You heard it here first. Recession talk; the Subprime Dollar; the Fed’s Carbon Tax — all coming true. What’s next?
With oil flirting with a $90 price in the trading markets, and with $3.69/gallon at the pump in San Francisco (admittedly the highest-priced market) witnessed on the way to work this very morning, we are looking at the possibility of $4.00 gasoline by Christmas, if not Thanksgiving.
Agreed thatwe have apparently not yet reached price points which have the effect of demand destruction among the nation’s drivers. While hybrid vehicles are popular, SUV’s still out pace them four to one in sales. While the $90 price of crude surely reflects heightened risk premiums due to threats and troubles between Turkey and the Kurds and continuing US/Iran rumblings, we are probably only one serious incident away from even reaching $100 (say, if the truck bombs yesterday had been a step or two closer to Benazir Bhutto’s vehicle).
More importantly, the bad news on the earnings front today even fron multinationals like Caterpillar, Schlumberger and Honeywell is coupled with renewed speculation on a Fed rate cut at Halloween (the “Trick or Treat” Fed meeting) due to continuing problems in the credit markets will in turn put more pressure on the US dollar (mitigated only by any global “flight to quality” to US treasury securities). And downward pressure on the dollar means upward pressure on oil prices, because as noted in previous blogs, oil is (for the moment) still priced in dollars.
In this light, Secretary Paulson’s choice to meet today in Washington in the midst of the G-7 finance ministers summit with the Saudi representatives (not part of the G-7) may be even more significant than meets the eye; the Saudi’s have a unique role in OPEC still, and a strong indication from them relative to increasing OPEC production could help tamp down the run-up in crude in time to prevent the Gas Pump Grinch from stealing Christmas (as if US consumers don’t have enough problems what with their homes being foreclosed or their rents going up).
If the declining dollar push comes to $4.00 shove at the pump by year end, we will be getting closer to a circumstance where the political catch-phrase for the 2008 campaign may once again be “It’s the Economy, Stupid”!
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