Friday, April 22, 2005

Why the Stock Market Shot Up Part II: Oil

Horses hauling oil drums in the 1800s.

The price of oil drops stocks climb. This is a simple formula for simple minds. Many investors don't dwell on international finance or factory output or anything. They follow one thing closely: the price of oil. I know this from talking to investors themselves. They might even deny this but whenever the price of oil drops a tad, I get the calls, "The price of oil went down! We are not at the Hubbert Oil Peak!"

Al Qaeda has more gun battles in Saudi Arabia this time in MECCA

Old bin Missing Laden is a busy guy. He has his eyes on the prize. And one of the obstacles to this prize, Mecca, is the Ghawar oil fields. The price of oil is totally bound up with the amount of oil pumped by Saudi Arabia and the rulers of Saudi Arabia are in cahoots with outsiders who want cheap oil and are willing to spend $300 billion in a futile war in Iraq to keep the price of oil at the level we want. So the Saudis are raking in the money, we are losing money like crazy and old bin Laden keeps on truckin'.

The reason our economy hasn't collapsed is because we grant ourselves infinite credit. This is why we see this now:Greenspan bloviating helplessly:

Fixing the renminbi to the dollar is beginning to significantly work to the detriment of Chinese economy. I think there is no question that two things are happening.

One is, in order to sustain the value of the renminbi to the value of the dollar, they've been purchasing very significant amounts of U.S. treasury issues.

In so doing, in order to prevent an inflationary money supply increase, they do what central bankers call sterilizing the purchase of foreign reserves... and they do this by selling bank issues, bank liabilities, denominated in their domestic currency, and so as they do that, that tends to prevent purchases of foreign reserves from expanding the money supply.

However, because there are interest rate caps in China, they're finding some difficulty in selling an adequate amount of domestic-currency-denominated debt to absorb the excess. And that is creating imbalances that suggests that sooner rather than later, they are going to have to, for stability purposes, move their currency.

Greenspan looks like a carp caught on a hook. He thrashes about helplessly. Our Federal Bank chief throws his hands up in despair. Why don't the Chinese kow tow to the USA? Why?

Well, hello! They are the BANKERS. They set the terms and they tell us what to do not the other way around. Since Congress just voted more tax cuts and more money to burn up on the borders of Saudi Arabia, this means our BANKERS get to set the terms yet again. Surprised?

Worse, our other bankers, the Japanese, are being forced to kow tow to China this very week. After defying China they are rediscovering the joys of bowing to a higher authority. This ticks them off greatly and increases the severity of the lesson in kow towing for dummies.

Our lesson is going to be much worse. We are much more arrogant than the Japanese. We are number one! God blesses America! We are the shining city on the hill, etc. The lesson that we are now the beggars at the gate will hurt. Greenspan won't even mention this. This is why he sounds so clueless. Congress is clueless. Wall Street is clueless, seemingly.

Time to ream out our automotive sector!

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