While some traders feared that the dissolution of Yahoo would impact the market negatively, it appears that the $4 pop in Crude is the bigger issue.
This morning Crude Oil broke over $120, to set a new record, as reported by Briefing.com and Bloomberg COMDX ("Crude moves above the $120 level, now up $3.74 to $120.06").
>
Crude Oil June 2008
Source Bar Charts
>
You can get the most recent futures data via bar charts (including intraday prices)
Come on now … even the longterm oil bulls, have to understand that this is a bubble. I would be willing to bet that a good chunk of the pros are shorting oil (all commodities) now.
This is just the beginning for oil. We are past peak, and there is no plan B.
Wage growth nil, unemployment up, oil and inflation way up, I’m not an economist by any stretch but this appears to be a toxic recipe for the consumer. Are we now forecasting US GDP, ex consumer? Otherwise, WTF.
How much of today’s pop is due to the weekend news item about U.S. plans to strike inside Iran? The “plans” may be nothing more than coercive diplomacy at this point, but commodity speculators don’t do nuance when it comes to political analysis.
Everybody just relax. Don Luskin and Jerry Boyer said last week on Kudlow that everything is just fine. We have the bottom in the market and look out above!
Gag.
Francois: “So you believe there is no recession?”
It is not me. The data suggests that there is no recession.
Look at the data around you, start with today’s ISM (services are more than 70% of US economy) is expanding (it is above 50).
“The Institute for Supply Management’s non-manufacturing index came in at 52.0 in April versus 49.6 in March.”
Crude target zone is 120.50. Natty gas target zone is 11.50. Those markets are throwing up huge bearish RSI divergence. Calpers piling in big money here at the tail end of inflation-driven parabolic move….yeah they’re the “smart money.”
AT.
On CNBC’s ‘Power Lunch’ a few minutes ago on Dennis Kneale mentioned that rising oil prices are deflationary (something about people drive less so that can’t buy iPods.)
So are food prices deflationary too? If you can’t eat, you don’t have enough energy to walk to Best Buy can carry home Vizio flat panel TV?
If true, either the core rate is used because the inflation from food and energy is really deflationary, or…
…or a new economic orthodoxy is taking over with John McCain, Hillary Clinton and now Dennis Kneale showing how the ‘economic elites’ are just plain wrong.
VennData,
Inflation/Deflation have nothing to do with consumer demand. They are either properly defined as increasing/decreasing supply of money (inflation/deflation) or the inevitable consequence of such.
It is a common misconception to conflate inflation with consumption. This misunderstanding seems to be very common in the US even amongst people who should know better.
But the dollar is rallying with oil — that’s unusual, Barry, and makes it suspect.
Oh well, as Eddie Chiles used to say: “If you don’t have an oil well, get one!”
“It is not me. The data suggests that there is no recession.
Look at the data around you, start with today’s ISM (services are more than 70% of US economy) is expanding (it is above 50).
“The Institute for Supply Management’s non-manufacturing index came in at 52.0 in April versus 49.6 in March.”
Oh! I’m looking alright! Consumption is also 70% of the economy and consumers are not doing good, to say the least. Unemployment is el stinko, whichever we choose to look at it.
On the other hand, the NASDAQ is showing real strength supported by volume. Something good is up out there. What is it? Dunno, but worth noting.
The bogeyman is the financial sector. I do not believe for a minute that the Fed has calmed the markets; why have they increased the TAF size and scope if the financial markets are feeling alright? Because this is a solvency crisis, not a liquidity one. And that has repercussions on the physical economy, which runs on available credit. No credit, no expansion. No credit long time? Contraction big time!
I will need to take a closer look at the ISM. The headlines number rarely tells the true (read: whole) story nowadays.
Time will tell, and soon.
“Come on now … even the longterm oil bulls, have to understand that this is a bubble.”
Really now, ask yourself if Exxon increased their reserves for what they sold us? After you find out, come back and tell the rest of us, so we will know it is not speculation, but a peak oil problem.
Then, you can find out and let us know why the Saudi’s have pumped less oil for the last 3 years?
And then you can tell us why the top people were fired at BP (hint: overstated reserves).
Then you can find out why Venezuela pumps less oil.
Then you can find out why Mexico pumps less oil.
Then you can find out why Norway and the North Sea are in decline.
Then you can tell us why Russia just came out and said we can’t pump any more.
Your task is enormous Donny to show that the price of oil is speculators versus lack of supply.
The strikes in Nigeria and the UK removed roughly 300,000 barrels per day from the markets in May, after declining worldwide production in March and April. That means a price rise.
Actually, this is good news. Somebody out there put the brakes on the Iran attack so the boyz are getting all the profit they can before the end of the Cheney administration. Yeah, it costs us money but it beats killing people any day.
Posted by: John Navin | May 5, 2008 1:01:03 PM
“But the dollar is rallying with oil — that’s unusual, Barry, and makes it suspect.”
DX-Y.NYB 73.19 down 0.31, down 0.42% 1:20PM ET
What seems suspect to me is the rising dollar, falling commodities forecast that has emerged in the past two weeks.
hybrid sales – Barry, would be interesting to do a blurb on this one. my brother in law went shopping for one this weekend for his parents. main reason: commute. my sense is sales are skyrocketing. isn’t the real story with oil that the economies which can afford the cost to convert do fine, and the third world will truly feel the impact of – not via inflation – but the cost to extract as the primary economies simply stop investing, leaving the owners of proven reserves to fund extraction themselves? once again, a Marshall Plan will be needed for the third world, but this time it will be to convert from pure fossil fuel dependence?
For all of those who are concerned with peak oil: Don’t worry about it.
1) If only 10% of the homes in America had ONLY enough solar power to recharge the battery on an electric car, oil would be really cheap.
2)The technology to do this was available 40 years ago. Don’t tell me that it’s a big deal to put solar cells on buildings and switch to golf carts for commuting. I won’t buy your thinking.
3) The “inertia” on the oil economy infrastructure is total bullshit. I’m a scientist and I can prove with real world examples everything I say. Don’t buy the hype.
4) You don’t have to turn into a tree hugger to reduce oil consumption by 20 or 30%. That’s all it would take to make oil producing countries shit wooden beebees.
Let me cut to the point as usual…anytime the market is down, don’t look for any insignificant ancillary reasons…look at the household debt chart in Hussman’s piece today and that is why.
Hussman
Don’t worry, be happy. OK Kudlow.
ISM Servies a waste of effort. This number was completely made by “prices paid”. Get rid of that number in your index if you want a honest answer.
The service sector didn’t expand in April, it contracted.
If the FOMC waits until the December 16th meeting to hike rates, $120 is just the beginning.
Perhaps the economy isn’t in recession but I had a weird experience Saturday. Driving from NH into MA and onto the 128 belt around Boston I’ve NEVER seen the traffic that light….at 7:30 pm.
It was so unusual I had to ask myself, several times, if I was just imagining things. No Celtics, Red Sox or even the Derby was on to explain the lack of volume (in both directions).
Maybe I’m just too bearish but I thought I’d pass it along in case anyone else has seen/sensed something as unusual as this.
105 before 125….
Regarding traffic, friend and I drove from San Diego to LA and back yesterday in record time. No traffic to the point we commented. In fact, we witnessed car exit to toll road (faster) and then same car pop back on freeway in same place relative to us miles up the road… no traffic.
The economy is in recession. It is mild right now, but a recession it is.
Cherry, ISM services was created by price inflation(which is also keeping ISM-M from looking worse FWIW) and bad inventory management by the producers. Matter of fact, we may see a “January surprise” again with this index.
Hence, the headline number lied and was ignored by the market.
☺☺judgement.
7. The power of arriving at a wise decision or conclusion on the basis of indications and probablilities when the facts are not clearly ascertained;as to use your best judgment; discretion; discernment; as, a man of sound judgment
–Webster’s Third New International Dictionary
When it comes to oil markets, we know precious few facts. For instance, we don’t even know what Saudi Arabia’s daily production capacity is, because–like all governments–it lies.
And that (the physical) is the easy part!
The tough part is the part that deals with mental and social processes. Here we get into the realm of politics (the policy decisions of dozens of different sovereign nations whether to produce more or less oil) and psychology (the emotions of billions of consumers and the passions of millions of traders).
But it gets even more complicated. All these billions of atoms and monads are dynamic, in constant change and movement.
That’s why economics is pure scientism–the fallacy of believing that the method of science can be used on all forms of experience and will settle every issue. And that’s why so many economists have been so consistently wrong about the price of oil. The numbers they have are bad. Their models are blathering nonsense. What they need is good judgment, which is in precious short supply.
wrt jag’s comments:
I am in the Boston area too, and it certainly seems true that high gas prices have led to less people driving. Traffic is light to nonexistent at commuting times, and the parking garage here at the office is noticeably less full. However weekend traffic at the malls etc remains quite brisk.
Speculators knock OPEC off oil-price perch
By F William Engdahl
The price of crude oil today is not made according to any traditional relation of supply to demand. It is controlled by an elaborate financial market system as well as by the four major Anglo-American oil companies.
As much as 60% of today’s crude oil price is pure speculation driven by large trader banks and hedge funds. It has nothing to do with the convenient myths of Peak Oil. It has to do with control of oil and its price. How? (cont.)
http://www.atimes.com/atimes/Global_Economy/JE06Dj07.html
Whether this run-up is the peak or not matters less to me; whatever it is, it is a much needed wake-up call. Since the price in a healthy market would still be over $80 I don’t even fear the public later claiming that anyone cried wolf over oil, which would be the only downside.
Traffic last night coming south back into San Francisco was light, smooth sailing all the way. I suspect fewer people went away for the weekend than usual.
Lyse,
Uh, take a look at the ISM service numbers from the last recession…I have…they don’t go straight down….the fact that today’s numbers were 52 means nothing…only the trend is your friend…were I a betting man in anything other than the stock market, I would bet that next month’s Ism service sector will once again be below 50…
Speaking of odd experiences…I now live in a medium sized town in east Tennessee…and for the last 3 months or so, only the two cheapest gas stations have lines….and have lines every day….yet there is only about 5 cents difference in these places and most of the rest of the places in town, so twenty gallons only costs at most an extra buck…but this is what I have recently observed….traffic is also lighter at 5 o’clock, or seems to be…
Ross,
Yes, I remember the days well. But hopefully the lessons learned back then will help us Texans keep our schadenfreude somewhat in check.
I was reading from Frederick Lewis Allen’s “Only Yesterday” last night. It’s really a fascinating read. For instance, I had no idea there was a huge bust in real estate in the 1920’s, led by Florida, but affecting many other states as well. He says that “in seven states in the country, between 40 and 50 per cent of the banks which had been in business prior to 1920 had failed before 1929.”
But the main thing I take from his writings is just how incredibly complex and unpredictable markets are, especially in the short run. There’s no logic, rhyme or reason to any of it.
If you haven’t already seen it, there’s a nice read over at The Telegraph….
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/05/05/ccom105.xml
“Credit crisis shows that banks need wise men not wide boys”
Here’s my favorite quote from the story:
“More fundamentally, their model-based approach rests on the continuing relevance of recent experience – often over pathetically short runs of data – with scant regard paid to the ‘off-the-model risks’ which in the real world are the usual sources of upset. Personally, I would sack at least half of the risk assessment boys and replace them with historians and people versed in English literature.”
Ross, as reported by another fellow TBP poster, here another bumper sticker from Texas (probably mid-80s):
“Dear Lord, please give us another oil boom and we promise not to screw it up.”
Dear Mr. Space Cowboy (a.k.a., Gangster of Love??),
Thanks for all your prior posts.
I read that article. But, I disagree with the implication that the “true” price of oil is far less than the price being driven by speculators, for these reasons:
– Oil has not rallied independently of other commodities. Every commodity has rallied in the past 7 years of easy money.
– Oil rallied hard after the US’s Minsky Moment, when the world’s investors discovered the structured finance products they purchased from the US aren’t worth the purchase price.
– What else should foreign investors do with all those dollars they acquired from selling us stuff?? The US played the protectionist card to deny China Unocal. Since foreigners can’t buy oil *companies* from the US, they have to buy oil *futures*. Or “something”. (What? More Treasuries? That looks like a losing investment to me.)
– The middle class in China wants to enjoy the same standard of living we do. I expect them to consume every barrel we conserve.
Re: wunsacon
Ze Space Cowboy is not the ‘Gangster Of Love (the original Gangster is Johnny “Guitar” Watson)….easily intermixed, but not one of the same!
http://www.youtube.com/watch?v=dybRBPX4njo
Btw Under ‘this time it’s different’ focus:
regarding all those US$ being held by parties outside the USA……and how the game board has changed!
(reposted from investorvilage cwei board)
Why it is different this time?
Case Study Las Vegas
4 months ago or so I had posted information regarding a certain heavy equipment rental service in Las Vegas. Specifically, I stated that the majority of the 300 pieces of machinery were sitting idle and that those pieces that were rented out were on Government jobs.
Fast forward to today, The lenders had started the foreclosure last month and in a last minute deal they agreed to hold off the foreclosure pending an auction of 100+ pieces. The auction went better than expected as persons from Brazil, Egypt, Europe etc… came in and snatched up that equipment like a kid in a candy store. The foreclosure has been put on hold as the bank now has a better handle on the value of the remaining assets.
Further, a friend bid on a house in Las Vegas this week for 280,000.00. The offer was refused so he then bid 285,000.00 and the offer was accepted. What is the big deal? Well yes the house sold 3 years ago for 400+ however it was listed for 250,000.00. thus the house sold for 35,000 more than the list price. The nearest bidder was from overseas.
It is different as in the past the foreclosure would have taken place and 100 pieces of machinery would still be sitting in the States. Excess capacity is being shipped overseas. The housing market has seen a bottom in Las Vegas again because of the weak dollar. That is why it is different this time.
Be prepared to be treated like a cheap whore by those people from Brazil, Europe, Middle East and the Russians. Because that is what we are at this point in time. And in a funny sort of way, being a cheap whore will lead us to the promise land.
Come on now … even the longterm oil bulls, have to understand that this is a bubble. I would be willing to bet that a good chunk of the pros are shorting oil (all commodities) now.
Posted by: Donny | May 5, 2008 11:52:36 AM
????????????????????????????????
Donny, are you shorting oil now ??
put your money where your mouth is…
or are you one of these pretend bears ??
bearish on oil but nothing to back you up … like the talking heads on TV
“There’s a housing shortage!! You will be priced out forever!! Guess not?”
Uh, nobody on here ever said that unless it was a troll.
“Lot’s going on with off grid ideas using combinations of solar, wind, and water. My son’s working on a project that uses solar to create hydrogen out of water. Cool stuff.”
Uh right. And my uncle in Orlando said he heard at the Cape they had technology that would replace oil, and that was 40 years ago.
“What’s funny is all of sudden there is all these supply problems as the dollar stays strong,.”
WTF?
Space Cowboy,
>> Be prepared to be treated like a cheap whore…
Is that going to look something like this??
http://news.bbc.co.uk/2/hi/science/nature/7379554.stm