cnbc: Killer Combo of High Gas, Food Prices at Key Tipping Point

[techboy]

So ... Prices go up.... lots of schlubs see rising prices as an indication of future trends and jump on the bandwagon and buy buy buy buy.

Or, they see it as a clear indication of the runaway inflation they've been expecting/imagining already exists, so they buy commodities (such as oil and gold) as a hedge against it, driving up the prices even more, making the Weimar Germany scenario even more obvious, and so on...

Often both.

ETFs and online brokerages seem to be exacerbating this effect. It's never been easier to trade on the commodities market. Just takes the click of a mouse.

---------- Post added April-25th-2011 at 03:09 PM ----------

It's probably worth noting for the buy and hold trader

Almost nothing is.

[twa]

ETFs and online brokerages seem to be exacerbating this effect. It's never been easier to trade on the commodities market. Just takes the click of a mouse.

How much do you think the availability of cheap capital adds?

Allowing borrowing for next to nothing makes gambling with it easier.imo

[alexey]

How much of the 4$ is speculation vs. regular operations?

I thought i had just posted: We are demanding more than was being produced this time last year. Shouldn't that increase the cost?

And: If its been 260 for several years would that make a portion of the 1.40 speculation?

How would one go about determining how much of the $4 gas is due to speculation? I have no idea. I suppose one way would be to somehow make it more difficult to speculate in oil, and see what happens.

And yes, I'd expect "regular operations" to result in oil price increases as well... but I'd also suspect speculation to play a significant role. For the record, I have not done due research and I am pretty ignorant on the subject matter... but the picture I am seeing is not pretty. Leverage and speculation appear to be the new investment model. Recently I found out about the 22 second being the average term of stock ownership and it blew my mind.

[Hubbs]

Obviously inflation is a concern right now, but at the same time, inflation is a sign that the economy is improving. The Fed will need to raise rates to temper inflation while not squashing the recovery. It will be a tight rope walk for sure.

Minor note: This is actually a big problem for the Fed. You're right, inflation could be a sign of economic improvement. Problem is, it could also be a sign of over-compensating monetary policy, and there's really no way to tell without hindsight. There isn't much more you can do besides hoping that it's the former.

And Hubbs, do you do anything except piss and moan about the fed?

....

Well, yes, I also piss and moan about fiscal policy, the joke that is a political battle over $38 billion in cuts in a budget of over $3 trillion, the fraud on top of fraud that was an instrumental part of the housing bubble and its aftermath, the oligarchic grip that the financial sector has on the rest of the economy, the revolving door between Wall Street and Washington, and the economic Yellowstone caldera that is the private debt bubble that's been inflated over the past thirty years. And those are just my favorite economic topics. Want to expand the discussion by a category or two? :pfft:

But when it comes to the Fed, the reason it's so often the focus of my ire is because of the simple fact that the central bank of the largest economy in the history of the world has more influence on macroeconomic trends than, well, pretty much anything. That has nothing to do with my political beliefs. Watch CNBC for a couple months straight and you'll see how often Erin Burnett & Co. hang on every word that comes from the Fed. They do so for a reason. Whether your like it or not, it's the most important economic institution on Earth.

[War Paint]

So I guess the next big sport in America will take place in Thunderdome?

[twa]

What a Crisis Looks Like

http://www.theatlantic.com/business/archive/2011/04/what-a-crisis-looks-like/237849/

There's been some discussion over the last few days of what is going to happen if China starts reducing its position in US Treasuries. Seeking Alpha has a good summation of the problem:

In response, during a recent summit, the leaders of Brazil, Russia, India, China and South Africa (the BRICS) announced that they want to trade between themselves in their own currencies. This comes amid a growing chorus in China pushing for a limit of dollar reserves to $1.3 trillion. At present, China, whose economy the IMF says will outpace that of the US by 2016, has $3.04 trillion in dollar reserves. What's going to happen to the dollar when China sells off $1.74 trillion? And who, besides the Federal Reserve, is going to buy our bonds?

If anything, I think this understates the problem. The real issue starts, not when China starts selling our bonds, but when China stops buying our bonds. As soon as that happens, we're in big trouble.

Right now, when Treasury goes to sell new bonds, it enters a fairly robust market, with not just the Fed but a bunch of fairly price-inelastic Asian central banks who are willing to take on our bonds at whatever the market offers. If China exits the market, we will either need to borrow less, or attract new lenders by offering higher interest rates. Even a noticeable decrease in volume would force us to pay more for our deficits. We saw this on a personal level in 2009 when credit card companies reacted to the crisis by reducing credit limits, often to the outstanding balance. This was a big problem for households who were faced with sudden cutbacks, or higher interest rates, or even both.

[DRSmith]

I would not worry too much about China with massive inflation and growing labour unrest

As for what happens if China decides to dump the US treasuries well I am sure they can find come else to buy 365 billion dollars worth of stuff from them

[Thiebear]

When the first Chinese Walmart in the continental 48 raises its prices to match Sears: Riots will ensue.

[DRSmith]

Maybe the days of buy American can return then

---------- Post added April-26th-2011 at 07:47 PM ----------

Of course one also has to wonder if the combo of high fuel prices and high food prices will conteract the killer combo of eating too much and driving every where.

Maybe less food and more exercise will result in lowering the health care costs

[twa]

Have no fear,Congress is at work

http://finance.senate.gov/newsroom/chairman/release/?id=f3f2f50e-8f94-4b36-9318-6b74466d52a4

Baucus Unveils Plan to End Tax Breaks for Largest Oil and Gas Companies, Invest in Cleaner, Cheaper American Energy

Maybe someone can explain how this will lower prices,increase jobs,reduce the trade imbalance?

Anyone?

[jpillian]

Have no fear,Congress is at work

http://finance.senate.gov/newsroom/chairman/release/?id=f3f2f50e-8f94-4b36-9318-6b74466d52a4

Baucus Unveils Plan to End Tax Breaks for Largest Oil and Gas Companies, Invest in Cleaner, Cheaper American Energy

Maybe someone can explain how this will lower prices,increase jobs,reduce the trade imbalance?

Anyone?

I suspect it won't have much of the opposite effect either. Big oil is going to do what big oil is going to do.

The real question is, what CAN Congress do to really effect the price of oil? Anything?

[twa]

I suspect it won't have much of the opposite effect either. Big oil is going to do what big oil is going to do.

The real question is, what CAN Congress do to really effect the price of oil? Anything?

No effect by raising costs by 4 Billion?

http://polipundit.com/?p=30478

Why won’t it impact the price at the pump? The ending of subsidies is a zero sum game because it increases taxes on the companies. Taxes are expenses. Expenses must be paid; the way that they will get paid is that prices will actually go up by $4 billion in the total market to pay those taxes. Who wins? Government. They are $4 billion richer, the oil companies are not affected other than their pass-through costs just got increased (they have a fiduciary responsibility to shareholders to return dividends and shareholder value, so this WILL get passed on) and the public now has $4 billion less to spend.

Once again the erstwhile Democratic Robin Hoods slip on their tunics and green tights, draw the bow and loose the arrow at “Big Oil” only to miss once again and hit the American public. Women, children and the poor hardest hit – and this time that statement is true.

Congress could have used the cash for clunker bailout to significantly reduce our consumption(instead we got some piddly +4mpg restriction)

Congress could have opened up domestic sources,instead we get bans and epa shenanigans

I hope ya'll enjoy the fruits of playing politics with energy and having no long term energy plans

[Commander PK]

My answer? Car pool and buy off-brand food that is on sale.

I have no problems with using candles in lieu of electric lamps also, so they can raise the energy prices if they want as well. I won't be paying. We Americans need to learn to adapt. Great time to start taking the bus to work. If you live within a few miles of your work, ride a bike.

[kubstix]

My answer? Car pool and buy off-brand food that is on sale.

I have no problems with using candles in lieu of electric lamps also, so they can raise the energy prices if they want as well. I won't be paying. We Americans need to learn to adapt. Great time to start taking the bus to work. If you live within a few miles of your work, ride a bike.

Some of us don't have the luxury of doing any of these except off brand food. I go for the sales at Giant. Candles instead of electric lamps? So you can save $5 on your next electric bill to give yourself an extra gallon of gas for the month? I don't even ***** about gas prices much because it's my own fault I have a long commute to work, but I certainly can't take mass transit. There are very few places in the US that have mass transit besides major cities. The problem is simply oil companies. They have a huge grasp around our balls and they know it. It has nothing to do with supply and demand, it has to do with greed. We don't need to adapt to anything when you have a hand grasping your balls 24/7, are helpless, and can do absolutely nothing about it.

[deejaydana]

no slam on the OP but "tipping point" has to be most immediately worn out phrase of the past few years. Thanks Malcolm Gladwell!

Seriously though, there are a combination of contributing factors but the 'weak dollar policy' we're seeing in recent years by the Administration may be the biggest factor in the inflation we're living with right now. I guess, for now, we can be thankful that we devote such a relatively small % of our income to food, poor countries devote 80% of income to food. Think about how tough times are for them right now.

[twa]

Do people really believe Big Oil simply decided to raise prices?

might have to do a poll

[stevenaa]

Do people really believe Big Oil simply decided to raise prices?

might have to do a poll

Do people really believe this is pure supply and demand?

[deejaydana]

Do people really believe Big Oil simply decided to raise prices?

might have to do a poll

this really shouldn't come as much of a surprise. Obama said oil/gas prices would "necessarily skyrocket" with the plans he wanted to execute. Now he's making it happen. Why don't his loyalists remember this line now? I guess it wouldn't come across too well. His plan to push oil higher and then turn around and then conveniently blame "Big Oil" is a plan to make alt energy more publically viable. He just loves to flog evil profit making companies I guess. At least it plays well in the college faculty lounge.

[alexey]

this really shouldn't come as much of a surprise. Obama said oil/gas prices would "necessarily skyrocket" with the plans he wanted to execute. Now he's making it happen. Why don't his loyalists remember this line now? I guess it wouldn't come across too well. His plan to push oil higher and then turn around and then conveniently blame "Big Oil" is a plan to make alt energy more publically viable. He just loves to flog evil profit making companies I guess. At least it plays well in the college faculty lounge.

Unfortunately this is not happening due to a coherent long term energy policy that we were promised.

[PeterMP]

this really shouldn't come as much of a surprise. Obama said oil/gas prices would "necessarily skyrocket" with the plans he wanted to execute. Now he's making it happen. Why don't his loyalists remember this line now? I guess it wouldn't come across too well. His plan to push oil higher and then turn around and then conveniently blame "Big Oil" is a plan to make alt energy more publically viable. He just loves to flog evil profit making companies I guess. At least it plays well in the college faculty lounge.

twa already tried to play this card.

1. He said electricity prices not oil or gas.

2. He was talking about in the context of cap and trade law regulating emissions, and we haven't passed a single thing regulating emissions, much less the law he was talking about.

[DRSmith]

Have no fear,Congress is at work

http://finance.senate.gov/newsroom/chairman/release/?id=f3f2f50e-8f94-4b36-9318-6b74466d52a4

Baucus Unveils Plan to End Tax Breaks for Largest Oil and Gas Companies, Invest in Cleaner, Cheaper American Energy

Maybe someone can explain how this will lower prices,increase jobs,reduce the trade imbalance?

Anyone?

Oh my goodness a comany that makes 11 billion in first quarter profit may just have to shutter their whole operation if they do not get part of that 4 billion dollars

Tax cuts and incentives not directly tied to hiring people do not lead to more jobs.

When people are buying the product it creates demand which leads to more jobs

[Thiebear]

Oh my goodness a comany that makes 11 billion in first quarter profit may just have to shutter their whole operation if they do not get part of that 4 billion dollars

Tax cuts and incentives not directly tied to hiring people do not lead to more jobs.

When people are buying the product it creates demand which leads to more jobs

So if Exxon is making 2 cents a gallon

and the gov is making 48.1 cents a gallon

should the government give it back also.

Maryland is looking to add 12cents more a gallon now..

IF President Obama came out and said we are going to drill tomorrow and we are going to reach 55% domestic drillin in 3 years the speculators would sell the next day.

Oil back to 2.60$

we only seem to be trying to increase the cost at the peoples expense.

http://energyalmanac.ca.gov/gasoline/margins/index.html

[twa]

twa already tried to play this card.

1. He said electricity prices not oil or gas.

2. He was talking about in the context of cap and trade law regulating emissions, and we haven't passed a single thing regulating emissions, much less the law he was talking about.

The EPA certainly has gone down that road

http://www.npr.org/2011/01/03/132612887/epa-to-enforce-new-emission-rules-on-power-plants

http://pubs.acs.org/cen/news/89/i01/8901notw6.html

you think it has no effect ?

add

Why ignore Chu's remarks?....He Mr Irrelevant???

In a sign of one major internal difference, Mr. Chu has called for gradually ramping up gasoline taxes over 15 years to coax consumers into buying more-efficient cars and living in neighborhoods closer to work.

“Somehow we have to figure out how to boost the price of gasoline to the levels in Europe,” Mr. Chu, who directs the Lawrence Berkeley National Laboratory in California, said in an interview with The Wall Street Journal in September

---------- Post added April-30th-2011 at 08:37 PM ----------

Oh my goodness a comany that makes 11 billion in first quarter profit may just have to shutter their whole operation if they do not get part of that 4 billion dollars

Tax cuts and incentives not directly tied to hiring people do not lead to more jobs.

When people are buying the product it creates demand which leads to more jobs

Perhaps you should look where they made those profits?

No need to shutter the business,they will simply cut unprofitable parts in the US

the tax deductions are directly related to domestic production of oil,which by it's very nature requires workers and equipment/infrastructure

Keep it up and you will understand what it's like to ration gas and spend hrs in line (well ,maybe not you...you'll be in Canada where they are exploiting natural resources;))

[PeterMP]

The EPA certainly has gone down that road

http://www.npr.org/2011/01/03/132612887/epa-to-enforce-new-emission-rules-on-power-plants

http://pubs.acs.org/cen/news/89/i01/8901notw6.html

you think it has no effect ?

Do you want to try and explain how the federal government threatening to limit how much fossil fuels that can be used would drive up fossil fuel costs?

Shouldn't fossil fuel costs be dropping?

[twa]

Do you want to try and explain how the federal government threatening to limit how much fossil fuels that can be used would drive up fossil fuel costs?

Shouldn't fossil fuel costs be dropping?

Are you referring to coal?

They are not limiting how much oil and gas can be used,but rather the emissions,which makes production costs higher for NG and oil AND prohibitively high for coal.

Why would the prices drop with higher costs and more demand from having to pick up the coal use lost?

Where do ya think we are gonna get electricity?...the non-existent green sources?

add

By midyear 2012, refineries and fossil-fuel-fired electric utilities will be required to begin lowering their greenhouse gas emissions under a recent court settlement reached by the Environmental Protection Agency and several states and environmental groups. Refineries and power plants are responsible for 40% of U.S. greenhouse gas emissions, EPA said when making the announcement on Dec. 23.

Under the settlement, EPA will use Clean Air Act regulations to propose emissions standards for power plants in July 2011 and for refineries in December 2011 and to issue final regulations in May and November 2012, respectively.

http://pubs.acs.org/cen/news/89/i01/8901notw6.html

Efforts to stop EPA from regulating greenhouse gases through the Clean Air Act have been led by chemical companies, manufacturers, and their allies in Congress and are likely to continue this year.