PrintJune 10, 2009
Oily Paradox
Overnight and into this morning, oil futures surged to over 71 dollars a barrel. While this is nowhere near the crushing figure of 147 dollars reached last summer, it is more than double the lows of the winter. Moreover, the rise is more of a technical and emotional trading dynamic than a true market result.
As a counter intuivite result, the DOW and S&P futures indicated a higher opening for today's trading.
And with those surging oil prices and stock future prices, the CNBC Squawk on the Street host Mark Haines was bemoaning the markets' embrace of higher oil going into the summer driving season. He correctly noted the disconnect between the knee jerk reaction of traders -- that if oil is going up then surely there's more economic activity on the way and therefore a recovery -- and the sobering reality that energy prices were one of two major causes of this economic meltdown and it will certainly push us back down again if they rise high enough.
Then with those words barely out of his mouth, at precisely 9:30, the opening bell rang at the New York Stock Exchange. As is the exchange's custom, the organization du jour was at the main podium for the ceremonial "ringing of the bell."
Today's ceremonial bell ringing group? As if on cure, it was The NHRA. The National Hot Rod Association. Perfect for the day marking oil's highest price for the entire year, don't you think?
The sobering reality is this. Our weakened economy cannot stand another surge to 147 dollars a barrel. This barrel price of oil led to four dollar gas -- which led to skyrocketing grocery prices -- which led to extreme pressure on many households to fill their tanks to get to work and to buy food to eat -- which led to sub prime borrowers not paying mortgages -- which led to a collapse in housing prices -- and a meltdown of all the derivative investments based on mortgage backed securities -- which lead to the great stock market meltdown -- and led to 401K destruction -- which means families whose wealth was in their homes and in their 401Ks were now much less wealthy -- which led to consumer spending shutting down. And so it goes.
But make no mistake, the first domino was the oil price. Yes, much in the lending and investment and housing markets was over leveraged to begin with. And perhaps a collapse was inevitable at some point. However, stable energy would have prevented the rapid and shocking meltdown that we suffered, which of course led to the election of Barack Obama since John McCain and the entire GOP was too scared to properly point out the liberal policies that led to all of these dynamics.
Which brings us full circle. If any national or world recovery will necessarily force an increase in oil prices, then in fact no recovery is possible. Because high oil prices will quash any recovery its emergence seems to portend.
Life in the liberal economy. Are we having fun yet?
