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West Texas Intermediate Passes 2 Year High, Jumps To $90.57

Tyler Durden's picture


Those who are about to spend another 20% of their paychecks to cover the cost of surging food and gas prices, salute the wealth effect. For everyone else, there is the discount window. WTI Crude has just passed $90.57 (and at last check was at the highest it has been since mid-2008). We hope Ben Bernanke has plans how to deal with oil passing $100 (to the upside) - at today's rate of dollar devaluation, that target should be taken out by the end of the month. And in addition to supermarkets, next up one can safely cross out all companies that use petroleum distillates in the COGS. In fact, everything that worked in the spring of 2008 as the bubble was on the verge of blowing up last time, should work all too well. And back then we didn't even have a daily POMO...


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Tue, 12/07/2010 - 09:36 | 785097 pan-the-ist
pan-the-ist's picture

“Tax away unearned rentier income. And do not pay creditors by selling off the public domain to rent-seeking privatizers erecting tollbooths on the economy.”

Tue, 12/07/2010 - 09:47 | 785126 trav7777
trav7777's picture


But the latter is the trend for banksters.  Nothing should get in the way of their earning real profits in exchange for the service of conjuring money from thin air and charging interest on it.  Without that, why...we'd all just DIE or something.

A lot of Latin America is rented to the population.  With each debt crisis there, the european banks take a larger ownership of the nations.  Chavez is a total idiot, but the reason he's so gung ho about nationalizing is because under literally every stone he turns, he sees a rentier leech with ownership of national assets.

Tue, 12/07/2010 - 09:58 | 785154 pan-the-ist
pan-the-ist's picture

The point of the article is how history (which we are damned to repeat) shows Obama's deficit commission has it backward (which should not be a great surprise to anyone.)

Tue, 12/07/2010 - 10:02 | 785170 snowball777
snowball777's picture

"A more equal land-tax, a more equal tax upon the rent of houses, and such alterations in the present system of customs and excise as those which have been mentioned in the foregoing chapter might, perhaps, without increasing the burden of the greater part of the people, but only distributing the weight of it more equally upon the whole, produce a considerable augmentation of revenue." - Adam Smith

This might be the earliest argument I've ever seen for progressive taxation.

Tue, 12/07/2010 - 10:16 | 785224 trav7777
trav7777's picture

Adam Smith was an absolute giant and the only economist worth respecting.  It's worth noting that after the proposal and implementation of some of these reforms, the aristocracy essentially ran the Irish out of their homeland with an engineered famine.  I guess they don't take well to being taxed.

Last I looked, that depopulation was so successful that there were more Irish in Ireland in the 1840s than in modern times.

Tue, 12/07/2010 - 10:30 | 785278 Calvin Jones an...
Calvin Jones and the 13th Apostle's picture

What people forget, or at least never mention, is that Ben Franklin was in favor of progressive taxation as well.

Tue, 12/07/2010 - 16:10 | 786632 midtowng
midtowng's picture

Hmm. When I voiced support for progressive taxation on ZH i was called a "thief" and "hope you will die".

  You guys aren't even getting junked.

Maybe its just me.

Tue, 12/07/2010 - 10:03 | 785173 pazmaker
pazmaker's picture

You are right about Chavez being an idiot!.  He is blaming the torrential rains that are effecting Caracas on the imperialistic west and how we just consume and creat environmental chaos, but yet he continues to pump out that black gold and sell it to us hand over fist!

If he was truely concerned why doesn't he stop selling us oil?

Tue, 12/07/2010 - 10:10 | 785210 trav7777
trav7777's picture

two reasons: one which most know and the other that few know.  The first is that he needs the revenue.  The second is that refineries on the Gulf (primarily LA) are the only place in the world capable of refining the heavy sour he produces in quantity.  Seriously, people think they know oil from watching the GOM spill or Beverly Hillbillies.  The stuff pumping out of Venezuela resembles taffy or peanut butter in its consistency.  The days of abundant lightsweet liquid oil gushering and flowing like that are long past.

This is one of the things so absurd about the futures market.  You can purport to buy as much paper oil as you want but actually taking delivery in any size of consistent light crude volume is not possible without special deals at the sovereign level.  Good luck locking down 100 or even 10kbpd with paper.  And a refining supply chain on orinoco taffy...forget it.  It's essentially sole-source on both ends.

Tue, 12/07/2010 - 10:21 | 785243 pazmaker
pazmaker's picture

I have family that live in Venezuela so I pay close attention to what goes on there. Chavez has squandered much of the prosperity they have experienced from the windfsall profits.  Corruption is deep and the violent crime is mind boggeling in Caracas, of course that is an issue that predates Chavez.

I have heard that the oil coming out was more difficult to refine but I didn't know it resembled taffy! 

I have a new nickname for Chavez now---WackyTaffy

Tue, 12/07/2010 - 12:02 | 785659 D-Falt
D-Falt's picture

He reminds me more of Meatwad from The Aqua-Teen Hunger Force.

Tue, 12/07/2010 - 16:46 | 786839 LowProfile
LowProfile's picture

Great. On one hand, we have the rentier class. On the other hand, the government class.

What's the third choice? I'm being serious. Suggestions, brainstorm, spitballs welcome.

Tue, 12/07/2010 - 09:37 | 785100 NoBull1994
NoBull1994's picture

This is bullish for Schwinn.

Tue, 12/07/2010 - 09:51 | 785137 Kyron95131
Kyron95131's picture

lol i agree

Tue, 12/07/2010 - 09:38 | 785102 NoBull1994
NoBull1994's picture

This is bullish for Schwinn.

Tue, 12/07/2010 - 09:40 | 785105 Mercury
Mercury's picture

Yeah but there is no oil in CPI or PPI so this isn't inflation...just noise.

Welcome to The Recovery!

Tue, 12/07/2010 - 10:11 | 785211 CPL
CPL's picture

And when it hits $100 at the end of the month everyone will be very surprised that the entire market will have crashed and burned when basic costs are over the wire and listed in the "crazy" territory.


But we'll all keep that under our hats won't we.

Tue, 12/07/2010 - 09:39 | 785106 Ferg .
Ferg .'s picture

Interesting to see if the 50% Fibo retracement of the July 08 - December 08 collapse will hold ( it's around the $ 90.50 mark ) . I have my doubts ...

Tue, 12/07/2010 - 09:43 | 785114 dojiman
dojiman's picture

better not mate, short at 89, kept some reserves for 95 handle

Tue, 12/07/2010 - 09:57 | 785152 Ferg .
Ferg .'s picture

Short at $90 myself but if it starts to break above $91 I'm out . Yeah looking to short around that area myself , or $100 . Crazy that we're up around this level .

Tue, 12/07/2010 - 10:06 | 785184 snowball777
snowball777's picture

Waiting a couple more weeks for $100 (might not be that long)'s either that or nomo POMO for the momo.

Tue, 12/07/2010 - 10:11 | 785215 dojiman
dojiman's picture

agree, I still have flashbacks of 147, so taking time before adding, nat gas starting to retrace 

Tue, 12/07/2010 - 11:00 | 785398 Ferg .
Ferg .'s picture

Back below $90 now . That's pretty encouraging . Looks like this could be a textbook false breakout .

Tue, 12/07/2010 - 09:39 | 785107 HelluvaEngineer
HelluvaEngineer's picture

Austerity for some, hyperinflation for others.  And a Merry Christmas to everyone from BernankeClaus!

Tue, 12/07/2010 - 10:07 | 785191 snowball777
snowball777's picture

I'm feeling like a Who down in Whoville with no roast beast and tree up in this bitch.

Fuck the Grinch!

So I got these nice silver rounds and bars as presents this year... ;)

Tue, 12/07/2010 - 09:41 | 785112 Alex Lionson
Alex Lionson's picture

Just headlines for now…


BREAKING NEWS: FED’s Bernanke bought the devil’s soul on newly printed dollars (QE 23 – 23 trillion)


BREAKING NEWS: the devil and senior hell managers filed a lawsuit with the US Supreme Court accusing the FED’s Bernanke of fraudulent delusion about the real value of USD


BREAKING NEWS: the devil and senior hell managers complain that the Earth population increasingly refuse to sell their souls for US Dollars

Tue, 12/07/2010 - 09:43 | 785117 FrankIvy
FrankIvy's picture

This is my first "bitchez meme" attempt, so please provide feedback, as appropriate.


Peak Oil, Bitchez!

Tue, 12/07/2010 - 09:44 | 785118 trav7777
trav7777's picture

The last time oil crossed like this, it was the 2007 year runup to the global all-liquids peak in 08.  We saw sustained inventories drawdowns.  It'd be wise to look for the same signs, because the oil price spike was a precursor to the stock collapse which began later that year.

Perhaps the genius economists believe that raising the price will lead to more supply.  It probably doesn't occur to them that such a thing might not be possible.  If it wasn't in an economics text, it's not real.

Tue, 12/07/2010 - 09:54 | 785142 eigenvalue
eigenvalue's picture

Raising the price might lead to more supply only when there is no constraint of resources.

Tue, 12/07/2010 - 10:10 | 785208 snowball777
snowball777's picture

A mathematician, an engineer, and an economist wash up on a deserted island with nothing but a can of food between them.

The math wiz explains that we could use a lever to pry open the can.

The engineer does some quick strain estimates and proposes to launch the can into the air splitting it open as it returns to earth.

The economist says, "assume we have a can-opener".

Tue, 12/07/2010 - 09:49 | 785130 Spartan
Spartan's picture

Firstly High Oil prices are good for the economy...$90 is not nearly high enough we need a real Oil price "shock" least $150 (is that shocking enough?) to create "good" inflation.


Secondly as we learnt from the Fed yesterday high Oil prices are "ONLY" due to demand from India and China...I imagine the Fed is 100% sure that QE2 has no influence...thats simply economics 101 (mock laugh at all fools who do understand my superior intelligence).

Tue, 12/07/2010 - 09:49 | 785133 bob_dabolina
bob_dabolina's picture

There is no inflation. In fact, we are on the cusp of deflation.

-Ben the day before yesterday

Tue, 12/07/2010 - 09:52 | 785139 Kyron95131
Kyron95131's picture

hes 100% sure, you forgot to add that

Tue, 12/07/2010 - 09:58 | 785159 A Man without Q...
A Man without Qualities's picture

It's incredible that the Fed's favorite metric for inflation does not include energy prices, but 24% of it comes from Owner Equivalent Rent, which they get by asking home owners what they think it would cost to rent their home.

As Einhorn was saying, by excluding essentials such as food and energy, the official metric is actually inversely correlated with inflation.  They created a metric that deliberately understates inflation for political purposes, and this is what they use as their basis for wanting to create higher inflation.

Tue, 12/07/2010 - 09:51 | 785138 viator
viator's picture

So much for peak oil and hydrocarbons..

"Saudi Aramco, the world's largest national oil company, has just revealed at the World Energy Congress in Montreal that the Gulf Kingdom could possess volumes of unconventional gas resources running into hundreds of TRILLION cubic feet, which would more than double the current estimate of its proven natural gas reserves of 280,000 billion cubic feet, according to the magazine."

And that is just Saudi Arabia, unconventional NG exists everywhere.

Tue, 12/07/2010 - 09:55 | 785147 Alex Lionson
Alex Lionson's picture

That might or might not be true, but what about the proven FED's reserves of US Dollars?

Tue, 12/07/2010 - 09:57 | 785153 sumo
sumo's picture

So much for reliable figures from Arab states..

"According to the BP statistical review of world energy 2010, the big six Middle East OPEC oil producers (Saudi Arabia, Iran, Iraq, Kuwait, Unite Arab Emirates (UAE) and Qatar) had 743 billion barrels (Gbs) of proved oil reserves (1P) between them, representing 56% of reported proved global oil reserves. Knowledge of this bounty provides OECD governments with much comfort. The trouble is there is no chance these figures are correct"

Tue, 12/07/2010 - 10:21 | 785246 Internet Tough Guy
Internet Tough Guy's picture

Bingo. Why is Saudi the only oil producer who keeps reporting increasing reserves? Magic sand or lies?

Tue, 12/07/2010 - 10:20 | 785240 Not Sure
Not Sure's picture

When natural gas production and usage goes into higher gear; what will steel and pressurized tanker demands be?

Tue, 12/07/2010 - 10:48 | 785347 Grappa
Grappa's picture

Ah yes, and that unconventional gas is cheaper and it's EROEI (energy returned on energy invested) is better than our current natural gas and oil production, why goodness me.

If unconventional still means this: "Unconventional natural gas is gas that is more difficult or less economical to extract, usually because the technology to reach it has not been developed fully, or is too expensive." And for one I do not believe that we have made some immense break trough in technology to bring down the cost.

Peak oil and hydrocarbons doesn't physically mean that "oil is running out OMG". What it means is that oil and hydrocarbons are more and more expensive to produce and thus more scarse. The amount of hydrocarbons on this planet still cover and will cover our needs for a long time, when calculated by barrel to barrel basis. But when calculated trough EROEI it shows that we have a problem.

At least this is how I have understood the situation. Of course if we state that everything is as it should be and change our past to indicate the same, then no worries mates.

Tue, 12/07/2010 - 12:47 | 785890 samsara
samsara's picture

What it means is that oil and hydrocarbons are more and more expensive to produce and thus more scarse.

Peak Oil is the point in the graph where a Well, Field, Region is producing per day the highest number it will ever reach.

A oil well for instance(say) thru it's life goes from 5, 10, 50, 100, 90, 70, 20, 5,3, 1  something like that. (use what ever units of measure you like).

The PEAK is when in the previous example it hit 100.  Nothing can be done after crossing that number to ever reach that number again.

Look at the production graphs for Spindle Top, Cantarell, the North Sea, The US, or any other region and you will see a similar progression in action.

Once you hit PEAK, it's all down hill and nothing will change it.

(the numbers used were just for illustration purposes only).

Here's a picture to make it clearer.

Tue, 12/07/2010 - 09:53 | 785141 Oh regional Indian
Oh regional Indian's picture

The perils of the just in time economy, laid bare at the feet of the swooning dollar.

Double tragedy for the US, since even any demand contraction from the unfolding global downturn will be offset by the plunging dollar.

Rock, meet hard place.

ANDC Hybrids, all around.


Tue, 12/07/2010 - 09:54 | 785144 Spartan
Spartan's picture

$90 has not even made a headline on CNBC....

Tue, 12/07/2010 - 09:56 | 785149 Josephine29
Josephine29's picture

It was only 2 days ago that Ben Bernanke went on national television to tell us he was one hundred per cent sure he could control inflation.....

More realistic economists have been worried about potential inflationary trends for some time.Discussing fuel and commodity prices notayesmanseconomics thinks this.

After such moves for both one can probably expect something of a retracement in the short-term but it is plain that at this time there are concerns about inflationary trends in the world. Unfortunately conventional economic theory may struggle to pick this up as many economists base their thinking on core inflation which excludes food and energy.


Ben may get the inflation he appears to want but how will it make us better off?

Tue, 12/07/2010 - 09:58 | 785160 Bill Lumbergh
Bill Lumbergh's picture

Is this being done by design aside from creating there something more sinister at hand as some have suggested.

Tue, 12/07/2010 - 09:58 | 785161 Shameful
Shameful's picture

It's going to be a hoot when oil prices eventually fight there way back to 08 highs and the economy is a smoking wreck.  Wonder what Zimbabwe Ben will have to say about that, probably the same yarn he has for gold "I don't know".

Tue, 12/07/2010 - 10:03 | 785175 Spartan
Spartan's picture

He won't say usual...everything will then crash like 2008 and then he will say "print, print, print"....and the cycle will continue until they cart the mad man away.

Tue, 12/07/2010 - 10:33 | 785289 buzzsaw99
buzzsaw99's picture

ben will say whatever the pigmen tell him to say.

Tue, 12/07/2010 - 09:59 | 785164 Hondo
Hondo's picture
Exactly, rates are and have been rising since QE2. Isn't QE2 supposed to lower rates? Isn't that the main attraction for the FED even considering doing QE2? Or is the real reason to pump commodities and stocks to help their minions? That seems to be the only thing that is happening. In fact the one that that would help, lower rates, is going in reverse because the FED is helping pump commodities speculation and stock speculation..........Somebody please think through this nonsense and blow the whistle.....this is soooo corrupt even a blind man can see what's happening.
Tue, 12/07/2010 - 10:19 | 785238 CPL
CPL's picture

Usually in an inflation scenario, the interest rates go batshit.  That hasn't happened yet so something must be incredibly wrong in terms of misjudging shortages of commodities.

Tue, 12/07/2010 - 10:01 | 785166 Waterfallsparkles
Waterfallsparkles's picture

Just look at what Oil is used for:  Tires, Roofing, Vinal Siding, Windows, Carpet, Poleyester, Plastic Bottles, Rubber casing for copper wires, all forms of plastic (Trash cans, File Cabinets, Food storage containers and bags, handles and casings for tools, Vcr's, Fans, etc., etc.), Heating, Food transportation, Medicine bottles, Product packaging and many more items too numerous to mention.

Tue, 12/07/2010 - 10:01 | 785168 youngman
youngman's picture

Obama likes it because people will not drive more....they will drive less..less polution...It doesn´t is is Colorado the PUC just voted to shut 6 coal fired thats going to cost the poor....rates will jump....oh well...we have lots of time to knit sweaters now....

Tue, 12/07/2010 - 10:05 | 785183 pan-the-ist
pan-the-ist's picture

What's wrong with knitting sweaters?  That might actually help our economy as less money would be sent to China (though they probably start making the yarn and needles in China...)

Tue, 12/07/2010 - 10:53 | 785356 cowdiddly
cowdiddly's picture

Nothing is wrong with knitting sweaters. Just ask Madame Defarge. I think thats exactly what we are missing a few more sweater knitters.

Tue, 12/07/2010 - 10:36 | 785298 buzzsaw99
buzzsaw99's picture

owebama is the least green president we've ever had. he takes airforce one when he goes to the wh toilet.

Tue, 12/07/2010 - 10:03 | 785172 viator
viator's picture

"The company forecast that natural gas — a fossil fuel will emerge to threaten solar and wind for utility green power generation. And in the next few years, the firm sees renewable natural gas — that is, synthetic natural gas created from renewable feedstocks — emerging to rival the reigning clean energies."

So you have:

1) Staggering new discoveries of unconventional NG worldwide.

2) Synthetic natural gas.

3) Even if the watermelons stop NG development in parts of the US, those parts of the US will just get poorer and development will continue in the rest of the US and the world.

4) Lot's of NG folks, maybe centuries of it.

Tue, 12/07/2010 - 10:17 | 785228 CPL
CPL's picture

There is no mention of the EROI on the article, just wishful dreaming like the oil sands.  While the oil sands has trillions of barrels in them.  Problem is this.  It costs 9 barrels of oil to extract 1 barrel of oil currently.  so if you mine 1 million barrels of oil, you are really only making 100,000 barrels to offer for consumption.

Fraking is even worse, it's under a 13 to 1 ratio.

I'm not even going to bother mentioning the environmental crap because it's just been ignored and therefore pointless to discuss.  All that matters is cheap oil is ending.  Only thing that can save modern society is a massive human culling down to 500,000 humans and keep it there.

Tue, 12/07/2010 - 10:21 | 785245 viator
viator's picture

That sounds like a plan.

Tue, 12/07/2010 - 10:23 | 785256 Not Sure
Not Sure's picture

You first.

Tue, 12/07/2010 - 10:24 | 785262 pazmaker
pazmaker's picture


Tue, 12/07/2010 - 10:24 | 785259 pazmaker
pazmaker's picture

A culling down to 500,000?   You can't be serious.

Tue, 12/07/2010 - 10:44 | 785320 CPL
CPL's picture

How else do you expect to extend the resources we are currently using?  We've hit carrying capacity to the point we can't even commercially fish.  I didn't say the solution was a nice one, just the obvious one which most environmentalist and right wing pundits would avoid all together.

It was never a question of the amount of resources available, it was the ever expanding pool of people consuming them.

While cold and natural, it will end up eventually happening whether we want it to or not because our environment plus our infrastructure with methods of distribution for resources cannot support us.  It takes money to make money, it's takes energy to make energy the more that energy costs.  The less likely anyone of us is that important to maintain.

Tue, 12/07/2010 - 11:30 | 785507 Hulk
Hulk's picture

pazmaker, the eco-terrorists, er , I mean environmentalists, think the entire world population should be between 500,000 and several million. Sierra club used to have this on their web site, but I haven't checked in years... And to think we have allowed these idiots to stop Nuclear plants. The pain is about to start.

Tue, 12/07/2010 - 10:30 | 785277 trav7777
trav7777's picture


good one.  Maybe a decade or so, depending upon growth rates.  If we start substituting NG for oil, less.

NG well production profiles look like the matterhorn

Tue, 12/07/2010 - 11:28 | 785497 CrashisOptimistic
CrashisOptimistic's picture

I know rather a lot more about oil than NG but will point folks at LNG and its transport.  Japan runs on it.

In terms of physics, NG has about 1/1000 of the energy density of oil per unit volume at standard temperature and pressure.  You have to pressurize it to move an overpriced Honda.  It's a bomb waiting to happen.

500K is credible but pessimistic.  My calculations suggest 1.5-2 billion can be supported without oil.  Out of 7B.

Don't think we go to that number on a gentle slope because rational humans choose to reduce population.  It will happen in about 15 yrs.


Tue, 12/07/2010 - 10:05 | 785180 AntiMort
AntiMort's picture

Don't worry, CPI will print flat.  Everything's good.

Tue, 12/07/2010 - 10:06 | 785187 Alex Lionson
Alex Lionson's picture

Maybe even down... so everything is fine

Tue, 12/07/2010 - 11:33 | 785517 CrashisOptimistic
CrashisOptimistic's picture

Oil will find its way into CPI, but not fast and not in an overwhelming way, nor should it.

If you do not believe the BLS survey, call them or better, do your own.  Sample 10s of thousands of households and ask them what % of their monthly budget is spent on housing and cars.  

I GUARANTEE you that you'll get the same results.  Housing is in freefall.  Cars are not desirable.  In 10 years, since 2000, a Toyota Camry has increased in price about 8%.  That's under 1%/yr.  And a 2000 Camry did not have anywhere near the standard features a 2010 Camry has.  Car prices are declining, and they are a big part of monthly budget in amortized depreciation and maintenance.

Rents have not gone up for years and years, either.  House prices remain in freefall.  Housing is the single most overwhelming part of a monthly budget.

That's just the way it is, people.  I know healthcare goes up.  I know gas prices are.  I know food is.  But add it all up.  You'll find that your house and car undercut them.

Tue, 12/07/2010 - 10:08 | 785197 Waterfallsparkles
Waterfallsparkles's picture

I have been waiting for Heating Oil to come down to fill up a 250 gallon tank.  At todays price of $2.50, that means that the Oil Company will tack on another $.75 to deliver it to you the Consumer.  So to fill a 250 gallon tank it would cost $812.50.  In essence if you use 125 gallons per month you are paying over $400. per month just for heat.  You still have the cost of your electric.  Yet, Bernanke thinks there is no inflation.

Tue, 12/07/2010 - 10:33 | 785287 viator
viator's picture

There are many people who live in the northern tier of the US who cannot afford $3.00+ heating oil. They have turned down their heat, sometimes turned it off, buy cans of kerosene for room heaters and in general suffer miserable fuel poverty. Many have to curtail other expenses to have enough funds to heat their houses and businesses. Just another drag on the economy.

Tue, 12/07/2010 - 11:34 | 785524 CrashisOptimistic
CrashisOptimistic's picture

See above.  Other factors erase your heating increase.

Tue, 12/07/2010 - 10:10 | 785206 Internet Tough Guy
Internet Tough Guy's picture

LA robodrivers blowtorched, bludgeoned, bloodied, battered, befuddled!

Tue, 12/07/2010 - 10:17 | 785227 Buggy
Buggy's picture

Gosh I'm excited about all this NG.  The news put a real bounce in my step today.  I was especially ecoouraged that the news came from a trustworthy middle eastern state.  I'm sure they "could" have lots of the stuff.  Also encouraged that it is unconventional.  That only requires blowing giant holes in the crust of the earth to get to it with an EROEI of like 5 to 1 and an extraction rate a turtle could beat.  Come on.  Even if there was lots of easy to get to NG it would take 20 years to convert the world's infrastructure to run on it IF the world was swimming in money.  Real money.  Not the monopoly money Bennie is flooding the world with. 

Tue, 12/07/2010 - 10:50 | 785353 CPL
CPL's picture

It would take longer than 20 years.  Could you imagine that sheer level of corruption around that type of project.  It just wouldn't be able to get finished.

Tue, 12/07/2010 - 10:18 | 785235 MrVincent
MrVincent's picture

and Goldman Sucks wants us to buy Carnival Cruise Lines.....I dont think so.

Tue, 12/07/2010 - 10:22 | 785253 No Mas
No Mas's picture

Good morning ZH.  I see a new and fresher crisis is here for the fresh wadding of all panties.

Good advice from Tyler; there is money to be made from this development, excuse me, I mean gold to be made.

Looks like Europe is still kicking, imagine that!  Don't know if Ireland is actually going to "blow up" or not but I highly doubt it as I am still waiting on Greece and France to riot themselves into oblivion.

In the meantime, please enjoy the nice gap up this morning.  As the Chairman has said, he will inflate asset prices and inflate them he will. 

I would recommend you all take Tyler's advise and front run these monkeys for some money, oops my bad again - I meant to say GOLD, but I am sure most here would rather whine and complain about the inequity of it all.

You know what they say; shit and one hand and whine in the other and see which one fills up first!

Happy Holidays!

Tue, 12/07/2010 - 10:28 | 785269 Internet Tough Guy
Internet Tough Guy's picture

You remind me of a guy who used to post here named Leo. Leo doesn't come around much anymore; he overdosed on sunshine and went broke.

Tue, 12/07/2010 - 10:26 | 785265 trillion_dollar...
trillion_dollar_deficit's picture

$2.94 for medium this morn in Jackson, MS.

Tue, 12/07/2010 - 10:31 | 785280 Buggy
Buggy's picture

Think I'll go out and buy a Volt.   You can plug them into your house and heat your house with it, right?

Tue, 12/07/2010 - 10:41 | 785319 steve from virginia
steve from virginia's picture


Brace yourself for the inevitable crash. If the bull gets legs and it turns into a real bubble the impact of deflation will be shattering.

The higher the price the greater the downturn. The crash could happen tomorrow or next year. The new high could be the 2008 annual average price of $97 or the 2008 high of $147 could be retested. At some level economic activity cannot support the price and the cascade begins.

Look @ all these supported and inflated asset markets as currency traps. It looks as if the oil trap is getting ready to close. When it does the rest of the currency/liquidity traps world- wide will follow. Liquidity will vanish and margin calls begin. It seems the oil price spike/crash will be the trigger of the next, long- anticipated deleveraging event.

It will be hard to see how the Fed will be able to contain either the revealed risk(s) or the resulting panic.

Here is where the waste- based economy and what is wasted come together. Folks blame Bernanke for this but the Fed doesn't buy crude -- it would have to resell it -- but everyone else does. It is the prospect of recovery which is sending crude higher, recovery in the US, in the Eurozone and continuing in Asia (with the exception of Japan). You are watching the oil price governor on 'growth' in action.

The total number of people around the world who actually make a financial gain out of their final use of petroleum products is likely the same number who own gold. That is the readership of Zero Hedge.

The rest who 'use' petrol simply waste it. 60 years, a trillion barrels, all gone and nothing to show for it but crushing debts and a bunch of crumbling 'infrastructures' built to waste fuel.

Peak oil is real, folks. You are getting a chance to live your oil constrained future.

Oil bulls are in denial, they believe -- as in religion -- that high oil prices have little economic effect other than an increase in their personal profits. As modern experience has demonstrated repeatedly, oil price spikes have been followed by price crashes. The effect of high prices has been to destroy oil demand. The mechanism is high prices bankrupting businesses that enable crude waste.

It isn't pump price: the customer can afford $4 gas but cannot afford the new house or new car or new jet ski or a vacation. Companies fail ... and have been. The customer loses his or her job.

Keep in mind that pretty much ALL business in developed countries are versions of the oil business, they ALL use crude, that oil is embedded in all goods and services. As countries develop and use more fuel their economies orbit around fuel as well.

The CFTC has not made rules ending position limits for non- hedgers (banks). Open interest in forward months is increasing. Both of these are ominous. Specs piling on an oil bull will pretty much destroy the US economy.

There are many risks in the US and overseas building against the economy: political, F/X and current account imbalances, unserviceable debt, deflating asset bubbles, inflation in energy producing states -- including China which exports coal in the form of consumer goods -- and deteriorating environment. The risk that is front and center is the new oil bubble. Unlike the PM bubbles, oil is used wasted by every person in the world every day. The food you eat is really petroleum, shipped by petroleum, held in stores and shops built with petroleum, taken to your home by petroleum. There is no escape from the risk.

Oil price rise allocates funds from other presumably remunerative uses. The high prices starve other activities. This is why high prices are self- limiting and deflationary. Funds directed toward fuel are directed away from wages, housing, manufacturing, benefits and other economic interests.

It's going to be ugly, folks.

Tue, 12/07/2010 - 11:56 | 785626 samsara
samsara's picture

Thanks so much for posting that Steve.  Always loved your posts on theOilDrum.  

Listen to what he is saying folks.  It's how it really works.

Oil is like a wall to wall VAT tax.  Applied at EVERY step along the way.

(jc in Richmond)

Tue, 12/07/2010 - 10:44 | 785333 NewThor
NewThor's picture

Ben "I can top Nero!" Bernanke's plan is working!

Dow 20,000 by Valentines Day, 2011!

Tue, 12/07/2010 - 10:46 | 785340 Rider
Rider's picture

The Bernank should be proud.

Tue, 12/07/2010 - 10:47 | 785344 steve from virginia
steve from virginia's picture

PS, gold is a currency trap/bubble, too. Be careful. A lot of people are going to lose a lot of money on gold.

Tue, 12/07/2010 - 10:56 | 785378 pazmaker
pazmaker's picture

How so Steve?   How about giving us a thought out logical explanation just like you did on Oil?


Tue, 12/07/2010 - 12:36 | 785857 steve from virginia
steve from virginia's picture


There is a small (and diminishing) amount of physical gold in the markets (bullion/coins/jewelry) at any given time. Superimposed on this physical market is an immense and growing 'paper gold' market of futures contracts, options on futures, gold mining stocks, EFT's, warrants, forwards, leases, etc. While it is hard to say how large the paper gold market is relative to physical it is massive.

Many of these paper derivatives are outright frauds. The rest are not as blatant, merely Ponzi schemes.

Trust me when I say there is a lot more paper than physical, this is collateralized by physical held in institutions. All that paper represents putatively valid claims against the physical. As you are certainly aware, the institutions are better positioned to perfect their claims against that physical and to do so at the expense of individuals.

That is why I tell peeps over and over to hold your own physical gold, no paper gold.

The markets are totally lopsided with (unlimited) demand against shrinking supply. Sellers have been bought out of physical markets to the degree that it is more profitable for them to hold or lease rather than to sell. When this happens it is generally the market/exchanges themselves become the counterparties to increasing paper long positions. The exchanges have massive and growing short positions as a consequence; these are settled with more paper with the settlements being pyramided increasing the short leverage exponentially.

Gold is self- marketed as an asset that never loses value like real estate was in the early oughts. Once the marginal gold buyer has entered the market OR some outside force demands margin, the market imbalance swings 180 degrees. The massive short holder now becomes the only buyer for paper gold.

Chances are, the time to sell is when you HAVE to sell or be sold out.

Guess what? That ex- short position- now only gold/silver buyer on planet Earth is Goldman- Sachs or JP Morgan- Chase! Sorry about your gold trade, dude!

BTW, Max Keiser's silver short squeeze against JPM is futile; the bank can borrow unlimited amounts of 'paper silver' from the Fed. It's the paper positions that hold the gold/silver markets hostage even as they are levers used to pump the prices. This is what people don't seem to recognize. Paper gold derivatives are driving PM prices the same way mortgage- backed securities drove real estate prices five years ago.

It's the same people, doing the same thing!

Paper gold instability is why the PM market declined in 2008 as the exchange's banks raped their paper gold customers who had to dump physical to make margin. They had to sell on a market to buyers who had lost billions in other Wall Street Ponzis or they had to surrender margin back to the exchange's banks.

Gold and silver are the Ponzi schemes of the moment. Yes, you can make money if you are nimble. People DID get 20% returns from Bernie Madoff. But ... your physical gold position is held hostage by bank- and insurance company paper gold positions and by lopsided markets.

As for monetary gold: you are living the reason why gold will never be money! If the dollar was gold there would be none in circulation. Gold has always been hoarded as it is right now. That is why 'paper gold' exists in the first place! Think about it! Gold is to money as paper- or fiat gold is to fiat money.

When the oil price spike crashes the physical economy it will crash the 'gold money (paper gold) market at the same time. For those who are insightful it will be a demonstration of gold currency and gold- backed 'paper gold money' in action.

Finally, the US dollar is a defacto hard currency backed informally by crude oil. The upper bound or the price level in dollars where the economy stalls/crashes fixes the dollar/crude relationship. That is, the point where the dollar cannot lose any more value is measured by crude oil.

This 'money' value cannot be determined by gold or silver because the only markets for these elements are fiat derivatives: paper gold or paper silver which are no less fiat than paper dollars. Oil is in common use by all while gold is held only by a few and of that few most gold is held by institutions such as the Treasury, central banks and a few large commercial and bullion banks.

Those are your adversaries/counterparties. Be careful!

Tue, 12/07/2010 - 12:56 | 785932 pazmaker
pazmaker's picture

Thanks for replying Steve!

  This is very interesting reading, constructive and well thought out.  I would like to see a response from someone who may disagree about gold with valid points supporting their thoughts as well.

Tue, 12/07/2010 - 14:42 | 786374 Citxmech
Citxmech's picture

"This 'money' value cannot be determined by gold or silver because the only markets for these elements are fiat derivatives..." 

Thanks for two great posts Steve.  The above statement, however, is the one assertion that I believe will change in the not-too-distant future.

At some point, I think, folks are going to start paying attention to oil priced in gold, and real estate priced in gold.

While the POO/Au could be traded in paper terms at the sovereign level [one which could have many advantages in a world-hyper-inflationary scenario], one of the implications of peak oil is a trend toward economic localization. 

I anticipate a time where land can and will be easily purchased/sold with physical gold as the medium of exchange.



Tue, 12/07/2010 - 11:17 | 785436 CrashisOptimistic
CrashisOptimistic's picture

Oh, hell.  Let me just do this here all in one place before the morons gravitate.

Malthus was wrong!

There's plenty of oil; the only problem we have is US left wing environmentalists won't let us get it. (they wave away any note that no environmentalists restrict drilling in Brazil, but they are still offshore in 10s of thousands of feet of water).

This is all BS manipulation by . . . wait for it . . . evil speculators.

The Russians have been producing abiotic oil for decades and it is infinite because it comes up from the center of the earth.  Or maybe it's conjured by witchcraft.  Doesn't matter.  All that matters is it is infinite.  The only reason we don't do it is evil right wing commie haters won't let us work with them

Oil doesn't matter.  We'll just substitute Everready batteries.

We will come up with some innovation and solve the problem; we always have.

The Bakken!  The Bakken!  It has centuries of oil in it!  Billions upon billions of barrels! (which cannot be extracted, ever, faster than maybe a million bpd.  If you extract anything slow enough it will last centuries)

There you go, all in one place, your own convenient supply of idiotic reasons to believe you will survive oil production insufficiency.





Tue, 12/07/2010 - 11:42 | 785561 samsara
samsara's picture

Perfect.  Thanks for saving them time.

(You forgot the plug for SwitchGrass :-)   )

Tue, 12/07/2010 - 11:14 | 785441 Zombies On Toast
Zombies On Toast's picture

Can someone explain to me how the price of oil can keep going up but the cost of gasoline here in Denver hasn't? It is $2.54 across the street from where I work. It was $2.69 at one point maybe 6 weeks ago and hasn't been higher, but recently it actually came down.

Tue, 12/07/2010 - 11:23 | 785480 SheepDog-One
SheepDog-One's picture

Well I live in Boulder, premium is $3.05 today, diesel is $3.42.

Tue, 12/07/2010 - 11:49 | 785601 woolly mammoth
woolly mammoth's picture

Buffs should fare well in the Pac 12. I held up a silver quarter yesterday and told a fella this is worth $5, he didn't believe me. Guess I shouldn't look forward to to many more college football seasons.

Tue, 12/07/2010 - 11:21 | 785459 CrashisOptimistic
CrashisOptimistic's picture

A barrel of oil is 42 gallons.  There is a gallon or two of refining expansion.  Call it 43 gallons.  $90/43 = $2.09.  Plus taxes.  Plus transport.  Plus profit.

Someone is losing money on your gasoline buys.  Maybe the clerk at the store put up the wrong number.  It won't last.

Tue, 12/07/2010 - 11:26 | 785490 americanspirit
americanspirit's picture

But - you can't eat it! Or can you? Toss a few Gulf shrimp on the barbie and stand back!

Tue, 12/07/2010 - 11:39 | 785548 CrashisOptimistic
CrashisOptimistic's picture

Actually . . . oil is food.

Unconventional drillers are buying up water rights from farmers to use in their drilling process.

Tue, 12/07/2010 - 13:55 | 786186 cougar_w
cougar_w's picture

I read once that anything over $80 nukes the economy. That sounds about right to me, given how gas responds to the price of WTI.

Gas (it's just one data point I know) has gone up about 20 cents in the last month or so, at $3.15/gal in my neck of the woods. I would say that $3.50 would be really bad for people here, who use a lot of the stuff. $4 is the end of their world.

Getting there. Slowly. Boiling the frog.

Tue, 12/07/2010 - 16:41 | 786811 skepsis101
skepsis101's picture

Re: Steve from Virginia,

Question: regarding the risk of gold in the present environment, are your concerns specifically with "paper" gold, or do they apply equally to physical?  If so, are you suggesting that given the inevitable universal recognition of the impact of peak oil and the subsequent brake/break on an ever expanding global economy, that once oil reaches its "true" dollar price, gold becomes anomalous? Hence, any historical metric of a oil/gold ratio which has been generally recognized as approximately 15/1 (barrels/once) ceases to be of consequence, and there forward loses any significance as a measure of value?  And if this is so, is the argument that 3,000 years of history are turned on its head, and that access to energy resources alone becomes the only metric for value?

Please pardon my naivete in advance.  Though I've monitored Zerohedge for more than 22 months now, my lifelong experiences are as far from that of the obvious trading consciousness of the vast majority of commenters here as you could imagine, of that I am absolutely certain. Nonetheless, it, and all of you, have made an extraordinary difference in my life and have saved me from obliviousness in retirement.  My hat is off to all of you.

Tue, 12/07/2010 - 18:31 | 787216 Cdad
Cdad's picture

Ok...let's close out this bad boy.  Oil is officially priced for stupid.  There is nothing in the supply/demand calc that puts it over $90, there is no seasonal reason for it to be priced here, and there is nothing geopolitical that justifies this price.

Oil hitting these prices today is the effect of the criminal syndicate known Wall Street using futures contracts to speculate, and the effect is that said criminal syndicate has taken your money...AGAIN!  You give it up at the pump, XOM and the like gather it in, and with profits they hire fund....guess?  Speculating....

Oil is priced for stupid.  Sell it.

Cdad was here...

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