Why gas prices are high.

Gas prices are not high.  The currency you use to pay for gas is losing value.  This requires more of that currency to purchase the exact same product it purchased earlier before it lost value.  Products like gas. 

Click on any chart to make it bigger

When you hear "gas prices are rising"  I hear "your dollar is falling!"  Central banks keep  printing money (they call it bond-buying or quantitative easing but it's printing) to manipulate the stock market higher / keep it from falling to maintain the illusion of a "recovery".   The increase in the number of dollars decreases the value of existing dollars.  It's as simple as that. 

Imagine your Monopoly board as a kid, only your friend brings over the bank from his set too.  Now you've got twice the Monopoly money to chase the same Monopoly real estate.   Double how much monopoly money you start the game with as well.  Every time someone lands on a property instead of buying it you have to give every one a chance to bid on it.  You can watch the housing bubble in the comfort of your own board game!   The board is exactly the same, but because you doubled the supply of money available to everyone to bid on it the price goes up.  Now, imagine the banker of your game gets the bright idea to give all the players MORE money!  Triple.  Quadruple.  Doesn't matter does it?  The property has the same value as before you increased your bank...it's just your paper monopoly money is worth LESS because you added more of it.  Money is simply a store of value, and is inherently worthless (it's paper!).   Here's a couple charts from our Monopoly bankers, the Federal Reserve, to illustrate.

CONSUMER PRICES WITH NO ITEMS EXCLUDED

Dude...they're like...IDENTICAL!

 MONEY SUPPLY

The 2007-2009 market decline, and every subsequent major market decline, was halted and reversed by central bank interventions. The policy of blatantly using money-printing or promises thereof to manipulate stock prices continues today. We all get stuck with the higher gas tab, but only a few get the benefit of higher stock prices. The "rising tide lifts all boats" theory never met Wall Street. 

Print, and Ye Shall Rise!

this is called a "Direct Correlation"

Here are some recent headlines highlighting stock market action, central banker responses to that action, and the resulting impact on your money at the grocery store, gas pump and everywhere else.
 
(BLOOMBERG) APRIL 10 2012

DOW FALLS 213 POINTS IN 5TH STRAIGHT DOWN DAY.  SP-500 CLOSES UNDER IT'S  50-DAY MOVING AVERAGE FOR THE FIRST TIME IN FOUR MONTHS.

(BLOOMBERG) APRIL 11 2012

Oil climbed from an eight-week low in New York as a European Central Bank official signaled the lender may act to stem the spread of the region’s debt crisis.
Futures rose as much as 0.7 percent and the euro gained against the dollar after ECB Executive Board member Benoit Coeure suggested that the bank may restart bond purchases for Spain. U.S. supplies increased by 6.58 million barrels last week, the American Petroleum Institute said yesterday. The Energy Department will report on stockpiles today.
“The dollar came under pressure and oil rose after an ECB official hinted that the bank may purchase Spanish bonds,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “I’m surprised we’re up at all after the pretty bearish numbers last night. If the government data confirms the supply build, we’ll probably head for new lows.”

Well, unfortunately for us Main-Streeters Gene, gasoline prices have a lot more to do with Central Bankers printing money than with supply and demand. 


Gasoline demand down sharply since 2008

GAS PRICES MORE THAN DOUBLE SINCE 2009...JUST LIKE THE STOCK MARKET.  WEIRD.

4/12/2012

(Reuters) - "The disappointing performance of the U.S. labor market in March shows it is too early to conclude the economy is out of the woods." An influential voting member of the U.S. central bank's monetary policy committee, Dudley appeared to leave the door open to additional stimulus measures.

Federal Reserve Vice Chairman Janet Yellen, 65, also said she’s not concerned that additional asset purchases would leave the Fed unable to control inflation when necessary. The Fed has bought $2.3 trillion of bonds in two rounds of large-scale asset purchases in a bid to reduce long-term borrowing costs and boost the recovery. “I feel fully confident that, regardless of the size of our balance sheet,” the “Fed has the tools, and has thought through carefully how to use the tools, to exit,” she said.

(Bloomberg) 4/12/2012

U.S. Stocks Post Biggest 2-Day Gain in ’12 on Fed Signals
Dow up 250 points since 4/10/2012

Commodity, financial and technology shares had the biggest gains in the S&P 500 .  “We’ll continue to see similar language: the Fed is ready to provide more accommodation if necessary,” said Russ Koesterich, the San Francisco-based global chief investment strategist for the IShares unit of BlackRock Inc. His firm oversees $3.51 trillion as the world’s largest asset manager.“Yet I wouldn’t expect a definitive sign in April that there’s another round of quantitative easing coming. It’s just the idea that the Fed has that in their back pocket.” Equities rose after Federal Reserve Vice Chairman Janet Yellen and New York Fed President William C. Dudley endorsed the central bank’s view that borrowing costs are likely to stay low through 2014. U.S. central bankers next meet on April 24-25 to debate policy after the stock market went down 5 days in a row and breached a key technical level  a report last week showed job growth slowed to the weakest pace in five months.

Yet another stock market decline has been temporarily halted by central bankers, dutifully hinting about "accomadation",  "stimulus", "easing", and "bond-buying".  At some point the market won't settle for hints and they'll actually have to print to stop the slide.  They'll moronically declare that no matter how much Monopoly money they print, there won't be inflation.  All good traders know it's time to pile into stocks and commodities when the printing presses are running.   Commodities that include oil and food.  If oil prices were based soley on supply and demand the 6.58 million barrel increase in supply last week should be driving down price.  Unfortunately, you have to buy oil with paper currencies, which European and American central banks print have printed over 7 trillion of since 2008.  Thus, supply is up, demand is down, yet oil prices are rising because  every time stocks start to fall,  Central Bankers charge to the rescue with promises to print more money.  Wall Street gets a risk-free "can't lose" market, Main Street gets $4 gas and $300 trips to the grocery store.  The real gasser is the way they publicly attribute their actions to "help unemployment". 

 I guess they are helping unemployment...on Wall Street.   The stock market is up over 100% since 2008.  Use those gains to fill up that gas tank and quit yer bitchin'.  You do own stocks don't you?  

http://www.bloomberg.com/news/2012-04-12/u-s-stock-index-futures-climb-as-fed-indicates-low-rates.html

http://money.cnn.com//2012/06/03/investing/stocks-lookahead/index.htm?section=money_markets&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+rss%2Fmoney_markets+%28Markets%29

http://www.bloomberg.com/news/2012-04-11/yellen-says-jobs-outlook-warrants-accommodative-policy.html
http://www.reuters.com/article/2012/04/12/us-usa-fed-dudley-idUSBRE83B0JN20120412?feedType=RSS&feedName=businessNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FbusinessNews+%28News+%2F+US+%2F+Business+News%29

http://www.bloomberg.com/news/2012-04-11/oil-rises-from-eight-week-low-as-ecb-signals-spanish-aid.html

QE: Main Street v. Wall Street

One of my favorite bloggers, Mark Hanna, posted this recently:   
"Below we see the stock market action in blue shade during QE1, QE2 (please note the vertical line that designates when Bernanke gave the "all clear for QE2" signal at Jackson Hole, WY in August 2010), and Operation Twist. When those operations were not in full swing the market fell from 9-11%. That contrasts with double digit gains of anywhere from ~15 to 35% when the Fed is easing. Is it really that simple?"  I posted a similar theory in June 2011 on my blog.  Yes, Mark, it is that simple.  Unfortunately Bernake printing money forces real goods like GAS, OIL, GOLD and FOOD (none of which count in headline inflation calculations by the way) to go up proportionally as well as the stock market he so cherishes.  People that don't own stocks get higher costs for everything without the benefits.  Wall Street happy, Main Street not so much.  To illustrate, I've grabbed some date-sequenced headlines that are pretty self-explanatory, with all the links at the bottom of the post those who want 'em.

S&P 500 with QE areas shaded
All declines were halted by announcing more QE, not through any normal bottoming process.

Market Volatilty when QE ends

4/1/2012

"The era of quantitative easing-a process by which central banks buy assets such as government bonds to inject funds in the markets-may be coming to an end, according to a survey of fund managers."

4/3/2012

"Investors awaited minutes from the U.S. Federal Open Market Committee's March 13 meeting, due at 2 p.m. EDT (1800 GMT), that may provide clues on any potential quantitative easing.  Federal Reserve policymakers on Monday signaled little appetite for further monetary steps to stimulate U.S. growth in an economy that is gradually strengthening."

NEW YORK (Reuters) - Major stock indexes extended losses on Tuesday after minutes from the latest Federal Reserve meeting showed policymakers appear less keen to launch a fresh round of monetary stimulus as the economy improves.

NEW YORK (CNNMoney) -- U.S. stocks sold off sharply Tuesday afternoon, after the Federal Reserve indicated it was unlikely it would offer more stimulus anytime soon.

4/4/12 
Dow futures down 116 points

Oil dropped for a second day amid rising crude stockpiles and speculation the Federal Reserve may refrain from more monetary stimulus to boost the U.S. economy.

LONDON (Reuters) - Gold prices fell 1 percent on Wednesday after minutes from the U.S. Federal Reserve's March meeting suggested a fresh round of monetary stimulus was unlikely as the U.S. economy gradually improves, and as the dollar strengthened.
FRANKFURT (MarketWatch)—The U.S. dollar rose further against several major rivals Wednesday after Federal Reserve minutes showed more asset purchases were unlikely

European stocks, U.S. index futures and commodities fell after the Federal Reserve signaled it may refrain from more monetary stimulus and Spain sold less debt than targeted. (By tomorrow the headline will be Spain, not the Fed halting the printing presses, that caused markets to fall.  We know better though...)

“The perception is that you’re taking away the safety net of excess liquidity that lifted asset prices,” said Tim Schroeders, who helps manage $1 billion at Pengana Capital Ltd. in Melbourne. (Umm..what was that?  Excess liquidity from the FED lifted asset prices?  The media said it was robust economic growth and a resurgent U.S. consumer.  Who knew?)  “Given the exceptionally good run we’ve had year-to-date, people are reassessing their risk-reward scenarios.” (Umm...what was that?  Without the FED printing more money and manipulating the stock market higher Wall Street doesn't want to be in the stock market?  Weird.)

(Reuters) - Wall Street stocks were looked likely to open lower open on Wednesday, despite good private sector payrolls data, as investors digested minutes from the latest Federal Reserve meeting published Tuesday suggesting further monetary stimulus action is unlikely.  "My conclusion is the employment growth trend that we've seen over the last year remains in place and we probably will see a decent employment number on Friday when the Department of Labor reports non-farm payrolls," said Fred Dickson, chief market strategist, D.A. Davidson & Co. Lake Oswego, Oregon.
"It's kind of surprising there didn't appear to be any market reaction to it."  (Acutally, Fred, it is not surprising at all.)

"Supportive policies by the U.S. central bank have been a primary catalyst for the S&P 500 stock index's surge of 30 percent since October" (and 123% rise since March 2009)"

4/9/2012

Hedge Funds Cut Commodity Bets on Fed’s Stimulus Signals

(Bloomberg) "Minutes from the March 13 Fed policy meeting released April 3 showed policy makers will probably hold off on increasing monetary accommodation unless the U.S. economic expansion falters. The Standard &Poor’s GSCI gauge of 24 commodities rose more than 80 percent from December 2008 to June 2011 as the central bank set rates at a record low and bought $2.3 trillion of debt in two rounds of quantitative easing."

Quantitative Easing = Money Printing.  Creating Dollars out of thin air.  However, these dollars don't go to you and me.  They go to the banks, ostensibly to lend to us peasants to get the economy going.  Banks like Goldman Sachs and JP Morgan who happen to have the largest TRADING DESKS in the world.  Banks that make a lot more money in a completely rigged stock market (JP Morgan did not have ONE losing trading day the last quarter of 2010 or the first quarter of 2011) than lending to Mom and Pop. 
Bottom line:  add up the highlighted RED statements to understand what happens on MAIN STREET when the Fed engages in Quantitative Easing (an 80% rise in the cost of everything you have to buy to live like food and fuel.  Thus, an inescapable tax that everyone, no matter how poor, must pay).  Add up the GOLD statements to understand what happens on WALL STREET when the Fed engages in QE. (a 123% risk-free ride up in the Stock Market and all-time high bonuses for traders who can't lose)  Understand that both events are the result of DEVALUING DOLLARS BY PRINTING THEM. You have 2.3 Trillion more PAPER dollar bills chasing the same commodities and stocks IN 2012 than you did in 2008.  Speculators are simply responding to Fed policy.  Speculators can't print 2.3 Trillion dollars, but they do understand that it's only paper and the cost of everything else must go up as a result.

Whose side of the street is our government and the FED on? 

More jobs, lower gas prices, lower food prices and a stronger dollar via no QE would put them on Main Street's side.  Fewer jobs, a weakened dollar, higher commodities and concentrated wealth into the hands of a few via a manipulated stock market puts them on Wall Street's side.  Period.

http://marketmontage.com/2012/04/01/is-it-really-as-simple-as-dont-fight-the-fed/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+marketmontage%2Fxyz+%28Market+Montage%29


http://finance.yahoo.com/news/money-printing-era-may-ending-183752638.html?l=1


http://finance.yahoo.com/news/wall-street-starts-second-quarter-013101442.html?l=1


http://finance.yahoo.com/news/wall-street-starts-second-quarter-013101442.html?l=1


http://money.cnn.com/2012/04/03/markets/stocks/index.htm?section=money_markets&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+rss%2Fmoney_markets+%28Markets%29


http://www.bloomberg.com/news/2012-04-04/oil-falls-a-second-day-on-supply-as-fed-may-halt-stimulus.html


http://finance.yahoo.com/news/gold-edges-sell-off-fading-004301268.html?l=1


http://money.cnn.com//2012/04/04/markets/premarkets/index.htm?section=money_markets&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+rss%2Fmoney_markets+%28Markets%29


http://www.marketwatch.com/story/dollar-broadly-higher-but-slips-versus-yen-2012-04-04?siteid=rss&rss=1

http://www.bloomberg.com/news/2012-04-04/asian-stocks-australian-dollar-drop-on-fed-won-falls.html

http://www.reuters.com/article/2012/04/04/us-markets-stocks-idUSBRE83105P20120404?feedType=RSS&feedName=businessNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FbusinessNews+%28News+%2F+US+%2F+Business+News%29

http://www.bloomberg.com/news/2012-04-08/hedge-funds-cut-wagers-as-fed-signals-less-stimulus-commodities.html