After Ben “I Really Don’t Have a Clue on the Economy” Bernanke’s press conference yesterday, we opined that we should prepare for stock market and commodity market declines. The reasoning was that Mr. Bernanke’s only explanation for why the economic recovery has slowed was rising food and energy prices, and Japan’s supply disruptions.
In order for food and energy prices to come down, all commodities, as well as stocks, would come down as well.
Not 24 hours later we see the Obama administration taking action to do just that – at least in the energy sector. There are many variables at play, and President Obama just threw one of them in the mix by authorizing the release of some 30 million barrels of our Strategic Petroleum Reserve.
The impact on commodity and stock markets was almost instantaneous, with oil trading down $4 today and stocks swinging back and forth over a hundred points on the Dow.
Obviously, the Obama administration and The Federal Reserve are operating in unison in an effort to reinforce “The Recovery.”
Clearly, from the standpoint of the SPR, this is nothing more than a psychological move on the part of the Obama administration. It’s election season again, gas prices are high, and the American public is demanding action.
President Obama’s energy secretary Steven Chu cites Libya as the primary reason for disruptions in our oil supply:
We are taking this action in response to the ongoing loss of crude oil due to supply disruptions in Libya and other countries and their impact on the global economic recovery.
Curious, because the price of oil was hovering between $85 – $95 before we ever joined the “no-fly-zone” mission. Not only that, but according to many reports, there is no significant oil shortage – at all. Supplies have fluctuated, as they normally do, for the last couple of years – yet prices have more than doubled since the bottoming out in late 2008. In fact, we consumed less oil in 2010 and so far in 2011, than we did in 2008 and 2009.
So, those prices have to be coming from somewhere else. One reason may the be rise of China’s consumption. The other, of course, is monetary expansion. Then there is the theory that oil reserves globalyl have peaked, and prices will continue to climb going forward. While we are still undecided on the ‘peak oil’ theory, we certainly cannot completely dismiss it. But the fact the supply vs. demand has not had any significant changes over the last couple of years, suggests that neither China, India or peak oil are responsible for current prices.
The move really makes very little sense, other than the psychological impact it will have on consumers at the pumps in the near-term. The additional supplies will only supplement our daily oil usage for about a day and a half if used all at once, or for about 20 days if we compensate for the supposed supply contraction of 1.5 million barrels a day resulting from mid-east military action. In the grand scheme, as you can see, this does absolutely nothing for our energy prices.
This is why we call B.S. on President Obama’s determination to lower our gas prices, and why we think this is partly a political move in the middle of an election season (much like the recent order to withdraw troops from Afghanistan).
[The other reason for the move, explained below, is much more sinister]
In the following two interviews, conducted in January of 2008, President Obama tells us exactly what his position on higher energy prices is – and if you haven’t guessed, he’s fine with them. In fact, he’s more than fine with them. He admits that his proposed policies would actually rise prices significantly and necessarily to implement his global warming agenda:
January 2008 CNBC Interview:
CNBC’s John Harwood: So could the (high) oil prices help us?
Barack Obama: I think that I would have preferred a gradual adjustment. The fact that this is such a shock to American pocketbooks is not a good thing. But if we take some steps right now to help people make the adjustment, first of all by putting more money in their pockets, but also by encouraging the market to adapt to these new circumstances more rapidly, particularly U.S. automakers
Cap and Trade Discussion 2008:
Barack Obama: Under my plan of a cap and trade system, electricity rates would necessarily sky rocket.
It should be apparent that the President could care less about the price of your gas, your electricity or your food.
The release of the SPR, while seemingly a political move, may be just the beginning of a coming collapse in commodity and equity prices.
But what would be the motivation for such an event? For many months now we have suggested that the US government is running out of lenders for their excessive spending requirements. With QE2 supposedly out of the picture, the debt ceiling deal breaking down, and China and Russia reducing their Treasury holdings, how are we to fund our debt issues?
If the stock and commodity markets continue to rise as they have over the last 18 months no investor will want to shift into US bonds offering near zero returns. In order to shift the trend and drive investment from stocks and commodities into Treasuriesyou must create a crisis in those assets, essentially forcing investors to flee for safety. The safety, of course, is the US dollar (just as it was in 2008).
This is, of course, purely theoretical at this point, but it could be one real possibility.
And if this is the case, then all hell is about to break loose.