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How '125' Became The Most Important Number For The US Economy

Tyler Durden's picture




 

The unending efforts of our glorious central-banking planners to raise asset prices and encourage 'animal spirits' through the trickle-down of unicorn-tears via the wealth effect have side-effects. Unintended consequences of 'leaking liquidity' finding its way into hard assets and 'things that have relatively limited supply' have stalled hopes of a stimulus in China (food inflation) and caused refis to mysteriously lag on misplaced future rate expectations in the US (ZIRP). The biggest 'problem' the central-bankers face, however, is energy prices. The liquidity surges directly impact the price of oil (which is already under pressure from the ever-igniting fears of Middle-East flare-ups). Critically, as Goldman notes, once the price of Brent crude reaches $125, global economic growth becomes challenged and ultimately makes QE self-defeating. This means Bernanke and his cohorts are threading an ever-narrowing needle as crude's price range remains high enough to motivate supply, but not so high as to undermine the global economic recovery - and with a tight physical market, any disruption or 'anomaly' will be hard to jawbone us back from (SPR rumors aside).

 

Brent crude oil prices over $125/bbl have been followed by a swift deterioration in economic growth.

Brent front month price in $/bbl (lhs);
Goldman Sachs US Economics MAP Index (rhs)

 

Chart: Goldman Sachs

 

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Thu, 10/18/2012 - 12:02 | 2901243 knukles
knukles's picture

I thought it was 420 or 714

Thu, 10/18/2012 - 12:39 | 2901387 vast-dom
vast-dom's picture

3 words: Straits of Hormuz

Thu, 10/18/2012 - 15:21 | 2902198 sullymandias
sullymandias's picture

five cubed of course

Thu, 10/18/2012 - 12:03 | 2901251 digitlman
digitlman's picture

Squeeze play, bitchez!

Thu, 10/18/2012 - 12:03 | 2901252 GOSPLAN HERO
GOSPLAN HERO's picture

Public School Teacher Arrested --
New York, New York

A public school teacher was arrested today at John F. Kennedy International Airport as he attempted to board a flight to Los Angeles , where he was planning on attending a conference of international mathematics educators. The teacher was arrested because he was in possession of a ruler, a protractor, a compass, a slide-rule and a calculator.

At a morning press conference, Attorney General Eric Holder said he believes the man is a member of the notorious Al-Gebra movement. He did not identify the man, who has been charged by the FBI with carrying weapons of math instruction.

"Al-Gebra is a problem for us." the Attorney General said, "They derive solutions by means and extremes, and sometimes go off on tangents in search of absolute values. They use secret code names like 'X' and 'Y' and refer to themselves as 'unknowns.' However, we have determined that they belong to a common denominator of the axis of medieval with coordinates in every country. As the Greek philanderer Isosceles used to say, 'There are 3 sides to every triangle.'"

When asked to comment on the arrest, President Obama said, "If God had wanted us to have better weapons of math instruction, he would have given us more fingers and toes." White House aides told reporters they could not recall a more intelligent or profound statement by the President. It is believed that another Nobel Prize will follow.

Thu, 10/18/2012 - 12:04 | 2901258 digitlman
digitlman's picture

I +1 cuz is funny.

Thu, 10/18/2012 - 12:10 | 2901268 LongSoupLine
LongSoupLine's picture

Holder further said, "He will be treated as an international terrorist, because math is foreign to me."

Thu, 10/18/2012 - 12:23 | 2901324 onebir
onebir's picture

That's iSoscles.

Lawsuit in post.

Yours

AAPLawyers

Thu, 10/18/2012 - 12:05 | 2901253 Jlmadyson
Jlmadyson's picture

Remember when it was $147 at $4-5.

Good ole days. $100 is the new $150 for gas.

Real inflation right in front of your face.

Hey if are on SS this year though you get a grand 1.7% increase.

Benny Bernake looking out for the folks.

Thu, 10/18/2012 - 12:05 | 2901265 DoChenRollingBearing
DoChenRollingBearing's picture

CNBC's wild man Jim Cramer does his "Mad Money" show tonight from Ohio, where it looks like he will discuss how Ohio is helping lead the USA back to becoming a manufacturing powerhouse.  He will be visiting US bearing manufacturer TIMKEN (ticker TKR), America's only world-class rolling bearing manufacturer.

We do NOT buy from Timken, as they will NOT SELL to us in Peru!  So, "we dance with who brung us", Korea!  Here is my quick take and snapshot re Timken:

http://tinyurl.com/8rlanuu

Thu, 10/18/2012 - 13:09 | 2901574 DoChenRollingBearing
DoChenRollingBearing's picture

I see that at my article that freecharts.com changes the charts I posted...  You can also get Timken's (ticker TKR) daily and weekly charts at www.stockcharts.com.

I did not put up charts from stockcharts because they do not (easily anyway) allow non-subscribers to copy & paste such charts.

Thu, 10/18/2012 - 15:25 | 2902211 Chuck Walla
Chuck Walla's picture

Kiss of death for Timken. Cramer is the Grim Peeper.

 

FORWARD SOVIET!

Thu, 10/18/2012 - 12:06 | 2901269 timbo_em
timbo_em's picture

When I read 125 I initially thought about official debt/GDP (imho a stupid measure yet often used by the MSM). But damn I should pay more attention to the oil market.

Thu, 10/18/2012 - 12:07 | 2901270 Inthemix96
Inthemix96's picture

I could have sworn the number was:-

16,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000, or whatever the bernank says next.

Can you lot remember the days when 100 million meant a lot?

Thu, 10/18/2012 - 12:09 | 2901275 rtalcott
rtalcott's picture

 

http://apnews.myway.com//article/20121018/DA202AD01.html

Official proposes bullet tax to curb Chicago crime

 

 Email this Story

Oct 18, 11:50 AM (ET)

By DON BABWIN
(AP) In this Jan. 26, 2012 file photo, Cook County Board President Toni Preckwinkle speaks at a...
Full Image


CHICAGO (AP) - As Chicago struggles to quell gang violence that has contributed to a jump in homicides, a top elected official wants to tax the sale of every bullet and firearm - an effort even she acknowledges could spark a legal challenge.

Cook County Board President Toni Preckwinkle will submit a budget proposal Thursday that calls for a tax of a nickel for each bullet and $25 for each firearm sold in the nation's second-largest county, which encompasses Chicago.

Thu, 10/18/2012 - 12:14 | 2901290 LongSoupLine
LongSoupLine's picture

Finally!...a way to collect revenue on murder...

 

oh, wait...the mob and defense sector has been doing that for eons.

Thu, 10/18/2012 - 15:26 | 2902218 Chuck Walla
Chuck Walla's picture

People don't kill people, bullets do. And we ain't responsble for the social conditons of lead...

FROWARD SOVIET!

Thu, 10/18/2012 - 18:29 | 2902754 ersatzteil
ersatzteil's picture

They'll just charge it to EBT instead of paying cash.

Thu, 10/18/2012 - 12:14 | 2901286 onlooker
onlooker's picture

 

Ignored is Saudi.  Is it just a matter of time?

Thu, 10/18/2012 - 12:14 | 2901289 news printer
news printer's picture

Jobless Man sets himself on fire in Italy

A jobless man 55 years old, has set himself on fire outside the Presidential Palace in Italy - Rome - economic problems.

http://www.section9department17.com/1/post/2012/10/jobless-man-sets-hims...

Thu, 10/18/2012 - 12:26 | 2901340 Manipulism
Manipulism's picture

He should first set the Palace on fire.
This idiots waste their lives for nothing.
No creativity.

Thu, 10/18/2012 - 12:17 | 2901304 disabledvet
disabledvet's picture

it is the REACTION to high oil prices GODDAMN SACHS...not the high oil prices themselves that cause the problems you idiots. THE OIL MARKET IS TINY compared to say..."the juice"...or..."suddenly and out of nowhere" the natural gas market. (which only exists in the USA btw. for now at least. that is a HUGE market. shall i even begin the discussion of "the data market"?!!) the Fed Chairman THINKS he understands this...but by undermining confidence in the dollar he is creating a HOARDING mentality...NOT just inflation...which obviously includes MONEY ITSELF. This is placing an enormous DEFAULT RISK not among you and me (which always exists of course as We the People default all the time) but among STATE actors now. as earnings season winds down "with much less...but still more than expected"...IS IT WALL STREET THAT IS PUNISHED? Doesn't look so to me. Equity prices have stayed firm throughout. So who is it then? Isn't it obvious who gets crushed when incomes and entire businesses get annihilated? BIG GOVERNMENT? NO? YOU'RE TOO BIG TO NOTICE? Wow...there's a surprise. No humble pie eating there either. And trust...constantly harping on "we have the reserve currency! we have the reserve currency" does not make it so! http://www.youtube.com/watch?v=bXq3dytL6ZA&feature=fvwrel

Thu, 10/18/2012 - 12:18 | 2901308 venturen
venturen's picture

Germany From January 1923 to December 1923, not even a full year, inflation is running 23,369,685,978% per year. That same gallon of gasoline costs 136,221,899,568,675 dollars.
 

So we have a ways to go.

Thu, 10/18/2012 - 12:23 | 2901311 Cult_of_Reason
Cult_of_Reason's picture

It looks more like $110 is the threshold ("The Most Important Number For The US Economy") rather than $125 (Economic MAP rolls over when brent hits $110, and at $125 the index turns negative)

Thu, 10/18/2012 - 12:25 | 2901332 Winston Churchill
Winston Churchill's picture

Agreed.

125 is just the pain threshold for bankers.

Have to cut down on  hookers and blow at 125.

Thu, 10/18/2012 - 12:23 | 2901322 ekm
ekm's picture

That is extremely misleading.

Based on what I've read, if Brent goes above $90 for a sustained period, recession is guaranteed 6 to 18 months down the road.


 

Thu, 10/18/2012 - 12:25 | 2901335 q99x2
q99x2's picture

Goldman called for a lower trend in Oil today so buy buy buy. Its going to go through the roof.

Maybe if the US turns the Bernank over to the Chinese they won't fire any more missles off the coast of California.

Thu, 10/18/2012 - 12:26 | 2901343 FeralSerf
FeralSerf's picture

Does this mean it will cost me more than one pre-1965 quarter for a gallon of gasoline?

Thu, 10/18/2012 - 12:41 | 2901401 sdmjake
sdmjake's picture

Still just one qtr... but its value is going up!

The choice is yours: paper, plastic or metal?

Thu, 10/18/2012 - 12:29 | 2901354 orangegeek
orangegeek's picture

Nice retracement from July to current.  Next move is down.

Thu, 10/18/2012 - 12:34 | 2901372 NewWorldOrange
NewWorldOrange's picture

The notion that $125 a barrel is some kind of magic number is a fallacy. It's not a matter of on/off but of degree. The higher the price goes, the greater the degree to which economies dependent on oil (according to the degree of that dependency) will slow. The chart depicts a few times when economic growth fell off, which happened to have occured after oil hit $125. So what. "After this therefore because of this", especially when the variable is so complex and the data points so few, is historicism of absurd proportions and is the kind of argument used by Keynesians and other assorted economic dimwits, not of the Austrian School or any other rationale thought process. This kind of nonsense is unworty of ZH.

Thu, 10/18/2012 - 12:37 | 2901378 I am a Man I am...
I am a Man I am Forty's picture

Where's Reggie, Google just took a dump!!!

Thu, 10/18/2012 - 12:39 | 2901388 Calidreaming
Calidreaming's picture

I just got Googled.  Damn  .  wonder why they released in middle of the day.   Of course its on a day when I am not short ES

Thu, 10/18/2012 - 12:45 | 2901425 onebir
onebir's picture

Look at the MAP index. Isn't that supposed to be economic surprises? How come there's massive serial correlation? Surprises aren't serially correlated.. => The forecasters know SFA. => This is BS, & probably part of GS misinformation (along with today's lowered Brent target) to ease clients out of long oil positions at current prices.

=> Long oil & watch the Strait of Hormuz (etc).

Thu, 10/18/2012 - 17:13 | 2902569 SelfGov
SelfGov's picture

Riding the bumpy plateau.

Thu, 10/18/2012 - 20:00 | 2902992 steve from virginia
steve from virginia's picture

 

Goldman-Sachs can blow me; they are only 3 years behind the analysis:

 

The backdrop of economic development since 1973 has been uncertain energy availability. To hedge against this, Wall Street invented structured finance and securitization as a mechanism to utilize investor and bank credit to inflate assets so as to provide wealth sufficient to enable participants with collateral to afford energy and energy saturated goods and services at any price.

 

This experiment was supported by both the US government and by the Federal Reserve – with extraordinarily low interest rates for almost 20 years! While structured finance and securitization did succeed for awhile to create and sustain asset bubbles, the overall cost of the bubbles eventually exceeded both collateral worth and the ability of participants to support them.

 

The desperate efforts of central banks and governments both here and abroad to revive the asset bubble mechanism is the clearest evidence yet that the central issue of economic malfunction is not credit quality or credit oversupply – problems that would be eliminated by liquidations and writeoffs – but the energy constraints. Inflating credit and asset bubbles allows the creation of (imaginary) asset wealth in amounts required to hedge against the expected increases in energy costs.

 

http://www.economic-undertow.com/2009/07/01/the-peak-oil-discussion-is-o...

Fri, 10/19/2012 - 00:38 | 2903454 toomanyfakecons...
toomanyfakeconservatives's picture

Wake me up when the 100+ nation BRICs alliance dumps the dollar from international trade and enforces trillion-dollar liens on the FED and BIS.

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