Wednesday, August 24, 2011

The price of magic beans is down

The stock market was up today after the government reported that orders for  durable goods like autos and aircraft were up 4 percent in July, the best number since March. West Texas Intermediate crude was up slightly as were prices for North Sea oil, this was driven largely by a 2.2 million barrel drop in US oil inventories, or about 2 hours of US consumption. The fact is that commodity markets have more to do with how much money there is in the market, than how much oil there is. Pushing paper pays even better than pumping oil. Jed Clampett’s grandson is an investment banker.

Futures traders are hoping that Hurricane Irene's march toward oil refineries along the Atlantic Coast may push oil and gasoline prices higher later in the week, especially if it looks like supplies will be interrupted. Refineries that are taken off line take a ten to fifteen days to come back to full production. Not that there will be any real shortage and if there were we can borrow from our European allies, they have sense enough to require the oil companies to stockpile large amounts for strategic reserves. We operate on the “free market” system instead and as the oil companies grow and consolidate they have reduced capacity by a large percentage in the US.

 The markets are also trying to guess the thinking of Fed Chairman who is expected to give an indication on Friday on whether or not there will be a QE3. There are rumors that instead of further easing per se, that they may start selling short term debt that is selling with almost zero interest, and buy more long term bonds in an attempt to further drive down the interest on long term debt.

The point of this would be to drive investors into something that would actually stimulate the economy. It won’t really do that of course, a trade policy, energy policy, manufacturing policy and that sort of thing would do that. The Fed is doing the only thing bankers can do, they are pushing piles of money around and hoping that everybody thinks that works. They have kept deflation at bay, which is something good, but not a solution to the real problem.

Gold prices took a big plunge today, down $104/oz as the numbers on the economy didn’t turn out to be as bad as the gold salesmen (I mean conservatives) said they would be. Notice that they were selling gold and not buying while telling you to buy (cause they’re your pal, they left it all for you). Isn’t the Free Market wonderful?