Voodoo Economics Story of the Week: Higher Oil/Gas Prices = Better Economy

[Oddball]

That's right, you heard it here first....Higher prices are indicative that the economy is improving.

Oil at $80: That's good news and bad news. - Oct. 20, 2009

Yet, buried in the story, there's this passage:

What's more, the continued weakness of the greenback is helping to push oil higher because oil is priced in dollars -- despite the occasional rumor to the contrary.

And the dollar's weakness is, to a certain extent, a byproduct of investors flocking to riskier assets like stocks and commodities because of the aforementioned recovery hopes.

The current spin (just heard this one on the radio) is that speculators feel better about economic conditions and that means they're more likely to take chances in the commodities markets.

Talk about people whistling past the graveyard!

 

[Mike Mitrosky]

When I was in high school I used to wonder how stocks could go up and down, oil, dollars, etc.. all go up and down regardless of the news.. in fact the news was always spun to explain the movings in the market... as I got older and wiser I realized its all a bunch of bullshit..

Its like the economic equivalent of this picture:

 

[Mr. H.]

I don't quite understand your criticism. Traders and "speculators" look much further past the ends of their noses in analyzing markets and economic trends.

 

[Oddball]

Yes they do.

However, the spin is that the speculation is somehow proof that they feel like gambling, therefore the economy must be better. How you get from A to B, I'll never know.

 

[Mr. H.]

It is confounding. Major brokerage firms and hedge fund managers have armies of analysts and forecasters constantly searching for profitable investments for their clients. How does this translate to the unemployed? In the short term it doesn't. But it's an indicator of future economic recovery which hopefully will get people back to work.

 

[Oddball]

Or it's an indicator of a flight to safety...Almost all commodities are up sharply lately.

Moreover, more money in the markets means less to hire employees.

 

[CrusaderFrank]

Its like when we're in a cooling trend because of Global Warming

 

[CrusaderFrank]

It can't mean that Obama and the Dems are destroying confidence in the US dollar so we get charged more ...nah that can't be it

 

[Oddball]

Its like when we're in a cooling trend because of Global Warming

It's almost like the same news that would be spun badly to reflect poorly upon a politician with an (R) by his name, can be spun positively when a politician has a (D) by his.

 

[The Rabbi]

It's no mystery.
Oil prices are higher in anticipation of greater demand. Greater demand must come from more industrial production. Ergo traders are sensing that production will increase and demand for oil will rise.
Remember when the meltdown started the price of gas fell to below $1.50 a gallon. There was just no demand. So now we see the opposite.
There are many other factors of course, like a weak dollar. But that's what I'm seeing.

 

[Thinman]

It can't mean that Obama and the Dems are destroying confidence in the US dollar so we get charged more ...nah that can't be it

It can't be that Obama is printing more money.... more money is good, right? Nah, it can't be that.

 

[Polk]

Or it's an indicator of a flight to safety...Almost all commodities are up sharply lately.

Flight to safety? That doesn't make any sense. If gold and silver were spiking while everything else was flat, sure, but you don't invest in oil unless you think the price is going up, and that's only going to happen if demand is up.

 

[Polk]

Its like when we're in a cooling trend because of Global Warming

We're not in a cooling trend.

 

[Oddball]

Or it's an indicator of a flight to safety...Almost all commodities are up sharply lately.

Flight to safety? That doesn't make any sense. If gold and silver were spiking while everything else was flat, sure, but you don't invest in oil unless you think the price is going up, and that's only going to happen if demand is up.

Or there's more money in circulation versus product available to buy.

aka I-N-F-L-A-T-I-O-N.

 

[The Rabbi]

Or it's an indicator of a flight to safety...Almost all commodities are up sharply lately.

Flight to safety? That doesn't make any sense. If gold and silver were spiking while everything else was flat, sure, but you don't invest in oil unless you think the price is going up, and that's only going to happen if demand is up.

Or there's more money in circulation versus product available to buy.

aka I-N-F-L-A-T-I-O-N.

Except inflation is currently running at 0-3% a year. Now, down the road might be a different story.

 

[Oddball]

If you believe those numbers, I wanna sell you a bridge.

 

[Paulie]

It's no mystery.
Oil prices are higher in anticipation of greater demand. Greater demand must come from more industrial production. Ergo traders are sensing that production will increase and demand for oil will rise.
Remember when the meltdown started the price of gas fell to below $1.50 a gallon. There was just no demand. So now we see the opposite.
There are many other factors of course, like a weak dollar. But that's what I'm seeing.

Sometimes you actually do make a TINY bit of sense, although I'm not sure where traders are seeing much if an increase coming from if jobs aren't going to start being added until mid 2010. This means was less work travel, way less industrial petrol use, etc.

The run-up in oil prices is the inflation trade.

 

[Paulie]

Or it's an indicator of a flight to safety...Almost all commodities are up sharply lately.

Flight to safety? That doesn't make any sense. If gold and silver were spiking while everything else was flat, sure, but you don't invest in oil unless you think the price is going up, and that's only going to happen if demand is up.

Nah, you only invest in oil for actual oil USE...right?

Last year's $150/bbl speculation trade didn't teach you ANYTHING?

Do you realize how much oil delivery was never taken on the futures exchange that year?

 

[Paulie]

Amidst all this completely unsubstantiated "demand driven oil price increase" talk, has anyone just simply forgotten about OPEC's production cuts?

Inventories have been DROPPING of late. I guess that's because people are using their new free time while laid off from work to drive around and call out other drivers for a race, just for the entertainment factor...right? Or go mudding in their SUV's?

 

[JakeStarkey]

No demand for oil driving up prices can be substantiated at all. Paulie, I believe that the inventories are much higher than what you believe. Oil prices are be driven up because they are being treated as a commodity, not as a product. Why? Because the dollar is weak. Once the bubble on oil bursts, the investors will go jump on the dollar band wagon, driving down oil prices and the euro.

That will be sweet. It also means the recovery will continue slowly, all thanks to the GOP and conservatives who could have changed the business model from 2001 to 2006 but elected instead to continue raping the middle class.