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Guest Post: The Straw That Potentially Breaks The Camels Back

Tyler Durden's picture





 

Submitted by Lance Roberts of StreetTalk Advisors

The Straw That Potentially Breaks The Camels Back

oil-price-gasoline-022212Back in December I penned an article about the potential for gasoline prices to rise quickly to catch up with surging oil prices.  We said then "If we look at just the nominal price data going back to 1990 we can see that there is indeed a very high correlation between oil prices and gasoline prices.   While divergences from each other do occur on occassion those divergences tend not to last for very long with gasoline usually correcting towards the price of oil."   That is precisely what has happened since the near $3 per gallon of gasoline this summer, which was an effective $60 billion tax break for consumers during the much anticipated retail shopping season, to near $3.50 a gallon today.  That 16% rise in gasoline has now effectively wiped out the entire payroll tax cut being extended into 2012.

There has been a lot of media commentary as of late about the recovery in the economy.  The dangerous assumption being made here is that the recent upticks in the economic data have come primarily at the expense of inventory restocking and end of year buying of capital goods by businesses to lock in tax credits.  Extrapolating those bounces in the data well into the future can prove to be disappointing.  Yet this is exactly what the the President's current budget, which has been presented to Congress, has done.  That budget plans for 3% or stronger economic growth over the next 6 years.  This is a pretty lofty goal which considering last years growth was a paltry 1.7%.  However, in order to acheive a 3% plus growth rate the consumer is going to have to should 2.1% of that load through consumption. 

pce-foodandgas-wages-022212As we showed in our recent report on consumer spending and credit increases "...[The] recent increases in consumer debt are disturbing.  The rise in NOT about increasing consumption by buying more 'stuff' it is about just about being able to purchase the same amount of 'stuff' to maintain the current standard of living."  The rise in consumer credit is a function of the increases in the cost of food and energy on the consumer.  While the core consumer price index (ex food and energy) is tame at just over 2% the real impact to the American consumer is a combination of weakening incomes and rising food and energy costs as a percent of those incomes.  The chart shows the recent declines in wages and salaries versus the steady uptrend in food and energy costs as a percentage of wages and salaries.  The problem is the math - declining incomes + rising costs - lack of credit = weaker consumption and slower economic growth.

oil-price-contracts-022212There have been quite a few theories as of late about rising oil prices whether it is a potential war with Iran or seasonal demand.  While part of the issue is the supply and demand equation - that does not account for the recent price surge.  As the world central banks have turned on the liquidity pumps to support the Eurozone and the U.S. economy; the most logical place for that excess liquidty to go is into highly liquid, highly leveraged, commodity contracts.  The rising number, the second highest peak on record, of oil contracts outstanding continues to push prices higher.  In turn those higher prices draw more speculation into the market - so forth and so on.  That is - until it pops. 

This is good if you are investing in oil and gas related stocks - it is bad everywhere else.  As oil prices rise so do the input costs to businesses.  Those costs have to be passed onto the consumer.  Currently, the consumer can do little to offset those increases other than by decreasing consumption.  The decrease in consumption leads to lower profits for businesses who in turn become defensive.  Since businesses have already cut permanent labor to the bone - the impact to profitability will be immediate.  The longer that oil prices remain elevated while incomes decline the more likely it is that the economy, which is already extraordinarily weak, will slow more than expected.

With Europe slipping into a deeper recession, which in turn will effect domestic corporate profitability, combined with rising input costs it is only a function of time until something has to give.  While the world, and the markets, are currently focused on the daily soap opera of "As The Greeks Turn" it cold be something as innocuous as food and energy prices that becomes the final straw for this camel.

 


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Thu, 02/23/2012 - 01:22 | Link to Comment CrockettAlmanac.com
CrockettAlmanac.com's picture

I'd walk a mile for a Camel. Cheaper than driving.

Thu, 02/23/2012 - 01:43 | Link to Comment iDealMeat
iDealMeat's picture

If I were BP, I'd drill the Gulf dry, refine it in TX, fill my tankers with gas, and ride the current back to the E.U..

 

oh..  wait..   industry is already doing that??  ok, then.. never mind..

 

back to sleep sheep.  Feed buckets will be filled back up at midnight..

Thu, 02/23/2012 - 02:00 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

My father rode a camel; I drive a car; my son flies a jet airplane; his son will ride a camel.

-Middle Eastern Proverb

Thu, 02/23/2012 - 02:31 | Link to Comment 12ToothAssassin
12ToothAssassin's picture

Someone show me where I can get $3.50 gas PLEASE!

 

Its $4.28 at the cheap stations here.

Thu, 02/23/2012 - 02:42 | Link to Comment HungrySeagull
HungrySeagull's picture

Aint happening son.

Get ready for 5 and 6 dollar gas and higher.

Get work close to home, as in within walking distance. Drive when you must.

Spend when you must. Not want.

Thu, 02/23/2012 - 05:08 | Link to Comment economics1996
economics1996's picture

Israel wants to make sure Obummer does not get re-elected.

Thu, 02/23/2012 - 04:56 | Link to Comment ChrisFromMorningside
ChrisFromMorningside's picture

$5.89 at some Central Florida stations. $5+ in some desert communities in Southern California. $4.20+ throughout most of Los Angeles.

Thu, 02/23/2012 - 06:07 | Link to Comment Snidley Whipsnae
Snidley Whipsnae's picture

12ToothAssassin... From Gas Buddy here are the 5 states with highest average prices for gas...least expensive first...link here... http://gasbuddy.com/GB_Price_List.aspx

Note the most expensive city is Santa Barbara, Ca, with avg gas $4.227...

I don't know how often the Gas Buddy site is updated.

Oregon 3.802   Connecticut 3.890   New York 3.899   Alaska 3.952   California 4.169   Hawaii 4.203

 

Thu, 02/23/2012 - 07:27 | Link to Comment StormShadow
StormShadow's picture

Atlanta $3.58

Thu, 02/23/2012 - 08:09 | Link to Comment battle axe
battle axe's picture

NJ is always the cheapest, because that is were the refineries are....

Thu, 02/23/2012 - 08:43 | Link to Comment CPL
CPL's picture

You mean were as in past tense.  NJ refineries have been offline for "repairs" for a month.  Around 90% of the US refinery capacity is offline for "repairs".  With none of it coming back online.

 

http://www.csdecisions.com/2012/01/31/gasoline-prices-surge-as-n-j-refin...

 

It's effecting diesel production as well.  One of the reasons the Tar Sand oil mines and the Shale oil mines have been stopping production 3 days out of 7.

 

The main reason is there is simply nothing to refine available. 

 

#PeakSweetLightCrudeBitchez!! 

#PeakDieselAdditiveComponents!!!

 

5.01 canadian per gallon, which is around par for USD carry trade. right now in town.  If it makes you feel any better most of the refineries are offline in Canada as well for indefinate "repairs".  The UK only has two refineries operating.

 

 

Thu, 02/23/2012 - 10:59 | Link to Comment IrritableBowels
IrritableBowels's picture

Why the seemingly coordinated effort in slowing refining?

Thu, 02/23/2012 - 12:38 | Link to Comment azusgm
azusgm's picture

Heard that it is change-over time to the summer blend.

Thu, 02/23/2012 - 13:37 | Link to Comment CPL
CPL's picture

Because the refineries can't process the heavy oil into anything useful. Heavy crude is fairly dirty.  There just isn't an industrial process yet to make the Oil into anything useful, can't even be used for heating oil until it's refined.  Don't get me wrong, it'll burn, but if you put it in a furnace you'll have to replace the furance every season

 

It's Peak sweet light crude.

 

So, yes by all means, scoffing at Peak Oil is appropriate, ignoring all the low hanging fruit called sweet light crude.  Forget about.  It runs jets, tanks, planes, trains, power plants...everything.

Thu, 02/23/2012 - 13:16 | Link to Comment roadhazard
roadhazard's picture

"nothing to refine" = bullshit, son.

Thu, 02/23/2012 - 13:37 | Link to Comment CPL
CPL's picture

There isn't, until there is an industrially engineered process to refine heavy oil, the plants are idling doing nothing.

 

So understand this, you will pay ANYTHING for sweet light crude, because humans haven't got their shit together yet to process the heavy oil in any meaningful quanity.  Watch the pecking order this summer, you'll be very surprised that you aren't on the guest list with the rest of us for gas allowances.

 

Just thought I would give you a heads up.  Come July, unless you own a printing press, you won't be driving.  Either through shortages because military is first priority, then infrastructure, then the rest of us.

Thu, 02/23/2012 - 09:46 | Link to Comment Shizzmoney
Shizzmoney's picture

It's $3.60 here in MA; that is helped by the fact that we have a pretty extensive public transit system....but that's going up to as MBTA fares will be increased by 25-43% by July.

In a sense, I'm rooting for oil to go up to $5.  Shit, make it $6.  Fuck it, we need the pain, the American people need to wake up.....and I need to find me all of the anti-OWS/anti-Ron Paul people at my job who refused to listen to the warning signs of hyperinflation.

It's gonna be lulzy when people wake up in the morning to find gas at the pump worth more than an Big Mac Combo.

Thu, 02/23/2012 - 01:45 | Link to Comment non_anon
non_anon's picture

smoke a Camel with an open gas can full of gas in a closed space

edit: near empty can of gas for more fumes and less cost

Thu, 02/23/2012 - 04:28 | Link to Comment respect the cock
respect the cock's picture

I am officially in the market for a TDI.  Going to trade in my 4runner before it's too late.  

Fuck this bullshit! 

Thu, 02/23/2012 - 08:44 | Link to Comment CPL
CPL's picture

waaat!!

 

You can just put all that biodiesel that has been promised to replace oil....lol!!!

Thu, 02/23/2012 - 09:52 | Link to Comment catacl1sm
catacl1sm's picture

Get an 06 or earlier. The newer 'Clean' diesels won't handle high blends of biodiesel.

Thu, 02/23/2012 - 08:08 | Link to Comment battle axe
battle axe's picture

And just wait until Iran War starts. Good Times at the pump...

Thu, 02/23/2012 - 08:46 | Link to Comment CPL
CPL's picture

You mean the start of WW3.

Thu, 02/23/2012 - 09:54 | Link to Comment battle axe
battle axe's picture

Yup, everyone jump in the pool...

Thu, 02/23/2012 - 01:25 | Link to Comment devo
devo's picture

Great article. Nothing revolutionary, but spot on.

Thu, 02/23/2012 - 02:37 | Link to Comment LowProfile
LowProfile's picture

It's easy here to get wrapped up in nth degree hypothecation of 3rd order derivatives, abrogation of contract law, high frequency theiving, etc. and miss the simple point that:

They printed too much goddamn money, and now gasoline is too fuckin' expensive.

Thu, 02/23/2012 - 08:21 | Link to Comment engineertheeconomy
engineertheeconomy's picture

they promised to be good and stop printing themselves free money. right. THAT'S gonna happen. Gas will be $20/gal in no time

Thu, 02/23/2012 - 01:27 | Link to Comment AllThatGlitters
AllThatGlitters's picture

Heh.

Of course it is the money pump driving oil prices. 

Gold sees it, look at how it is still surgin:  http://www.pmbull.com/gold-price

The upcoming war with Iran / Syria (WWIII) is an added kicker for oil prices, which are now at a level that will virtually guarantee a collapse in the economy and equity prices, along with a currency collapse.  

What will come of it all?  That is the only speculation I'm interested in at this point.

 

Thu, 02/23/2012 - 01:39 | Link to Comment devo
devo's picture

What will come of it all?

Good question.

Answer: A massive crash and reboot with the least redistribution of wealth possible. i.e. they won't let average Americans holding gold (or other assets) win. Possible civil/class war from this.

Thu, 02/23/2012 - 02:39 | Link to Comment LowProfile
LowProfile's picture

...Possible?

Thu, 02/23/2012 - 05:35 | Link to Comment respect the cock
respect the cock's picture

Ridiculous...in my line of work...more chaos=more work...as long as home value assessments keep holding up...not likely!

Let's levitate some home values! 

Thu, 02/23/2012 - 08:29 | Link to Comment engineertheeconomy
engineertheeconomy's picture

home values depend on good jobs. jobs depend on bank loans and GAS.

so much for home values

Thu, 02/23/2012 - 09:52 | Link to Comment snowball777
snowball777's picture

but, if you don't have a job to drive to, and live in your 4-runner (bwahahaaa), the sky is the limit!

 

 

Thu, 02/23/2012 - 08:47 | Link to Comment CPL
CPL's picture

You read the news lately?

 

Thu, 02/23/2012 - 09:00 | Link to Comment Conchy Joe
Conchy Joe's picture

A great man once told me "there is profit in chaos" and there always is.

Whether or not you can profit depends on how quick you are and sometimes how low you are willing to go,,,,

 

Thu, 02/23/2012 - 04:36 | Link to Comment Non Passaran
Non Passaran's picture

Yeah right, WW 3...
Anyone who believes in it must be spending like a mofo and not "saving" money (for what?).

Thu, 02/23/2012 - 08:54 | Link to Comment CPL
CPL's picture

Iran is the last oil patch not occupied by the US.  India, Russia and China need that Oil, but not with US strings attached.

 

What do you think is going to happen?  Other large sovereign nations with troops that out number the entire population of England are going to just roll over?  Since there isn't enough oil to have a traditional ground battle, this time the cheapest way to do what needs to be done are with nuclear missles.  They are already in the silos and gased up. 

No training and hussling up an army.  Fire and forget.  If you think that the those running the show give a fiddlers fuck about you or I if we are caught in the cross fire on this nonsense.  You are completely deluded, you are meat, meat for the grinder.  A name to go on a wall and be forgotten with us all.

"on a long enough timeline the survival rate for everyone drops to zero."  <upper right hand corner>

Thu, 02/23/2012 - 11:06 | Link to Comment VisualCSharp
VisualCSharp's picture

Riiiiight, let's irradiate the very oil fields we want to take over.

That makes so much sense.

Thu, 02/23/2012 - 01:36 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

Well, the guy has a few interesting things to say, right or wrong.

That 16% rise in gasoline has now effectively wiped out the entire payroll tax cut being extended into 2012."

So what?  This happened in 2011, too.  Big oil spike, smashed first half GDP, destruction of oil demand, price fall and resultant GDP stimulus.  Not rocket science.  

But you notice that sequence, likely repeating, has nothing particularly to do with trading?  Refineries buy oil from the source (or a tanker) and have zero obligation to look at NYMEX prices during the negotiation.  The only market he cares about is what other refineries are offering.

"There have been quite a few theories as of late about rising oil prices whether it is a potential war with Iran or seasonal demand."

Seasonal demand?  A warm winter?  Expired unemployment that becomes disability benefits and moves in with parents so that only one household trip to the grocery store is req'd rather than 3.  That REDUCES oil demand.  Less driving.

Not a bad write up, and it's entirely understandable that someone whose livelihood is tied up in trading thinks trading defines the world, but for oil, that just doesn't stand up to recognition of 26 million new cars each year driving in China and the fact the Iranian oil minister today said he's outputing 2.X million bpd, which is his normal amount.  The sanctions did nothing because when there is nowhere else to get oil, you get it where you can.  

It won't be long before those sanctions get profoundly leaky as the embargo countries notice that the country next door is paying 0.9 Brent for a barrel from Iran and they are paying full Brent price or whatever the going rate is from Nigeria -- which is a lot more than 0.9 Brent.

 


Thu, 02/23/2012 - 02:35 | Link to Comment Manthong
Manthong's picture

Well, look at the bright side..

At least we don't have to worry about spilling any Canadian pipeline oil and polluting Nebraska.

 

Thu, 02/23/2012 - 06:35 | Link to Comment Snidley Whipsnae
Snidley Whipsnae's picture

CO... Think about the concept of 'oil embargo' in the context of oil tankers registered in many countries filling up in Iran and then putting to sea... Many oil tankers per day enter/exit the Persian Gulf.

Those tankers destinations that are exiting the Persian Gulf can be any port in the world with oil storage facilities.

Tankers can off load at a 'neutral' port and that same oil can then be loaded into another tanker headed for a port in France, Germany, or any other 'embargoed' port. Or, the Iranian oil may be refined and then reloaded into another tanker headed for who knows where.

The idea that some Iranian oil will not reach 'embargoed' European countries is silly... as is the concept that all Iranian oil is going to be tracked to it's final destination.

This little tit for tat game between Iran and the countries that have 'embargoed' Iranian oil is another Punch and Judy show for the pols in Iran and those that place embargoes on Iran. More pols drumming up popular support and reinforcing nationalism.

A shooting war and closure of the Straits of Hormuz is the real sword of Damocles. If central banks are striving for inflation that should do the trick.

 

 

 

Thu, 02/23/2012 - 09:04 | Link to Comment gookempucky
gookempucky's picture

Tankers can off load at a 'neutral' port and that same oil can then be loaded into another tanker headed for a port in France, Germany, or any other 'embargoed' port. Or, the Iranian oil may be refined and then reloaded into another tanker headed for who knows where.

Gave U a greener...Nice point wiplash- but offloading tanker to tanker wont happen--the cargoe will be re- brokered out of port with the same tanker holding the product--destination from public eye is unknown but it is known within the register. 

Thu, 02/23/2012 - 13:19 | Link to Comment roadhazard
roadhazard's picture

"...payroll tax cut wiped out".

It happens every time the Gov. throws the People a bone. Straight to Big Oil.

Thu, 02/23/2012 - 01:40 | Link to Comment devo
devo's picture

The payroll tax cut was probably wiped out by the average American's first two months of groceries. So, this gasoline situation is just further damage. The cheap credit/ZIRP driven corporate profits are next to fall, which is why we're seeing corporate tax reform action...

It's not rocket science. It just takes time to develop. House of cards, folks...

Thu, 02/23/2012 - 01:47 | Link to Comment spekulatn
spekulatn's picture

The spoken cliche fits, me thinks.

 

The math doesn't lie.

 

House of cards indeed, devo.

Thu, 02/23/2012 - 09:55 | Link to Comment snowball777
snowball777's picture

The dirty secret of capitalism is that corporations like the increased productivity / lowered labor costs of layoffs, but it's a cheap high.

Ask Mittens.

Thu, 02/23/2012 - 01:41 | Link to Comment Dingleberry
Dingleberry's picture

Ben's money printing is why oil is rising. Along with the interminable "Iranian crisis". 4 buck gas = re-recession.

Thu, 02/23/2012 - 01:44 | Link to Comment devo
devo's picture

Not sure the US ever came out of recession...

 

Thu, 02/23/2012 - 12:44 | Link to Comment Chumly
Chumly's picture

Future historical accounts will probably confirm your doubts.  We are living the BIG WHITE LIE - the consumate shell game of numbers (BLS stats, true GDP, etc) will be the sum of our discontent.

Thu, 02/23/2012 - 09:56 | Link to Comment snowball777
snowball777's picture

Your local evil speculators will try to leave a nice tip.

Thu, 02/23/2012 - 01:42 | Link to Comment Irish66
Irish66's picture

You have to read Jim Sinclairs post today. Truely scary.

http://www.jsmineset.com/

Thu, 02/23/2012 - 01:55 | Link to Comment spekulatn
spekulatn's picture

Thanks for sharing this link, Irish66. Much appreciated.

Thu, 02/23/2012 - 02:02 | Link to Comment devo
devo's picture

Good read, but he doesn't say which miners fit the criteria.

Thu, 02/23/2012 - 02:19 | Link to Comment Irish66
Irish66's picture

I've been following the Ellis Martin report on some of the miners.

PS> anybody see DEXIA huge hole and Credit Agricole

Thu, 02/23/2012 - 01:45 | Link to Comment Chariots of the Feds
Chariots of the Feds's picture

So you mean extend and pretend is almost finally over?!

Thu, 02/23/2012 - 01:46 | Link to Comment nah
nah's picture

its all backed by the government, till it aint

.

revolution in the middle east could bring to light how much energy there really is... this could suck more for everyone if theres like 300years worth of known proven reserves

.

it is like a war dude

Thu, 02/23/2012 - 08:41 | Link to Comment engineertheeconomy
engineertheeconomy's picture

dude the price of gas is all we need to know to be able to determine how much gas is left. fracking cost a gallon for every gallon it delivers. or are you going to tell me we are going to use solar panels to provide the energy for fracking oil...

Thu, 02/23/2012 - 01:53 | Link to Comment steve from virginia
steve from virginia's picture

 

 - There is rising demand in China/India, also in the Middle East and the rest of OPEC.

 - High price has already (helped) to do in the EU: the price of crude in 2011 was over $100 for the entire year, greater for longer period than 2008.

 - Price of crude in EU is higher now than in 2008.

 - Peak oil is problem along with insistence on automobile-driven 'growth' and the push for more consumption. Hello! We have reached a limit. The outcome is oil that is worth more than what can be done with it.

 - $120 crude has the same 'output' as $20 crude. The outcome of the higher price: all the infrastructure built assuming $20 crude is underwater!

 - The effect of higher price at the pumps is felt at business level as fuel is loss-leader for expensive consumption items such as cars and tract houses. A person can afford the high-priced gas but cannot afford the house. High fuel prices are doing in the house-building, auto and airline industries.

 - The idea of growth is foolish and obsolete. Any 'growth' anywhere is the trigger for growth-killing high oil prices. What is ominous is that high prices are now appearing when the world is in the grip of deflation/recession, that is, China and Japan are both looking at 'hard landings' from credit slowdowns.

 - Much of the current high crude 'mini-spike' is due to saber rattling on the part of Iran which needs a high price to afford to bring fuel to the market. The lifting cost for much of the new crudes today is + $100 per barrel. At the lower price, the replacement fuels are unavailable. All the cheaper varieties are long gone, burned up with nothing to show for it.

That is the real problem: burned up with nothing to show for it. Our toys do not pay for themselves requiring bottomless credit subsidies. We've painted ourselves into a corner: more credit cannot save us and the fuel is running out.

Thu, 02/23/2012 - 10:17 | Link to Comment Falcon15
Falcon15's picture

And now that Iran has been cut off/has cut off the EU, they are dependent upon their biggest customer, China. What does China do? They cut their imports of Iranian oil by 4%!  It is important to note that Iranian oil is only 11-15% of all of China's imported oil. They could cut that to 0% and that will drive the oil prices higher as long as sanctions on Iran are in place. Basic economics.  More demand on a limited supply drives pricing higher.

It is also important to note the Chinese have gone to the Saudis for that 4% of their oil imports, all in a very slick, very Chinese manuever. China wants Iranian oil, but they want it at their (China's) price and on their terms. Now Iran is facing the sanctions from the Eurozone and have imposed their own "reverse" sanctions on the UK and France.  China knows (as does everyone else) that exported oil is 80 % of Iran's economy...well, you get the picture. China is in a superior position at the barganing table.

 

Now all this BS about Saudi "cutting" their production has been overlooked. They are not really "cutting" their production, they are selling less to the west and more to the east. Another thing to remember, the Saudi crude reserves are a lie, and everyone in the Petrochem industry knows this. Once, when the Saudi's wanted to increase production, they just pumped it out of the ground faster. Now, they are drilling offshore, and exploring for additional fields.

 

Peak oil is not only real, the peak is past and we are on a downwards slide. Extraction costs of oil are rising, as extraction gets more difficult and time consuming. Oil shale and oil sands are not tenable, yet. Perhaps not ever. Gasoline and oil prices will remain volitile, until the tensions with Iran ease or there is a conclusion to the oncomming conflict with Iran. We stand at a fork in the road. What our "leaders" do from this point forward will tell you how much pain we will see and for how long.

Thu, 02/23/2012 - 11:11 | Link to Comment VisualCSharp
VisualCSharp's picture

:: applause ::

Excellent post, thanks!

Thu, 02/23/2012 - 02:05 | Link to Comment devo
devo's picture

There's one more bailout coming, folks.

We've seen the progression. Bailing out corporations and banks < Bailing out countries < (soon to be bailing out) continents (i.e. Europe). Next step is, obviously, "bailing out the world", which we all know is impossible. Each bailout takes from the working class and gives to the upper class. This continues until there's nothing left to give (aka steal). This is momentum--a force and spiral so large nothing can stop it. Take solice in knowing you're living in interesting times...an unborn Bernanke heir will one day study this period and maybe make the difficult choice next time.

Thu, 02/23/2012 - 02:08 | Link to Comment non_anon
Thu, 02/23/2012 - 02:09 | Link to Comment sgorem
sgorem's picture

excellent, very well written article with stated facts.  pretty fucking obvious, except to the prolitariat and sheeple, jeeeeez, not that i'm looking forward to it, but when is this turd going to hit the proverbial blade?

Thu, 02/23/2012 - 02:15 | Link to Comment devo
devo's picture

You'd think soon, but the IMF will Pac-Man some of this debt with SDRs and other digital accounting magic.

Thu, 02/23/2012 - 03:56 | Link to Comment putaipan
putaipan's picture

you kiddin' me? ... they're cashin' out those good ol' fashion paper

immaginary bonds from the past, and whatever lybian greek physical

they can get they're hands on-   the diggy-diggy debt is for you , me and

your grandchildren.

Thu, 02/23/2012 - 05:27 | Link to Comment ChrisFromMorningside
ChrisFromMorningside's picture

Not necessarily a bad thing. More time to prepare and accumulate the right asset classes, for those in the know. 

Thu, 02/23/2012 - 02:14 | Link to Comment azusgm
azusgm's picture

Can't wait for bunker fuel to go ballistic to help manufacturing to come home. We are even getting frozen food from China.

What makes the "manufacture in China" model work?

1) Cheap labor -- check

2) Much less regulation (including environmental) -- check

3) Cheap transportation -- Oops

This could be tremendously painful, but may be highly therapeutic as long as those idiots inside the Beltway don't tax or regulate away the opportunity.

Thu, 02/23/2012 - 02:29 | Link to Comment q99x2
q99x2's picture

'The rising number, the second highest peak on record, of oil contracts outstanding continues to push prices higher.  In turn those higher prices draw more speculation into the market - so forth and so on.  That is - until it pops. '

Sounds like there is some truth in Pelosi's rant. 

Thu, 02/23/2012 - 05:34 | Link to Comment ChrisFromMorningside
ChrisFromMorningside's picture

Pelosi is too stupid (or corrupt?) to understand that the speculators only exist thanks to Mr. Bernanke and his trillion dollar fire hose. 

Thu, 02/23/2012 - 02:43 | Link to Comment HungrySeagull
HungrySeagull's picture

I don't want to be in the city when it "Pops"

Thu, 02/23/2012 - 08:48 | Link to Comment engineertheeconomy
engineertheeconomy's picture

go to a gas station anywhere in this country and study the expression on peoples faces as they fill their tanks...

we're there

Thu, 02/23/2012 - 02:56 | Link to Comment Barmaher
Barmaher's picture

EVS bitches!

Thu, 02/23/2012 - 03:11 | Link to Comment Lester
Lester's picture

I find ALL the Gold Guys disingenuous if they tout mining stocks.

Unless you live across the road from a mine you own shares in, once collapse occurs (and it is already happening), your shares are just so much more "paper" even if you paid the $200 to get your share certs.

 

Ever see We Were Soldiers?  The scene where the radioman is frantic, "We have no lines!!!"  It will be the same way once capitulation occurs.  All you can retain and "own" will be the things you can watchover and defend, or put into some mode of transport and relocate with. 

The capitulation and chaos will occur to destroy forensic audit trails and evidence.  In the aftermath, if there is a market or publicly traded registry established within 20yrs, most of the records will be "lost" or unable to be validated. 

Anyway, collapse is lurking in the forest right at the fence-line and sizing everything up.  America has been intentionally setup and betrayed for collapse.  The intent is massacre, just as Col. Hal surmised. 

I wonder if Naomi Wolfe still thinks America is still at "that awkward stage" or have we progressed to the starting line yet?  Seems likely we'll know in a few weeks...

Thu, 02/23/2012 - 05:40 | Link to Comment ChrisFromMorningside
ChrisFromMorningside's picture

Who is Col. Hal? You lost me with your last two paragraphs. Otherwise, great post. The chaos and data-destruction is already happening. Look at MF Global and how it "lost" $1.2 billion and also "lost" all those transaction records in those chaotic final days of "trading." We can expect that writ large. 

Thu, 02/23/2012 - 03:11 | Link to Comment StychoKiller
StychoKiller's picture

[quote]

Currently, the consumer can do little to offset those increases other than by decreasing consumption.  The decrease in consumption leads to lower profits for businesses who in turn become defensive.  Since businesses have already cut permanent labor to the bone - the impact to profitability will be immediate.

[/quote]

Aside from that, Mrs. Lincoln, how was the play?

Thu, 02/23/2012 - 03:18 | Link to Comment HungrySeagull
HungrySeagull's picture

Businesses can stop running 24/7

They can do what we did back when I was a kid. Actually close at 6PM and reopen at 9 the next day.

Thu, 02/23/2012 - 04:18 | Link to Comment Sandmann
Sandmann's picture

Yes let Longshoremen take a long evening break so those Evergreen container ships can wait to be unloaded. It is probably the only way to restrict Chinese imports to the USA

Thu, 02/23/2012 - 06:35 | Link to Comment HungrySeagull
HungrySeagull's picture

I was thinking that Fast food is going 24/7 now.

Unnecessary.

Thu, 02/23/2012 - 04:17 | Link to Comment Sandmann
Sandmann's picture

Maybe it is time to restrict oil trading to people who actually take delivery of physicals rather than simply paper-traders. It is obvious that countries like Iran have their own trading desks and spike the market whenever they can, but with Barcap, Morgan Stanley, JP Morgan Chase and Goldman Sachs heavily into these markets on ICE Futures maybe Goldman and Barcap should actually be told they must take delivery of crude and deliver it to a refinery if they want to keep trading.

Thu, 02/23/2012 - 04:21 | Link to Comment IQ 101
IQ 101's picture

No shit? I learn so much each day, the price of petrol is related to the price of oil, who would have thought such a thing?

I guess, if you are a spoiled brat who grew up at the Mall and Library and went on to get a PHD at the local house of edjification, you might not have the tools to join the dot;s in the real world (I.E. 99% of people live there).

Can these people even tie their own shoe laces?

Do they wear Velcro strappers or Slip-on shoes?

It truly amazes me that these people do not understand that Joe Blow is not going to the store today because he has to stretch his money out until the end of the week/month/whatever.

No Joe Blow = No Economy,  They will not understand that untill Joe does not show up and they are truly screwed.

$6.00  gas in parts of  Florida today, ha.ha.

I see a ship.......... sinking. 

 

 

Thu, 02/23/2012 - 10:32 | Link to Comment LFMayor
LFMayor's picture

Well said, and an extra huzzah for farting within the sacred temple of greater learning and civilization.  Cities are a magical place, until the power goes out and the food stops trucking in.  Then they start looking like Sarajevo '93.

Thu, 02/23/2012 - 04:47 | Link to Comment ChrisFromMorningside
ChrisFromMorningside's picture

Everyone should have a bicycle, if only for "just in case." Even if you live in a rural area, a mountain bike can be a great asset in times like these. 

Thu, 02/23/2012 - 05:24 | Link to Comment reload
reload's picture

And Horses.

Thu, 02/23/2012 - 06:03 | Link to Comment falak pema
falak pema's picture

FrencH ex-president Chirac and DSK would agree with you. CHirac was known to sing and toast at his party stalwart gatherings:

"To our women, to our horses and to those who ride them!"

To which his colleagues used to reply jokingly :

"He is known to enjoy three minute rides including the shower afterwards!"

Can't change "the view from the top" in the Oligarchy world...

Austerity or no austerity, the Oligarchs will bunga bunga at our expense. 

The camel's back will stay "potentially" broken. The whole art of Oligarchy play is to make the "potential" period interminable, so that they can sing in the shower; before the next joy ride!

The gist of this article seems to imply those Oligarchs are going to spend more time in their shower and less time handling the reality of the world as its slips from their wet fingers. Law of diminishing returns oblige. Bunga Bunga will get extremely expensive and RISKY political pastime. Unless you are as rich as Berlusconi AND no longer in charge.

Thu, 02/23/2012 - 04:59 | Link to Comment bigwavedave
bigwavedave's picture

"If we look at just the nominal price data going back to 1990 we can see that there is indeed a very high correlation between oil prices and gasoline prices.   While divergences from each other do occur on occassion those divergences tend not to last for very long with gasoline usually correcting towards the price of oil."

 

Genius. Shirley?

Thu, 02/23/2012 - 05:04 | Link to Comment bigwavedave
bigwavedave's picture

Yanks and their gas... LOL. Where I live people dont really give a shit. We have a guy on a motorbike bring our fresh organic produce every morning at 11am. He is young enough to ride a bicycle to adjust. LOL 

Thu, 02/23/2012 - 05:43 | Link to Comment ChrisFromMorningside
ChrisFromMorningside's picture

Where do you live?

Thu, 02/23/2012 - 10:35 | Link to Comment LFMayor
LFMayor's picture

LOL... and one fine morning he and about 5 of his friends will grow weary of kowtowing for crumbs.  They'll roll your wrinkly lard ass out the front door and take turns "riding your horses and women", if it's worth the effort even.

I do hope the bicycle police get there in time to save you.

Thu, 02/23/2012 - 05:26 | Link to Comment Seb
Seb's picture

USA has the best deal ever: getting oil (energy) from all around the world in exchange for pieces of colored paper. It seems unbelievable not only that it worked for so long but that it still works.

Thu, 02/23/2012 - 05:45 | Link to Comment ChrisFromMorningside
ChrisFromMorningside's picture

Not just oil but also food, appliances, and pretty much everything else that provides for our standard-of-living.

Thu, 02/23/2012 - 10:36 | Link to Comment LFMayor
LFMayor's picture

It's great work if you can get it.

Thu, 02/23/2012 - 05:33 | Link to Comment Sandmann
Sandmann's picture

Not surprised demand is rising in China - it is SUBSIDISED as in Indonesia

One of the striking aspects of the IEA’s $312 billion figure is that more than a fifth of it comes from a single country: Iran. To get fuel prices as low as ten American cents a liter for gasoline (two cents for diesel) cost the government some $66 billion in 2009, according to the IEA: that’s $895 per person, or 20% of GDP. Saudi Arabia’s subsidy is actually higher per capita, but lower overall and under 10% of GDP; Uzbekistan’s is a remarkable 32% of GDP, but only $11 billion in total.

The outrageous subsidies are making Iranian industry inefficient as well as costing the government a bomb; the amount of energy used per unit of GDP in Iran has been rising by 1.6% a year since 1990, and the country spent about $5 billion in 2009 importing gasoline and diesel. Cognisant of the madness this all represents, the government has passed a new subsidy reform law aimed at moving the country to market-based prices by 2015, though, as the IEA notes, “the path to implementation is still unclear”. Among other things, driving up energy costs in a country that already has more than 10% inflation poses obvious problems.

Elsewhere there has already been some progress. The fall back of oil prices from their 2008 peak gave nations the possibility of reducing subsidies, which some, including China, took advantage of. Indeed while China’s subsidy is still quite large in absolute terms ($18 billion) consumers are paying 96% of market prices. Russian subsidies are falling; Indonesia hopes to get rid of its altogether by 2014.

http://www.economist.com/blogs/newsbook/2010/11/fossil-fuel_subsidies

Subsidies in China, India, Mexico and Indonesia keep Domestic Oil Prices Low Developing nations have recently been protesting oil price subsidies, saying that these are contributing to the growing global demand for oil and preventing prices from easing.

The largest oil price subsidies in the world are provided by the developing economies of China, India, Mexico and Indonesia. Analysts argue that these oil subsidies are responsible for the growing demand for fuel in the emerging economies. They say that countries that do not provide any subsidies, such as the US and the UK, have seen a downturn in demand over the past few years, while today China and India contribute significantly to the global demand for oil.


http://www.economywatch.com/world-industries/oil/oil-price-subsidies.html

http://www.instituteforenergyresearch.org/2011/11/23/iea-review-shows-ma...

Iran leads the world in fossil fuel consumption subsidies providing over $80 billion from its government resources in 2010 to lower the cost of fossil fuels to end-users in its country.[v] Of the $80.84 billion in fossil fuel consumption subsidies, over 50 percent covers oil, 32 percent funds natural gas, and the remainder (18 percent) goes towards electricity. Saudi Arabia is the second largest country subsidizing end-use fossil fuel prices, providing 70 percent of its over $43 billion in fossil fuel consumption subsidies to oil and 30 percent to electricity. Russia comes in third with over $39 billion in fossil fuel consumption subsidies, with natural gas getting 43 percent and electricity 57 percent of the total.  India and China rank fourth and fifth, respectively, both funding over $20 billion in fossil fuel consumption subsidies. Over 70 percent of India’s fossil fuel consumption subsidies of $22.29 billion in 2010 fund lower oil prices in India. China is one of the few countries that subsidize coal consumption. Of its $21.32 billion in fossil fuel consumption subsidies in 2010, electricity receives the most (54 percent), then oil (36 percent), and coal at 9 percent.

 


Thu, 02/23/2012 - 07:12 | Link to Comment FunkyOldGeezer
FunkyOldGeezer's picture

...and Americans still like their gas guzzlers. Gotta have that bus-sized 4X4 that does a fantastic 15 mpg.

 

If this wasn't so hilarious it would be tragic.

Thu, 02/23/2012 - 07:37 | Link to Comment boatwhiskers
boatwhiskers's picture

I choose to drive a safe large vehical

Thank you.

(Thats 12mpg btw.)

Thu, 02/23/2012 - 11:18 | Link to Comment VisualCSharp
VisualCSharp's picture

Yeah, sure, while you're driving that tank with terrible handling and a tendency to roll over, I'll be weaving in and out of traffic in complete control in my small sports coupe.

Oh yeah, and it gets 30 mpg too.

Idiot.

Thu, 02/23/2012 - 12:48 | Link to Comment noses
noses's picture

This is getting ridiculous. "large means safe" is just another idiotic cold war arms race. If you want to participate in that race you'll have to pay for it. I'm lacking the compassion for these people...

Thu, 02/23/2012 - 09:06 | Link to Comment Conchy Joe
Conchy Joe's picture

I work for a living and have to travel, sometimes on less than desirable roads.

That seems to separate me from most of my hybrid driving friends who could actually just take a bus to their mac filled cubicles.

Thu, 02/23/2012 - 07:46 | Link to Comment BlackVoid
BlackVoid's picture

Do not even think about gas stocks. Gas is cheap in the US, too cheap. Producers will be decimated soon.

Thu, 02/23/2012 - 08:00 | Link to Comment Heroic Couplet
Heroic Couplet's picture

and the way to discover whether speculators are driving up the cost of oil is to delist oil from the trading market, for a year or five years, and look at the results in the price of oil: does the price go down?

That's the only empirical way to know. That obviates whether Nancy Pelosi uses rose blush, or peach blush, or matte foundation, or what her trading her book has been. Take Nancy Pelosi out of the equation along with oil speculators making a living. Let oil speculators go unemployed for five years. Good riddance. The sun will continue to rise in the east.

Thu, 02/23/2012 - 08:20 | Link to Comment Pumpkin
Pumpkin's picture

This is just part of the show folks.  The Fed killing the Euro.  Which on the the surface looks like the Central Banks are at odds.  But, they are the same, I think and they want one currency.  I am not so sure that it is not the dollar though.

Thu, 02/23/2012 - 08:27 | Link to Comment eddiebe
eddiebe's picture

We need 20 dollar a gallon gas, maybe then people will finally demand public transport systems that run on alternate forms of energy.

Thu, 02/23/2012 - 08:50 | Link to Comment engineertheeconomy
engineertheeconomy's picture

in the old days we used to call that horse n buggy

Thu, 02/23/2012 - 10:13 | Link to Comment catacl1sm
catacl1sm's picture

Not as attractive as you might think. http://www.fathom.com/feature/121636/

Thu, 02/23/2012 - 11:20 | Link to Comment VisualCSharp
VisualCSharp's picture

More idiotic posts this morning, it seems.

Just what alternate forms of energy? Have you even thought about what the acquisition cost is for those alternate forms of energy? Many of them take more energy to acquire than they produce.

Thu, 02/23/2012 - 11:50 | Link to Comment noses
noses's picture

Wait a a few months and you'll get it there. While you are waiting you could as well order one of these.

Thu, 02/23/2012 - 08:58 | Link to Comment gookempucky
gookempucky's picture

The time for rebooting the system is upon us. Fuel goes over five on a national average and we are toast.

The system reminds me of a story about the man with a corkscrew dick.

This is the ballad of Joe McGlock
The man who was born with a corkscrew cock
He spent his life in the fatal hunt
For a lovely girl with a corkscrew cunt
He found the girl and then fell dead
For her corkscrew cunt had a left hand thread

We are SCREWED

Thu, 02/23/2012 - 09:31 | Link to Comment bugs_
bugs_'s picture

$4 gas means people run out of money before the end of the month.  the walmarts are empty the last half of the month.  the midnight wait for good funds to appear at the beginning of the month.

Thu, 02/23/2012 - 09:56 | Link to Comment bushwarcrime
bushwarcrime's picture

This article and all the comments within are so completely epic, it screams of the history of our time.  Good luck and be safe .

Thu, 02/23/2012 - 09:58 | Link to Comment DavidJ
DavidJ's picture

If gas hits an average of 4.25 a gallon in ths US in the next 2 years and stays there for more than 6 months we are definiety heading back into a recession.

Thu, 02/23/2012 - 10:39 | Link to Comment JohnKozac
JohnKozac's picture

Gas and coal are both underpriced right now compared to money supply expansion forces looks like to me. Whatever energy commodity lags behind usually catches up sooner or later.  These necessary items are not "sticky" like wages.

Thu, 02/23/2012 - 11:47 | Link to Comment daxtonbrown
daxtonbrown's picture

We are in a Biflationary Depression. Assets like homes will be crushed along with wages while we see inflationary spike in consumables like gasoline and food. All forseeable if you aren't a bong smoking Keynesian.  http://www.futurnamics.com/biflation.php

Thu, 02/23/2012 - 11:46 | Link to Comment noses
noses's picture

With all carbon-based materials storing fossil sunlight being severely underpriced right now (and yes, $3.5 per gallon is a sad joke compared to the cost of just releasing the stored energy from those substances, be it oil, coal or gas) I can not really understand this show of suffering and misery. Maybe a price of $5 will stop all those idiots driving their pick-ups and SUVs.

Additional bonus: Nobody will complain about my new bike.

 

Thu, 02/23/2012 - 12:44 | Link to Comment LFMayor
LFMayor's picture

I'm going to take a wild guess that you don't commute near Chicago, Minneappolis or Denver.

Fucking idiot.

Thu, 02/23/2012 - 12:57 | Link to Comment noses
noses's picture

Why are you complaining about getting what you always desired? People living and working in Tokyo would ROTFL about you.

It's not the scarce resources' fault they're running out while nobody was watching closely. It's neither their fault that you got yourself dependent on some medieval religious cracknuts (not that the USA wasn't run by just the same kind of lunatics) sitting on your lazy asses instead of introducing replacements while there was enough time. Now those nations who still have some oil got you by the throat (and balls) and even though they haven't started squeezing seriously yet you seem to dislike it. Tough luck. So who is the idiot right now?

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