dizzy

These are very strange times. I am concerned.

Today oil spiked above $101/bbl. That in itself does not concern me so much as the reason why.

It seems that traders see oil as a currency hedge. The Fed is speculated to cut rates soon, which will mean a further hit to the US$. That will be a hit on the Americonomy, since it is based on consumption. More expensive goods mean less consumption - cut the rates - dollar drops - everything goes up... in flames.

It's a good article, and there were lots of things that I wanted to quote, but I liked this;

But the prospect that the Fed will reduce rates proved too strong, feeding a new buying frenzy, analysts said.

“This is all about momentum and driving [prices] higher right now,” Mr. Flynn said.

Despite the return of $100 oil, and now $101 oil, there are concerns that high oil prices — and the higher gasoline and heating oil prices they spawn — are sowing the seeds of their own destruction by contributing to the economic slowdown.

“The price gains raise questions about their sustainability in the face of eroding fundamental strength,” said Antoine Halff, an analyst a Newedge USA LLC in a research note.

emboldening mine - ah, just imagine the whole quote is in bold type. It is the same story as RE, just a different product.

So someone else's arbitrage means that your gas costs more (not to mention the 2.8 cents a litre carbon tax coming in July), so does your heating fuel, and food, and building materials, and labour, until no one can afford anything any more.

Still, oil is priced in USD, so a sinking dollar takes some of the edge off for Canada (imagine if our dollar was at $0.65), but that is cold comfort to the laid-off auto worker, or forestry worker, etc.

I don't know about you, but I am getting dizzy as this whole global economy, and beyond, spins ever more out of control.