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Here Is Why Those Who See In IEA's SPR Release A "Shadow QE" Are Dead Wrong

Tyler Durden's picture




 

Leave it to Goldman to explain why the surge in crude prices is actually a good thing. Enter the good old ("recycled" some may say tongue in cheekly) recycled petrodollar thesis. The logic, in brief, is as follows: Petroleum exporters are the primary beneficiaries of rising oil prices and, assuming they don't use the bulk of the funds to buy their citizens' endless love (a big if in recent months), use this "savings" flow to purchase various assets from developed capital markets. To quantify, Goldman suggests that that the $70/barrel rise in crude over the past 2 years "has caused petrodollar saving flows to rise from roughly $10bn to $70bn per month, thus adding roughly $700bn of asset demand to global capital markets." Which is supremely ironic: those who claim that the IEA's action is comparable to a QE are 100% dead wrong. It is actions which raise the price of oil that have an implied QE effect, whereby the abovementioned $700 billion in recycled capital is only possible due to the surge in crude. As prices drop, whether it is due to idiotic, politically-driven actions like that by the IEA, or otherwise, the recyclability of petrodollars plunges, and far less "savings" end up being reinvested in US asset. What would be further ironic is if the administration realizes this paradox, and in order to save the market (which it will have to very soon in the absence of ongoing flow monetization by the Fed), it send the price of WTI well over $100 to generate bond buying interest in the short-term. That said, based on some of the stupidity we have recently seen out of the White House, such an outcome would not surprise us in the least.

More from Goldman:

Flow of petrodollar savings is back

Last week in our Global Economics Weekly, we revisited the global savings impact of higher oil prices and came to a conclusion that harks back to the last legs of the credit boom: Petrodollars are back (“Petrodollars redux”, Global Economics Weekly, June 29, 2011). The report estimates that petrodollar saving flows over the coming year will average $70bn/month, which exceeds the highest monthly flow of $63bn/month reached during credit boom of 2005-2007, and is exceeded only by the transitory peaks reached during the summer of 2008.

This is almost entirely a reflection of higher oil prices. Back in June of 2007, Brent crude oil was trading in the vicinity of $70/barrel, and our commodities team was forecasting $72/barrel. Based on this oil forecast, we estimated that global petrodollar savings had probably peaked at rate of around $45bn/month (“A Peak in Petrodollar Savings?” Global Economics Weekly, June 14, 2007). Petrodollar savings eventually surged to over $90bn/month in July 2008 as Brent crude oil prices soared to $140/barrel. But by March 2009, oil prices had fallen to $46/barrel, and petrodollar saving flows had collapsed to a mere $10bn/month.

Our commodities team forecasts a continued upward trajectory for oil prices. Once the market negotiates the current slowdown in the pace of economic growth, they expect Brent oil prices to rise from current levels of around $110/barrel to $114.50/barrel this year and $126.50/barrel by next summer. (They have more recently warned that the release of strategic oil reserves may cause them to adjust these levels down by $5-10/barrel, but that the upward trajectory would remain and the forecasts would still likely be above forwards.)

We focus on petrodollar flows for two reasons. First, petrodollar savings have become more important over the past decade. With emerging market oil demand growth outpacing global oil supply growth, both the level and dollar volatility of oil prices have risen substantially. The standard deviation of monthly oil price changes has increased from roughly $1.50/month during the 1990s to over $6.50/month over the past five years – a four-fold increase. In the long-standing view of our commodities research team, these changes reflect secular trends that are not likely to reverse over the foreseeable future. In our view, the long-run trajectory for oil prices is up, in which case petrodollar flows are here to stay.

Second, petrodollar savings are closely correlated with fluctuations in oil prices, so they are easy to monitor. For big oil exporting economies like Saudi Arabia, national income is heavily dependent on oil exports (in Saudi Arabia, for example, the oil sector represents roughly 50% of the gross value added). Changes in oil prices for such economies translate almost 1-for-1 into changes in export revenues. And in the short-run – before domestic demand for consumption and investment has fully responded to the increase in domestic income – the import response is small. Hence, a $1.00 increase in export revenue causes import demand to rise by roughly $0.35, which means petrodollar savings rises by roughly $0.65.

Saving rates higher, interest rates lower

The asset market implications of higher oil prices alongside higher petrodollar saving flows are bounded by two offsetting considerations. On the one hand, higher oil prices obviously represent a headwind for domestic demand in the US and Europe. Indeed, higher oil prices top our list of reasons for the recent slowing of US economic growth. On the other hand, we estimate that the $70/barrel rise in Brent crude prices over the past two years has caused petrodollar saving flows to rise from roughly $10bn to $70bn per month, thus adding roughly $700bn of asset demand to global capital markets. In a world where developed market borrowing demand is expected to remain high, this is not necessarily a bad thing.

From perspective, the slower growth and higher petro savings implied by higher oil prices are both supportive of low, long-term global interest rates. To be clear, we think these effects are well-priced at current levels. Our forecasts for 10-year Treasury remain at 3.75% for this and 4.25% for 2012, and we went tactically short the 5-year on June 28.

That said, it seems likely that just as in the pre-crisis period, greater global saving supply will disproportionately benefit fixed income. (For additional evidence along these lines, see also “The Savings Glut, the Return on Capital and the Rise in Risk Aversion,” Global Economics Paper No: 185, May 27, 2009.)

Credit market implications

For credit markets more narrowly, we have long argued that credit markets were disproportionately exposed to the push from global savings supply. This is certainly how things looked back in the fall of 2006 (see “Credit 2007: Peak or Plateau?” Credit Outlook, Dec. 12, 2006). Back then we argued the global savings were driving both easy credit and low yields, causing “increased risk appetite, easy financing for distressed firms, rapid growth of the leveraged loan market, unusually low default rates, a proliferation of leveraged, yield-enhancing credit products, and a continual compression of spreads on credit default swaps.”

As for “round two” of the surge in petrodollar savings, it is difficult to say whether the effects are likely to be greater or smaller this time. We see offsetting arguments. On the one hand, global savings flows have already begun to reallocate away from fixed income and away from the developed market economies – the US in particular. In this sense, the demand for plain vanilla credit instruments is likely to be less heated this time around. On the other hand, we strongly suspect that due to the experience of the recent crisis, financial markets in developed economies will prove highly resistant to the lure of “easy credit.” New and tighter regulatory oversight, bank capital standards, and risk management processes will all effectively work to reduce the developed market supply of credit instruments and securities available to global investors. Paradoxically, this will increase the scarcity value of plain vanilla credit products, which should push their prices higher.

 

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Mon, 07/04/2011 - 17:37 | 1425133 macholatte
macholatte's picture

'But I don't want to go among mad people,' said Alice. 'Oh, you can't help that,' said the cat. 'We're all mad here.'
Lewis Carroll

Tue, 07/05/2011 - 03:45 | 1425983 Yen Cross
Yen Cross's picture

 I'll start from the top "Gentlemen" EGO's Abound!   LET's

  { work together } good minds I see.  Thank you.

Mon, 07/04/2011 - 17:39 | 1425138 Seize Mars
Seize Mars's picture

So wait, let me get this straight; GS would say things that are the *opposite* of true?

Mon, 07/04/2011 - 19:18 | 1425273 knukles
knukles's picture

Goldman is absolutely spot on Truthful, Right and Honest about the Goodness of Petrodollar Recycling.

Petrodollar recycling is fabulous for Goldman Sachs for it generates additional transactional commissions and principal positioning opportunities via the petrodollars sucked from the middle class who never ever see their moneys again, channeling such from Tehran, Bahrain, Dubai, Saudi, etc., through brokers and banks into capital assets, which Goldman underwrites, trades, repackages, swaps, collateralizes, lists, deals in, prices and profits from.

After the QE business' free monies, this is the next best game in town....

                  ....for Goldman.

The Street needs somebody to Skullfuck.

Tue, 07/05/2011 - 09:34 | 1426282 fallout11
fallout11's picture

Bring out the bagmen....oops, I mean, counterparties!....for this one.

Just another steaming pile of propaganda from the vampire squid.

Mon, 07/04/2011 - 17:41 | 1425140 Franken_Stein
Franken_Stein's picture

 

Can we please switch to Thorium and wind power already ?

It's so ridiculous that grown up adults are shooting each other dead over some brown viscous liquid made up of dead animals' long-chain carbohydrates.

Truly idiotic !

 

Mon, 07/04/2011 - 18:04 | 1425174 Motorhead
Motorhead's picture

I think dead animals' carbs are delicious...add a little mittelscharfen Senf to a Schweinshaxe....umm, lecker!

Mon, 07/04/2011 - 18:04 | 1425176 ctb89
ctb89's picture

Carbohydrates?  I think you mean hydrocarbons.

Mon, 07/04/2011 - 18:12 | 1425184 Franken_Stein
Franken_Stein's picture

 

There is no difference between the two.

 

Mon, 07/04/2011 - 18:17 | 1425195 phungus_mungus
phungus_mungus's picture

Really? This outta be a good one!

 

 

Mon, 07/04/2011 - 18:32 | 1425221 Franken_Stein
Franken_Stein's picture

 

Yeah really.

Both consist of hydrogen and carbon and have energy stored in their bonds that gets released when oxidized aka burnt, into water and carbondioxide.

 

In your cells, the same process happens when you metabolize carbohydrates as when you burn hydrocarbons in a motor.

 

It gets oxidized in an exothermic reaction.

That's why you exhale carbondioxide through your lungs, as well as water vapor.

 

From an energy and reaction path standpoint there is no difference.

 

Ok, I know, they have different geometrical structures and may differ in length and you can't eat the one, but you can set afire both.

That's probably what you mean.

 

Mon, 07/04/2011 - 19:16 | 1425279 knukles
knukles's picture

Fossil fuel?
Try abiogenic.

Mon, 07/04/2011 - 19:31 | 1425296 Urban Roman
Urban Roman's picture

The creamy nougat center ...

Oh noes! Peak oxygen!

Mon, 07/04/2011 - 22:11 | 1425511 knukles
knukles's picture

Or abiotic...
But thar weren't 'nuff them dinosaurs and dead plants ta make all thet thar oearl...

"fossil" fuel
Tripe, rubbish, pablum, twaddle, twif, illogical and just plain silly.

Tue, 07/05/2011 - 00:18 | 1425797 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

God made cotten candy, and then he made oil.

Tue, 07/05/2011 - 09:37 | 1426283 fallout11
fallout11's picture

To be fair to Franken, both are thermal energy sources whose content can be expressed in calories and joules.  Energy IS energy.  Burning food in your gastank via ethanol isn't fundamentally (thermodynamically) much different than burning it in your body.

Mon, 07/04/2011 - 18:25 | 1425209 traderjoe
traderjoe's picture

Wind? Not from what I've read...

Mon, 07/04/2011 - 18:48 | 1425241 cpnscarlet
cpnscarlet's picture

We can't switch to Thorium because it is "atomic" and that word makes the common lumpen prol shit his pants.

We need a Technocracy.

Mon, 07/04/2011 - 18:50 | 1425243 cpnscarlet
cpnscarlet's picture

We can't switch to Thorium because it is "atomic" and that word makes the common lumpen prol shit his pants.

We need a Technocracy.

Tue, 07/05/2011 - 08:49 | 1426211 snowball777
snowball777's picture

Closed cycle? Generates lots of actinides that'll sit around for years and years.

Open cycle? I find it amusing that the U232 contamination is sold as a "benefit" because it would "discourage proliferation".

A "technocracy" that would....last at most 1000 years (could you make it the TechReich for complete irony?).

This is why people who think they're smart can be the most dangerous of all.

Tue, 07/05/2011 - 11:02 | 1426272 malikai
malikai's picture

I think you got some wires crossed here.

Closed cycles burn U235 and actinides, leaving (in theory) only fission product wastes.

Open cycles burn only U235 and P239, leaving both actinides and fission product wastes.

Mon, 07/04/2011 - 19:05 | 1425260 css1971
css1971's picture

They're not. They're shooting each other over women.

 

Our entire civilisation, the skyscrapers, the space race, war, you name it., everything. It is all peacock feathers. It is all so one set of males can say I am superior to these other males. And thereby get laid.

 

Also, thorium based nuclear industry is 2 decades away at least.

Mon, 07/04/2011 - 19:16 | 1425280 ibjamming
ibjamming's picture

It's funy but true...the house, the car, the boat...ALL just to get laid!

Tue, 07/05/2011 - 13:20 | 1426961 boiltherich
boiltherich's picture

I hope you do not intend that bitches in burkas count here, my great uncle Joe is prettier than they are, why do you think they make'm wear those black tents in the first place? 

Mon, 07/04/2011 - 20:33 | 1425373 HellFish
HellFish's picture

Wind power?  Really? 

Tue, 07/05/2011 - 03:21 | 1425968 BlackVoid
BlackVoid's picture

We cannot switch to Thorium, because after decades of experiments, we have only a few experimental Thorium reactors.

If it worked, we would already have commercial applications. But we don't.

And the EROEI rate of a Thorium reactor (energy produced / energy invested) is much lower than that of conventional oil.

The problem with alternative energy is that it is lower quality and less dense than fossil fuels. EROEI is lower.

The result of this, is that  we are switching to an energy source that reduces the net energy available for society. It won't work.

Switching to wind, solar, sun, nuclear: won't work. Switching to oil shale, oil sand, deepwater (also low EROEI): won't work either.

Deal with reality or reality will deal with you.

Tue, 07/05/2011 - 08:34 | 1426188 snowball777
snowball777's picture

a) Thorium still creates plenty of actinides

b) Wind power will require some REMagnets and a low-loss distribution system to get the power anywhere but the coast

c) The biomass compressed into said liquid was made up of more dead plants than animals

Why not just go for space-based solar with u-wave transmitters to ground as long as we're in pie-in-the-sky mode?

Mon, 07/04/2011 - 17:46 | 1425149 surfersd
surfersd's picture

I guess the Arab countries know how to spend our money better then we do. Gee, they just like Congress. I think I am going to give the money doesn't tax away and wire it over to Saudi Arabia that way I can sleep at night, knowing our economy is still going to be booming.

At to think I was worried.

 

Mon, 07/04/2011 - 23:44 | 1425747 tiger7905
tiger7905's picture

Don Coxe Update, he notes the SPR announcement sent a ‘we aren’t helpless here’ message. He would have done the same thing. I can't say I'd agree to each their own I guess.

http://goldandsilverlinings.com/?p=1382

Mon, 07/04/2011 - 17:53 | 1425157 LetThemEatRand
LetThemEatRand's picture

The average American spends more of his disposible income at the pump, but interest rates stay low so when he runs out of cash he can get a loan on better terms and then go buy gas on credit while driving to Walmart to buy stuff made in China.    What could possibly go wrong? 

Mon, 07/04/2011 - 17:59 | 1425161 Yen Cross
Yen Cross's picture

 That "thesis" is right up there with the 'rare' earth post yesterday.

Mon, 07/04/2011 - 18:00 | 1425166 ffart
ffart's picture

The old money is capital fallacy. Why does this industry pay so well again? oh, i guess it must be all the fraud.

Mon, 07/04/2011 - 18:02 | 1425169 alexdg
alexdg's picture

Seems like it has already started...

"Saudi Prince Turki al-Faisal, who has suggested engaging in an oil war with Iran."

http://www.upi.com/Business_News/Energy-Resources/2011/06/30/Saudi-princ...

Tue, 07/05/2011 - 13:27 | 1426984 boiltherich
boiltherich's picture

From that story...

"Underlining the escalating cold war between Saudi Arabia and its rival Iran, former intelligence chief Prince Turki al-Faisal proposes the kingdom use its oil power to drive down prices to batter the Islamic Republic's sanctions-hit economy.

That would ratchet up tensions in the Persian Gulf and the wider Middle East at a time of unprecedented political upheaval."

And it would allow unprecedented emergency powers to the existing governments so threatened by the Arab Spring.  They see Tunisia, Libya, Egypt, Yemen, and now Assad's Syria and start wetting themselves. 

What better cover than the two theocratic polarities in the region, Sunni and Shia? 

 

Mon, 07/04/2011 - 18:03 | 1425173 oldmanagain
oldmanagain's picture

'What would be further ironic is if the administration realizes this paradox, and in order to save the market (which it will have to very soon in the absence of ongoing flow monetization by the Fed), it send the price of WTI well over $100 to generate bond buying interest in the short-term."

???????

Are you saying Obama lowered the price in order to raise it? 

Are you saying raising oil prices will replace QE?

Or are you saying you trying to pin the tail on the donkey but can't find the tail?

Mon, 07/04/2011 - 18:10 | 1425183 baby_BLYTHE
baby_BLYTHE's picture

How can higher oil prices replace QE?

Rising oil prices = demand destruction

Mon, 07/04/2011 - 20:04 | 1425332 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Oil has an inverse relationship with the dollar.  The dollar has an inverse relationship with foreign currencie.  Oil demand will stay high. 

Oil supply is dropping. 

Price is set to skyrocket. 

As for replacing QE, you are correct, it doesn't.

Mon, 07/04/2011 - 21:51 | 1425480 Yen Cross
Yen Cross's picture

 In todays world yes. Good post.   

Mon, 07/04/2011 - 18:14 | 1425185 statlawyer
statlawyer's picture

"We have to abandon free market principles, in order to save it."

Mon, 07/04/2011 - 19:22 | 1425286 cosmictrainwreck
cosmictrainwreck's picture

Dat's right! Dat's a direct quote from one of our most heaviest - a man veritibly brimming with patriautism - and not that long ago, even.........

Mon, 07/04/2011 - 18:14 | 1425187 ffart
ffart's picture

The old money is capital fallacy. Why does this industry pay so well again? oh, i guess it must be all the fraud.

Mon, 07/04/2011 - 18:15 | 1425191 buzzsaw99
buzzsaw99's picture

So the Sauds et al will buy NFLX and the facebook ipo? The market is saved! Sweet!

Mon, 07/04/2011 - 18:17 | 1425192 Quinvarius
Quinvarius's picture

It was dumb because it won't work.  As far as being good or bad for the economy, it will have no lasting effect, so who cares.  It was political move.

Mon, 07/04/2011 - 18:17 | 1425193 Franken_Stein
Franken_Stein's picture

 

Nice concept of a 2 GW wind turbine.

 

If you have billions for fucking wothless New York banks ruled by motherfuckers like Blankfein, Dimon and other redundant vermin, why not spend it on something meaningful that serves everyone ?

 

http://www.youtube.com/watch?v=Y7Qs2gFlt-o&NR=1

 

Mon, 07/04/2011 - 18:27 | 1425211 buzzsaw99
buzzsaw99's picture

I have always liked that design.

Mon, 07/04/2011 - 19:08 | 1425263 CrashisOptimistic
CrashisOptimistic's picture

Because, Frank, John Deere agricultural tractors that plow 10s of thousands of acres before planting season ends, and harvests the crops when ready to harvest, before they rot in the fields . . . . USE OIL.

They don't use electricity.  Electricity doesn't have what it takes.  There are 740 watts in 1 lousy horsepower and a John Deere combine is 450 horsepower.  You drain any battery imaginable in 10 minutes, and you still have 40,000 acres to do.

Just put this wind stuff to bed.  It Doesn't Work.  Oil is oil for a reason.

Mon, 07/04/2011 - 19:11 | 1425267 buzzsaw99
buzzsaw99's picture

that's nothing my laptop is 500 hp ijit

Mon, 07/04/2011 - 21:03 | 1425409 malikai
malikai's picture

I think the Maglev doesn't look too feasible, especially considering the cost of permanent magnets of the required size and the enormity of the structure proposed.

But a few of them in Saudi might free up a few barrels of oil. A few of them in various highlands near population centers might also free up a few feet of gas or a few lumps of coal as well. Either could then be FT'd into diesel for your tractor.

Tue, 07/05/2011 - 09:47 | 1426303 fallout11
fallout11's picture

Well said!  Lets also say something for energy density, which is important in an agricultural implement smaller than the size of Connecticut.

Diesel: 44,800 kJ/kg

Latest Lipoly battery design: 505 kJ/kg (degrades measurably with each discharge/recharge cycle).

There's two orders of magnitude difference there, and you'll melt the battery trying to recharge it in a meaningful timeframe..

Mon, 07/04/2011 - 18:19 | 1425197 russwinter
russwinter's picture

 Since May 11, FCBs have reduced holdings by $15.8 billion, and that is really unprecedented. This lethal combination is the big reason I am so bearish on Treasuries.  FCBs still hold $3.445 trillion, but China and Russia in particular are highly critical of phony  US Ponzi finance, and Japan is busy with concerns of their own. I don't see how this bullet can be dodged.

Truth be known about the only thing keeping Treasury prices levitated is the Fed, and they are now gone. Banks would take on huge disintermediation risk buying Treasuries at these puny yields.  A  5 year at 1.8%,  a year's yield would get wiped out in one bad day. 

Mon, 07/04/2011 - 19:59 | 1425329 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

QE Light is in place for this month and into August.  One or two POMOs a week for seven weeks.  It will monetize enough debt while Timmah loots pensions, before the debt cieling is raised.  Then once they have raised the dead cediling, I mean debt ceiling, then they will up the QE ante.

Mon, 07/04/2011 - 18:22 | 1425203 Franken_Stein
Franken_Stein's picture

 

Why are Americans so pathetically weak, that they cannot do themselves and the world a favor and rid planet earth of Blankfein and Dimon ?

 

I don't get it.

 

You attack other countries around the world, you kill millions of Iraqis, but you don't have the guts to remove those who harm your way of life the most.

They spit you in the eye and all you do is to say thank you.

 

Mon, 07/04/2011 - 18:31 | 1425218 buzzsaw99
buzzsaw99's picture

it is weakness, but not the type of weakness you imagine. Most americans are too self centered and have too much to lose to do anything like that. change will need to come from outside because frankly we are happier than pigs in a waller right now.

Mon, 07/04/2011 - 19:55 | 1425325 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

And fatter.

Mon, 07/04/2011 - 21:59 | 1425501 Gordon Freeman
Gordon Freeman's picture

True, but we only have to deal with a bit of sputum in our eye, whilst you need to deal with a load of semen in your ass...

Mon, 07/04/2011 - 18:55 | 1425247 slewie the pi-rat
slewie the pi-rat's picture

nicely done, tyler. continue drinking.

this reminds us that inflation is always and everywhere an inflationary phenomenon.  LOL!  this is good if one is fighting deflation while possesed by satan and chairing the FED.   

i'll now deliver my 2H11 prognosticationz while sitting in front of my fan, suking on a popsicle, thinking 4th of july thoughts of blowing things up.  like banks.  clothing optional.  rather ripped.

1) the econom could go ^ a little.  very little.  or it could go down.  less little.  aka a little more. at least. 

2) fiat currencies will contiue to be convertible into physical gold and silver, worldwide, while flim-flam artists continue to pontificate about "backing" paper in different ways. 

3) baby_BLYTHE will have at least 4 new avatars. 

Mon, 07/04/2011 - 21:52 | 1425485 Yen Cross
Yen Cross's picture

 Funny.

Mon, 07/04/2011 - 19:11 | 1425266 ArkOmen1
ArkOmen1's picture

It seems like it's OK if you buy things like the S & P 500, or the Dow, or even the Nasdaq.... Yes... It seems OK to do these things. But if you buy oil, silver, or gold... It seems like that's not OK.

Mon, 07/04/2011 - 19:13 | 1425274 CrashisOptimistic
CrashisOptimistic's picture

So let me be sure I understand what the Goldman folks with no geologists on staff have to say here about oil.

If the price is high, money flows to oil exporters, like Saudi Arabia.  Those countries most decidedly do NOT spend that money on Chinese goods.  Rather, they use it to buy US securities.

When oil price is high, people have less money left over after food and transport with which to buy computers.  Somehow this is bullish for Intel stock.

When oil price is high, everything costs more to ship from widget producer to the shelves of Walmart.  Walmart can't boost price to the consumer because the consumer spent his money on transport to get to Walmart, so somehow this increase in price in wholesale prices for Walmart goods, with no increase in retail price, is not going to compress Walmart margins.

Goldman, for your own good, hire a few geologists.  That's all you need to do.  Just hire geologists.

Mon, 07/04/2011 - 19:43 | 1425314 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

I think instead they have been hiring gynecologists.

Mon, 07/04/2011 - 19:14 | 1425275 ArkOmen1
ArkOmen1's picture

Other things that seem to be OK are driving an electric car and making sure you have health insurance... That's what I feel I should be doing. But it seems like if I drive an old gas guzzler and don't have health insurance, that's not OK.

Mon, 07/04/2011 - 19:27 | 1425290 Bartanist
Bartanist's picture

OK, so when oil price goes up, the purchasing power of a few oil shieks goes up and the purchasing power of 6 billion other people goes down because not only do they have to pay more for gasoline, but everything else that uses oil in its production, such as luxuries like umm.... food.... and everything else????

So, what will the oil Shieks do with their new found money? Buy gold, buy their 10th yatch or 5th jet or give it to Goldman Sachs to bid up commodity and stock prices.

Sorry, not seeing how that helps stimulate the economy at all. It looks like a big negative all the way around.

Mon, 07/04/2011 - 19:47 | 1425317 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

What is with the fascination with oil shieks?  There are corporations, owned by GS' prop desk, who benefit, too.

Mon, 07/04/2011 - 22:33 | 1425553 Yen Cross
Yen Cross's picture

  "Prop Desk"? You just commited sacrilege.  That's like telling Northern Trust their clients are Private/Unique.

Tue, 07/05/2011 - 00:20 | 1425799 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

They aren't?  Ruh roh!

Mon, 07/04/2011 - 19:40 | 1425308 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Politicians are creating feedback loops?  No way!

Mon, 07/04/2011 - 20:26 | 1425364 kito
kito's picture

hey tyler, would the continuing decline in worldwide demand of u.s. dollars by foreign governments and companies affect bernanke's decision with regards to monetary expansion--meaning he would utilize less of an expansion rate since there is less absorption of those dollars???

Mon, 07/04/2011 - 21:57 | 1425494 Gordon Freeman
Gordon Freeman's picture

The treatment was successful, but the patient died...

Mon, 07/04/2011 - 23:03 | 1425679 boricuadigm-shift
boricuadigm-shift's picture

Here is Martin Armstrong out again:

http://www.martinarmstrong.org/files/The%20Fate%20of%20Gold%20and%20Oil%...

Good artcile, although he sees the whole thing from a traders standpoint.  Very short term!  For us going long (10 years) there may be a good opportunity to buy gold cheaper.  Who knows.  Definately a great read!

 

Tue, 07/05/2011 - 00:47 | 1425830 logically possible
logically possible's picture

+1
Very informative, thanks.

Tue, 07/05/2011 - 02:54 | 1425940 Jovil
Jovil's picture

Living through a currency devaluation

In 1976 I was managing an American subsidiary of a successful large US Company in Mexico. It had been a financial turnaround for our team. Cash flow had accumulated in our bank in Mexico and corporate didn’t want the money repatriated to the US. Although we had already paid a 35% income tax to the Mexican government, we would have to pay an additional 30% exit tax to repatriate the money. In addition, we would have to pay high fees for the peso/dollar exchange, in order to make the transfer. The company wanted to expand our successful business and so we decided to keep the money in Mexican pesos to be used for further expansion.

One morning, as my wife and I were on a trip driving on the highway, we heard a national message from the President of Mexico, Luis Echevarria, one of the most corrupt presidents in Mexican history. “It is a lie that we are going to devalue the peso,” he said. Read more

 

http://lonerangersilver.wordpress.com/2011/06/20/living-through-a-curren...

Tue, 07/05/2011 - 06:18 | 1426081 Ghordius
Ghordius's picture

+1

Tue, 07/05/2011 - 03:58 | 1425991 el-greco
el-greco's picture

If petro dollar surpluses are being recycled into US financial assets why is the dollar unable to climb into the 80 cents range? Having seen how easily the US is able to freeze/confiscate sovereign funds of countries it wants to make ennemies of, why would any foreign saver with energy assets of geopolitical import and an independent political view be willing to put new money into the western asset markets? 

Tue, 07/05/2011 - 06:48 | 1426102 dcb
dcb's picture

we need to define the term good thing in the world of goldman speak. It means good for them, maybe but not anyone else in the world

Tue, 07/05/2011 - 07:47 | 1426144 Smiddywesson
Smiddywesson's picture

LOL, late stage bubble think is always entertaining.

The China pipe dream is turning out to be just that, so now the Middle East is going to dig out the world economies and be the "engine for recovery?"  Absolutely hilarious.

Is it safe to go long now?  Have the social networking Arabs arrived yet to buy our worthless LinkedIn stocks?

The central banks have kept this afloat so long, they are running out of crazy bubble theories and have to begin recycling them.  How about tulips?

Tue, 07/05/2011 - 09:25 | 1426263 Downtoolong
Downtoolong's picture

You sell to your clients and cater to their concerns and wants. No one else matters. We see in this article some telling examples of who Goldman's  cleints and friends really are. 

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