other commodity exporters?
Prices always fall in a slowdown, and they fall the most in severe slowdowns.
Oh yeah,
Gold prices started going up when I decided to wear lots of jewelry.
Actually my demand for Gold went up so much that I started to sprinkle it on my icecream sundea.
You see, its all about fundamentals.
Lack of land,pop growth,income growth,
etc.
Even traders are starting to express disgust, as the absolute stopping of capitulation doesn't allow actual confidence to ever reach equilibrium.
If they always prevent a fire sale, no one will ever enter with real confidence. The PPT wants to prevent capitulation, but in so doing prevents a real bottom and investor belief in safe risk taking.
The PPT wants a brave new world of traders who always believe in no capitulation, but the actual traders on the floor are not that new breed. They are experienced in trading fear, and are not ready to accept this BS PPT world. Until the entire floor of traders is replaced with 20-something former mortgage brokers (let's hope never), the PPT brave new world is foolish hope. Another manipulative machine that has very bad side effects.
PPT: die already. The traders don't believe this shit anymore. Let it go. The real bottom is far lower, let it get there.
Hey Bob Dobbs, you said the Israelis might be indulging in their worst insticts to attack Iran? You mean like self preservation? How do you possibly call that a "worst instinct" when they have to live cheek by jowl with the world's worst foaming at the mouth islamists who publically and repeatedly fantasize about nuking them out of existance at their first opportunity. I suppose you would choose to bare your neck to the throat cutters if you were in their position?
I think that there are going to be many "surprise increases" in inventories as we get closer to the election. In fact, I'd say this is happening right on time to lower the price of gas going into the high campaign season.
I've lived long enough to yawn at most of the supply discussions. I do not think for a hot minute that this has anything to do with supply, but everything to do with a bubble formed because of hedging, speculation, and profit-taking by people looking to work their capital. Am I being a bit tinfoil-ish? Maybe. And maybe just realistic.
recently, purchases to the SPR were stopped, even though a tiny percentage of US consumption (100, 000 barrels a day or less) significant none the less because...
games get plaid with this tip of the iceberg that affect price throughout.
also, import / export games are played to "re-label" oil for spec purposes.
from seeking alpha on July 7
"Why is a country that consumes 20Mb of oil a day and supposedly had "supply issues" and a shortage of refineries EXPORTING 1.5M barrels a day of refined products OUT of the country? Thats adding 7.5% to our total "demand" AND taking up 7.5% of our "tight" US refining capacity in order to flip the barrels for a quick buck in foreign countries while using 10Mb a week from our current crude inventory and removing 10Mb a week from our refined products inventories.
Why is it that, since Congress ordered Bush to stop filling the SPR on May 17th, he has added 3.2M barrels to the SPR? That is more than double the rate at which oil was added in the 5 weeks BEFORE he was told to stop. Its interesting that an article in Platts, in which the DOE said they would stop filling the SPR on May 16th, has been removed (thank you Google Cache for saving everything!). At the time "Megan Barnett, a DOE spokeswoman, said deliveries to the SPR could actually stop earlier than the July 1 date should Congress and the Bush administration reach an agreement on the SPR measures passed this week. "The department will work to the maximum extent to defer deliveries to the SPR and comply with the law," she said."
Re: Even traders are starting to express disgust, as the absolute stopping of capitulation doesn't allow actual confidence to ever reach equilibrium.
As stocks become more like casino chips and the market more like a crooked casino, I wonder about the actual ownership of stocks at this point as a proxy for economic activity, i.e, The Dow has always sort of an indicator of valuation, but when that valuation is distorted by manipulation, it's like looking at the economic activity of Nevada in relationship to a very select biased portfolio of casinos, that are not correlated to the macro economy. Yah know what I mean, huh...huh?
Federal Reserve chairman Ben Bernanke said a "top priority" for the central bank is to bring inflation to an acceptable level.
"We're going to be responsive to conditions as they evolve," Bernanke said in testimony before the House Financial Services Committee. He noted concern about commodity-related inflation bleeding into headline inflation.
Seriously though, if the government was serious about relieving the economy wouldn't they be better served by offering oil from the strategic reserve at a price below the market? They purchased this oil at lower prices so they could make a profit and put it into some other stimulus idea. If speculation is really the problem this could break some of it no?
Please tell us again how your are shorting to defend those whom you patronizingly call "Joe 6-pack". Of course Mr and Ms 6-pack have their retirement funds (and in many cases their kids' education funds also) in the market. Whether or not that is wise, it is a fact. But I suppose by trying to destroy their retirements you are helping them, right?
Oh, wait, you are "punishing the greedy". Right, like fat-cat CEOs care if the stock goes down? They are very well-insulated behind their golden parachutes.
You're making money? How wonderful for you. But of course, you're not greedy, only those other guys...
Re: wouldn't they be better served by offering oil from the strategic reserve at a price below the market?
The futures price is in the pipeline, not in the storage tanks. No one has been stockpiling oil with high prices, so nothing is going to change. Oil will stay steady around $4.25 gal in US
Getting rid of the Shah of Iran in
1979 ensured a lenghty period of
cheap oil. However, the Islamic
fundamentalists now pose a serious
geopolitical threat.
So make up your mind, do you want
cheap oil or lots of bloodshed?
I prefer to pay higher oil prices to
a new govt in Iran that is not hellbent in converting the whole world to Islam, mind you, by the way of the sword. Whatever happened to
freedom and tolerance? So what if we have to pay a little more for OIL.
Getting rid of the Shah of Iran for
cheap oil was a big,big, mistake.
With mortgage lenders requiring down payments of 20 percent, the average household, which puts away less than 1 percent of after- tax pay, will have to save 10 percent for 10 years to buy a home.
why wont you agree that oil is going back down to $1.00 a gallon.
clap you hand and believe ok?
mock turtle
Well it would had the enviro-fascists not mandated expensive add-ons like ethanol and it also future tax increases from more liberal governments.
O-Joe
Yah, gas for the SUV cost will hover around low 4's.
OT: This is so retarded!! >>
Wells Fargo gave anxious investors a pleasant surprise Wednesday, reporting a profit drop that was milder than anticipated and lifting its quarterly dividend by 10 percent.
Wells Fargo's second-quarter profit fell 22 percent as more customers at the nation's fifth-largest bank failed to pay back their loans. But it raised its dividend to 34 cents from 31 cents -- at a time when many other financial institutions are slashing theirs to preserve capital.
That nice Fed chair Mr Bernanke just said with a straight face that the Fed can do nothing to promote savings. Can holding interest rates substanially below real rates have any influence on savings and dollar purchasing power.
Disgusting how the stooges in DC can sit there silently and listen to lies during testimony. The fed is pumping with all hands on deck for Americans to consume over save.
km4 ( & others who have the read the big picture post)
I do not disagree with what he has posted (it's true) however he stops short of taking to task the financial industry (that he works in) for applying MASSIVE leverage to these loans.
That is the REAL issue. Placing the blame on the over-leveraged banks is what is missing in that piece....
Why else does a 20% drop in real estate value cause so much pain?
leveraged balanced sheets (up to and beyond 1:45) is what is causing the solvency problems....not the original loans.
If that turns out to be the case, then thank Glod!
Cheers,
Misean
If enough US households started saving like that to buy a new house or pay down their negative equity, that might be a bigger factor in a "severe recession" than rising oil prices.
Consumption is still 72% of the economy last time I checked. Couple that with a drop off in global demand...
The SeekingAlpha item that your citing is a tad deceptive - the US is a net product importer ( about 1.5million barrels per day on a NET basis ) as well as a massive crude importer. The US could stop exporting gasoline to Mexico I suppose, but there would be a reciprocal reduction of Mexican exports of crude to the US to balance it.
It's also worth remembering that a big chunk ( anywhere between 25 and 35% depending on the refinery maintenance cycle ) of the US petroleum products exports is made up of that well known, high-demand substance called petroleum coke ( ie refinery waste ) and residual fuel oil. The US has a positive net export balance for diesel ( 300kbd in the summer ), which mostly goes to South and Central America, especially Chile, where it keeps the world's largest copper mining operation in business.
10% of the US SPR would be 70 million barrels - that's the equivalent of putting less than one day's supply into the markets; OPEC could just stop pumping for 2 days and that would negate the effect!
The Mexican Peso was revalued on January 1, 1993. Pesos dated before that date (Old Mexican Pesos - MXP) are 1000 times less valuable than the New Mexican Pesos - MXN.
The Mexican Peso is the currency in Mexico (MX, MEX). The symbol for MXN can be written Mex$. The Mexican Peso is divided into 100 centavos. The exchange rate for the Mexican Peso was last updated on July 15, 2008 from The International Monetary Fund. The MXN conversion factor has 6 significant digits.
When Mr. Market come to understand that there isn't any way in hell Benny is going to raise interest rates and the dollar starts falling again as a result of that plus CONgresses insistence on trying to borrow money to prop up overvalued home prices and bailout anything and everything oil will start climbing again. Cox threw and hand grenade in the hedge funds yesterday but it is funny that it probably is OK to naked short all the oil related companies that one wants. Bottom line the markets a rigged and there are far better places to invest ones capital.
DH writes:
Getting rid of the Shah of Iran in
1979 ensured a lenghty period of
cheap oil. However, the Islamic
fundamentalists now pose a serious
geopolitical threat.
DH, did you know that Iran was a democracy before the CIA helped engineer a coup d'etat to bring the Shah to power in 1953? That hasn't worked out so well for us, has it? Perhaps if we simply minded our own business and traded with Iran as a civilized nation, we wouldn't be in the mess we're in.
the environmentalists are socialistic and scientific in their policy
the large petro-chemical corporations that heft a huge lobbying stick are the facists.
but hey maybe you can help me out in return
how come the big powerful rich multinational corporations that fund political campaigns and have cadres of lobyists and have networks of interlocking corporate relationships...
ARE ALWAYS GETTING PUNKED
by, as you call em, the enviro fascists
geez the tree huggers are just a bunch of cannibus smoking , goodwill shopping, flute playing hippies
"The United States should consider intervening on the foreign exchanges," said Jim O'Neill, chief global economist at Goldman Sachs in London. "The dollar's ongoing weakness and aggravation of the oil price is a threat to the whole world."
"There's a danger of a vicious circle developing here -- the dollar is declining across the board, oil prices are still rising and both are causing simultaneous inflation damage."
"They can't just stand idly by and watch all this happen without a fight," added O'Neill.
Neither are Goldman Sachs alone in warning of the possibility of dollar-supportive intervention.
"The conditions for successful dollar supportive coordinated intervention are now starting to fall into place," economists at French bank BNP Paribas told clients on Wednesday, saying the most important factor was a growing consensus around the world.
U.S. firm Morgan Stanley said its in-house model on the probability of central intervention has been rising all year and reckons chances are now as high as one in three.
And investors as well as bankers feel the time is ripe.
Falling oil prices also will reduce the amount of US Treasury paper purchased by the producers.
-Monetary Policy: We need to see higher FF rates of at least 3% over core(6-6.5%) This will cause the dollar to soar, all commodities to plummet and will reduce our inflation rate substantially!
-Fiscal Policy:Now regarding economic stimulus, another tax rebate, a strong jobs/training incentive program, tax cuts
"Hey Bob Dobbs, you said the Israelis might be indulging in their worst insticts to attack Iran? You mean like self preservation? ..." etc.
In my understanding, the Iranians were willing to negotiate with the U.S. on this issue several years ago, but were turned down by our my-way-or-the-highway administration. Since there is little evidence that Iranian nuclear armageddon is just around the corner, why not try negotiation. Especially since Israel reportedly already has well over 100 nukes of its own.
In that sense, the issue is not really agression against Israel, but Israel losing its unofficial status as the sole nuclear power in the Middle East, and the freedom of action that goes with it.
Any intervention in markets is artificial and the fundamentals will prevail.
The problem is that if this market intervention involves actively devaluing foreign currencies to boost the dollar (e.g. printing euros to buy bucky), then the change is fundamentally justified.
Bob Dobbs,
When the time comes, the Israelis will do the deed. I don't think there is any doubt about that.
Maybe a single nuke, a claimed 'accident' at the Iranian site.... and all evidence would be melted away into glass.
"When the time comes, the Israelis will do the deed. I don't think there is any doubt about that.
Maybe a single nuke, a claimed 'accident' at the Iranian site.... and all evidence would be melted away into glass."
Then "and then" that follows is the big issue. Which is why I still hold gold.
Because you always mention the correlation of gold with the dollar (which is not unimportant but there are other more important ones), you might want to check out Bob Hoye. He is quite an authority on gold price behavior.
HOYE: During certain inflationary periods of time, you can make money in gold. When gold went to $850, it certainly went up faster than costs. But the point is that when you are in a stock bubble, the real price of gold goes down; and after the bubble, the real price of gold goes up. And then you start to see improved operating results for producers, and that ultimately enhances the value of the stock. One of the ways Mother Nature works is that during the post-bubble credit contraction, there is a huge vacuum where real liquidity is needed. And the only way Mother Nature increases that liquidity is through an increase in the real price of gold so that people go out and find more of it and produce more of it. Despite this, the gold establishment, during the last 20 years, predicted the gold price would go up because mine production was going down. Another point was that gold should have increased with falling real interest rates. But such rates always decline with gold during a financial bubble. Then, to continue the confusion to orthodoxy is that following a bubble, real long rates and gold have increased together.
think about what happens when a uranium processing facility in blown up and the enriched uranium is blasted across the land and up into the sky.
then think about, the "allies" once again attacking a country that has not attacked them.
finally think about the idea "we" as a nation have sold to the world...that we have the moral right to preemptively attack a nation we think is a threat to us.
so does this mean, under the preemptive attack doctrine that now iran has the moral right to preemtively attack isreal or the US?
Dear TCA,
Iran was never,never a democracy. I do not care what the history books say. As far as minding our own business, I do not agree. We did that
in WWII, and it did not work.
perhaps Bin Ladin was just trying to force us to get off our ass just like
Japan did back in WWII.
There are some bad( immature,childish,psychotic) people in this world that need to be contained. Alternatively, we can
whine,cry, and feel helpless.
I will bet anything that Iran is a lot
more likely to use a nuke than Israel.
its a matter of your basic assumptions about human nature.
1) people are basically bad and need to be constantly regulated.
2) people are basically good and given freedom will do nice things.
do not ask me which philosophy Iran or Israel adhere to.
Oh yes, the U.S. resolved its problems in Iraq just as well as it did in Iran in the 50s and later in Vietnam. It worked so well.
In fact, the U.S. has an excellent track record of screwing things up and the result is that the world now views the U.S., to use your term, as "immature,childish,psychotic" and justifiably so!
I bet Iran would use the Death Star too, if it had one of those - but it doesn't. No nukes either, so I'd guess it's more likely that Israel would use them, because the actually do have them.
The U.S. Federal Reserve will undertake a $75 billion 28-day Term Securities Lending Facility (TSLF) auction on Thursday, according to the New York Fed on Wednesday.
There are some bad immature,childish,psychotic people in this world that need to be contained. Alternatively, we can
whine,cry, and feel helpless.
DH | 07.16.08 - 1:17 pm | #
i think thats what bin laden tell his followers about the US
"finally think about the idea "we" as a nation have sold to the world...that we have the moral right to preemptively attack a nation we think is a threat to us.
so does this mean, under the preemptive attack doctrine that now iran has the moral right to preemtively attack isreal or the US?"
Oh quit being so logical. This is much easier:
Rah! Rah! USA Rah! Rah! Right or Wrong! Rah! Rah! Our Team! Rah! Rah! Right or Wrong!
Keep chanting that and you'll feel better. Works better than morphine.
safehaven is infested with gold bugs with a biased perspective on gold.
I find that somewhat amusing. If you are interested in a certain investment direction, it is advisable to seek out sites where people with the most experience with that investment congregate. If that investment is gold then clearly you want to visit gold sites.
It doesn't help to visit a bicycle shop to learn about airplanes. Note that these goldbug sites have been much more accurate about gold's price action in the last 7 years than any other.
Since May, 2007, as importers have bid against each other for declining net oil exports, monthly average oil prices have increased at the rate of about 6% per month.
Relative to May, 2008, we were actually somewhat above the trend line in the first half of July. To stay on trend, we would need to average about $140 in July.
Federal Reserve chief Ben Bernanke also lent support to the U.S. unit, when he was asked after congressional testimony about the dollar and intervention.
"Our principle policy towards the dollar is to have a strong economy -- strong growth and price stability," the Fed chief said.
"My belief is that if we work effectively, the dollar's strength in medium term will reflect healthy underlying economy. Market intervention is a policy that has only been undertaken a few times. I think it is something that should be done only rarely, but there may be conditions when markets are disorderly where some temporary action may be justified." Bernanke said.
The euro was buying $1.5832, down from $1.5928 in London earlier Wednesday and $1.5899 in late North American trading Tuesday. The euro notched another all-time high against the greenback Tuesday near $1.6036
Re: think it is something that should be done only rarely, but there may be conditions when markets are disorderly where some temporary action may be justified." Bernanke said.
Safehaven, in particular, has been wrong about gold for the last 3 years. I agree, they know a lot about gold, but they aren't very good at predicting the future. All I'm saying is that you won't find many columns on gold speculation there, except those that refute it.
Looks like the rate of inflation is exploding on the upside? It appears to be breaking out of a multi year base. Looks very ominous indeed.
With negative real interest rates, expect this to be the most serious problem in about a year, if not sooner.
How high can it go? I would guess 10 percent inflation or higher is in the bag. Remember, that for the Fed to stop the inflation years from now, it will have to raise interest rates very high, i.e. over the rate of inflation by 300 or 400 basis points.
Re: The Mexican Peso was revalued on January 1, 1993
What happened during that period? Were there massive bank runs, massive foreclosures, massive strikes and the destruction of mexico, or did Mexico rebuild into a country which is now more valuable than the synthetic derivative-linked economy of America, which at this point is more corrupt than that of Mexico era 1993. Instead of a drug cartel, we have a subprime mafia addicted to leverage and blind to decay! Mexico did not fail with Intervention, they re-valued a society that is stronger and has a better future!!
Japanese Finance Minister Fukushiro Nukaga said he had discussed currencies with US Treasury Secretary Henry Paulson, who refused last week to take intervention off the table. Nukaga declined to say if they had talked about the dollar.
"Markets will be sensitive to any sign that G8 officials are sanctioning intervention to strengthen the US dollar," analysts at Calyon Capital Markets Research said in a note.
The Dallas Federal Reserve said in a paper last month the US currency's slide had contributed about one-third of a $60 increase in oil prices between 2003 and 2007.
Italy will propose increasing the size of the deposit required to trade oil futures to make speculation more difficult, Tremonti said, warning that failure to act would have political consequences.
"The impoverishment of the middle classes in Europe can have only one outcome: fascism," he said
Countries that peg their exchange rates to the dollar -- as several Middle Eastern oil exporting countries and China do now, and the rest of the industrialized world did under the Bretton Woods system that broke down in 1971 -- effectively have to buy up excess dollars to keep their currencies from rising. In the process, their domestic money supplies expand, resulting in inflation. Under Bretton Woods, the U.S. was supposed to redeem dollars held by foreign monetary authorities for gold at $35 an ounce. President Nixon ended that by closing the gold window on Aug. 15, 1971, when foreigners insisted on exercising that right.
Saudi Arabia and other Middle Eastern nations have seen soaring inflation despite having their own oil as their currencies have lost value relative to the euro and others. Kuwait has severed its currency's peg to the dollar to temper such inflationary consequences.
During an important speech in April 2002, Mr. Javad Yarjani, an OPEC executive, described three pivotal events that would facilitate an OPEC transition to euros. [10] He stated this would be based on (1) if and when Norway's Brent crude is re-dominated in euros, (2) if and when the U.K. adopts the euro, and (3) whether or not the euro gains parity valuation relative to the dollar, and the EU
As detailed in an earlier article, a conservative calculation is that at least 60% of todays $128 per barrel price of crude oil comes from unregulated futures speculation by hedge funds, banks and financial groups using the London ICE Futures and New York NYMEX futures exchanges and uncontrolled inter-bank or Over-The-Counter trading to avoid scrutiny. US margin rules of the governments Commodity Futures Trading Commission allow speculators to buy a crude oil futures contract on the Nymex, by having to pay only 6% of the value of the contract. At today's price of $128 per barrel, that means a futures trader only has to put up about $8 for every barrel. He borrows the other $120. This extreme leverage of 16 to 1 helps drive prices to wildly unrealistic levels and offset bank losses in sub-prime and other disasters at the expense of the overall population. More on the real reason behind high oil prices
At today's price of $128 per barrel, that means a futures trader only has to put up about $8 for every barrel. He borrows the other $120. This extreme leverage of 16 to 1 helps drive prices to wildly unrealistic levels
What is also interesting is that these prices are for pipeline prices and not storage capacity, so in effect, this is a matter of financial physics and the time has thus come for INTERVENTION.
Yes we have one of the lowest population density sprawls around - just moved inside the Loop from The Woodlands - working core downtown and must say I am liking the move so far.
The Federal Reserve must not wait too long before raising interest rates or it risks a serious problem with inflation, one of its top policy-makers said on Wednesday.
U.S. Treasury Secretary Henry Paulson said on Sunday leaders of Gulf oil producing states had told him that abandoning their currency pegs to the dollar will not solve their inflation problems.
Paulson, two-thirds of the way through a four-day trip to Saudi Arabia, Qatar and the United Arab Emirates, said leaders in the region have "quite an awareness that the peg does not influence inflation to a significant degree.
"They recognize that inflation is the overriding issue ... Ending the peg is not the solution to the inflation problem."
It is interesting that dollar has been re-valued under Bush. What is the motivation in terms of future value? This is like Mexico and The Peso over ten years, so what is the reality behind pushing currency lower, is it to peg it to Euro or Yen, what?
The inflation picture is starting to look down right ugly, the rate is not only high, but it is accelerating at a frightening pace. This morning it was announced that the CPI rose 1.1% in the month of June, up sharply from 0.6% in May and 0.2% in April. Put another way, if Junes increase were annualized (just for illustration, I doubt we will see this rate of inflation for 12 straight months) inflation would be running at 14.0%, a rate most commonly associated with WIN buttons, leisure suits and disco. Stretching it out to an annualized rate over the last three months we are looking at inflation of 7.9% and over the last 12 months it is rising at 5.0%. We have not seen these rates of inflation in a long, long time. The one month increase is the biggest since Sept. 2005 and the effects of Hurricanes Katrina and Rita, before that one has to go back to 1982 to find a higher one month jump in prices. The year over year increase is the largest since May of 1991. Energy was the primary culprit, just as it was back in the high inflation days of the 1970s. For the month it was up 6.6%, which if annualized (115%) would start to sound something like Peru in the 1980s or Germany in the 1920s. The three month annualized increase for energy is 53.6% and over the last 12 months it is 24.7%. Food is also a big problem, with prices up 0.8% for the month (10.0% annualized), at a 8.5% rate over the last three months and up 5.3% over the last year. So called core inflation is in better shape, but even there is higher than is comfortable, up 0.3% for the month (3.7% annualized), 2.5% over three months and 2.4% over the last year.
If one looks further up the pipeline things get even more scary. Yesterday the Producer Price Index (PPI) was released, at the finished goods level it was up 1.8% (23.9% annualized) for the month of June, up 14.1% annualized over the last three months and 9.2% over the last year. The prices for intermediate goods were up 2.1% for June and have been rising at an 26.8% rate over the last three months.
Despite these levels of inflation, yields for the whole treasury curve remain quite low, with the three month T-bill yielding only 1.31%, the two year note at 2.42% and even the 10 year note at 3.92%. Clearly this is due to a flight to safety trade, not because anyone could rationally think that their money will be worth more in real terms including the interest at maturity than it is today. They are currently certificates of confiscation, but they confiscate wealth at a slower rate than do the Federal Reserve Notes in your pocket.
While the sharp drop in Energy prices over the last two days might provide some hope of inflation leveling off in the future, it smells to me to be just another short term correction in the price of oil, not the start of a sustained downtrend. For the most part the world economy has held up pretty well so far, and with it demand for oil. The supply response to higher oil prices has been so slow that it is clear that there are major long term problems in raising supply to meet growing demand, and the only way to get the market to clear is for the price of oil to rise far enough to choke demand down. The oil we do find is harder to drill which requires more oil service intensity and more expensive rigs to drill. The price of oil has risen relative to just about everything else. While the Energy stocks have far out performed the market, they are not up anywhere near as much as the price of oil or as much as their earnings have risen. We have seen a bit of a pull back in the names with this dip in oil prices. I would take advantage of it. My favorite way to play the rising cost of energy is through the offshore drillers and some of the oil service names. These would include Diamond Offshore (DO), Transocean (RIG), National Oilwell Varco (NOV) and Baker Hughes (BHI). The E&P companies would be next on my list and some names to consider would be Chesapeake (CHK), Cabot (COG) and Anadarko (APC) among the larger cap names. Some very interesting smaller names are Double Eagle (DBLE), Warren Resources (WRES) and Petroleum Development (PETD).
I prefer to pay higher oil prices to
a new govt in Iran that is not hellbent in converting the whole world to Islam, mind you, by the way of the sword. Whatever happened to
freedom and tolerance? So what if we have to pay a little more for OIL.
Getting rid of the Shah of Iran for
cheap oil was a big,big, mistake.
DH | 07.16.08 - 12:40 pm | #
Where is the evidence that Iran is out to convert the world to islam by way of the sword? Yes, Iran is not a place I would want to live, but they have not been aggressive towards their neighbors. They were attacked by Saddam, and fought a long bloddy war because of it. The Persians have not been expansionist since the time of Xeres. You seem to be confusing the Wahabisits (Saudi Sunni's) with the Shites in terms of imposition of religion on others.
There are some bad( immature,childish,psychotic) people in this world that need to be contained. Alternatively, we can
whine,cry, and feel helpless.
DH | 07.16.08 - 1:17 pm | #
For 2008 and 2009, U.S. long- and short-term interest rates are based on OECD (2008). Beyond a transitional period, long-term rates are set equal to the projected growth of nominal GDP: real growth of 2.4 percent plus inflation of 2 percent, based on the OECD 2009 projection. Short-term rates are set 1 percentage point below long-term rates.
Assuming plausible settings of macroeconomic
indicators in the United States and abroad, as well as a flat real dollar, our projections indicate that the current account deficit will resume widening and the negative (net international investment position) NIIP/GDP ratio will continue to expand. This suggests that the configuration of macroeconomic settings underlying the current account balance at present is not sustainable in the long term. Nevertheless, compared with earlier years when the dollar was much higher, the current account balance is likely somewhat less unsustainable at present.
DH, listen to Dirk and enough of your anti Iran crusade here..
Believe it not thier are alot of Christians in Iran. Had 5 as neighbors...Thier people want nothing to do with war..Their president is a puppet with a waggin toungue..That's the problem, we don't have leaders that no how to come in and say something like this..
"We want to talk, we are open to suggestions and want to look at every angle possible to help you with your energy needs while eliminating nuclear proliferation in the middle east..But if your President keeps mouthing off about nuking Isreal and supporting Hezbollah with it's influence and money we are going to be heavily involved in that region with enough firepower to thwart any attack and respond with an intense counter that you don't want..
We long for peace with the Iranian people, they have always been our friends. Start talking ASAP......
"The interest rate differential between UK gilts with a 10Y residual maturity and comparable Bunds has narrowed since the end of May from a low of around 66bp to 47bp," he wrote in a research note to clients. "The spread is currently at 49bp. In our view, the outperformance by gilts is attributable to the announcement of a rate hike by the [European Central Bank] and the subsequent move as well as the very clear signs of weakness in the UK economy."
"In addition, an ascending triangle seems to be forming, and a break to the upside would be a trend-confirming signal. There are no obstacles to a test of the upper resistance line at 0.8030 for the time being. If the break is achieved, there would be potential for a move to the April high of 0.8099."
It may be up to Bernanke and Paulson today to either save the USD from the abyss or to push it over. They are scheduled to speak before a House of Representatives committee on new measures they will be promoting to prevent the catastrophes that got us into this problem in the first place - namely, misguided "financial innovation" at the investment banks that provided such potent punch bowls for Great Credit Bubble of the mid-Naughties (2003-2007).
TCA how right you are. Few Americans seem to understand that as Pat Buchanan said, "They came over here because we are over there" (meddling in their affairs, invading their countries, etc., etc.)
Thats because one of the lessons of the Iraq war has been the law of unintended consequences, where Washingtons attempt to defeat those who threaten a democratic way of life in the name of Allah has resulted in our enemies being strengthened instead. The war unleashed new levels of anti-U.S. sentiment in the Arab and Muslim world, Iraq has become a magnet for terrorists from within and outside of the country and Iran, which represents the greatest threat to Israel, has become more powerful and influential as a result.
Its true that Saddam Hussein, an awful tyrant, and his regime were destroyed. But Iraqis have not embraced the U.S. for its intervention; rather they are resentful of our presence in their land. And the world is a more dangerous place, not a safer one, since the U.S. invaded Iraq more than five years ago.
Those advocating an Israeli attack on Iran before Tehran completes its effort to develop nuclear arms have a powerful emotional argument. They assert that Irans president repeatedly has threatened to destroy the Zionist entity, and that if history has taught us anything, from Haman to Hitler, its that when a tyrant threatens to eradicate the Jews, believe him and act against him before its too late. A Nuclear Iran: Israel’s Impossible Choices
The Muslims in Iraq didn't threaten our vaunted "democratic" (not so very democratic with a government that spies on its citizens by the way) way of life. They didn't threaten us at all, except in the heated lies of the Neocons. There is no proof at all that Iran is seeking nukes; that is another bunch of propaganda lies propagated by you know who. And Iran has not said it intends to attack Israel at all. It has said it wishes Israel would disappear. And most Muslims agree. The idea it would attack Israel is another smear from those who can't translate the Farsi original correctly. See Juan Cole about all of this.
Inflation is everywhere and always a monetary phenomenon. Oil prices will decline when we stop printing too many dollars. Demand destruction has nothing to do with it.
The explicit assumption of another $5.2 trillion in liabilities (even if the net payout should be much less than that) means the printing presses will be blasting full bore for the foreseeable future.
Given that the GSE's won't be allowed to fail, no matter what that means to the dollar, the best way to bring down oil prices is to win the war in Iraq and stop the hemorrage of blood and money the continued occupation is costing us.
Win the war in Iraq?? That's a howler. McCain sees us there indefinitely bleeding billions indefinitely. There is no way to "win" a colonial war vs. a population that doesn't want us there. The Neocons and the GOP want us to occupy our new colony forever and that will mean war forever to keep it subdued.
Israel's want war, with anyone and Iran looks like a good bet for them, with the prize being water and oil and then more land of course. Iran on the other hand has zero need for nuclear power, but they want play war games well, so this should be a nice standoff until Israel comes up with a plan to start the war in full scale. I can see why Bush would want the oil, but does he really need to pull America into a world war?
Don't count on the decline of oil prices in the 2nd half of 2008. The catharsis related to tomorrow's option expiration and expiration of the futures contract next Tuesday is most likely over. Now oil prices will go higher again. This will continue month after month after month. Demand destruction will not be sufficient to make up for the weakness in the US dollar.
The 10% decline of crude oil from $146 to $132 in two short episodes within the last 24 hours perfectly matched with a 0.6% increase of the USD against the euro. This is what is called a riskless profit (arbitrage) trade: long crude/short dollar. Even Bernanke admits that the historical relationship between this two asset classes is rather complex. Not any more! For the first time in history they are now part of an arbitrage trade.
This is possible because traders are confident that Bernanke and the Fed will not raise interest rates for some time to come. Therefore oil prices will stay at high triple digits and possibly go higher from here.
curious that DH is so concerned about the Iranians, the US has killed far more Iranians, either directly or indirectly, than the other way round
for example, the US and the Saudis encouraged Saddam Hussein to invade Iran in 1980, and armed him to fight the war through to its conclusion in 1988, stood silent as the Iraqis used poison gas on Iranians and blamed the Iranians when we shot down a jetliner with somewhere around 250-300 people on it
the Iranians are in compliance with the nuclear non-proliferation treaty, haven't developed nukes outside of it like Israel, Pakistan and India (all of whom enjoy good relations with the US) and have merely threatened to use military force against the US and Israel if attacked
but go ahead, let Bush and Olmert go ahead with this insanity, here's hoping the Iranians have sufficient military capability to bring this farce to an end
Here's hoping.
I want to know what hedge fund blew up to cause the drop in oil......something along those lines happened however the only one I see was some auction related to Cheyene...
any idea's??
Ciao
MS
Well, now perhaps we'll see just how much was bubble, and how much was a supply shift.
BTW, I really hate the term "Demand Destruction". No such thing exists. Demand shifts or changes. Demand destruction is merely a slide down the demand curve as the supply curve (in oil's case) shifts.
Enough of that silliness. There will be Blood. Now give me your damned milkshake!
BTW I could have been First if I hadn't rambled.
Cheers,
I'll believe it when it doesn't cost me $50 to fill up.
Oil prices don't translate to refined products instantly - up or down. And refiners have been squeezed so they won't readily pass on decreses since they were unable to pass on increases. I don't see CPI letting up any time soon.
Food prces will continue to rise, although perhaps more slowly.
$6? Yawn. Talk about people being desparate for "good news" on oil prices. That's damn near noise at these price levels.
You know, oil is still over $134/BB. Ain't exactly cheap.
Cheers,
Would it make a difference if the government opened up some (maybe 10%)of the strategic reserve at below market prices to pop the bubble? Is it even feasable?
HA,
that graph is exactly what I was talking about. Notice that CPI and
core-CPI are inversly related Nowadays. A fall in oil and food prices will lead to a price increase
in other goods ( due to limited incomes). CPI-down core CPI-up;
hence the need for the FED to start
hiking rates sooner than Kasriel expects.
Would falling crude (core CPI) lead us into deflation? Look at how falling crude (red line) from 2001-2002 led the core CPI down in 2002-2003 time period.
If we had a 50% pull back in crude, and with falling imputed rents (largest component of core CPI), why wouldn't we see negative headline CPI YOY?
Yep, $134 oil made news on the upside just a couple of months ago. If you said $120 oil last year people would think...god forbid. Is it just me or does anybody see a short squeeze developing here in the near future.
CR, I don't understand your chart. Didn't the core rise 1.2% last month alone yet you show the total core CPI increase to be 2.2%? I know I'm missing something.
Oh - and there's a good possibility today's rally has already peaked (and will crap out soon).
If it goes below $100 fairly and stays there, I'll believe the speculation argument.
If it then sinks below $80 fairly slowly, I'll believe in the demand destruction argument as well.
But it's a long way down the road to either of those. Much can happen.
"If it goes below $100 fairly QUICKLY"
jeez, bring me coffee...
"And refiners have been squeezed so they won't readily pass on decreses since they were unable to pass on increases. I don't see CPI letting up any time soon."
I generally agree, but I'm not sure they were "unable" to pass on increases. I think they were "unwilling" as they realized that this would just result in even less gasoline usage, and even more pressure for people to move off their product. It's not in a drug dealer's best interest to make their drug too expensive - the users might consider quitting.
If the oil price decreases significantly (say another 10-20 bucks a barrel) and gasoline doesn't come with it, there will be an outcry, investigations by populist senators, and even more Prius buying and less usage. I think given the economic picture, they'll be more likely to maintain current margins and let prices of gasoline drop as quickly as possible. It's in their best interests...
Rats. Stops on SKF got blown out at the lows. Almost like the entire market targets my stop prices.
Looks like the SEC has managed to ban falling stock markets.
"BTW I could have been First if I hadn't rambled."
Right, and if your aunt had wheels she'd be a teacart.
Just wait Ozymandias, the SEC has done nothing but buy a little time.
How much influence could the SEC have over the ultra shorts?
Perhaps best rant on financial incompetence writ on a scale far grander than anything seen for centuries.
Idiots Fiddle While Rome Burns
The Big Picture
Even if the demand declines in place like China, it will still outpace new supply. Oil prices might stabilize but I dont think you will ever see a long-term drop in prices.
Ministry of Truth, I'm being sarcastic. I don't believe stock markets can ever fall.
IMO this can still be considered statistical noise. The oil price is still trending well above the 200 day moving average. Until it gets closer to that, there's no reason to be optimistic.
INO Futures and Commodities - Energy - CRUDE OIL Jan 2010 (NYMEX:CL.F10) Price Chart and Quote
Hedge funds that want to keep their powder dry should only perform stock manipulation to the upside. So if you want to manipulate a stock, blow out the shorts. I guarantee the SEC will not come knocking unless they are bringing you an award.
Don't be surprised if you see small bear funds get shut down or trading halted from the SEC this year.
wally,
My aunt IS a teacart. What do you have against teacarts.
And this is interesting:
"Swedens financial meltdown of 1991 involved the government guaranteeing the obligations of the entire Swedish banking system, and recapitalizing the major banks, with the sole major exception of Svenska Handelsbanken. The total cost of the rescue to Swedish taxpayers was around $10 billion, equivalent to about $1 trillion in the context of todays US economy. The causes of the crisis would be familiar to most Americans today: misuse of off-balance sheet securitization vehicles to invest excessively in real estate and mortgage lending.
It is thus not impossible for the entire US banking system to implode"
404 - Error: 404
Cheers,
The underlying fundamentals have not changed as far as i can tell. Other than spin and (tinfoil hat) timely large volume dumping, it's just fluctuation of an upward trend for now. But, I'm not a day trader, long term preservation of capital and growth through macro-economic studies is my game.
A short economic decline in an economy that has much of it's structure based on vendor financing of a consumer driven, predominant service industry workers, with large personal and national debt that is fighting two simultaneous prolonged wars (looking for 3?), seems counter intuitive, at least from a historic perspective.
Unless we had conquered, plundered and shared the loot, I might be persuaded with a short downturn. Not good on the sharing part as a country.
time will tell...
U.S. inventories seem like one tiny piece in an very big puzzle. What about demand overseas? What about supply? What about new finds? Corn crop good this year?
I'm amazed such a large drop can occur with such a tiny piece of information.
Tells you something about who is setting prices, I guess.
barely,
Ding! Refining was a money losing operation for the majors in the last quarter as they did not pass along all the crude increase - as prices ease, they will decrease motor gasoline at a slower pace.
Another ding was the $120 comment, though I would put that at $100 - if we get under $100 for a month then we are doing the macro economy some good - as noted above, not all price increases have been passed along to the public and the other price to watch is diesel (at some point, everything we buy is moved by diesel).
As for the price drop, let's see what the close is - we have already cycled from down $6 to unchanged to down $5 last I checked...
The DOW looks like mini-me's head and shoulders right now. Isn't that meant to be bad on a bigger scale?
Carlomagno,
Check.
Cheers,
Maybe I'm an alarmist - but is there any consideration of what one strong hurricane heading into the Gulf might do to oil prices? Short term impact maybe but in a couple of short months we will be at the peak of the season.
Was reading some energy blog and the author was claiming inventories are the way they are is because at this price holding costs for refiners are killing them; so they run lean.
If that is the case, then this would indicate demand shift downward.
shultzie,
$5 gas anyone?
He went on to say that action by Congress is justifiable in order to raise confidence.
energyecon,
Have it...or damned near. Paid 4.79 the other day.
You guys in fly over country need to get on the ball.
Cheers,
Lag the core graph 1.5 years, and you will find that core and CPI are nicely correlated.
Great article. It all hinges on oil.
However anything above 130 makes it plausible for it to go even higher in the near term.
Misean,
Their getting close...Paid 4.40 in Beaver, UT. last week..
Could falling oil prices due to reduced demand/increasing supply be a proxy for declining economic activity? If so, it wouldn't necessarily follow that lower prices would lead to a shallower recession. It could simply be an indicator that economic output is falling faster than everyone believes.
CR said: "the difference between a moderate and severe recession might be what happens with oil prices. Falling oil prices would move CPI below Core inflation and might keep the economy out of a severe recession"
I suppose this could be the case, but I think that oil prices will have very little to do with the upcoming recession. We are facing a massive credit contraction and energy prices are only a secondary factor. Frankly, if energy prices begin to fall it will primarily be due to demand destruction (around the globe) which would be VERY bearish for the economy indeed.
In other words, falling energy prices would be an indicator that the global economy is in for one mess of hurt.
Misean,
'Scuse me - haven't quite ticked the $4 mark here in Houston - need to get dryfly's read there in true flyover!
Consumer prices shot up in June at the second fastest pace in 26 years with two-thirds of the surge blamed on soaring energy prices.
The Labor Department reported that consumer prices jumped 1.1 percent last month, much worse than had been expected. Energy prices rocketed upward by 6.6 percent, reflecting big gains for gasoline, home heating oil and natural gas.
Great article. It all hinges on oil.
However anything above 130 makes it plausible for it to go even higher in the near term.
cd, energy,
Check!
Cheers,
Misean,
You may have sunshine all the year round, but here in flyover country, I've got cheaper gasoline at the moment.
Along I-70 in western Pennsylvania, on Monday I paid $3.97 a gallon for regular. In southeastern Ohio, it's going for between $4.05 - $4.15 per gallon.
Cheers.
shultzie,
Out of respect for the pain of others here, lets just say a real fast $1 a gallon increase type of situation if the big refineries went offline... not so much if a sh!t kicking hurricane rucked up the pea patch in the GoM.
energyecon -
Thanks - I'm not one of these "speculator conspiracy" nuts looking to lay blame - but a Gulf threatening 'cane seems like a prime opportunity for spec...
Hellsfire, CNN only needs to put "Iran" and "Israel" in the same sentence to give oil another reason to rally.
Dumb.
Miturn,
So true and I think you will see that come to fruition..Isn't funny how they have drove oil up so Bushes buddies can drill offshore...He will threaten veto on housing bill but will not veto if congress gives his buddies the free pass...
Oh I think there is some speculative premium in the price - but it only works due to the fundamentals underlying the supply/demand story - looking at about a five year price trend in comparison to drillbit reserve replacement ratios on a rolling three year average along with F&D viewed similarly (again on a drillbit basis) - prices and costs up and up but the new barrels added come up a bit skinny.
Look for more 'surprises' as election season heats up - or as the economy teeters on the brink. I am with CR that oil prices will fall, but I think so for the wrong reasons.
safe_as_apartments writes:
Lag the core graph 1.5 years, and you will find that core and CPI are nicely correlated.
safe_as_apartments | 07.16.08 - 11:54 am |
That only butresses my argument. According to your lag theory, we should experience a big spike in
core-CPI soon, and even sooner if
there is a sharp correction in oil prices.
"Hellsfire, CNN only needs to put "Iran" and "Israel" in the same sentence to give oil another reason to rally. "
If we actually get through the Bush administration without an attack on Iran by the U.S. or Israel, I could see things calming down and prices going down somewhat. But what are the odds on that? Especially since the Israelis know that the likely next administration won't be quite so much the enabler )of their worst instincts)?
Falling oil prices would move CPI below Core inflation and might keep the economy out of a severe recession (although the period of economic weakness would still linger for some time).
The problem with that scenario is that the base cause of the problem here is asset price deflation, particularly in nominal terms. How will a fall in CPI help heal that? Wouldn't a rise in inflation be more helpful?
And won't a sharp fall in commodity prices lead to a slowdown in Brazil, Australia, Russia, the Gulf States, Canada, South Africa and other commodity exporters?
Prices always fall in a slowdown, and they fall the most in severe slowdowns.
Isn't this a symptom, rather than a cure?
Oh yeah,
Gold prices started going up when I decided to wear lots of jewelry.
Actually my demand for Gold went up so much that I started to sprinkle it on my icecream sundea.
You see, its all about fundamentals.
Lack of land,pop growth,income growth,
etc.
Does anybody still NOT believe in the PPT?
Even traders are starting to express disgust, as the absolute stopping of capitulation doesn't allow actual confidence to ever reach equilibrium.
If they always prevent a fire sale, no one will ever enter with real confidence. The PPT wants to prevent capitulation, but in so doing prevents a real bottom and investor belief in safe risk taking.
The PPT wants a brave new world of traders who always believe in no capitulation, but the actual traders on the floor are not that new breed. They are experienced in trading fear, and are not ready to accept this BS PPT world. Until the entire floor of traders is replaced with 20-something former mortgage brokers (let's hope never), the PPT brave new world is foolish hope. Another manipulative machine that has very bad side effects.
PPT: die already. The traders don't believe this shit anymore. Let it go. The real bottom is far lower, let it get there.
DH writes:
Actually my demand for Gold went up so much that I started to sprinkle it on my icecream sundea.
Indeed, gold does look cheap now.
It will go up, rallied cause of dollar strength, what surprises me is that people would buy the dollar.
Fundamentals have not changed, in fact everything that happened today seemed to point towards a weaker dollar.
Hey Bob Dobbs, you said the Israelis might be indulging in their worst insticts to attack Iran? You mean like self preservation? How do you possibly call that a "worst instinct" when they have to live cheek by jowl with the world's worst foaming at the mouth islamists who publically and repeatedly fantasize about nuking them out of existance at their first opportunity. I suppose you would choose to bare your neck to the throat cutters if you were in their position?
$5 gas? Hell, we aint even seen $4 gas yet. Take that, Cali and Hawaii.
I think that there are going to be many "surprise increases" in inventories as we get closer to the election. In fact, I'd say this is happening right on time to lower the price of gas going into the high campaign season.
I've lived long enough to yawn at most of the supply discussions. I do not think for a hot minute that this has anything to do with supply, but everything to do with a bubble formed because of hedging, speculation, and profit-taking by people looking to work their capital. Am I being a bit tinfoil-ish? Maybe. And maybe just realistic.
recently, purchases to the SPR were stopped, even though a tiny percentage of US consumption (100, 000 barrels a day or less) significant none the less because...
games get plaid with this tip of the iceberg that affect price throughout.
also, import / export games are played to "re-label" oil for spec purposes.
from seeking alpha on July 7
"Why is a country that consumes 20Mb of oil a day and supposedly had "supply issues" and a shortage of refineries EXPORTING 1.5M barrels a day of refined products OUT of the country? Thats adding 7.5% to our total "demand" AND taking up 7.5% of our "tight" US refining capacity in order to flip the barrels for a quick buck in foreign countries while using 10Mb a week from our current crude inventory and removing 10Mb a week from our refined products inventories.
Why is it that, since Congress ordered Bush to stop filling the SPR on May 17th, he has added 3.2M barrels to the SPR? That is more than double the rate at which oil was added in the 5 weeks BEFORE he was told to stop. Its interesting that an article in Platts, in which the DOE said they would stop filling the SPR on May 16th, has been removed (thank you Google Cache for saving everything!). At the time "Megan Barnett, a DOE spokeswoman, said deliveries to the SPR could actually stop earlier than the July 1 date should Congress and the Bush administration reach an agreement on the SPR measures passed this week. "The department will work to the maximum extent to defer deliveries to the SPR and comply with the law," she said."
Oil is also keeping up with the latest fad - Car Polo. I play in two leagues.
Re: Even traders are starting to express disgust, as the absolute stopping of capitulation doesn't allow actual confidence to ever reach equilibrium.
Federal Reserve chairman Ben Bernanke said a "top priority" for the central bank is to bring inflation to an acceptable level.
"We're going to be responsive to conditions as they evolve," Bernanke said in testimony before the House Financial Services Committee. He noted concern about commodity-related inflation bleeding into headline inflation.
Business finance news - currency market news - online UK currency markets - financial news - Interactive Investor
Watch what they do, not what they say.
Seriously though, if the government was serious about relieving the economy wouldn't they be better served by offering oil from the strategic reserve at a price below the market? They purchased this oil at lower prices so they could make a profit and put it into some other stimulus idea. If speculation is really the problem this could break some of it no?
Say byebye to raising oil prices for years to come. See ya at $2.50/gallon at the gas station.
O-Joe
Please tell us again how your are shorting to defend those whom you patronizingly call "Joe 6-pack". Of course Mr and Ms 6-pack have their retirement funds (and in many cases their kids' education funds also) in the market. Whether or not that is wise, it is a fact. But I suppose by trying to destroy their retirements you are helping them, right?
Oh, wait, you are "punishing the greedy". Right, like fat-cat CEOs care if the stock goes down? They are very well-insulated behind their golden parachutes.
You're making money? How wonderful for you. But of course, you're not greedy, only those other guys...
Re: wouldn't they be better served by offering oil from the strategic reserve at a price below the market?
The futures price is in the pipeline, not in the storage tanks. No one has been stockpiling oil with high prices, so nothing is going to change. Oil will stay steady around $4.25 gal in US
O-Joe it's already $2.57 here.
Eh, oops, thats per liter.
"any idea's??"
Short financials, long commodites trade unwinding.
Yah, what about all the corporations that use hedging and short their own shares, and short the dollar, what about these people?
O-Joe
why are you such a pessimist?
why wont you agree that oil is going back down to $1.00 a gallon.
stop being such a bear would you
it's guys like you that are bringing this economy down
clap you hand and believe ok?
Mister M,
"Oil will stay steady around $4.25 gal in US"
Well unleaded gasoline might...oil, not so much.
Cheers,
Getting rid of the Shah of Iran in
1979 ensured a lenghty period of
cheap oil. However, the Islamic
fundamentalists now pose a serious
geopolitical threat.
So make up your mind, do you want
cheap oil or lots of bloodshed?
I prefer to pay higher oil prices to
a new govt in Iran that is not hellbent in converting the whole world to Islam, mind you, by the way of the sword. Whatever happened to
freedom and tolerance? So what if we have to pay a little more for OIL.
Getting rid of the Shah of Iran for
cheap oil was a big,big, mistake.
This is an interesting quote:
With mortgage lenders requiring down payments of 20 percent, the average household, which puts away less than 1 percent of after- tax pay, will have to save 10 percent for 10 years to buy a home.
New 20% Down Payment Makes Savers From U.S. Spenders
ac,
If that turns out to be the case, then thank Glod!
Cheers,
Whew! Financial crisis averted. Everyone go back to business as usual now.
why wont you agree that oil is going back down to $1.00 a gallon.
clap you hand and believe ok?
mock turtle
Well it would had the enviro-fascists not mandated expensive add-ons like ethanol and it also future tax increases from more liberal governments.
O-Joe
Misean,
Yah, gas for the SUV cost will hover around low 4's.
OT: This is so retarded!! >>
Wells Fargo gave anxious investors a pleasant surprise Wednesday, reporting a profit drop that was milder than anticipated and lifting its quarterly dividend by 10 percent.
Wells Fargo's second-quarter profit fell 22 percent as more customers at the nation's fifth-largest bank failed to pay back their loans. But it raised its dividend to 34 cents from 31 cents -- at a time when many other financial institutions are slashing theirs to preserve capital.
That nice Fed chair Mr Bernanke just said with a straight face that the Fed can do nothing to promote savings. Can holding interest rates substanially below real rates have any influence on savings and dollar purchasing power.
Disgusting how the stooges in DC can sit there silently and listen to lies during testimony. The fed is pumping with all hands on deck for Americans to consume over save.
ok i wrote $1 a gallon oil, i meant dollar per gallon gas
but hey thats ok too
that would be $42 a barrel oil
km4 ( & others who have the read the big picture post)
I do not disagree with what he has posted (it's true) however he stops short of taking to task the financial industry (that he works in) for applying MASSIVE leverage to these loans.
That is the REAL issue. Placing the blame on the over-leveraged banks is what is missing in that piece....
Why else does a 20% drop in real estate value cause so much pain?
leveraged balanced sheets (up to and beyond 1:45) is what is causing the solvency problems....not the original loans.
Ciao
MS
ac,
If that turns out to be the case, then thank Glod!
Cheers,
Misean
If enough US households started saving like that to buy a new house or pay down their negative equity, that might be a bigger factor in a "severe recession" than rising oil prices.
Consumption is still 72% of the economy last time I checked. Couple that with a drop off in global demand...
Mock Turtle
The SeekingAlpha item that your citing is a tad deceptive - the US is a net product importer ( about 1.5million barrels per day on a NET basis ) as well as a massive crude importer. The US could stop exporting gasoline to Mexico I suppose, but there would be a reciprocal reduction of Mexican exports of crude to the US to balance it.
It's also worth remembering that a big chunk ( anywhere between 25 and 35% depending on the refinery maintenance cycle ) of the US petroleum products exports is made up of that well known, high-demand substance called petroleum coke ( ie refinery waste ) and residual fuel oil. The US has a positive net export balance for diesel ( 300kbd in the summer ), which mostly goes to South and Central America, especially Chile, where it keeps the world's largest copper mining operation in business.
10% of the US SPR would be 70 million barrels - that's the equivalent of putting less than one day's supply into the markets; OPEC could just stop pumping for 2 days and that would negate the effect!
leveraged balanced sheets (up to and beyond 1:45) is what is causing the solvency problems....not the original loans.
No, no, no...it's Chuck Schumer that causes insolency not fundamentals. As in "IndyMac was Schumer'ed"
This is what will happen to the dollar:
The Mexican Peso was revalued on January 1, 1993. Pesos dated before that date (Old Mexican Pesos - MXP) are 1000 times less valuable than the New Mexican Pesos - MXN.
The Mexican Peso is the currency in Mexico (MX, MEX). The symbol for MXN can be written Mex$. The Mexican Peso is divided into 100 centavos. The exchange rate for the Mexican Peso was last updated on July 15, 2008 from The International Monetary Fund. The MXN conversion factor has 6 significant digits.
Mister M writes:
This is what will happen to the dollar
Can't stop laughing.
When Mr. Market come to understand that there isn't any way in hell Benny is going to raise interest rates and the dollar starts falling again as a result of that plus CONgresses insistence on trying to borrow money to prop up overvalued home prices and bailout anything and everything oil will start climbing again. Cox threw and hand grenade in the hedge funds yesterday but it is funny that it probably is OK to naked short all the oil related companies that one wants. Bottom line the markets a rigged and there are far better places to invest ones capital.
DH writes:
Getting rid of the Shah of Iran in
1979 ensured a lenghty period of
cheap oil. However, the Islamic
fundamentalists now pose a serious
geopolitical threat.
DH, did you know that Iran was a democracy before the CIA helped engineer a coup d'etat to bring the Shah to power in 1953? That hasn't worked out so well for us, has it? Perhaps if we simply minded our own business and traded with Iran as a civilized nation, we wouldn't be in the mess we're in.
O-Joe
you are a little confused but i'm here to help
you called the environmentalists fascists
the environmentalists are socialistic and scientific in their policy
the large petro-chemical corporations that heft a huge lobbying stick are the facists.
but hey maybe you can help me out in return
how come the big powerful rich multinational corporations that fund political campaigns and have cadres of lobyists and have networks of interlocking corporate relationships...
ARE ALWAYS GETTING PUNKED
by, as you call em, the enviro fascists
geez the tree huggers are just a bunch of cannibus smoking , goodwill shopping, flute playing hippies
and yet somehow they kick corporate ass
how is that?????
"The United States should consider intervening on the foreign exchanges," said Jim O'Neill, chief global economist at Goldman Sachs in London. "The dollar's ongoing weakness and aggravation of the oil price is a threat to the whole world."
"There's a danger of a vicious circle developing here -- the dollar is declining across the board, oil prices are still rising and both are causing simultaneous inflation damage."
"They can't just stand idly by and watch all this happen without a fight," added O'Neill.
Neither are Goldman Sachs alone in warning of the possibility of dollar-supportive intervention.
"The conditions for successful dollar supportive coordinated intervention are now starting to fall into place," economists at French bank BNP Paribas told clients on Wednesday, saying the most important factor was a growing consensus around the world.
U.S. firm Morgan Stanley said its in-house model on the probability of central intervention has been rising all year and reckons chances are now as high as one in three.
And investors as well as bankers feel the time is ripe.
404 Page not found
The time is ripe to bring Paulson and bernanke, Bush, et al before a court for treason....
Falling oil prices also will reduce the amount of US Treasury paper purchased by the producers.
-Monetary Policy: We need to see higher FF rates of at least 3% over core(6-6.5%) This will cause the dollar to soar, all commodities to plummet and will reduce our inflation rate substantially!
-Fiscal Policy:Now regarding economic stimulus, another tax rebate, a strong jobs/training incentive program, tax cuts
Any intervention in markets is artificial and the fundamentals will prevail.
Oh and by the way gold looks cheap today.
"Hey Bob Dobbs, you said the Israelis might be indulging in their worst insticts to attack Iran? You mean like self preservation? ..." etc.
In my understanding, the Iranians were willing to negotiate with the U.S. on this issue several years ago, but were turned down by our my-way-or-the-highway administration. Since there is little evidence that Iranian nuclear armageddon is just around the corner, why not try negotiation. Especially since Israel reportedly already has well over 100 nukes of its own.
In that sense, the issue is not really agression against Israel, but Israel losing its unofficial status as the sole nuclear power in the Middle East, and the freedom of action that goes with it.
How will Dollar intervention impact oil, when the Euro is used for pricing oil?
dan writes:
Mock Turtle
The SeekingAlpha item that your citing is a tad deceptive,,,
Dan you are right, the article i referenced can not be taken at face value
AND
i probably over-payed my point
the SPR is a very very small part of the world oil production / consumption equation.
but i do stand by the notion that the tail can wag the dog be it even a few percentage points when it comes to futures and options games.
my recollection, world oil consumption has risen by far less than 10% this year but oil prices have sky-rocketed.
however i don't dispute your essential argument.
"So make up your mind, do you want
cheap oil or lots of bloodshed?"
I'm thinking.... I'm thinking....
Any intervention in markets is artificial and the fundamentals will prevail.
The problem is that if this market intervention involves actively devaluing foreign currencies to boost the dollar (e.g. printing euros to buy bucky), then the change is fundamentally justified.
Bob Dobbs,
When the time comes, the Israelis will do the deed. I don't think there is any doubt about that.
Maybe a single nuke, a claimed 'accident' at the Iranian site.... and all evidence would be melted away into glass.
"When the time comes, the Israelis will do the deed. I don't think there is any doubt about that.
Maybe a single nuke, a claimed 'accident' at the Iranian site.... and all evidence would be melted away into glass."
Then "and then" that follows is the big issue. Which is why I still hold gold.
The Fed wants inflation.
BB,
Because you always mention the correlation of gold with the dollar (which is not unimportant but there are other more important ones), you might want to check out Bob Hoye. He is quite an authority on gold price behavior.
This is an article from 2005:
Safe Haven | Why You Should Own Gold & Dollars
HOYE: During certain inflationary periods of time, you can make money in gold. When gold went to $850, it certainly went up faster than costs. But the point is that when you are in a stock bubble, the real price of gold goes down; and after the bubble, the real price of gold goes up. And then you start to see improved operating results for producers, and that ultimately enhances the value of the stock. One of the ways Mother Nature works is that during the post-bubble credit contraction, there is a huge vacuum where real liquidity is needed. And the only way Mother Nature increases that liquidity is through an increase in the real price of gold so that people go out and find more of it and produce more of it. Despite this, the gold establishment, during the last 20 years, predicted the gold price would go up because mine production was going down. Another point was that gold should have increased with falling real interest rates. But such rates always decline with gold during a financial bubble. Then, to continue the confusion to orthodoxy is that following a bubble, real long rates and gold have increased together.
think about what happens when a uranium processing facility in blown up and the enriched uranium is blasted across the land and up into the sky.
then think about, the "allies" once again attacking a country that has not attacked them.
finally think about the idea "we" as a nation have sold to the world...that we have the moral right to preemptively attack a nation we think is a threat to us.
so does this mean, under the preemptive attack doctrine that now iran has the moral right to preemtively attack isreal or the US?
Dear TCA,
Iran was never,never a democracy. I do not care what the history books say. As far as minding our own business, I do not agree. We did that
in WWII, and it did not work.
perhaps Bin Ladin was just trying to force us to get off our ass just like
Japan did back in WWII.
There are some bad( immature,childish,psychotic) people in this world that need to be contained. Alternatively, we can
whine,cry, and feel helpless.
Don't you worry about oil. The mere whisper of the word "Iran" will pinch your pretty shorts.
More wars on the way, folks.
safehaven is infested with gold bugs with a biased perspective on gold.
DH writes:
I do not care what the history books say.
Well, there's your problem, isn't it? The U.S. seems to suffer from an acute case of this.
Bob Dobbs,
I will bet anything that Iran is a lot
more likely to use a nuke than Israel.
its a matter of your basic assumptions about human nature.
1) people are basically bad and need to be constantly regulated.
2) people are basically good and given freedom will do nice things.
do not ask me which philosophy Iran or Israel adhere to.
DH,
Oh yes, the U.S. resolved its problems in Iraq just as well as it did in Iran in the 50s and later in Vietnam. It worked so well.
In fact, the U.S. has an excellent track record of screwing things up and the result is that the world now views the U.S., to use your term, as "immature,childish,psychotic" and justifiably so!
I bet Iran would use the Death Star too, if it had one of those - but it doesn't. No nukes either, so I'd guess it's more likely that Israel would use them, because the actually do have them.
The U.S. Federal Reserve will undertake a $75 billion 28-day Term Securities Lending Facility (TSLF) auction on Thursday, according to the New York Fed on Wednesday.
Fed to conduct $75 bln, Schedule 2 TSLF auction
| Reuters
Uh Huh, inflation is the FED's top priority. Watch what they do.
DH writes:
Dear TCA,
Iran was never,never a democracy. I do not care what the history books say,,,
i was tempted to make a smart ass comment...
but in the interest of brotherhood...
just what the heck authority would you refer to, in documenting the history of iran???
the british MI6 and US under CIA station chief Kermitt Roosevelt, engineered the violent overthrow of Iran's elected president
and "we" installed shaw Pavlovi as our oil puppet. he tortured and imprisoned thousands
imagine if a foreign country did that here in the US...
and your response would be?
DHs history book is the Bible.
DH said,
There are some bad immature,childish,psychotic people in this world that need to be contained. Alternatively, we can
whine,cry, and feel helpless.
DH | 07.16.08 - 1:17 pm | #
i think thats what bin laden tell his followers about the US
mock turtle,
"finally think about the idea "we" as a nation have sold to the world...that we have the moral right to preemptively attack a nation we think is a threat to us.
so does this mean, under the preemptive attack doctrine that now iran has the moral right to preemtively attack isreal or the US?"
Oh quit being so logical. This is much easier:
Rah! Rah! USA Rah! Rah! Right or Wrong! Rah! Rah! Our Team! Rah! Rah! Right or Wrong!
Keep chanting that and you'll feel better. Works better than morphine.
Cheers,
We all assume you meant gasoline, and you probably did, but at 1bbl=42 gallons then
42*4.25 = $178.50.... not so farfetched for a point of "stability".
OK , peace.
As a matter of fact it is prayer time for me. I will pray that things will get better on their own.
Oil prices linked to The Euro! God save The Queen's!
safehaven is infested with gold bugs with a biased perspective on gold.
I find that somewhat amusing. If you are interested in a certain investment direction, it is advisable to seek out sites where people with the most experience with that investment congregate. If that investment is gold then clearly you want to visit gold sites.
It doesn't help to visit a bicycle shop to learn about airplanes. Note that these goldbug sites have been much more accurate about gold's price action in the last 7 years than any other.
Since May, 2007, as importers have bid against each other for declining net oil exports, monthly average oil prices have increased at the rate of about 6% per month.
Relative to May, 2008, we were actually somewhat above the trend line in the first half of July. To stay on trend, we would need to average about $140 in July.
Federal Reserve chief Ben Bernanke also lent support to the U.S. unit, when he was asked after congressional testimony about the dollar and intervention.
"Our principle policy towards the dollar is to have a strong economy -- strong growth and price stability," the Fed chief said.
"My belief is that if we work effectively, the dollar's strength in medium term will reflect healthy underlying economy. Market intervention is a policy that has only been undertaken a few times. I think it is something that should be done only rarely, but there may be conditions when markets are disorderly where some temporary action may be justified." Bernanke said.
The euro was buying $1.5832, down from $1.5928 in London earlier Wednesday and $1.5899 in late North American trading Tuesday. The euro notched another all-time high against the greenback Tuesday near $1.6036
Re: think it is something that should be done only rarely, but there may be conditions when markets are disorderly where some temporary action may be justified." Bernanke said.
WE ARE THERE!!!!!
Safehaven, in particular, has been wrong about gold for the last 3 years. I agree, they know a lot about gold, but they aren't very good at predicting the future. All I'm saying is that you won't find many columns on gold speculation there, except those that refute it.
Looks like the rate of inflation is exploding on the upside? It appears to be breaking out of a multi year base. Looks very ominous indeed.
With negative real interest rates, expect this to be the most serious problem in about a year, if not sooner.
How high can it go? I would guess 10 percent inflation or higher is in the bag. Remember, that for the Fed to stop the inflation years from now, it will have to raise interest rates very high, i.e. over the rate of inflation by 300 or 400 basis points.
Very Scary.
Re: The Mexican Peso was revalued on January 1, 1993
What happened during that period? Were there massive bank runs, massive foreclosures, massive strikes and the destruction of mexico, or did Mexico rebuild into a country which is now more valuable than the synthetic derivative-linked economy of America, which at this point is more corrupt than that of Mexico era 1993. Instead of a drug cartel, we have a subprime mafia addicted to leverage and blind to decay! Mexico did not fail with Intervention, they re-valued a society that is stronger and has a better future!!
INTERVENTION NOW!
a different chris writes:
(quoting mock)
We all assume you meant gasoline, and you probably did, but at 1bbl=42 gallons
yes
i corrected my mistake several posts down thread.
energyecon,
Unleaded regular at 3.99 in my northeast suburb of Houston on my way in this morning.
A schooch away from a 4 handle even in Hooooston. By the way, it takes what seems an hour to flyover Houston nowadays.
Japanese Finance Minister Fukushiro Nukaga said he had discussed currencies with US Treasury Secretary Henry Paulson, who refused last week to take intervention off the table. Nukaga declined to say if they had talked about the dollar.
"Markets will be sensitive to any sign that G8 officials are sanctioning intervention to strengthen the US dollar," analysts at Calyon Capital Markets Research said in a note.
The Dallas Federal Reserve said in a paper last month the US currency's slide had contributed about one-third of a $60 increase in oil prices between 2003 and 2007.
Italy will propose increasing the size of the deposit required to trade oil futures to make speculation more difficult, Tremonti said, warning that failure to act would have political consequences.
"The impoverishment of the middle classes in Europe can have only one outcome: fascism," he said
Countries that peg their exchange rates to the dollar -- as several Middle Eastern oil exporting countries and China do now, and the rest of the industrialized world did under the Bretton Woods system that broke down in 1971 -- effectively have to buy up excess dollars to keep their currencies from rising. In the process, their domestic money supplies expand, resulting in inflation. Under Bretton Woods, the U.S. was supposed to redeem dollars held by foreign monetary authorities for gold at $35 an ounce. President Nixon ended that by closing the gold window on Aug. 15, 1971, when foreigners insisted on exercising that right.
Saudi Arabia and other Middle Eastern nations have seen soaring inflation despite having their own oil as their currencies have lost value relative to the euro and others. Kuwait has severed its currency's peg to the dollar to temper such inflationary consequences.
"The impoverishment of the middle classes in Europe can have only one outcome: fascism," he said
He is quite right, I'm afraid. Signs of fascism are all around Europe but regrettably just as much in the U.S.
Retarded webpage, but very funny nonetheless, as it is 4 years old, and right on the money!!
The Emerging Euro-denominated International Oil Marker
The Real Reasons Why Iran is the Next Target:
During an important speech in April 2002, Mr. Javad Yarjani, an OPEC executive, described three pivotal events that would facilitate an OPEC transition to euros. [10] He stated this would be based on (1) if and when Norway's Brent crude is re-dominated in euros, (2) if and when the U.K. adopts the euro, and (3) whether or not the euro gains parity valuation relative to the dollar, and the EU
I love these crazy webpages:
As detailed in an earlier article, a conservative calculation is that at least 60% of todays $128 per barrel price of crude oil comes from unregulated futures speculation by hedge funds, banks and financial groups using the London ICE Futures and New York NYMEX futures exchanges and uncontrolled inter-bank or Over-The-Counter trading to avoid scrutiny. US margin rules of the governments Commodity Futures Trading Commission allow speculators to buy a crude oil futures contract on the Nymex, by having to pay only 6% of the value of the contract. At today's price of $128 per barrel, that means a futures trader only has to put up about $8 for every barrel. He borrows the other $120. This extreme leverage of 16 to 1 helps drive prices to wildly unrealistic levels and offset bank losses in sub-prime and other disasters at the expense of the overall population.
More on the real reason behind high oil prices
At today's price of $128 per barrel, that means a futures trader only has to put up about $8 for every barrel. He borrows the other $120. This extreme leverage of 16 to 1 helps drive prices to wildly unrealistic levels
What is also interesting is that these prices are for pipeline prices and not storage capacity, so in effect, this is a matter of financial physics and the time has thus come for INTERVENTION.
What was topic here anyway?
Rob J,
Yes we have one of the lowest population density sprawls around - just moved inside the Loop from The Woodlands - working core downtown and must say I am liking the move so far.
The Federal Reserve must not wait too long before raising interest rates or it risks a serious problem with inflation, one of its top policy-makers said on Wednesday.
Fed's Hoenig: Don't wait too long to raise rates
| Reuters
Dollar pump monkeys out in force today, Don't drink the kool-aid watch what they do.
U.S. Treasury Secretary Henry Paulson said on Sunday leaders of Gulf oil producing states had told him that abandoning their currency pegs to the dollar will not solve their inflation problems.
Paulson, two-thirds of the way through a four-day trip to Saudi Arabia, Qatar and the United Arab Emirates, said leaders in the region have "quite an awareness that the peg does not influence inflation to a significant degree.
"They recognize that inflation is the overriding issue ... Ending the peg is not the solution to the inflation problem."
It is interesting that dollar has been re-valued under Bush. What is the motivation in terms of future value? This is like Mexico and The Peso over ten years, so what is the reality behind pushing currency lower, is it to peg it to Euro or Yen, what?
My take, cross posted from Zacks.com:
The inflation picture is starting to look down right ugly, the rate is not only high, but it is accelerating at a frightening pace. This morning it was announced that the CPI rose 1.1% in the month of June, up sharply from 0.6% in May and 0.2% in April. Put another way, if Junes increase were annualized (just for illustration, I doubt we will see this rate of inflation for 12 straight months) inflation would be running at 14.0%, a rate most commonly associated with WIN buttons, leisure suits and disco. Stretching it out to an annualized rate over the last three months we are looking at inflation of 7.9% and over the last 12 months it is rising at 5.0%. We have not seen these rates of inflation in a long, long time. The one month increase is the biggest since Sept. 2005 and the effects of Hurricanes Katrina and Rita, before that one has to go back to 1982 to find a higher one month jump in prices. The year over year increase is the largest since May of 1991. Energy was the primary culprit, just as it was back in the high inflation days of the 1970s. For the month it was up 6.6%, which if annualized (115%) would start to sound something like Peru in the 1980s or Germany in the 1920s. The three month annualized increase for energy is 53.6% and over the last 12 months it is 24.7%. Food is also a big problem, with prices up 0.8% for the month (10.0% annualized), at a 8.5% rate over the last three months and up 5.3% over the last year. So called core inflation is in better shape, but even there is higher than is comfortable, up 0.3% for the month (3.7% annualized), 2.5% over three months and 2.4% over the last year.
If one looks further up the pipeline things get even more scary. Yesterday the Producer Price Index (PPI) was released, at the finished goods level it was up 1.8% (23.9% annualized) for the month of June, up 14.1% annualized over the last three months and 9.2% over the last year. The prices for intermediate goods were up 2.1% for June and have been rising at an 26.8% rate over the last three months.
Despite these levels of inflation, yields for the whole treasury curve remain quite low, with the three month T-bill yielding only 1.31%, the two year note at 2.42% and even the 10 year note at 3.92%. Clearly this is due to a flight to safety trade, not because anyone could rationally think that their money will be worth more in real terms including the interest at maturity than it is today. They are currently certificates of confiscation, but they confiscate wealth at a slower rate than do the Federal Reserve Notes in your pocket.
While the sharp drop in Energy prices over the last two days might provide some hope of inflation leveling off in the future, it smells to me to be just another short term correction in the price of oil, not the start of a sustained downtrend. For the most part the world economy has held up pretty well so far, and with it demand for oil. The supply response to higher oil prices has been so slow that it is clear that there are major long term problems in raising supply to meet growing demand, and the only way to get the market to clear is for the price of oil to rise far enough to choke demand down. The oil we do find is harder to drill which requires more oil service intensity and more expensive rigs to drill. The price of oil has risen relative to just about everything else. While the Energy stocks have far out performed the market, they are not up anywhere near as much as the price of oil or as much as their earnings have risen. We have seen a bit of a pull back in the names with this dip in oil prices. I would take advantage of it. My favorite way to play the rising cost of energy is through the offshore drillers and some of the oil service names. These would include Diamond Offshore (DO), Transocean (RIG), National Oilwell Varco (NOV) and Baker Hughes (BHI). The E&P companies would be next on my list and some names to consider would be Chesapeake (CHK), Cabot (COG) and Anadarko (APC) among the larger cap names. Some very interesting smaller names are Double Eagle (DBLE), Warren Resources (WRES) and Petroleum Development (PETD).
Knock Knock
Who is there?
Paul.
Paul who?
Paul Volker.
Great. Come on in Paul. We are waiting for you.
Dirk van Dijk,
I remember years ago, people used to look at a PPI/CPI differential or ration thing; look there!
I prefer to pay higher oil prices to
a new govt in Iran that is not hellbent in converting the whole world to Islam, mind you, by the way of the sword. Whatever happened to
freedom and tolerance? So what if we have to pay a little more for OIL.
Getting rid of the Shah of Iran for
cheap oil was a big,big, mistake.
DH | 07.16.08 - 12:40 pm | #
Where is the evidence that Iran is out to convert the world to islam by way of the sword? Yes, Iran is not a place I would want to live, but they have not been aggressive towards their neighbors. They were attacked by Saddam, and fought a long bloddy war because of it. The Persians have not been expansionist since the time of Xeres. You seem to be confusing the Wahabisits (Saudi Sunni's) with the Shites in terms of imposition of religion on others.
There are some bad( immature,childish,psychotic) people in this world that need to be contained. Alternatively, we can
whine,cry, and feel helpless.
DH | 07.16.08 - 1:17 pm | #
Yes, Bush, Cheney, and McCain come to mind.
Board of Governors of the Federal Reserve International Finance Discussion Papers Number 935 July 2008
http://federalreserve.gov/pubs/ifdp/2008/935/ifdp935.pdf
For 2008 and 2009, U.S. long- and short-term interest rates are based on OECD (2008). Beyond a transitional period, long-term rates are set equal to the projected growth of nominal GDP: real growth of 2.4 percent plus inflation of 2 percent, based on the OECD 2009 projection. Short-term rates are set 1 percentage point below long-term rates.
Assuming plausible settings of macroeconomic
indicators in the United States and abroad, as well as a flat real dollar, our projections indicate that the current account deficit will resume widening and the negative (net international investment position) NIIP/GDP ratio will continue to expand. This suggests that the configuration of macroeconomic settings underlying the current account balance at present is not sustainable in the long term. Nevertheless, compared with earlier years when the dollar was much higher, the current account balance is likely somewhat less unsustainable at present.
Sounds like rates are to be 3.4%?
DH, listen to Dirk and enough of your anti Iran crusade here..
Believe it not thier are alot of Christians in Iran. Had 5 as neighbors...Thier people want nothing to do with war..Their president is a puppet with a waggin toungue..That's the problem, we don't have leaders that no how to come in and say something like this..
"We want to talk, we are open to suggestions and want to look at every angle possible to help you with your energy needs while eliminating nuclear proliferation in the middle east..But if your President keeps mouthing off about nuking Isreal and supporting Hezbollah with it's influence and money we are going to be heavily involved in that region with enough firepower to thwart any attack and respond with an intense counter that you don't want..
We long for peace with the Iranian people, they have always been our friends. Start talking ASAP......
DH-Isreal worries me!!!!!!!!!!!!!!!!!!!!
British Sovereign Debt Recovering Post Rate Decision Losses
http://www.economicnews.ca/cepnews/wire/article/98250
"The interest rate differential between UK gilts with a 10Y residual maturity and comparable Bunds has narrowed since the end of May from a low of around 66bp to 47bp," he wrote in a research note to clients. "The spread is currently at 49bp. In our view, the outperformance by gilts is attributable to the announcement of a rate hike by the [European Central Bank] and the subsequent move as well as the very clear signs of weakness in the UK economy."
"In addition, an ascending triangle seems to be forming, and a break to the upside would be a trend-confirming signal. There are no obstacles to a test of the upper resistance line at 0.8030 for the time being. If the break is achieved, there would be potential for a move to the April high of 0.8099."
It may be up to Bernanke and Paulson today to either save the USD from the abyss or to push it over. They are scheduled to speak before a House of Representatives committee on new measures they will be promoting to prevent the catastrophes that got us into this problem in the first place - namely, misguided "financial innovation" at the investment banks that provided such potent punch bowls for Great Credit Bubble of the mid-Naughties (2003-2007).
5% and certain to keep climbing and the stock market is UP? People are crazy. Crazy.
TCA how right you are. Few Americans seem to understand that as Pat Buchanan said, "They came over here because we are over there" (meddling in their affairs, invading their countries, etc., etc.)
And you know your history too, Dirk. The anti-Iran crusade comes from the same traitors (to our interests) that brought us the invasion of Iraq.
Crude is setting up a bear trap.
Thats because one of the lessons of the Iraq war has been the law of unintended consequences, where Washingtons attempt to defeat those who threaten a democratic way of life in the name of Allah has resulted in our enemies being strengthened instead. The war unleashed new levels of anti-U.S. sentiment in the Arab and Muslim world, Iraq has become a magnet for terrorists from within and outside of the country and Iran, which represents the greatest threat to Israel, has become more powerful and influential as a result.
Its true that Saddam Hussein, an awful tyrant, and his regime were destroyed. But Iraqis have not embraced the U.S. for its intervention; rather they are resentful of our presence in their land. And the world is a more dangerous place, not a safer one, since the U.S. invaded Iraq more than five years ago.
Those advocating an Israeli attack on Iran before Tehran completes its effort to develop nuclear arms have a powerful emotional argument. They assert that Irans president repeatedly has threatened to destroy the Zionist entity, and that if history has taught us anything, from Haman to Hitler, its that when a tyrant threatens to eradicate the Jews, believe him and act against him before its too late.
A Nuclear Iran: Israel’s Impossible Choices
How many US Senators do we have that are Muslims versus how that are Jews?
The number of Jewish senators is far above 2, so Israel has more representatives in the Senate than any US state.
The Muslims in Iraq didn't threaten our vaunted "democratic" (not so very democratic with a government that spies on its citizens by the way) way of life. They didn't threaten us at all, except in the heated lies of the Neocons. There is no proof at all that Iran is seeking nukes; that is another bunch of propaganda lies propagated by you know who. And Iran has not said it intends to attack Israel at all. It has said it wishes Israel would disappear. And most Muslims agree. The idea it would attack Israel is another smear from those who can't translate the Farsi original correctly. See Juan Cole about all of this.
My apologies if this has already been noted, but:
Inflation is everywhere and always a monetary phenomenon. Oil prices will decline when we stop printing too many dollars. Demand destruction has nothing to do with it.
The explicit assumption of another $5.2 trillion in liabilities (even if the net payout should be much less than that) means the printing presses will be blasting full bore for the foreseeable future.
Given that the GSE's won't be allowed to fail, no matter what that means to the dollar, the best way to bring down oil prices is to win the war in Iraq and stop the hemorrage of blood and money the continued occupation is costing us.
Win the war in Iraq?? That's a howler. McCain sees us there indefinitely bleeding billions indefinitely. There is no way to "win" a colonial war vs. a population that doesn't want us there. The Neocons and the GOP want us to occupy our new colony forever and that will mean war forever to keep it subdued.
Israel's want war, with anyone and Iran looks like a good bet for them, with the prize being water and oil and then more land of course. Iran on the other hand has zero need for nuclear power, but they want play war games well, so this should be a nice standoff until Israel comes up with a plan to start the war in full scale. I can see why Bush would want the oil, but does he really need to pull America into a world war?
I mean either win and leave or lose and leave, either way, leave. The war is a losing proposition; its financial losses are borne by the dollar.
Funny thing
oil is now trading at 134.95 a bll at 5:30 pm EDT - hardly cheap- I doubt you will see a continued decline. JMO
Don't count on the decline of oil prices in the 2nd half of 2008. The catharsis related to tomorrow's option expiration and expiration of the futures contract next Tuesday is most likely over. Now oil prices will go higher again. This will continue month after month after month. Demand destruction will not be sufficient to make up for the weakness in the US dollar.
The 10% decline of crude oil from $146 to $132 in two short episodes within the last 24 hours perfectly matched with a 0.6% increase of the USD against the euro. This is what is called a riskless profit (arbitrage) trade: long crude/short dollar. Even Bernanke admits that the historical relationship between this two asset classes is rather complex. Not any more! For the first time in history they are now part of an arbitrage trade.
This is possible because traders are confident that Bernanke and the Fed will not raise interest rates for some time to come. Therefore oil prices will stay at high triple digits and possibly go higher from here.
curious that DH is so concerned about the Iranians, the US has killed far more Iranians, either directly or indirectly, than the other way round
for example, the US and the Saudis encouraged Saddam Hussein to invade Iran in 1980, and armed him to fight the war through to its conclusion in 1988, stood silent as the Iraqis used poison gas on Iranians and blamed the Iranians when we shot down a jetliner with somewhere around 250-300 people on it
the Iranians are in compliance with the nuclear non-proliferation treaty, haven't developed nukes outside of it like Israel, Pakistan and India (all of whom enjoy good relations with the US) and have merely threatened to use military force against the US and Israel if attacked
but go ahead, let Bush and Olmert go ahead with this insanity, here's hoping the Iranians have sufficient military capability to bring this farce to an end