No one seems to be paying attention to how energy prices are rising at a rapid rate during these economically tough times. In fact, those who are paying attention to energy claim that the rising cost of energy is a “good thing” because it shows that the economy is on fire. I would first like to point out that there was never any real fundamental reason for energy to ever trade as high as it did last year, production was fine, supply was fine and capacity never even hit 100%. In a nutshell there was no shortage which $147 a barrel indicated there was, but what that price did indicate was a record low in the USD other than that no other fundamental indicator reinforced that price.
In fact, several reports, after the fact, showed that it was market manipulation that caused the price of crude to balloon to record highs. This led to position limits, but frankly the CFTC has probably the worst regulators in the history of regulations, even worse than the SEC. So, I have no hope for further manipulation to be avoided in the near future. Keep in mind that while I think it was blanket manipulation I could be wrong, but I have seen nothing to the contrary to suggest I am so that is my opinion.
Now, how is energy going to kill Santa? Energy prices are the tax that impacts everything in everyone’s life about just how much control oil has over our everyday life. My favorite example is your utility bill because most people do not understand how their utility bill actually works. By law your electric utility is not allowed to profit from selling you electricity or natural gas, they make their profit from delivering it to you, so this means they do not care about pricing and you get shafted on the pricing. Just in the last 30 days natural gas almost doubled at National Grid, it went from $.39 per therm to $.69 per therm, that will surprise people next billing cycle considering the weather got very cold very fast this year.
The other big surprise is that delivery service charges this year are at record highs. I called National Grid to ask why this was the case, they are thoroughly confused to how supply and demand works, but that is a different story altogether. They said since demand was higher last year that delivery charges were lower, somehow when demand is up delivery is lower and when demand is lower delivery is higher which would be a shocker to my economics teacher. So, this year you are getting an extra charge for delivery which outweighs your actual usage charges, go look at your bill if you don’t believe me, and that will continue for a while as natural gas prices increase, a double whammy.
My house is modest, 2,000 square feet or so, and I locked in energy rates at 7 year lows, but my energy bill actually doubled this summer when they should have decreased by 25% by my calculations. Now, if you did not lock in your rates you are facing rising costs plus that higher delivery charge. This adds up and then you have the gas pump which will surely go to $3+ a gallon if we it $80 per barrel. Then that will cause food prices to go up, dramatically because 2008 is still fresh in everyone’s mind and people will be hedging or trying to get ahead of the curve making it a self fulfilling prophecy of $4 a gallon.
See where this is going? What will make this even worse is a weakening dollar and the Fed is doing more to fight the recession and in a much weaker position to defend the dollar, which it has no interest in doing anyhow. All of these higher costs will kill Santa causing Xmas sales to stink in a bigger than expected way. Do not forget that states are acting very quickly to pad their weakening balance sheets and seem to think that rising taxes, i.e. sales taxes, utility taxes, etc., will raise money quickly. This is a fallacy as consumers adjust very quickly and stop spending when taxes go up and things get too expensive. Politicians do not understand this, and likely never will, which is why in NY we have net losses in population instead of net gains.
Based on where we are in the energy markets I suspect that energy will slay not only Santa, but Chanukah Harry as well. With shrinking credit lines and no new credit lines to tap there is no place to turn except for cash and, frankly, unemployment checks just do not go that far. This is a big problem that is being ignored and Wall Street can pretend that everything is fine, but when we have an economy driven by the consumer, 71% driven in fact, and we have another wealth transfer to the energy complex it will kill the rest of the economy and Santa as well.
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