Breaking The Gas Cartel
Stocks were hammered today as the pundits stated that corporate earnings aren’t coming in as high as they should be, and the future looks glum. Bonds rallied, and are on a major move downward in interest rates. The bond move is good news for the economy, as it’s stating that the government intervention is working somewhat.
There was a major upturn in the Dollar against the Euro, and a major downturn in commodities, including gold, oil and gasoline. Hedge Funds are still unloading their leveraged inventory of stocks and commodities, and this has pushed all these in their directions today.
In the news today….
Earnings were down today across the board in the stock market. But, McDonald’s earnings were up – because of the success of their Dollar Menu. While I don’t usually comment on individual stocks, this is a great example of where people will be spending their money as we move into the recession, and people are scared about their financial future.
The FED was pretty sneaky today. It increased the interest it pays to commercial banks for excess reserves deposited in the Federal banks. They used to pay 0.75%, and will now be paying 1.15%. This move – to pay interest on reserves – was approved as part of the $700B bailout law. Just thought you should know where your tax dollars are going – as this is MORE money going directly to the banks – and that’s my definition of a bailout. Why are they doing this? To manipulate the short term bond market and money market – and get the credit moving through the economy again – and this is a noble goal. Just remember that it’s your money that’s accomplishing it.
So why is the FED doing so many different actions in the marketplace? In my opinion, they are throwing as much “stuff” against the wall as they can, and hoping some of it will stick. Some of it appears to be sticking now (reducing LIBOR for example.) Most of their moves have been unsuccessful in freeing up the credit markets. Time will tell.
Tonight’s Dinner Conversation….
Costco in Hawaii dropped their regular gasoline price to $2.89/gallon. The average price at all other stations is $3.79. How can Costco do that? Everyone gets their gas from the 2 refineries in Hawaii.
In addition, inflation is not going up right now as commodities (oil, gasoline, gold, food stuffs, energy,…) fall and stock prices fall. Why do stock prices falling have a negative effect on inflation expectations?
Hints for your Dinner Conversation….
Costco has broken the cartel of price fixing that oil companies have created over the years. I know those are inflammatory words, and I’m trying to get your riled up. However, gasoline ALWAYS have come down SLOWLY when they the futures price is declining, and go up FAST when the future price is increasing. Costco with its nationwide purchasing ability has end run this problem, and still is making a profit for itself. Why don’t all the other gasoline stations drop their price? That’s the real question for you to debate.
When stock prices fall, people just don’t feel as wealthy. It’s psychological. The practical side is that they can’t sell their portfolio for as much money, and they can’t borrow as much against their portfolio. Remember that a falling stock market is deflationary (taking money out of the money balloon). Lastly, remember that inflation/deflation is the CAUSE, and increasing/falling prices are the RESULT. (In other words, increasing prices if NOT the cause of inflation.)