Wednesday, July 2, 2008

High Oil Killing Economy

Well, hating to sound like a broken record, I'll just toot my own horn instead.

Here's what I said on April 23, 2007, in a post titled, "We Will Drown in Barrels of Oil":

"If anything can derail the economy all by itself, it's high energy costs, which have been a noticeable drag for the past two years at least."

Both before and after that comment, I made the case for why it was such, why it should be avoided and how well-manipulated and controlled the oil markets are.

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After today's completely uncontrolled trade on the NYMEX and elsewhere, there's little doubt about it. High fuel prices are killing the global economy. Oil closed at $143.58, up $2.61 on the day, a new record.

Stocks, which were higher until 11:00 am, fell precipitously as afternoon oil trading pushed higher and killed any buying interest in stocks.

Generally speaking, the price of oil, diesel, gasoline, home heating oil, natural gas (which has doubled in price since last year), propane, jet fuel or anything even remotely related to petroleum is depressing everybody and every thing.

It's a simple matter of economics. As the price of crude rises, everything else becomes less affordable. From food to computer chips, nothing is spared. So, investors are not very much amused and sell their stocks in disgust.

Dow 11,215.51 -166.75; NASDAQ 2,251.46 -53.51; S&P 500 1,261.52 -23.39; NYSE Composite 8,465.51 -175.77

The bad news is that the oil producers and big oil companies are happy, and Congress and/or the President has neither the will nor the desire to do anything about the big squeeze oil is putting on the public. The good news is that the price of oil - at these levels - is unsustainable. If people can't afford to drive to work or heat their homes, people will lose jobs, get sick, die, cause riots and disrupt the normal flow of commerce, which, truth be known, won't be flowing all that well in the first place.

Businesses fail, people stop driving, oil prices will either go down or stay at the same level without as much demand. Eventually, supplies will be available everywhere and the bubble that is the oil futures market will pop like an overinflated helium balloon.

The other good news is that this is the busiest driving weekend of the year, so the price of gas is likely at a peak. Well, at least it may be good news next week, next month, next year.

Market internals were absolutely in tatters. Decliners overwhelmed advancers by a nearly 3-1 margin, 4651-1686. New lows outpaced new highs, 817-108.

By contrast, the metals did not gain as much as cousin oil. Gold advanced $2.00 to $946.50; silver was up just 14 cents to $18.43.

In case anyone thinks we're close to a market bottom, be reminded that tomorrow, prior to the opening of the exchanges, the Labor Dept. will release June Non farms Payroll data. Analysts are looking for losses of 50-60,000 jobs in the month, which, in itself is reason to sell. Job losses beyond those numbers will send markets reeling once again.

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