The massive amount of liquidity the Fed has created as they try to prevent a recession before elections has now created a runaway move in the energy markets. So far each correction in oil has been slight, in the range of $11 to $7. Make no mistake when this parabolic move collapses it's going to be spectacular.That being said no one in their right mind should be shorting this thing yet. A good rule of thumb is to be on the look out for a correction that exceeds the previous corrections by 20% before trying to call the top. That would work out to be roughly $13.50. Once oil corrects by at least that amount then we might be looking at the end of this move. Until that happens your odds of trying to pick the top of this move are not good.
I've also included the charts of gold and silver. The Fed has flooded the world with so much liquidity that for the first time in this bull market a D wave decline was unable to push gold or silver back to the 200 DMA.
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32 comments:
The fun part of monetary inflation is most definitely over.
Gary:
You mentioned the idea of energy prices doubling in the past as a precursor to a recession.
Did they ever triple in the 70s?
With this runaway move in crude, we could easily see a triple off the January 2007 lows.
Oil increased 200% in 99 which combined with the fact the most companies on the Nasdaq weren't even profitable gave us a bear market and a recession.
Oil increased 100% from the 07 bottom to Dec. and now we are in a recession.
The Fed continues to drive oil higher and higher with their loose monetary policies so I suspect the recession will continue to deepen until demand finally collapses as the economy grinds to a halt.
Oil increased 200% in 73/74 and 160% in 79/80. Both spikes were followed by nasty recessions.
A correction of $13.50 would be absolutely standard at this point, not an indication that we've reached a top. The recent $7 correction was the aberration--it was unusually small because the UK and Nigeria labor strikes took an unexpectedly large amount out of May supply.
The price should have stabilized in June with a $12-$13 correction. But the earthquake in China, and its effect on oil and natural gas production there, will prevent new supply from Saudi Arabia from lowering the price (or even stabilizing it going into peak driving season and peak energy season in the Gulf states).
We'll probably see a correction in August, but then the price rise will resume.
Oil is a market where fundamentals actually matter. Today's price rise is due to commercial traders pulling off shorts after the inventory report showed a 5.4 million barrel decline in oil inventory from the previous week. And for the first time this year gasoline inventory has dropped below the 5-year average for this time of year.
Meanwhile, China's buying diesel to burn in power plants while natural gas and coal supplies are screwed up by the earthquake.
We are not going to see a spectacular correction unless we see speculators getting out of line, and we aren't even close to that.
I posted here back in February when the price was $83.50 that it was time for the people in here to get long in oil. Most of the posters here said that I was wrong. They predicted that the price would be going to $70. I was right and they were wrong, and this post, like my post at that time, is a gift to the people at this site.
As people are forced to spend more and more money on gasoline, they are going to have less and less money for everything else, including investments in pm.
TH
TH:
"I posted here back in February when the price was $83.50 that it was time for the people in here to get long in oil. Most of the posters here said that I was wrong. They predicted that the price would be going to $70. I was right and they were wrong, and this post, like my post at that time, is a gift to the people at this site."
yes you did..I know I was of the same belief as you, although I don't trade Oil, so I didn't make any money on that.
I think some folks on here SHOULD go back and read what they posted over the last 2-10 months...they might be surprised to see how wrong they were...
Ten years ago oil was around 10 bucks a bbl......Just like the world trade center situation.....those sand n--gers finally figured out what we taught them.....maximus ocular penitration to the Amerikans....and our next Prez is gonna be Barock Hussien Obama....
We are surely F--ked.
DUG is looking pretty good...reversal day on huge volume...Just check it out.
Anon:
while you may not relish an Obama-lama-ding-dong Presidency, since the guy has no money of his own, the Black community has no money to finance him, he will do what those who financed him say..and "those" folks are the same ones who fund Hillary and McCain..nothing of any importance will change, that wouldn't happen if either of the other two were to win. Oh, except he will talk to Iran..wow..earth shattering...
NAT
But he will raise our taxes way up and we know this is great for the economy. Soros is behind BHO and this is good? I think not.
Now for S@#t's & giggles throw in a cat. 4-5 hurricane into the Gulf of Mex. and watch oil soar even higher.
Wow would be right! Talk about a perfect storm! I bet you some airlines would just stop flying rather than take losses as they continue to do.
Look what American Airlines did today with cutbacks and a fee to check even ONE bag. Can't wait until people try to cram that one bag onto the plan with them!
anon:
Obama wants(will) to raise taxes, Hillary wants(will) to raise taxes and McCain was never for the tax cuts(raise) anyway...but its congress that authorizes taxing/spending (pork) anyway...
NAT
Oh yes and who there has control of both houses......ya know they will gain in both houses in NOV......
Please do not get me wrong.....I will vote for B. Hussein Bin Laden....This will just get us to 8k in the dow faster....
Nat -- just catching up, but I printed out both of your Mises articles to take home w. me. Thanks for that.
That Kevin Phillips guy is an asshat, though. Be careful of stuff you read in Harper's.
Jake: hope you enjoy and learn something from them. At the least it will get you thinking..as for Kevin Phillips I can't say I have read anything by him, or that I remember, except this piece.
Draw your own conclusions
http://news.yahoo.com/s/afp/20080522/ts_afp/safricaimmigrationviolence
Mbeki calls in troops as South Africa mob deaths double
OHANNESBURG (AFP) - South African President Thabo Mbeki has called in troops to halt attacks on foreigners as the death toll from more than a week of violence nearly doubled and attacks began to spread.......
.........The foreigners, most of whom have fled economic meltdown in neighbouring Zimbabwe, have been blamed for sky-high rates of crime in South Africa as well as depriving locals of jobs."
The unofficial unemployment rate in South Africa is believed to be about 40 percent."
More than 3,000 Mozambicans have fled anti-immigrant violence in South Africa and returned home, Mozambican state media reported Wednesday."
Human Rights Commission chairman Jodi Kollapen told AFP that the authorities would face a difficult task re-integrating immigrants who had been driven from their homes.
"There is no way you can re-integrate people into communities if the community remains hostile to them, and those who were evicted continue to feel insecure and intimidated about going back.
"They (locals) will have achieved the objective of driving foreigners out of the country." ........
Great piece on the manias in today's markets:
http://timesonline.co.uk/tol/comment/columnists/anatole_kaletsky/article3980797.ece
"Now consider the situation today in oil markets: the Gulf, according to Mr [Mike] Rothman [of ISI, a leading New York consulting group], is crammed with supertankers chartered by oil-producing governments to hold the inventories of oil they are pumping but cannot sell. That physical oil is in excess supply at today's prices does not mean that producers are somehow cheating by storing their oil in tankers or keeping it in the ground. All it suggests is that there are few buyers for physical oil cargoes at today's prices, but there are plenty of buyers for pieces of paper linked to the price of oil next month and next year."
[...]
"The people who tell you that commodity prices today are driven by 'economic fundamentals' are the same ones who said that house prices in Britain were rising because of land shortages."
For your review, here's the Times Online economics column that "anonymous" wanted to post, but did not have the full address for.
Interesting, but not sure I'm buying, either.
Nate --
No worries, I've a bunch of von Mises (and other Austrian schoolers) in my bookshelf.
guys,
please, take a look to this lecture by M. Masters:
In short, main conclusion: commodity prices driven mainly by speculation!.
http://hsgac.senate.gov/public/_files/052008Masters.pdf
Let's be clear and know the facts when we make a definative statement. First, Obama does NOT want to raise taxes, in fact on his website he says he will DECREASE for middle classe taxpayers, and he wants to roll back to the 2003 level the taxes on people making over $200,000 a year, the upper 1% of Americans.
That is NOT a tax increase, repeat, but a rollback. It does not matter what Hillary wants as she is out of the equation. Now McCain voted AGAINST the 2003 tax cuts and he called them "irresponsible" in a time a war time spending. Now, he flip flops and says he now supports the 2003 tax cuts he voted against. Because he is now a flip flopper, he should immediatly be labeled as "weak", no "character", and not
mature enough for the Presidency.
Stop making statements that you purport as fact, when a little checking would save you from the embarrassment of being wrong.
This how the average joe who works hard, pays his bills, can't get ahead, because he is on the "hook" for all this crap...
Please, let us lie so we can pretend everything is ok..swell
"Top banks call for relaxed writedown rules
By Francesco Guerrera in New York and Jennifer Hughes in London
Published: May 21 2008 23:04 | Last updated: May 21 2008 23:04
The world’s leading banks have stepped up pressure to relax controversial accounting rules with a new plan aimed at breaking the “downward spiral” of huge writedowns, emergency fundraisings and fire-sales of assets.
The proposals on “fair value” accounting by the Institute of International Finance, an alliance of 300-plus companies chaired by Josef Ackermann, Deutsche Bank’s chairman, would enable financial companies to cushion the blow of financial crises by valuing illiquid assets using historical, rather than market, prices."
http://www.ft.com/cms/s/0/07cb8b1a-275e-11dd-b7cb-000077b07658.html
John:
GHW Bush said
"read my lips, no new taxes"
so I guess you believed him...
now about the 200K..you try living in some American cities on 200K...thats like living on 60-80 K in other places..hardly what any normal thinking person would think is "rich" or "well off"..you just add up all the NON imcome tax increases, which will be paid by ALL people, that will be coming from whoever is in the next president, just like the article about the banks above, make no mistake the DEN of Thieves does the same...they lie, they will hide it from your eyes...we'll see in about 1 year who is right.
Nat, you quote the elder Bush and you say because he said something then I must have believed it? Quite a leap of logic! Being a lifelong liberal, I don't believe anything a Republican says, particularly when the Decider said Iraq was an "iminent" threat to the USA and so we must invade. I remember saying to my wife, what is Sadam going to do, get in a rowboat and come over and attack Iowa? A "threat" to the US? Give me a break. Regardless, I make $250,000 a year and live in a high cost city, and don't feel pinched at all, nor would I if the tax cuts were rolled back. I would much rather see my $50,000 a year brothers get the tax cut Obama is talking about for them. Yes, I will have to pay a couple of thousand more in taxes if my cut is rolled back to 2003 levels, So what? I am not pinched, or afraid of my ability to make a living in America. But I do know that the middle class IS sweating and needs the Obama tax cut. I would have to prefered to see no tax cuts in a time of reckless war spending, but fiscal responsiblity is a stranger to Republicans, as the largest deficets in history all occured under Republican presidents from Reagan right to this moronic infantile "dedider".
John:
let me be clearer..IT makes no difference..get it..republican/democrat...all the same to me..In the past 90 years regardless of who was president or what party they were with..spending and taxes have increased....so spare me the "my boy Obama" is different. maybe he will be different..NOT. The left/right, dem/rep/ is nothing but a simple trick to confuse the masses..I do not subscribe to that fake paradigm.
Here's the link to that bank writedown article.
Boy, this word verification is for the birds!
Jakester,
I'm trying to get rid of you know who!
John,
I have an idea. Why don't you write your hard up brothers a check, and leave me and my family alone?
I've got four kids to feed, and I don't need you socialists any deeper into my pockets.
BTW -- don't believe the Republicans fine, but if you think the Obamessiah is going to stop at $200,000, then you've a very short term memory.
Your last boy, Billy Cigar, promised a "middle class tax cut" too, and dropped that plan about a month after taking office.
They're all bad, but the socialists are the worst.
Jake:
Another good, albeit long article.
John, print it out, do the research on the facts, and then disprove. its funny how Lew always post these things at the right time.
Enjoy
Wall Street, Banks, and American Foreign Policy
by Murray N. Rothbard
http://www.lewrockwell.com/rothbard/rothbard66.html
John:
Another point, yes Republicans and Democrats tax and spend, more so for this Bush. However, look a the recent Ag Bill. I mean for God's sake, give farmers increased subsidies during bumper crop prices and THEN turn around and give poorer families food assistance? At least the Prez seems to be the only one who wants to shoot this thing down.
Translation. Hi, we're from Washington, D.C. Give us your money,well will decide how to spend it, you can't.
Nat,
I'll provide the link, but as a recovering investment banker, I reject these allegations wholesale!
I learned about Von Mises and Hayek from my investment banking colleagues.... I certainly never heard of them at my allegedly "elite" liberal arts college.
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