Comments on: $80 Oil… http://www.ritholtz.com/blog/2009/10/80-oil/ Macro Perspective on the Capital Markets, Economy, Geopolitics, Technology, and Digital Media Tue, 14 Feb 2012 07:16:03 +0000 hourly 1 http://wordpress.org/?v=3.0.5 By: Diderot http://www.ritholtz.com/blog/2009/10/80-oil/comment-page-1/#comment-229881 Diderot Tue, 27 Oct 2009 15:42:00 +0000 http://www.ritholtz.com/blog/?p=42170#comment-229881 Actually high energy prices are just what is needed to get people ready for commodity depletion. Necessity is the mother of invention and when bubba finally realizes that driving his F350 to work is too expensive, supporting mass transit will be his new religion. Scientist can yell at his face about global warming, overpopulation, etc.... but nothing will change until his wallet becomes thinner and thinner. It's the only thing the masses understand. Local economies will grow because imports will be far too expensive due to transportation costs. It looks as if those dirty hippies were right....yet again. Actually high energy prices are just what is needed to get people ready for commodity depletion. Necessity is the mother of invention and when bubba finally realizes that driving his F350 to work is too expensive, supporting mass transit will be his new religion. Scientist can yell at his face about global warming, overpopulation, etc…. but nothing will change until his wallet becomes thinner and thinner. It’s the only thing the masses understand.

Local economies will grow because imports will be far too expensive due to transportation costs. It looks as if those dirty hippies were right….yet again.

]]> By: Drumbeat: October 26, 2009 : Hawaii Clean Power http://www.ritholtz.com/blog/2009/10/80-oil/comment-page-1/#comment-229785 Drumbeat: October 26, 2009 : Hawaii Clean Power Tue, 27 Oct 2009 05:19:41 +0000 http://www.ritholtz.com/blog/?p=42170#comment-229785 [...] $80 Oil… The $80 oil price is starting to worry me a little. Translate it into gasoline and you get somewhere around $2.50 per gallon or a little higher, depending on where in the US you fill up your tank. Add to that a little cold weather and expanding crack spreads in refineries, and the price will edge toward $3. History-derived economic models show that the US consumer starts to change behavior as the price of gas approaches $3, and then goes into a more pronounced state of shock when it ranges higher, in the $3 to $4 corridor. The reaction is to cut spending and retrench if the consumer thinks the price is going to stay at the new higher level for a while. When the consumer thinks the price will not stay higher, he keeps on spending and buying on credit. BUT – That history is derived, and has been modeled, from a time period when household balance sheets were relatively solid and when credit was flowing easily and when the unemployment rate was close to 5%, not 10%. So that is why I am starting to worry. [...] [...] $80 Oil… The $80 oil price is starting to worry me a little. Translate it into gasoline and you get somewhere around $2.50 per gallon or a little higher, depending on where in the US you fill up your tank. Add to that a little cold weather and expanding crack spreads in refineries, and the price will edge toward $3. History-derived economic models show that the US consumer starts to change behavior as the price of gas approaches $3, and then goes into a more pronounced state of shock when it ranges higher, in the $3 to $4 corridor. The reaction is to cut spending and retrench if the consumer thinks the price is going to stay at the new higher level for a while. When the consumer thinks the price will not stay higher, he keeps on spending and buying on credit. BUT – That history is derived, and has been modeled, from a time period when household balance sheets were relatively solid and when credit was flowing easily and when the unemployment rate was close to 5%, not 10%. So that is why I am starting to worry. [...]

]]> By: Mbuna http://www.ritholtz.com/blog/2009/10/80-oil/comment-page-1/#comment-229436 Mbuna Mon, 26 Oct 2009 05:53:45 +0000 http://www.ritholtz.com/blog/?p=42170#comment-229436 Forget all consumer related issues regarding the economy because they are really beside the point. Policy is dictated by corporations and their lobbyists, period. Here is what worries me about $80 oil and really all commodities as well. What if Wall St. can borrow enough free money to effectively buy all the oil and drive the price up to $150 dollars again and then hedge and short the oil all the way down to wherever and make money both ways? What if they can do this with EVERY commodity? From the current corporate point of view if they can do it they should do it. Keep those shareholders happy.... and consumers? Consumers are last century's news. Now we just have corporations and worker drones and peasants. Welcome to the 21st century. Forget all consumer related issues regarding the economy because they are really beside the point. Policy is dictated by corporations and their lobbyists, period. Here is what worries me about $80 oil and really all commodities as well. What if Wall St. can borrow enough free money to effectively buy all the oil and drive the price up to $150 dollars again and then hedge and short the oil all the way down to wherever and make money both ways? What if they can do this with EVERY commodity? From the current corporate point of view if they can do it they should do it. Keep those shareholders happy…. and consumers? Consumers are last century’s news. Now we just have corporations and worker drones and peasants. Welcome to the 21st century.

]]> By: Goldilocksisableachblond http://www.ritholtz.com/blog/2009/10/80-oil/comment-page-1/#comment-229435 Goldilocksisableachblond Mon, 26 Oct 2009 05:53:43 +0000 http://www.ritholtz.com/blog/?p=42170#comment-229435 Higher oil means more than just higher gas prices. Winter approaches , so heating bills will add to the impact. Some food prices are already rising. More bucks to fill the tank in the Yugo is just one more kick to the middle-class groin. Consumers have little choice about consumption of essentials, but everything else will take a hit if oil continues rising. I think you can safely throw out the old rulebooks from here on. Higher oil means more than just higher gas prices. Winter approaches , so heating bills will add to the impact. Some food prices are already rising. More bucks to fill the tank in the Yugo is just one more kick to the middle-class groin.

Consumers have little choice about consumption of essentials, but everything else will take a hit if oil continues rising.

I think you can safely throw out the old rulebooks from here on.

]]> By: dawase http://www.ritholtz.com/blog/2009/10/80-oil/comment-page-1/#comment-229433 dawase Mon, 26 Oct 2009 05:35:14 +0000 http://www.ritholtz.com/blog/?p=42170#comment-229433 Until the Fed realizes that it's just blowing another bubble and kills the carry trade by raising interest rates, you can expect oil to price well above what the demand side of the equation would dictate. That's why it's all such a ridiculous game. The Fed is trying to stimulate economic growth with low rates, but what it's getting is commodity speculation that only takes resources away (as a tax) from economic activity. Until the Fed realizes that it’s just blowing another bubble and kills the carry trade by raising interest rates, you can expect oil to price well above what the demand side of the equation would dictate.

That’s why it’s all such a ridiculous game. The Fed is trying to stimulate economic growth with low rates, but what it’s getting is commodity speculation that only takes resources away (as a tax) from economic activity.

]]> By: CTB http://www.ritholtz.com/blog/2009/10/80-oil/comment-page-1/#comment-229429 CTB Mon, 26 Oct 2009 04:23:18 +0000 http://www.ritholtz.com/blog/?p=42170#comment-229429 Scientists have plans to cryogenically freeze samples from coral reefs in order to repopulate them in the future. Coral reefs are expected to be wiped out within 50 years due to acidification and temperature increase. http://www.guardian.co.uk/environment/2009/oct/25/coral-arks-doomed-reefs Drill, baby, drill. Scientists have plans to cryogenically freeze samples from coral reefs in order to repopulate them in the future. Coral reefs are expected to be wiped out within 50 years due to acidification and temperature increase.
http://www.guardian.co.uk/environment/2009/oct/25/coral-arks-doomed-reefs

Drill, baby, drill.

]]> By: crunchysteve http://www.ritholtz.com/blog/2009/10/80-oil/comment-page-1/#comment-229425 crunchysteve Mon, 26 Oct 2009 04:13:34 +0000 http://www.ritholtz.com/blog/?p=42170#comment-229425 US$3/gallon worries you? That's nearly half what we pay (equivalent) for petrol in Australia and that's too cheap. Petroleum is an addictive drug to economies, and biodiesal is just methadone therapy for those economies. US$3/gallon worries you? That’s nearly half what we pay (equivalent) for petrol in Australia and that’s too cheap.

Petroleum is an addictive drug to economies, and biodiesal is just methadone therapy for those economies.

]]> By: rahuldeodhar http://www.ritholtz.com/blog/2009/10/80-oil/comment-page-1/#comment-229424 rahuldeodhar Mon, 26 Oct 2009 03:55:35 +0000 http://www.ritholtz.com/blog/?p=42170#comment-229424 Fantastic post. Oil is definitely a sleeper. 1) The oil price impact tips over at certain price - at least in India. This could be mainly because every item has a oil cost (transportation) embedded into it. Now these are enterprise set prices and move in steps. 2) Oil, coupled with currency pegs, could start spreading inflation fires across global markets. I fear a currency impact leading to further strain. Global economies will face slowdown v/s currency appreciation choice. Ultimately they will (or be forced to) choose currency appreciation. That might take a cycle or two though. So initially we might see Oil at $60 (if countries stick with their pegs). 3) The mechanism seems to be a self-reinforcing spiral. Oil goes high, china faces huge inflation (because of pegs), money managers smell potential appreciation, capital flows out of USD into CNY/HKD, forces Oil higher ... OR reverse Oil goes high, global economy slows (continues with pegs), commodity managers realise falling demand and investors realise there will be no un-pegging, leads to capital flows back to USD, strengthens USD, Oil falls on twin pressures (lack of demand and stronger USD). Fantastic post. Oil is definitely a sleeper.

1) The oil price impact tips over at certain price – at least in India. This could be mainly because every item has a oil cost (transportation) embedded into it. Now these are enterprise set prices and move in steps.

2) Oil, coupled with currency pegs, could start spreading inflation fires across global markets. I fear a currency impact leading to further strain. Global economies will face slowdown v/s currency appreciation choice. Ultimately they will (or be forced to) choose currency appreciation. That might take a cycle or two though. So initially we might see Oil at $60 (if countries stick with their pegs).

3) The mechanism seems to be a self-reinforcing spiral.

Oil goes high, china faces huge inflation (because of pegs), money managers smell potential appreciation, capital flows out of USD into CNY/HKD, forces Oil higher …
OR
reverse Oil goes high, global economy slows (continues with pegs), commodity managers realise falling demand and investors realise there will be no un-pegging, leads to capital flows back to USD, strengthens USD, Oil falls on twin pressures (lack of demand and stronger USD).

]]> By: hotei13 http://www.ritholtz.com/blog/2009/10/80-oil/comment-page-1/#comment-229418 hotei13 Mon, 26 Oct 2009 03:26:10 +0000 http://www.ritholtz.com/blog/?p=42170#comment-229418 ummmm, alaska? ummmm, alaska?

]]> By: wally http://www.ritholtz.com/blog/2009/10/80-oil/comment-page-1/#comment-229395 wally Mon, 26 Oct 2009 01:46:27 +0000 http://www.ritholtz.com/blog/?p=42170#comment-229395 Remember that it was gas at about $4 that tripped the trigger on the mortgage problem. Remember that it was gas at about $4 that tripped the trigger on the mortgage problem.

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