Thursday, February 23, 2012
It's a funny game of chicken.
I had to talk about gas prices again. Not because I have to pay more, but because I am shocked at how complacent people are being about the rise in price.
Yesterday I talked to someone I'd known for a really long time who has been dreaming about buying a 50 thousand dollar truck. This is a guy who lost his house in the first phase of the housing market shake out. I guess he must be a good credit risk now.
He'd been talking about it for a while now, so yesterday I cornered him. Are you still going to buy that truck with gas prices this high - I asked. Prices go up, and prices go down - he said.
Now, while this is a true statement, there are a lot of thing going on geopolitically that can make the distance from high and low prices quite long. I did find it interesting how he felt the high prices would be quite transitory. For the record, I also believe this - but for different reasons.
Why are gas prices so high? It isn't because we are using a lot of oil. All month I have been shocked at the rise in price because stockpiles have been rising almost all year. Just look through google. Most weeks have clocked a stockpile rise.
So, maybe the economy is doing much better than I think. Maybe. I would expect if that were true, the volume in the stock market wouldn't be so paltry. Most of the traders don't seem to leave until the "sell in May go away" point. Even for summer trading, the market is pretty dead. If the economy was indeed that much better, traders would be the first in line to capitalise on that. And really - if the rise in oil is due to an improving economy, hold onto your hat - because some of that money we have been printing will enter the stream and cause inflation. Yes, eventually it will come. I just doubt it is now.
Let's move on to the speculators.
When I hear traders say "5 dollar gas, 7 dollar gas, people still have to drive to work" - it makes me laugh. I will always believe that 4.50 a gallon gas tipped us into recession. To be sure - we were a very over extended economy. Which is why gas prices made such a difference. I continue to believe we will never see 5.00 a gallon gas. Every time gas passes 4 bucks a gallon, people pull back on everything. Except driving to work of course. Traders can be right-ish.
And anyway, you can't really blame the traders when our administration is stirring the pot. I personally never believe in sanctions, but, they apparently are making Iran quite agitated. If it can be believed, our sanctions collapsed the Iranian currency. Some say by 80%, others by only 50%. Read the The Stunning Collapse Of Iran's Currency.
"The collapse of a currency is typically a well-publicized event that reverberates throughout the world's equity markets. The domino-like capitulation of East Asian currencies in 1997, for example, sent equity markets hurtling downward, leading to one of the largest single-day drops in the Dow Jones Industrial Index in history. And the 1998 devaluation of the Russian ruble triggered the demise of hedge fund Long-Term Capital Management, immortalized by Roger Lowenstein in When Genius Failed.
Yet this didn't happen when the Iranian rial collapsed at the beginning of this year. And the question is why? National Security Advisor Thomas Donilon shed a slender ray of light on this question in an interview with Charlie Rose last week. In it, Donilon tacitly implied that the collapse was anything but a mistake. And this would make sense, of course, as the United States is currently using economic measures to pressure the Iranian regime to abandon its nuclear program."
Iran has even threatened to execute currency speculators. Here.
I don't know why all of a sudden Iran is a big threat, but Isreal is making a lot of noise. Probably because Iran parked a couple of military ships off the coast of Syria. Iran Moved Warplanes to Protect Nuclear Sites before the inspectors tried to come in. Which is funny, because I haven't heard of the inspectors trying to get in the whole time Obama has been in office. Now all of a sudden they want to get in to inspect?
I honestly suspect this whole thing is more about Syria than it is about Iran. When gas prices started creeping up, I thought it was directly because of Syria. The Asad government has bombed oil pipelines twice since the beginning of the year. Disrupting a pipeline anywhere - will spike oil prices temporarily.
So, why wouldn't the speculators run wild? Our administration isn't going to do anything. Presumably they think this will invigorate their very troubled green energy sector. I think it will crater the economy before that happens.