People see $1.76 a gallon or less at the fuel pump and relish the sight not thinking of all the chicanery it took to jack it up even that high. In direct parallel with that, we hear of the tremendous woes befalling the financial world and it's all your damn fault with those low gas prices.
CNN and Fox, the preeminent business fops in the country, have been relentlessly bemoaning the damage done to corporate America by low fuel prices. Yah, we're sure they must be really devastating for the airlines and trucking companies.
The stock market has thrown off another four hundred points today so there's the requisite disaster article from CNN and, of course, it's your fault. (CNN: Dow dives as China, oil fears grip markets)
See ... oil fears. It's all your fault, matey mate.
Financial interests couldn't be too happy with the falling prices except the ever-popular lot who sold oil short and expected the price to go down. We can't say we much care about financial interests since, just maybe, they should have been a wee bit less speculative in their investments. Apparently there are many interests which have been skimming the price of oil and now they're sinking because of it. Can't say there's any reason to care much.
(Ed: they're banks with investments in securities)
Well, maybe you should have run Bill Clinton out of Washington on a rail when he signed-off on killing Glass-Steagall, honey bunny.
We saw fuel prices jacked-up to around $4.00 a gallon and that's ridiculously-low relative to Euro prices but more than twice the current price here. It got that way because of the speculators pushing it up there and now they have lost their shirts. We have two words: fuck 'em.
CNN and Fox, the preeminent business fops in the country, have been relentlessly bemoaning the damage done to corporate America by low fuel prices. Yah, we're sure they must be really devastating for the airlines and trucking companies.
The stock market has thrown off another four hundred points today so there's the requisite disaster article from CNN and, of course, it's your fault. (CNN: Dow dives as China, oil fears grip markets)
See ... oil fears. It's all your fault, matey mate.
Financial interests couldn't be too happy with the falling prices except the ever-popular lot who sold oil short and expected the price to go down. We can't say we much care about financial interests since, just maybe, they should have been a wee bit less speculative in their investments. Apparently there are many interests which have been skimming the price of oil and now they're sinking because of it. Can't say there's any reason to care much.
(Ed: they're banks with investments in securities)
Well, maybe you should have run Bill Clinton out of Washington on a rail when he signed-off on killing Glass-Steagall, honey bunny.
We saw fuel prices jacked-up to around $4.00 a gallon and that's ridiculously-low relative to Euro prices but more than twice the current price here. It got that way because of the speculators pushing it up there and now they have lost their shirts. We have two words: fuck 'em.
28 comments:
Imagine a farming community comprised of farms that grow corn. Now imagine the supply of corn greatly outweighs demand for corn, and therefore the price of corn plummets. Suddenly, the farmers selling that corn are now faced with a wholesale price that is insufficient for them to maintain their farm equipment or pay their mortgages.
Farmers cut back on repairs to equipment. This starts to effect the local tractor suppliers and their profitability declines. Some of them start to go out of business.
Grain stores are starting to struggle because farmers aren't purchasing as much grain for the following season. They can't afford it and it's not profitable for them to do so.
Smaller farms and farms with recent mortgages start to go out of business. Foreclosures abound because they can't pay their mortgages.
So the consumer loves those low corn prices - for a while - but in the meantime the entire farming community and every industry that interacts with them begin to collapse thanks to those same low prices.
That is precisely what is happening with oil. If it doesn't return to the $65 per barrel range - and quickly - the worldwide recession that follows will be deep and long.
The market is tanking based on the low oil prices because of the number of shale oil companies that will go bankrupt at these levels. Even the Saudis are having issues at these levels based on thier national debt levels.
The market lost about 4 trillion in value over the last several weeks or about 20% of tbe national debt.
If you dont believe in trickle down economics you will be fine. But as inflation takes hold your windfall of low gas prices will go away. And job growth will stagnate as companies close locations Hell even WalMart is closing stores
It is not the speculators that usually get hurt in these markets It is your neighbor who last week had $100k in his 401k and now only has 80k Or the retiree who draws 6% on the value of there funds but now that value lost 20%.
Investors ran for the door a while back and started short bio techs etc
I started moving slowly moving back in cherry picking decent dividend stock on the way to the bottom. And will chase them back up
So I feel for mom and pop that will end up suffering through the next 10-12 months as this goes on
I've been living in a recession for years so welcome to the party!
Aesop's Fable up there is illustrative but not representative because we're a far cry from infrastructural investments in oil breaking down for lack of funding. The producers aren't generating the income they had hoped over this relatively-short term and it sucks to be them but the larger wailing is coming from elsewhere and what interest is there for anyone else beyond speculation.
Over 65% of US oil rigs have been taken offline in the last year. That is having a huge negative impact on the numerous industries (transportation, machinery, steel, aluminum, etc.) that provide all of the supplies and maintenance for those rigs. The example I used with corn is exactly what is happening around the world as the impact of oil pricing is rippling through all other major industry groups.
One other major point to consider regarding the impact. Prices are a function of supply and demand. We know, in the case of oil, that there is tremendous oversupply and that is certainly generating downward pressure on price. But news coming out of virtually every region (Europe, China, India, Russia, US, etc.) indicate demand is down and it's continuing to fall. Thus, you have even greater downward pressure on price.
I've demonstrated how it negatively impacts industries that support energy, drilling, and exploration. But consider what the demand side of that equation is doing to all other industries. It's sending a very strong signal that economic growth has stalled and in many regions it's in a decline. No economic growth equals lower to no revenue in many industries. That directly impacts their stock prices, and thus the market indices.
Put all this together and the worldwide stock market corrections we've been seeing make total sense.
That the entire economy tanks because fracking companies hit a rock doesn't make much sense when OPEC produced enough oil to generally meet needs. Any wound is largely self-inflicted but there's the benefit of a war against people no-one likes too much and it doesn't make dead people.
Y'all got a Mexican stand-off going with the Saudis and it's like the world will collapse if someone shoots but not likely. It just means someone else will sell the oil.
When there's construction taking place constantly and there's endless contesting for the world's tallest penis emulator of a skyscraper, there's plenty of demand for large-projects with all of those suppliers.
I don't see sufficient evidence for other industries caving, say your grain from the farmers at the top. They're pleased all the way to the bank because it costs less to ship it, etc, etc. There are multiple industry benefits and the bad day for oil-related industry doesn't seem to logically extend to forecasting a generic downturn for all of them.
Good timing since US Industrial Production was just released today. It's continuing the steady decline that has been true throughout 2015. Year over Year production is down as well. Now, it's negative in the US, but that's nothing compared to how bad it is in Europe and China.
That's exactly the point. The construction is NOT taking place - it's way down worldwide.
As to oil, the supply is a problem, but it's the lack of demand that's killing the economy. Check out the global economic releases. (I watch them daily.) The news is bad around the world.
Kannafoot is 100% right in his dissection of the issues.
In a yesteryear economy the US would love to see cheap oil. In todays economy the ripple effect as Kannafoot laid out is dramatic. Yes I love filling up my Jeep for $35 in stand of $75. But if I lose my job because the jobs have dried up I dont care.
Yes trucking companies are loving lower fuel rates but it doesnt help when the number of deliveries diminish.
Airlines usually relish low oil prices but if I dont fly it doesnt help
I am sorry that you dont see it. The slamming today is in part breaking the 30 handle on oil. Also noone wants to be long going into a 3 day weekend.
Again the investors arent hurt just the little guy. Housing will suffer again which is a buying opportunity for my rental prospects. The little guy loses his house I buy it and rent it back out but higher than the old mortgage He loses his house and pays more to have a roof over his head
Seems some questionable logic that production declines therefore oil prices caused it. Must go with the Mark Twain view on that one, yes, I see the statistics now tell me what really happened. Just as mortgage speculation shouldn't have tanked the entire economy and definitely not globally, there is a strong appearance of a highly-rigged game. The tremendous cash gain to multiple industries, maybe most, from reduced fuel prices should be boosting productivity rather than reducing it.
Silas I would stick to guitar playing as your handle on economics is sorely lacking
Your ol' Dad was big on feedback repression loops in genetics and those are mechanisms in which an increase in A results in a decrease in B and that reverses when B increases. Economics is full of loops like that and I don't pretend to understand the depth of all of that. Nevertheless, the inevitability of a collapse from a bad day for gas jockeys isn't any more clear than when 'trouble in the Middle East' on the news was always code for an increase in gas prices regardless of whether anything actually happened.
Is this situation analogous to the too big to fail concept? Is Big Oil so all consuming that if it stumbles, we all go down with it? I don't think so. I think the idle resources of the energy industry simply need to be redirected into better ventures. The smaller more nimble entrepreneur will be our salvation. If there's a glut in corn, grow something else, and don't wait until prices collapse before adjusting. Same with oil or any other commodity. The person losing their job shouldn't just sit on the couch and wait for the economy to realign, do other work and hone other skills, and don't wait until you get a pink slip to do so. Wake up people!
No it is not the Big Oil that will fail. It is the many little drillers that are already cash short and debt high that will noy survive. And big oil is already carrying large debt making it harder to buy them out.
If they had less debt they could keep pumping and let it ride but now the surplus is so large that storage is a problem to keep pumping. Kannafoot already covered this much better than I
Oil producers cant grow another crop. As China ramped up so did oil production so once they stop using there is no one to take thier place And then add the sanctions being lifted from Iran adds more glut to the maketplace.
As Kannafoot said until oil producers return to profitabilty the hurt will be hard for all industries especially those already cash poor.
If economics were as predictable as genetics We would all be wealthy.
Economics nothing is directly proportional to any input.
This starts making some sense but the drop in Chinese productivity was based on all the factors you know much better than I and not because the price of oil dropped. Pinning everything on the oil market isn't making sense here at the Rockhouse when so many factors are in play.
The price of oil is also run by the Saudis desire to drive the price down below profitabilty of the shale oil fields
Sure but the frackers are trying to pull the same march on the Saudis so that's what gives the standoff. While I loathe the environmental damage from fracking, shale, etc, the increased production has resulted in a major weapon for international economic combat.
Fighting Shale oil against Saudi oil is akin to the proverbial knife to a gun fight
Saudi costs are around $10 per barrel. While Shale is at least $30 per barrel and as high as $60
With a national debt ratio in the teens they wage this fight for years
It is no fight just an outcome
It was the battle the Koch Brothers and the like wanted and it made financial sense when oil was way up but doesn't make much now so, uh, boys ... what did you win??
I don't see much point in blaming Kochs or the Saudis but it looks to me like the game is the U.S. wants to control the market if not for sales at least for prices. This costs the Saudis big bucks in losing a ton of income so now each side stares at the other. So far, that knife is having a strong effect even if it is a gunfight.
Why would US oil producers want this fight? They cant win it. They have among the highest oil production costs in the world.
The Saudis are losing income but still profitable.
Chavez trashed Venezuela by calculating all his revenue on $100+ barrel Now the debt is so high because they cant generate enough oil income to cover the previous spending levels
The same outcome is destined for the fracking industry at these prices
It doesn't seem there's much logic in it and even less profit but they chose the battle and you saw how hard they fought for the Keystone pipeline. The frackers are using Venezuela logic as well and the simplest thing would be to give it up but that's not happening and it's unclear how this will play out.
It is the Saudis that must call cease fire and that isnt going to
happen Watch what the new Saudi Soveriegn Wealth fund buys in the next year at deflated prices. They will end up just fine out of this. They have plenty of assets to survive
Dunno who calls a ceasefire when each party holds a gun to the other's head. I have no worries about the Saudi future because whomever is there will sell oil to whomever comes. We see that with ISIS and they don't care who buys their oil. The Saudis don't offer anything except a gas station and a horror show with their executions. They won't be missed even if they do cave. It's unlikely they will but so what if they do.
It is obvious that the price of oil is in a worldwide free fall. There are numerous factors. The most basic is that the price in this case was manipulated far above the proper equilibrium point ($140 was far too high and $30 is too low). Markets always take advantage of panic on the upswing and down. Panic buying and selling typically benefit those with the most ability to withstand the sharp vicissitudes of the market. Saudi Arabia and the US in this case.
The law of supply and demand will bring oil back to a more honest price when panic subsides. Most pundits estimate the price will return to somewhere between $50-$75 within the next year. If so, this would still mean the world was being overcharged by almost 100% for some time. The effects of all this extra cash, especially in the Middle East and US, have not seemed to benefit the average citizen to the degree it has benefited the wealthy.
The benefit we the people are currently receiving will utimately be averaged out. The biggest losers, as has been pointed out are the weakest both in business and life. They are and will suffer the most. For now, I must say that it is nice to fill up for under $25. I doubt it will last for long.
It's incredible to see it has gone on this long already. Filling up the tank has been so much extravagance so it never got more than $20 and just now that practically fills it.
Trickle-down was heralded thirty-five years and we the people haven't felt so much as a drop but I don't think anyone has any misapprehension about the need for changes. Conservatives know as well as anyone big banks and Wall Street have too much power and Sanders is still the only one talking coherently about it.
The lawxof supply and demand is being artifically manipulated by the Saudis.
Now Iran has,increased the glut
While $20 fill ups are real nice. Losing 20% of mutual funds that were not moved to cash or bonds doesnt really make one smile.
Hell losing $80k on the average retiree portofolio. It will only take 7 years of filling up dsily to break even. Less if they have better than average fund managers.
PS America is too far overleveraged to participate Hence the gutting of the markets. If not they could support the markets by increasing the strategic reserves but they are already full.
Dont worry Apple lost almost $1T
on paper
I'm not worried as my only concern is for children. Why the crying over portfolios when you know the skullduggery which ran up the price in the first place. It's crooked to the core and the U.S. / Saudi buddy system is one of the most disgraceful relationships on the planet.
Now that Apple focuses so much on iPhone and iWatch, the future of the company isn't interesting to me except insofar as the company is important to America.
Post a Comment