Monday, June 2, 2008

Is Oil Expensive?

In a word, the answer is yes. Futures hit $138 last week and that coupled with the jobs report sent markets tumbling nearly 400 pts, or 4%.

Oil is expensive, but a big part of the price of oil is the fact that our currency has become complete crap. America is on sale to the rest of the world. I've posted a link to some analysis that puts the current price of oil in the context of our currency's devaluation. Surely demand is driving the price of oil higher, but some of it is also our currency.

On a related note regarding the market dive on Friday. The day before the market was up, and most thought that we were going to avoid a recession due to the unprecedented steps the Fed took to foot the taxpayers with the bill of Bear Stearns. However, volatility ruled the current short term outlook, as the VIX spiked above 22, and a bad jobs report came out.

It took almost 5 years for the housing/credit bubble to build and pop, so it might be a little hopeful to think the unwind will be short and sweet. Friday proved this. But another possible related driver to the bad unemployment number is the fact that higher gas and food prices are causing more folks who weren't seeking employment to now go out and do so. This artifact alone might be driving some of the filings that the government tracked in it's latest report last week.

Only time will tell. The Fed is in a tough spot now, and please take the government CPI (inflation) numbers with a grain of salt. They must be bogus, because you and I both know it cost more to buy food now than a year ago.

Link to US Dollar's Role in Oil's Price Rise

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