As the AAA chart [11]below shows, the gasoline price is now higher than it was a year ago, and has been for the past two weeks, which also automatically means it is the highest it has even been in history (naturally, the implications of this record high gasoline tax on the cash-strapped US consumer are painfully clear).
[12]
So with gas prices once again "an issue", it is time to trot out the worn out scapegoating usual suspects - those evil, evil hedge funds, whom everyone is perfectly happy to blame. Or at least pest exterminators and cab drivers. From Reuters [13]:
At a filling station in Midtown New York last week, several people were prepared to blame traders on Wall Street as they paid more than $4 per gallon to fill up their cars.
"It really is not supply and demand. It's definitely speculation," said John Keegan, an exterminator with pest control company Terminate Control, who was filling up his van. A cab driver said he was convinced the price would be just $1 a gallon if the government "stopped Wall Street trading oil."
Of course, what the exterminator and cab driver fail to understand, or just are happy to ignore, is that the same hedge funds that merely allocate the Fed's virtually "open-ended" excess liquidity into stocks, which are now beyond furiously overvalued by any benchmark, and which as we explained over the weekend are trading at a higher forward P/E multiple now than they were in 2007, have increasingly few choices where to park their money, and even with the threat of the Margin Hiker in Chief sending CME margins to 100% across the energy space, sooner or later, those $85 billion in fresh monthly liquidity will go into Brent, WTI, and of course, gas.
However, while everyone is happy when stocks surge courtesy of what little 401(k)'s are left, , very few benefit from soaring gas prices. Which is why the exact same mechanic that has sent the Russell 2000 to all time highs, is responsible for a record high gas price for this day in February. But apparently the logic is too complex, and blaming Bernanke for the same outcome as surging stocks, is a little too convoluted for most. Or at least for one pest exterminator and cab driver.
Ironically, the hedge fund against these accusations makes far more sense, than the blind and idiotic scapegoating of Bernanke's ruinous policies on those who merely serve as a the liquidity conduit implementing Bernanke's policies:
Hedge funds say they are just an easy target and blaming them ignores global reasons for higher oil prices and the benefits they have brought to the U.S. economy.
"Consumers shouldn't complain," said a London-based manager of a commodity hedge fund who declined to be named. "Sustained higher prices led to a massive increase in U.S. production and decreased U.S. demand, which is helping the economy in a big way."
Yet none of this matters to the Micro Manager in Chief who wants his Dow 32,000 cake as well as eating $0.00 premium too.
The way things are going, Americans could spend more on gasoline this year than ever before. The average U.S. household is already spending nearly $3,000 a year on gasoline expenditures, according to a recent government estimate.
That could become a political hot potato for President Barack Obama's administration ahead of the summer driving season, which officially starts on the Memorial Day holiday weekend at the end of May.
Plans by U.S. regulators to curb the number of oil contracts hedge funds can hold are currently on appeal. A judge ruled last year they had failed to demonstrate position limits are necessary because there was not enough evidence linking speculation to big price swings.
"Motorists are paying more for gasoline at this time of year than they've ever paid," said AAA spokesman Michael Green. The average price could rise as high as $3.73 a gallon in May of this year, the U.S. Energy Information Administration said on Tuesday.
And while it was out of control, runaway Brent and gasoline that forced the Lehman collapse in 2008, and with it set off the biggest deflationary episode in 80 years, this time the fuse is far shorter, and will likely come out of China, which when it comes back from holiday and preps for the spring and summer "growth" season, will realize just how hot all the inbound money truly is, send Chinese inflation spiking and just as in the spring of 2011, spoil the party for the "developed world's" central banks once the assorted riots start breaking out as they did in the late spring of 2011, leading to the ECB hike, and various other immediate liquidity tightening processes. Because this will not be different.
But in the meantime, let's all cast the blame for soaring gas prices with the hedge funds, and not where it truly resides: Ben Bernanke, and an administration whose only goal is to push the stock market higher irrelevant of how the underlying economy is actually doing.